SBA Office of AdvocacyA Guide for Government Agencies: How to Comply with the Regulatory Flexibility Act

R E G U L A T O R Y F L E X B I L I T Y A C T R E G U L A T O R Y F L E X B I L I T Y A C T R E G U L A T O R Y F L E X B I L I T Y A C T

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R E G U L A T O R Y F L E X B I L I T Y A C T R E G U L A T O R Y F L E X B I L I T Y A C T R E G U L A T O R Y F L E X B I L I T Y A C T

R E G U L A T O R Y F L E X B I L I T Y A C T R E G U L A T O R Y F L E X B I L I T Y A C T R E G U L A T O R Y F L E X B I L I T Y A C T

R E G U L A T O R Y F L E X B I L I T Y A C T R E G U L A T O R Y F L E X B I L I T Y A C T R E G U L A T O R Y F L E X B I L I T Y A C T 

# R F A ww w. sb a.gov /a dvocacy O ffice of Advocac y



## Implementing the President's Small Business Agenda

and Executive Order 13272

May 2012 

# A Guide for Government Agencies

How to Comply with the Regulatory Flexibility Act

## F OREWORD

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 and supports the growth of the nation’s most productive sector.

President Obama’s Executive Order 13563, Improving Regulation and Regulatory Review, his regulatory memoranda, and several laws passed since 2002 have strengthened the RFA and underscored the importance of considering small entity effects early in the regulatory process. Executive Order 13272, signed August 13, 2002, among other provisions, direct s the Small Business Administration’s (SBA) Office of Advocacy to provide agencies with training and information on how to comply with the Regulatory Flexibility Act (RFA)

.

The Office of Advocacy continues to provide training to agency personnel in RFA compliance and welcomes additional opportun ities to assist in new phases of training. 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.

Thanks to all who contributed by reviewing and commenting on this guide. F urther suggestions for improvements are welcome . For more information about the RFA, E.O. 13272, and subsequent developments, visit the Advocacy website at www.sba.gov/advocacy , 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 economic growth by ensuring the strength of the resilient

small business sector.

Wi nslow Sargeant, Ph.D. Chief Counsel for Advocacyii 

## A CKNOWLEDGMENTS

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.iii 

## C ONTENTS

Foreword .............................................................................................................................. i

Contents ............................................................................................................................. iii

Introduction: The RFA and related law .............................................................................. 1

Chapter 1 Where do we begin? First steps of RFA analysis............................................. 7 The RFA decision process .............................................................................................. 8 Does the RFA apply? ...................................................................................................... 9 RFA exemptions ......................................................................................................... 9 RFA now applies to certain IRS interpretative rules ................................................ 10 The RFA threshold analysis: Can we certify? .............................................................. 11 Organizing the threshold report ................................................................................ 12 “Factual basis” requirement for certification ............................................................ 13 What is the definition of a small entity? ................................................................... 14 Changing a size standard .......................................................................................... 15 Assessing the impact on small entities ...................................................................... 15 Which segment of the economy or industry will be regulated?................................ 16 How to categorize small entity sectors ..................................................................... 18 Determination of “significant impact” ...................................................................... 18

Determination of “substantial number” .................................................................... 21 Direct versus indirect impact .................................................................................... 22

Ad verse versus beneficial impact ............................................................................. 23 What adequate and inadequate certifications look like ................................................. 24 An example of an adequate certification .................................................................. 25 Examples of inadequate certifications ...................................................................... 25

Certification checklist ................................................................................................... 29

Chapter 2 Preparing a proposed rule: The initial regulatory flexibility analysis ............. 31 The RFA decision process ............................................................................................ 31 Issues to be addressed in the analysis ........................................................................... 32

Elements of an IRFA .................................................................................................... 34 Reasons action is being considered........................................................................... 35 Objectives of the proposed rule ................................................................................ 35 Description and estimate of the number of small entities ......................................... 36 Estimating compliance requirements ........................................................................ 36 Significant alternatives considered ........................................................................... 37 Duplicative, overlapping, and conflicting rules ........................................................ 40 Using other analyses to satisfy the IRFA requirements ................................................ 41 When an IRFA may be waived or delayed ................................................................... 41

What an IRFA should look like: A real- life example ................................................... 42

Chapter 3 Preparing a final rule: The final regulatory flexibility analysis ...................... 43 The RFA decision process ............................................................................................ 43iv Issues t o be addressed in the analysis ........................................................................... 44 Additional questions to be addressed in a FRFA .......................................................... 46 Have all significant issues been assessed? ................................................................ 46

Has the number of small entities been estimated? .................................................... 46 Has the adverse economic impact on small entities been minimized? ..................... 47 Have all significant alternatives been reviewe d? ...................................................... 48 Permissible delays in publication; provision for lapse of final rule .............................. 48

What a FRFA should look like: A real- life example .................................................... 49

Chapter 4 SBREFA panels ............................................................................................... 51 Who must hold SBREFA panels? ................................................................................. 51 How is the decision to hold a SBREFA panel made? ................................................... 52 How does a SBREFA panel work? ............................................................................... 52

Su ggested SBREFA panel timeline .............................................................................. 53

Chapter 5 RFA litigation: What the courts have said ...................................................... 55 Where do we begin? First steps of RFA rule analysis .................................................. 55 Does the RFA apply? ................................................................................................ 55 What qualifi es as a rulemaking under the APA? ...................................................... 56 Exemptions under the APA ...................................................................................... 56

The certification statement ............................................................................................ 58 The decision process ................................................................................................. 58

Size standar ds............................................................................................................ 61 The agency must conduct an adequate analysis before certifying ............................ 62 Direct versus indirect impact on small entities ......................................................... 64 The initial regulatory flexibility analysis ...................................................................... 68 The final regulatory flexibility analysis ........................................................................ 69

General content ......................................................................................................... 69 Is a FRFA always required? ...................................................................................... 70 Considering alternatives to the final rule .................................................................. 71 Analysis of the economic impact .............................................................................. 74

Public comments ....................................................................................................... 76

Judicial review .............................................................................................................. 77

Chapter 6 Section 610 review of existing rules ............................................................... 79

RFA section 610 review................................................................................................ 80 Review of rules that were originally certified ........................................................... 80 Scope of the review ................................................................................................... 81 Timing of the review ................................................................................................. 82 Outreach to regulated small entities .......................................................................... 83 Using other agency reviews to satisfy section 610 ................................................... 84 Examples of successful retrospective rule reviews ....................................................... 84 Section 610 assistance from the Office of Advocacy ................................................... 85

Chapter 7 Additional RFA and SBREFA requirements .................................................. 87

Semi -annual regulatory agenda..................................................................................... 87v Small entity compliance guides .................................................................................... 88 Informal compliance assistance .................................................................................... 89

Re gulatory enforcement fairness .................................................................................. 90 Penalty reduction policies ............................................................................................. 90 Congressional review .................................................................................................... 91

Conclusion ........................................................................................................................ 92

Appendix A The Reg ulatory Flexibility Act ................................................................... 93 Appendix B RFA recent developments ......................................................................... 102 Appendix C Small business by the numbers.................................................................. 106 Appendix D Small business statistics for regulatory analysis ....................................... 109 Appendix E Executive Order 12866 .............................................................................. 112 Appendix F Executive Order 13272 .............................................................................. 125 Appendix G Executive Order 13563 and Memoranda .................................................. 127 Appendix H Memorandum on cumulative impacts ....................................................... 135 Appendix I Executive Order 13579 .............................................................................. 137 Appendix J Example of a successful IRFA .................................................................. 139 Appendix K Example of a successful FRFA ................................................................. 171 Appendix L Abbreviations used in this guide................................................................ 200 Appendix M Office of Advocacy staff .......................................................................... 202

Index ............................................................................................................................... 203Introduction: The RFA and related law 

## I NTRODUCTION 

## : T HE 

## RFA AND RELATED LAW

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 t o 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 p laying 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. Without the necessary facts, it is possible for an agency to cause serious unintended or unforeseen adverse impacts on small businesses.

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, th e 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

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 Complianc e: 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).2 RFA guide for government agencies requirement is that agencies will revise their decisionmaking processes to take account of small entity concerns in the same manner that agency decisionmaking processes we re modified subsequent to the enactment of the National Environmental Policy Act (NEPA). 3 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

Pro cedure Act (APA) , 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, 4 amended the RFA and provided additional tools to aid small business in the fight for regulatory fairness. The amendments made by SBREFA include:

• 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).

• Requirements that agencies prepare and publish guides to assist small entities in complying with final rules.

Subsequ ently, several laws have been passed amending and strengthening SBREFA and

the RFA:

• The Small Business and Work Opportunity Act of 2007 amended SBREFA to strengthen the requirement that agencies prepare compliance guides for any rule for which they must prepare a final regulatory flexibility analysis. Agencies are required to publish the guides not later than the effective date of the requirements, post them to websites, distribute them to industry contacts, and report annually to Congress. 5

• T he Dodd -Frank Wall Street Reform and Consumer Protection Act of 2010 established the Consumer Financial Protection Bureau (CFPB) and required the CFPB to comply with the RFA Section 609 panel process, makin g it the third such agency, along with the Environmental Protection Agency and the Occupational Safety and Health Administration. 6 In addition to the regular requirements of the initial regulatory flexibility analysis (IRFA) found in 5 USC
603, a CFPB IRFA must include “a description of (A) any projected increase in the cost of credit for small entities; (B) any significant alternatives to the proposed rule which accomplish the stated objectives of applicable statutes and which minimize any increase in the cost of credit for small entities; and (C) advice and

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

NEPA and the RFA.

4 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.).

5 Pub. Law 110

- 28 (May 27, 2007), Title 6, subtitle B, § 7005.

6 P ub. Law 111

- 203 (July 21, 2010).Introduction: The RFA and related law 3 recommendations of representatives of small entities relating to issues described in subparagraphs (A) and (B) and subsection (b).” 7 When the CFPB produces a final regulatory flexibility analysis, it mu st include “a description of the steps the agency has taken to minimize any additional cost of credit for small entities.”

• The Small Business Jobs Act of 2010 amended several requirements in the final regulatory flexibility analysis (FRFA) section of the RFA. 8 (1) It struck the word

“succinct” from the requirement for “a succinct statement of the need for, and objectives of, the rule.” 9 (2) It replaced the word “summary” with the word “statement” twice in the requirement for “a summary of the significant issues raised by the public comments..., a summary of the assessment of the agency of such issues...,” 10 and (3) it codified a requirement of Executive Order 13272 11 by adding a paragraph requiring the FRFA to include “the response of the agency to

any comments filed by the Chief Counsel for Advocacy of the Small Business Administration in response to the proposed rule, and a detailed statement of any change made to the proposed rule in the final rule as a result of the comments.” 12

In addition to legislati on st rengthening the RFA, presidents have issued a number of executive orders laying out additional requirements.

• Executive Order 13272

, “Proper Consideration of Small Entities in Agency Rulemaking,” was signed August 13, 2002, and requires federal agencies to publish how they will comply with the statutory mandates of the RFA. 13 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 rel ate to disproportionate regulatory burden. The order sets out a series of responsibilities for both regulating agencies and the Office of Advocacy.

 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.

 Agencies are to submit proposed rules with si gnificant 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. 14

7 Title X, § 1100G(b) of the Dodd

- Frank Act amending 5 U.S.C. § 603(d)(1)

- (2), §604(a)(6) and § 609(d)(2). See Appendix A.

8 Pub. Law 111

- 240 (September 27, 2010).

9 Id. , § 1601(1), amending 5 U.S.C. § 604(a)(1).

10 Id. , § 1601(2), amending 5 U.S.C. § 604(a)(2).

11 See the full executive order in Appendix F.

12 Id. , § 1601(3), amending 5 U.S.C. § 604(a)(3).

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

14 The Small Business Jobs Act, P.L.111

- 240, codified this requirement of E.O. 13272 in 5 U.S.C. § 604(a)(3). See earlier discussion in the Introduction to this guide.4 RFA guide for government agencies  The Office of Advocacy is required to report annually to the Office of Management and Budget (OMB) o n whether agencies are complying with this

executive order.

• Executive Orders 13563 and 12866 lay out additional analytical requirements for agencies when promulgating rules pursuant to delegations from Congress and the overarching mandate of the APA. 15 Bot h of the se executive orders establish regulatory goals that can help agencies to which the executive orders apply 16
understand the importance of conducting regulatory flexibility analyses. As

Executive Order 13563 states:

(b) This order is supplemental to and reaffirms the principles, structures, and definitions governing contemporary regulatory review that were

established in Executive Order 12866 17 of September 30, 1993. As stated in that Executive Order and to the extent permitted by law, each agency must, among other things: (1) propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs (recognizing that some benefits and costs are difficult to quantify); (2) tailor its regulations to impose the least burden on so ciety, consistent with obtaining regulatory objectives, taking into account, among other things, and to the extent practicable, the costs of cumulative regulations; (3) select, in choosing among alternative regulatory approaches, those approaches that maxi mize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity); (4) to the extent feasible, specify performance objectives, rather than specifying

the behavior or manner of compliance that regulated entities must adopt; and (5) 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

informa tion upon which choices can be made by the public. 18

In addition, Executive Order 12866 specifies 12 principles agencies should use when developing regulations. Of the 12, number 11 has particular relevance to the analysis of small business regulatory alternatives under the RFA:

Concurrent with the issuance of E.O. 13563, President Obama also issued a memorandum titled “Regulatory Flexibility, Small Business, and Job Creation” on January 18, 2011. In the memorandum, the president reaffirmed E.O. 12866 and reiterated the RFA’s provisions for providing regulatory flexibility. The

15 Exec. Order No. 13,563 of January 18, 2011, reaffirms Exec. Order No. 12,866. Two other executive orders, 13,258 and 13,422, that had previously amended Exec. Order No. 12,866, were revoked by Exec. Order No. 13,497 of January 30, 2009.

16 Exec. Order No. 12,866 does not apply to independent regulatory commissions such as the Federal Election Commission, the Federal Communications Commission, and t he Securities and Exchange

Commission.

17 Exec. Order No. 12,866, 58 Fed. Reg. 51,735 (Sept. 30, 1993).

18 Exec. Order No. 13,563, 76 Fed. Reg. 3821 (January 21, 2011).Introduction: The RFA and related law 5 memorandum directs that “whenever an executive agency chooses, for reasons other than legal limitations, not to provide such flexibility in a proposed or final

rule that is likel y to have a significant economic impact on a substantial number of small entities, it should explicitly justify its decision not to do so in the explanation that accompanies that proposed or final rule.” 19

• Executive Order 13579

, “Regulation and Independ ent Regulatory Agencies,” signed by President Obama on July 11, 2011, reaffirms the directives of Executive Order 13563 and says that “to the extent permitted by law, independent agencies should comply with these provisions as well.” 20

All of these 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.

The Office of Advocacy’s compliance guide should be utilized by regulatory agencies as a tool for following the requirements of the Regulatory Flexibility Act and related law

and executive orders. This revised guide is the product of Advocacy’s decades of experience with the RFA and reflects the spirit of interagency cooperation , as well as the vital importance of small business to the economy. Advocacy hopes the guide will be a useful tool and welcomes comments on ways to improve its usefulness to regulatory agencies.

The guide i ncludes how-to information on determin ing whe n 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. A ls o include d are a section on litigat ion so that agencies may learn how courts have ruled on RFA compliance and examples 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 M.

19 This language mirrors the RFA language at 5 U.S.C. § 604 (a)(6) for final rules.

20 Exec . Order No. 13,579 § 1(c).Chapter 1: The first steps of RFA analysis 7 

## C HAPTER 

## 1 W HERE DO WE BEGIN 

## ? F IRST 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. 21 When the proposed regulation will impose a significant economic impact on a substantial number of small entities, the agency mu st 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 siz e of the regulated entities. 22

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. 23 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 the impact. The RFA requires only that agencies determine, to the extent practicable, the rule’s economic impact on small entities and 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 still achieve statutory purposes, while 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.

21 See this chapter’s section titled “What is the definition of a small entity?”

22 See generally , FINDINGS AND PURPOSES, SEC. 2(a)

– (b).

23 Nothing in the RFA states that an economic impact must be adverse prior to performing an analysis.8 RFA guide for government agencies 

### The RFA decision process

N O

Y ES D EFINE THE PROBLEM

AND D ESCRIBE THE
R EGULATED E NTITIES

BY S IZE AND N UMBER E STIMATE E CONOMIC
I MPACTS BY S IZE
C ATEGORY D ETERMINE WHICH S IZE
C ATEGORIES I NCUR
S IGNIFICANT I MPACTS

D O A S UBSTANTIAL N UMBER OF
E NTITIES IN A NY S IZE
C ATEGORY I NCUR S IGNIFICANT

I MPACTS ?

C HAPTER 2—B EGIN

I NITIAL R EGULATORY

F LEXIBILITY

A NALYSIS C ERTIFY R ULE A S
R EQUIRING N O F URTHER
RFA A NALYSIS

D ECISIONMAKERS OR

R EG

. N EGOTIATING

P ANELS

D ISCUSS

R EG

. A LTERNATIVES D ISTRIBUTE A D RAFT

I NITIAL R EGULATORY
F LEXIBILITY A NALYSIS S ELECTION OF A

R EGULATORY

P ROPOSAL

C OMPLETE I NITIAL

R EGULATORY

F LEXIBILITY A NALYSIS P UBLISH P ROPOSAL IN

THE F EDERAL

R EGISTER E XAMINE P UBLIC
C OMMENTS

C HAPTER 3—P REPARE

F INAL R EGULATORY

F LEXIBILITY A NALYSIS M AKE F INAL R ULE

D ECISIONS P UBLISH F INAL R ULE

IN THE F EDERAL

R EGISTERChapter 1: The first steps of RFA analysis 9 

### Does the RFA apply?

One of the first decisions to make is whether the Regulatory Flexibility Act applies to the particular regulation. The RFA applies to any rule subject to notice and comment rulemaking under section 553 (b) of the Administrative Procedure Act (APA) 24 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. 25

**RFA exemptions**

Rules that are exempt from APA notice and comment requirements are also exempt 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. 26 In addition, except where notice or hearing is required by statute, the APA does not apply (1) to interpretative rules, 27 general statements of policy, or rules of agency organization, procedure or practice; o r (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. 28

Under any of 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 in implementing a rule, and simply regurgitates statutory language. One legal treatise on the subject says that interpretative rules are any rules that an agency issues without exercising delegated legislative p ower to make law through rules. 29 The treatise goes on to state that the difference between legislative and interpretative rulemaking is the weight courts give the agency decisions on review. 30

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

24 5 U.S.C § 553(b); see also § 601(2).

25 The “other law” requirement includes situations where the agency binds itself by rule to act through rulemaking rat her than by a procedure that does not require notice and comment.

26 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.

27 The exception is certain Internal Revenue Service interpretative rules. See the discussion below.

28 Id. at § 553(b)(A).

29 K. Davis, Administrative Law Treatise, § 7:8 (1958).

30 Davis at §§ 7:8

- 7:13.10 RFA guide for government agencies Trucking Association s for a discussion of what constitutes a standard governing delegation of legislative authority by Congress to the executive branch. 31

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, ser vices or

allowances therefor, or to valuations, costs or accounting

, or practices relating to such

rates, wages, structures, appliances, services, or allowances

. 32 The RFA’s definition of a

rule is less inclusive than the definition of a rule under the Admi nistrative Procedure Act, which defines a “rule” as “an agency statement of general or particular applicability. ” The original draft of the APA limited the definition of rules to “statements of general applicability” or “having a general application to mem bers of a broadly identifiable

class.” 33 This is contrasted with statements of “particular applicability” or applying “only to specific individuals or situations” or “named parties.” 34 Therefore, the RFA applies to rules affecting the general public, as oppo sed to those that affect specific individuals.

**RFA n**  **ow a**  **pplies to c**  **ertain IRS interpretative r**  **ules**

The Small Business Regulatory Enforcement Fairness Act amended the RFA to bring certain interpretative rulemakings of the Internal Revenue Service (IRS) w ithin 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. 35 Congress too k 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. 36

31 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).

32 5 U.S.C. § 601(2).

33 Bernard Schwartz, Administrative Law: A Casebook , at 255

- 262 (2d ed. 1984).

34 Id

. 35 Id. at § 603(a).

36 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 q uestions 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 Co de. (8) The term "record

- keeping requirement" means a requirement imposed by an agency on persons to maintain specified records.Chapter 1: The first steps of RFA analysis 11 

### The RFA threshold analysis : Can we certify?

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 signific ant economic impact on a substantial number of

s mall entities.” 37 The record an agency builds to support a decision to certify is subject to judicial review. 38

In order to certify a rule under the RFA, an agency should be able to answer the following types of questions:

• W hich 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?

I f, 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 ce rtification must include a statement providing the factual basis for this determination, and the

certification shall be published in the Federal Register at the time the proposed or final rule is published for public comment. The agency is also required to provide such

cer ti fication and statement to the SBA’s Chief Counsel for Advocacy

. 39 A certification must include, at a minimum, a description of the affected entities and the impacts that clearly justify the “no impact” certification. The agency’s reasonin g and assumptions underlying its certification should be explicit in order to obtain meaningful 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 a nd 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 instance s, an advance notice of proposed rulemaking (ANPR M ) 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, a nd solicit comments from small entities regarding impact. 40 Then, if appropriate, the agency can certify the final rule. If an

37 5 U.S.C. § 605(b). The decision to certify a rule parallels the finding of no significant impact under

NEPA. As with a 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 sign ificant impact or laying the groundwork for a full environmental impact statement.

38 Id . at § 611(a).

39 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.

40 5 U.S.C. § 605(b). The Office of Advocacy would expect this situation to be rare because agency efforts to develop the r ule should include a reasonable effort to explore all the effects of the rule, including the12 RFA guide for government agencies agency lacks sufficient information to make a certification decision, the agency should engage in reasonable outreach efforts. 41

**O rganizing the threshold report** 

Certification analysis discussed in this chapter does not require the depth of analysis necessary in an initial regulatory flexibility analysis, 42 as discussed in Chapter 2 of this guide. Nevertheless, this “threshold” analys is 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 sm all 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 review 43 and courts evaluate them by determining whether the statement of basis and purpose accompanying the rule identifies a “factual basis” to support the certification. 44 A helpful threshold report will directly support the elements that must appear in the Fede ral Register Notice of Proposed Rulemaking preamble. The Office of Advocacy believes the threshold analysis should discuss the following items: 45

1) Description of small entities affected

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

d escribing some of the following types of information: 46

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

effects on small entities. For more information on preparing an initial regulatory flexibility analysis, see Chapter 2.

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

from affected small entities. See Chapters 4 and 7 for a discussion of agency outreach to small entities.

42 An initial regulatory flexibility analysis (IRFA) is a document containing the agenc y’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.

43 5 U.S.C. § 611.

44 Id. at § 605(b).

45 For additional detail, see the certification c hecklist at the end of this chapter.

46 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.Chapter 1: The first steps of RFA analysis 13  The criteria used to examine whether the entities experiencing significant impacts constitute a substantial number of entities in any of the re gulated size groupings 5) Description of assumptions and uncertainties

 The sources of data used in the economic and technical analysis 47

 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 econ omic 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. C ertifications of “no sig nificant 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 im pact 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 a significant

economic impact on a “substantial number of small entities” is a rigorous test fo r agencies to follow. However, the Office of Advocacy encourages a conservative approach. 48 In other words, if an agency has set its standard for determining “substantial number” too high, the certification may give rise to court challenges that could have been

avoidable

. 49

Prior to the enactment of the SBREFA amendments in 1996, the RFA required only that a certification be supported by a “succinct statement explaining the reasons for the

47 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 sec tion 607 as a model for preparing certifications. With regard to certification analyses, EPA advises its rulewriters that “where the information necessary to conduct a quantitative analysis is not reasonably available

, it may be appropriate to certify the rule based on the qualitative assessment alone.” Regulatory Management Division, EPA Office of Policy, EPA’s Action Development Process: F inal Guidance for EPA Rulewriters: Regulatory Flexibility Act, as amended by the Small Business Regulatory Enforcement Fairness Act (November 2006) , p. 20

. 48 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 s ubstantial number. See the discussion of the definitions of “significant” and “substantial” later in this chapter.

49 See Chapter 5 of this gui de for information on what the courts have held in these types of cases.14 RFA guide for government agencies certification,” 50 and since such statements were not subject to judic ial 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. 51

**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: 52

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 op eration.” 53 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 adoptin g a different definition of small business when promulgating regulations to carry out a delegation of authority from Congress unless the agency follows the procedures set forth in SBA’s regulations. 54 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 Coun sel. 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 th e Administrator. 55

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). Agenc ies 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 d ecides a different definition is appropriate for purposes of complying with the RFA is required to follow the procedures

set forth in section 601(4).

50 See Lehigh Valley Farmers, Inc., v. Block, 640 F. Supp. (E.D. Pa. 1986), aff’d on other grounds, 828

F.2d.

51 See North Carolina Fisheries Association v. Daley, 2 7 F. Supp. 2d 650 (E.D. Va. 1998).

52 Appendix D lists data sources that may be helpful in drawing distinctions between large and small

entities.

53 15 U.S.C. § 632.

54 13 C.F.R. § 121.902(b).

55 Northwest Mining Ass’n v. Babbitt, 5 F. Supp. 2d 9 (D.D.C. 1998).Chapter 1: The first steps of RFA analysis 15 Small governmental jurisdiction. Section 601(5) defines small governmental jurisdictions as governments o f 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. A ny agency size standard determination that differs from the SBA’s size standard is subject to judicial review. 56

**Changing a size s tandard** 

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

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

the Federal Register.

On the other hand, if an agency seeks to change the definition of a small business for rulemaking purposes, that is, for purposes of determini ng how to apply a regulation to a business of a certain size, the agency must seek approval from the SBA’s

Administrator. 57

**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 ca n 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 chara cteristics and composition of the industry or small

-

56 5 U.S.C. § 611(a); see also Chapter 5 of t his guide for a discussion of how the courts have handled this

issue.

57 S ection 3(a)(2)(C)(i)

- (ii) of the Small Business Act and SBA’s regulations found in 13 CFR 121.902(b) essentially outline the information an agency needs to submit in order for SBA’s A dministrator to approve a new size standard, as well as when in the rulemaking process an agency needs to obtain that approval

.16 RFA guide for government agencies entity 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 analysi s calls for due diligence, knowledge of the regulated small entity community, sound economic and technical analysis, and good professional judgment. 58
One of the first steps in the analytical process includes understanding the nature and

economics of the in dustry/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 doi ng. 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

constru ct the least burdensome, most effective regulations.

Because almost every industrial category will have more small than large businesses, 59
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 achieve the agency’s objectives

.

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

U nited 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 economi es of scale

, and in most 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 wi ll 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 identifyi ng each group of regulated entities with similar economic and industrial characteristics. Each group constitutes its

58 See O MB’s government

- wide information guidelines, 67 Fed. Reg. 8452 (Feb. 22, 2002). These guidelines were issued under auth ority contained in the Information Quality Act, Pub. L. 106

- 554.

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

telecommunications

, although there are many small businesses

, a handful of large regional teleph one companies still dominate the market.Chapter 1: The first steps of RFA analysis 17 own universe of regulated small entities that the proposal may influence significantly. If the regulated community is segmented properly, t he members of 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 th ose 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 bu siness . . . without compromising the statutory missions of the agencies.” 60 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 Busines s Act section 3 definition. Only by so doing will the analyst accurately identify and analyze those entities covered by the RFA where there is a large disparity in economic and industrial characteristics within the single category of small entities

. 61 Consi der 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. Ho wever, 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 categ ory 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 su pply 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 sig nificance of this and incorporated it into its analysis. 62

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

60 SBREFA § 202(3).

61 Conversely, if all small entities are equally affected by the proposed regulation, subcategorization is not required.

62 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).18 RFA guide for government agencies understanding of the differences in economic impacts across the various regulated communities often generates different regulatory alternatives. A sound analysis requires that agencies examine the va rious subsectors of the regulated community, the differences among them, and additional appropriate regulatory alternatives that can achieve the statutory mission while mitigating unnecessary economic impacts on small entities.

**How to categorize small en tity sectors** 

The agency’s first step in a threshold analysis consists of identifying the industry, governmental and nonprofit sectors they intend to regulate

. Using the North American Industry Classification System ( NAICS ) classifications, SBA defines sma ll businesses in terms of firm revenues or employees. 63 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 s ome 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. 64

**De termination**  **of “ s**  **ignificant impact**  **”**

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” will vary depending on the economics of the industry or sector to be regulated. 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 pro duction functions.

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

of gross revenues affected. For example, if the cost of implementing a particular rule represents 3 percent of the profits in a particular sector o f 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

63 Effective January 1, 1997, the federal government, for statistical purposes, replaced the Standard

Industrial Classif ication (SIC) system with NAICS. For purposes of small business size standards, SBA adopted the NAICS definitions for all industries effective October 1, 2000. NAICS made changes to the descriptions of many industry structures.

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

definitions referenced above. See htt p://www.sba.gov/category/navigation

structure/contracting/contracting

- officials/eligibility

- size

- standards

.Chapter 1: The first steps of RFA analysis 19 implementation of the proposal would drive many busines ses 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 o f 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 w ould then be significant for smaller telecommunications companies.

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)

exceed s 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 sign ificant. 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 (HHS) 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 fiv e 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 sal es (“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. 65

65 U.S. Environmental Protection Agency, Office of Policy, Regulatory Management Division, EPA’s Action Development Process: Final Guidance for EPA Rulewriters: Regulatory Flexibility Act as amended by the Small Business Regulatory Enforcement Fairness Act (November 2006), section 2.6.2, available at http://www.epa.gov/rfa/document s/Guidance

- RegFlexAct.pdf

.20 RFA guide for government agencies Legislative history of “significant economic impact.” 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. 66

With r egard to the term “significant economic impact,” Congress said:

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 defi nition is virtually impossible and may be counterproductive. Any more specific definition would require preliminary work to determine whether the regulatory analysis must be prepared. 67

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. 68

Congress has identified several examples of “significant impact”: a rule that provides a strong disincentive to seek capital; 69 175 staff hours per year for recordkeeping; 70 impacts greater than the $500 fine (in 1980 dollars) imposed for noncompliance; 71 new capital requirements beyond the reach of the entity; 72 and any impact less cost

- efficient

than another reason able regulatory alternative. 73 No t e that even below these thresholds, impacts may be significant. Other, more specific examples are contained in the House of Representatives Report on the RFA. 74

66 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 inten ded 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 analy sis to determine if alternatives can enhance the economic benefits flowing to small entities. See discussion in this chapter on adverse versus beneficial impacts.

67 126 Cong. Rec. S10,942 (Aug. 6, 1980).

68 Id. at S10,940.

69 Id. at S10,938.

70 Id.

71 126 Cong. Rec. H24,578 (Sept. 8, 1980).

72 Id. at H24,593.

73 Id. at H24,595.

74 “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 feder al form which 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, 3 states, and 20 agencies had 47 inspections in one month.

A butcher had o ne 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 inadverten tly 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).Chapter 1: The first steps of RFA analysis 21 **De termination**  **of “ substantial number**  **”**

The next step is to determine whether it is a substantial number of small entities for whom the rule has a significant economic impact. In this instance, the number may be a ratio or it may be a whole number. In some instances, a very small number of small businesses who would experience a significant economic impact can represent the entire universe of affected small businesses. However, if a very small number of small businesses represents a small fraction of the universe of affected small businesses

, the agency can conclude that the number is not substantial.

For example, suppose a rule is expected to affect 20 small entities in a given category. The agency must determine, as best it can, how extensive the economic impact will be on

those small entities. Suppose further that the agency can conclude that for five of these small entities, the impact will be significant. Is five a “substantial number” of the small entities affected? When a rule will have a significant economic impact on 25 percent of

the sma ll entities affected, this would be considered a substantial number

.

Legislative history of “substantial number.” Legislative history also says that the term “substantial” is intended to mean a substantial number of entities within a particular

economic o r other activity. 75 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. Q uantification 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 regulation before making the decision to certify or do an initial regulatory flexibility analysis. The goal at this stage of the process is t o ensure that the broadest possible impacts are fully considered.

“Substantial number” depends on the number of regulated entities and the size of the regulated industry. 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 s mall 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 busines ses 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.

As EPA explains in its guidance, “analysts sho uld examine both the total number and percentage of regulated small entities experiencing significant economic impacts when determining whether a ‘substantial number’ of small entities may be significantly

affected.” 76 In its guidance, EPA provides a matrix of different combinations of “significant economic impact” in terms of annual costs/sales and “substantial number”

75 126 Cong. Rec. S10,938 (Aug. 8, 1980) (Section

- by

- Section Analysis of the Regulatory Flexibility Act).

76 2006 EPA Final Guidance, section 2.7.2.22 RFA guide for government agencies for its certification decision. The larger the economic impacts, the smaller the substantial

number that would eliminate the basis for a certification of no impact. 77 For example, for a group of 100

- 999 affected small entities, EPA presumes no significant effect on a substantial number, where the costs/sales are 1 percent or greater for one or more of the affected small entities and the p ercent of small entities experiencing a given impact is less

than 20 percent of all regulated small entities. However, if the costs/sales were 3 percent or greater, the presumption would no longer apply where the percentage was less than 20

percent of all regulated entities, for the same number of regulated entities.

In calculating the percentage of small entities significantly regulated within a regulated industry for the purpose of making the certification determination, the agency should be

careful to c ount in the denominator only the firms that are regulated by the rule. For example, a regulation of firms with concentrated animal feed ing operations (CAFOs) should count only the farms with CAFO operations, and not all farms, when calculating the percenta ge of CAFOs with a given economic impact. If all farms are included in the denominator rather than all CAFOs, heavy regulation of a segment of the CAFOs would be much less likely to exceed a 1 percent or 3 percent cost/sales ratio. Thus the impact

would be underestimated. This is a common mistake by agencies using percentage tests. EPA further explains that analysts should aggregate the impacts of entities of the same type (such as small businesses or small governments) in making this determination. In

add ition, EPA explains where the rule applies to more than one type of small entity, the impacts should be analyzed separately for each type of entity, using an economic measure appropriate to each type of entity. 78

**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 small entities

.

The primary case on the issue of direct versus indirect impacts for RFA purposes is Mid

Tex Electric Co operative

, Inc., v. FERC ( Mid

- Tex ). 79 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 transmi tting utilities, wh ich 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. 80

77 2006 EPA Final Guidance, section 2.7. 1, table 2

. 78 2006 EPA Final Guidance, section 2.7. 3. 2.

79 Mid

- Tex Elec. Coop v. FERC, 773 F.2d 327 (D.C. Cir. 1985).

80 Id. at 342.Chapter 1: The first steps of RFA analysis 23 The U.S. Court of Appeals for the District of Columbia applied the holding of the Mid

Tex case in American Trucking Associations, Inc., v. EPA 81 (hereafter ATA ). In the ATA case, EPA established a primary national ambient air quality standard (NAAQS) for ozone. The basis of the EPA’s certification was that the NAAQS regulated small entities

ind irectly through state implementation plans. The plans impose requirements on the small entities, whereas states are required to take action to attain compliance with the NAAQS standards. The court found that since the states, not EPA, had the direct

author ity 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, t he Office of Advocacy believes that it is good public policy for the agency to perform a regulatory flexi bility analysis even when the impacts of its regulation are indirect. An agency should examine the reasonably foreseeable effects on small entities that purchase products or services from, sell products or services to, or otherwise conduct business with en tities directly regulated by the rule. In the case of the NAAQS standard at issue in ATA , 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 a lternatives that would have been less

burdensome on small entities (and is required to under the E.O. 12866 ) . 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 t o 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 o ther governing body. 82

**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 adve rse 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 ec onomic 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. 83

Moreover, early drafts of the RFA used the term “significant adverse” impact, but the final bill used only the term “significant impact.” 84

81 American 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).

82 See Chapter 5 of this guide for a more detailed discussion of the direct versus indirect impact issue.

83 126 Cong. Rec. H8,468 (daily ed. Sept. 8, 1980).

84 See an early draft of the RFA, S2147, 1st Sess. (1979).24 RFA guide for government agencies Courts have applied definitions for “significant impact” in cases involving other statutes. For example, in a case involving the National Environmenta l Policy Act (NEPA), Friends of Fiery Gizzard v. Farmers Home Administration, 85 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 acknowledge d 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. 86 (This case does not say that beneficial impacts should not be considered for the prelimi nary 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. 87

Several agencies have taken issue with the Office of Advocacy’s interpretation of significant economic impact. However, the Office of Advocacy believes that its interpretation is consistent with the legislative history and overall purposes of the RFA. The Office of Advocacy does not dispute that the RFA inte nds for agencies to “minimize the significant economic impact.” 88 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. Instea d, Advocacy believes that

i t is often possible to analyze beneficial impacts 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 F ederal Register . It is good regulatory practice to get the notice to Advocacy as soon as possible. It has been useful to the agenc y 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 reg ulations, 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 certi fication checklist at the end of this chapter for a review of the elements of a certification that meets all requirements.

85 Friends of Fiery Gizzard v. Farmers Home Admin., 61 F.3d 501, 5 05 (6th Cir. 1995).

86 Id. at 505.

87 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 fil e 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 mer ely adverse ones.”

88 5 U.S.C. Chapter 6 , Congressional Findings and Declaration of Purpose.Chapter 1: The first steps of RFA analysis 25 **An e**  **xample of an**  **a dequate**  **c ertification** 

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

Administrati on is from the proposed rule on s mall b usiness i nvestment c ompanies.

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 sign ificant 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 determine d 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 impac t of 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. 89

**Examples of i**  **nadequate c**  **ertifications**

Following are examples of inadequate certifications that were effectively challenged and refuted through formal comments to the agency or through the courts. 90

Shark Protection. Southern Offshore Fishing Association v. Daley 91 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 Servi ce (NMFS), National Oceanic and Atmospheric Administration (NOAA) published the proposed rule for the

89 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.

90 For another example of an improper certification, see Chapter 5 under the discussion of North Carolina Fisheries v. Daley.

91 Southern Offshore Fishing Ass’n v. Daley, 995 F. Supp. 1411 (M.S. F la. 1998).26 RFA guide for government agencies Atlantic Shark Fisheries: Quotas, Bag Limits, Prohibitions, and Requirements. 92 The proposed rule, among other things, reduced the commercial quotas for sh arks 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 enti ties 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 certificatio n was inappropriate. In its comments, Advocacy pointed out that under N MFS ’ s own criteria for assessing regulatory impact

, the proposal would have a significant economic impact on a

substantial number of small entities. 93 NMFS’ s regulatory impact review sta ted 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 w ho only fished for sharks. The remaining fishermen were pelagic longline fishermen who also primarily

fish ed for tuna and swordfish. Advocacy, therefore, concluded that the rule would have an impact on a substantial number of small entities.

In terms of s ignificant 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 fr om 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. Sim ilarly, 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

N MFS , th e impact of the proposed rulemaking would be significant.

Advocacy also presented information that indicated that NMFS’ s assumption that the affected industries would diversify was not realistic. Advocacy asserted that the cost of converting to another fi shery 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

92 61 Fed. Reg. 67,295.

93 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

p ercent, 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 ple ased with NMFS’s decision to abandon these criteria and institute new guidelines for determining economic impact on the fishing industry.Chapter 1: The first steps of RFA analysis 27 could amount to approximately 18 percent of the business' s gross revenues, which would also be a significant economic impact. 94

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

in Southern Offshore Fishing Association v. Daley

. 95 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.

Telecommunications S ystem Construction and Specifications. In another case, the

Rural Utilit ies Service (RUS) certified that the final rule did not have a significant economic impact on a substantial number of small entities because small entities we re not subject to any requ irements that we re not applied equally to large entities. While the rule did subject all entities to the same regulation, this justification ignore d the disproportionate impact regulations often have on small businesses. In addition, RUS wa s depriving itse lf 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 i t. As Congress states, one

- size

- fits

- all regulations are unnecessary and disproportionately burdensome to small

businesses

.... 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. 96

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. In February 1 998, MMS proposed a rule to update and clarify MMS regulations on postlease operations. 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 finan cial 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 b e 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.

94 U.S. Small Business Administration, Office of Advocacy comment letter to NMFS and NOAA dated February 6, 1997. See http://archive.sba.gov/advo/laws/comments/noaa2

- 6.html

. 95 Southern Offshore Fishing

. This case is also discussed in Chapter 5 of this guide.

96 See http://archive.sba.gov/advo/laws/comments/rus02_0308.pdf

.28 RFA guide for government agencies Advocacy submitted comments 97 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 ackno wledges 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 to tal 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 percent of all firms large and small. Needless t o say, 47 percent 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 percent of the annual receipts for that sector. Although there are no hard rules for defining significant eco nomic impact on a substantial number of small entities, a proposal that will impose on 47 percent of an industry an

additional cost of 16 percent of annual receipts should at least raise a warning sign for a regulatory agency that the proposal could interf ere with profits and company survival. It should also indicate to the agency that certification may be improper

under the RFA.

97 It should be noted that in the comments, Advocacy also commended MMS for the improvement that it made in its certification pro cess. 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.Chapter 1: The first steps of RFA analysis 29 

### Certification checklist

1. Request for comment on proposed rules Look for: √ 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 number of small entities to which the rule applies Look for: √ The North American Industry Classification System (NAICS 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 alternativ e 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 economic impacts” The best analyses will not use a preset criterion, but instead will 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 disadvantag e; √ 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;30 RFA guide for government agencies √ 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. 6. Examination of industry segments with significant economic impacts Look for: √ An estimate of h ow many segments within an industry will 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 b e experiencing adverse impact s , and finding any with

such adversely impact s 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 the head of the agency Look for: √ 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.”Chapter 2: The initial regulatory flexibility analysis 31 

## C HAPTER 

## 2 P REPARING A PROPOSED RULE 

## : T HE INITIAL

REGULATORY FLEXIBILITY ANALYSIS



### The RFA d ecision p rocess

N O

Y ES D EFINE THE PROBLEM

AND

D ESCRIBE THE

R EGULATED E NTITIES E STIMATE E CONOMIC

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I NCUR S IGNIFICANT I MPACTS ?
C HAPTER 2—B EGIN
I NITIAL
R EGULATORY
F LEXIBILITY

A NALYSIS C ERTIFY R ULE A S R EQUIRING

N O F URTHER RFA A NALYSIS

D ECISIONMAKERS OR

R EG

. N EGOTIATING

P ANELS

D ISCUSS

R EG

. A LTERNATIVES D ISTRIBUTE A D RAFT

I NITIAL R EGULATORY

F LEXIBILITY A NALYSIS S ELECTION OF A

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P ROPOSAL

C OMPLETE I NITIAL

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F LEXIBILITY A NALYSIS P UBLISH P ROPOSAL IN

THE F EDERAL

R EGISTER E XAMINE P UBLIC
C OMMENTS

C HAPTER 3—P REPARE

F INAL R EGULATORY
F LEXIBILITY A NALYSIS M AKE F INAL R ULE

D ECISIONS P UBLISH F INAL R ULE

IN THE F EDERAL
R EGISTER32 RFA guide for government agencies During the preparation of a proposed rule, an agency must prepare an i nitial regulatory

f lexibility a nalysis (IRFA) if it determines that a proposal may impose a significant economic impact on a substantial number of small entities. 98 ( 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. 99 The IRFA must include a discussion of each element required by s ection 603 of the RFA, and the agency must also send a copy of the IRFA to the Chief Counsel for Advocacy. 100 A gencies are required to notify Advocacy when they submit 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. 101 Moreover, t he 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 purpose s of complying with the IRFA requirement. 102



### Issues to be a ddressed in the a nalysis

Section 603 of the RFA requires agencies to perform a detailed analysis of the potential impact of the proposed rule on small entities. 103 In order to perform this analysis, an agency must enumerate the objectives and goals of the rule, as well a ny 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. When such data are unavailable, the agency should state why and request comments. 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, administr ative practices (including recordkeeping and reporting), productivity, and promotion. T he 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, the costs

, benefits, and other economic implications.

98 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.

99 5 U.S.C. § 603(a).

100 Id

. 101 Exec. Order No. 13,272, § 3(b).

102 5 U.S.C. § 605(c).

103 Id. at § 603(b)

- (c).Chapter 2: The initial regulatory flexibility analysis 33 Some of the important questions the agency should address in preparing an IRFA are:

• Shou ld 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 th e magnitude of the economic effect on specific subgroups ? 104

• Are all the required elements of an IRFA present , including a clear explanation of the need for and objectives of the rule? 105

• 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 analy se s 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 nee ded to satisfy the statutory objectives) ?

• Does th e 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 c ompare the impacts of regulatory alternatives on the differing sizes and types of entities affected by the rule. I t 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 subse t 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 with the significance of the rule and the expected economic impacts

. Agencies should consult available information on how to conduct an economic analysis, such as the guidelines in OMB’s Economic Analysis o f Federal Regulations u nder Executive Order 12866 and should review small business data, including data referenced in Appendi ces C and D

.

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.

104 See discussion of this issue in Chapter 1.

105 An agency may want to avoid repeating relevant text by cross

- referencing the needs and objectives of

the rule in its IRFA.34 RFA guide for government agencies 

### Elements of an IRFA

The preparation of a n IRFA should be coordinat ed 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 on the entities and the problem being addressed

. Without such information, the agency will be unable to develop a rational rule. 106

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 descriptio n 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 s of professional skills necessary for preparation of the report or record

. 5. A n identification, to the extent practicable, of all relevant federal rules that may duplicate, overlap, or conflict with the proposed rule.

Section 603(c) is the key provision of the IRFA. It 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 devel oping 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 and the benefits yielded by each significant

alternative

. Section 607 of the R FA 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. 107 This second option is a last resort when it is not practicable for the agency to complete a significant quantitative analysis.

The new Section 603(d) of the RFA requires the CFPB to include a description of any projected increase in the cost of credit for small entities, as well as a description of significant alternatives which, while accomplishing the stated objectives, minimize any such increase, and the advice and recommendatio ns of small entities with respect to these

106 Bowen v. AHA, 476 U.S. 610, 643 (186); National Ass’n of Home He alth Agencies v. Schweiker, 690 F.2d 932, 949 (D.C. Cir. 1982); Chocolate Mfrs. Ass’n v. Block, 755 F.2d 1098, 1103 (4 th Cir. 1985).

107 5 U.S.C. § 607.Chapter 2: The initial regulatory flexibility analysis 35 cost

- of

- credit issues. 108 The CFPB is required to identify small entity representatives in consultation with the Office of Advocacy and collect advice and recommendations about

these cost

- of

- credit issues in additio n to the issues raised by the proposed regulation

.

The principal issues an agency should address in an IRFA are the impact of a proposed rule on small entities and the comparative effectiveness (benefits) and costs of alternative regulatory options. Eac h of the specific elements of the IRFA is discussed in turn below.

**R easons**  **a ction**  **i s**  **b eing**  **c onsidered** 

For the first element of the IRFA, the agency must discuss the reasons it is considering the proposed rule. 109 The agency should list any issue to be addr ess ed in the rulemaking

and should be thorough i n listing its reasons

, as t his section provides insight into the need

for the rule.

Generally , the agency addresse s this topic in the preamble to the proposed rule

. The agency can summarize i t s 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 p**  **roposed r**  **ule**

For the second element of the IRFA, the agency must list the objectives of the proposed

rule. 110 Again, the agency should be thorough when discussing its objectives

, as this

discussion conveys to the public the goal s of the rulemaking and why the agency is

t aking specific actions contained within the proposed rule. This section provides the justification for the agency’s actions , balancing the burden of the compliance requirement s 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 requ ired by section 553 of the APA. 111

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 lis ts all the objectives of the proposed rule that would entail compliance requirements w it h a significant economic impact on a

substantial number of small entities.

108 5 U.S.C. § 60 3 ( d ) , added to the RFA by the Dodd

- Frank Wall Street Reform and Consumer Protection Act of 2010, Pub. Law 111

- 203 § 1100G(d)(1). This law also added the CFPB to the list of covered agencies

— previously EPA and OSHA

— that are required to hold small business revie w panels.

109 Id. at § 603(b)(1).

110 Id. at § 603(b)(2).

111 See Spartan Radiocasting v. FCC, 619 F.2d 314, 321 (4 th Cir. 1980).36 RFA guide for government agencies **D escription and**  **e stimate of the**  **n umber of**  **s mall**  **e ntities** 

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. 112 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 s ection of the IRFA.

A s 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 NAICS. 113 Agencies must identify each of the affected classes according to their NAICS code. Once the agency has identified all the

affected industries by code, i t can use the NAICS code in combination with the U.S.

Census data 114 to gain an estimate o f the number of entities in each class. To help agencies with this element of the IRFA, the Office of Advocacy provides a listing of

NAICS code s along with links to the U.S. Census data for each class on its web page. 115

If the agency determines that the existing SBA size standards for small bus inesses are not appropriate for RFA analysis purposes , 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. 116 T he RFA requires an agency to consult with t he Office of Advocacy when performing an RFA analysis using a different small business size

standard th a n that provided by the SBA. 117

**Estimating c**  **ompliance r**  **equirements**

For the fourth element of the IRFA, the agency must describe and estimate the compliance requirements of the proposed rule. 118 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 enabl es 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 compl y with recordkeeping; and reporting requirements

. Section

112 5 U.S.C. § 603(b)(3).

113 See http://www.sba.gov/size/

. 114 See http://www.census.gov/

. 115 Office of Advocacy, Research and Statistics,, http://www.sba.gov/advocacy

. 116 See the size standard discussion in Chapter 1.

117 5 U.S.C. § 601(3).

118 Id. at § 603(b)(4).Chapter 2: The initial regulatory flexibility analysis 37 603 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 a nd 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 associat ed 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

short

- term compliance costs. A gencies 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 entiti es 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

the ir abi lity to provide services. Th is 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

. 119

**Significant a**  **lternatives c**  **onsidered**

The keystone of the IRFA is the description of any significant alte rnatives to the proposed rule that accomplish the stated objectives of applicable statutes and that minimize the rule’s economic impact on small entities. 120 T he development and adoption of these alternatives provide regulatory relief to small entities.

An alyzing 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. Th is process pr ovides an

119 Competitive status is not relevant when the small entities regulated by the proposed rule are not

- for

profit organizations or governmental jurisdictions. In regulations that are limited to nonprofits or governmental jurisdictions, changes in regulatory co sts should not affect the competitive status of the entities. However, there are certain nonprofit and governmental jurisdictions that do compete with for

profit enterprises, such as electric cooperatives. In preparing an IRFA, the agency must be mindful o f the type of small entity regulated and tailor its analytical requirements to those entities.

120 5 U.S.C. § 603(c). Since the RFA is an economically neutral statute, the IRFA should examine alternatives to ensure that the proposed rule is maximizing any be neficial 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 impa ct 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 no t 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.38 RFA guide for government agencies 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 technolog y, or by the regulatory analysis requirements of E.O. 12866 ), the RFA requires the agency to undertake an analysis in order to discover le s s costly method s 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 tha t 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 to adopt the regulatory strateg y 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 obj ective 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. E stablishment of different compliance or reporting requirements for small entities

or timet ables that take into account the resources available to small entities

. 2. C larification, consolidation, or simplification of compliance and reporting requirements for small entities

. 3. U se of performance rather than design standards

. 4. E xemption 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. I n 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 eco nomy 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 pe rmitted to implement. Returning to the analogy between RFA and NEPA , Co uncil o n Environmental Quality regulations providing guidance on NEPA compliance expect the agency to examine a “no

- action” alternative even if such alternative would violate the

statut ory 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, t he public, and the courts that it understands the implication s of i ts 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

reg ulate d community and decisionmakers in other branches of the federal government.Chapter 2: The initial regulatory flexibility analysis 39 Agencies are not limited to alternatives that minimize burdens only for small entities. As

EPA’s 1992 RFA guidance recognized, cost

- effective alternatives for small entities o ften

are cost

- effective for all entities. 121 Ag encies 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 rulemakin g under the APA by making the notice and comment process irrelevant. Interpreta tions of the notice and comment provisions of the APA contemplate a dialogue between the agency and the regulated community. 122 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. 123 Thus, the development of alternatives in

the RFA demonst r ates to the court that an agency did not in the p ro posed 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 separat e ly , then alternatives that reduce the impact for businesses of all sizes m ust be considered

.

In the memorandum on regulatory flexibility that accompanied President Obama’s E.O. 13563, the president expanded the existing requirement for an agency to document the decision to reject an alternative that may reduce regulatory burdens on s mall entities. The RFA had required agencies to explain in the final regulatory flexibility analysis accompanying final rules why significant alternatives were not selected. 124 President Obama directed that a similar explanation be provided for proposed rule s. 125

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 commun ication is not prohibited by the APA and will help the agency focus on potential benefits and costs of various approaches to small businesses. In practice, the best proposed rules have been developed through a robust pre

- proposal exchange of specific rulem aking concepts with the stakeholders including small businesses. 126

121 See Revised Interim Guidance for EPA Rulewriters , p. 18.

122 See Chocolate Mfrs. Ass’n v. Block

, 755 f.2d 1098, 1103 (4 th Cir. 1985).

123 See McLouth Steel Prods. v. EPA, 838 F.2d 1317, 1324 (D.C. Cir. 1988); Levesque v. Block, 723 F.2d 175, 187 (1 st Cir. 1983); United States Steel Corp. v. EPA, 595 F.2d 207, 214 (5 th Cir. 1979).

124 5 U.S.C. § 604(a)(6).

125 Memorandum for the Heads of Executive Departments and Agencies, “Regulatory Flexibility, Small Business, and Job Creation” (76 Fed. Reg. 3827, January 21, 2011).

126 Executive Order 13,563 restates the value of pre

- proposal input fro m affected firms. Section 2(c) states: “Before issuing a notice of proposed rulemaking, each agency, where feasible and appropriate, shall seek the views of those who are likely to be affected, including those who are likely to benefit from and those

who a re potentially subject to such rulemaking.”40 RFA guide for government agencies 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 cas es 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

o f 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 , the small

ent ities within that industry , and alternatives that would minimize costs and maximize

benefits

. Where the agency does not use an advance notice of proposed rulemaking, i t should consider requesting information in the proposal regarding the economic and

struc tural characteristics of the industry, including such items as the typical firm size, typical profit s and losses

, and the marginal costs of production , and should solicit suggestions for cost

- effective regulatory approaches

.

**Duplicative, o**  **verlapping, and c**  **onflicting r**  **ules**

The sixth element of the IRFA is to identify any duplicative, overlapping, and conflicting

federal rules. 127 Rules are duplicative or overlapping if they are based on the same or

similar reasons for the regulation, the same or similar regu latory 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. 128

This section of the IRFA requires the agency to examine the potential conflic ting 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). 129

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 fo r a federal agency. Nevertheless, it is important that the agency try to identify potential conflict ing, duplicative, and overlapping regulations. The IRFA should include a request for comments identifying

such rules. At the very least, the agency should r eview 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. 130

127 5 U.S.C. § 603(b)(5).

128 For example, under the 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 th at 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

. 129 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.

130 See Chapter 6 for more information on compliance with Section 610 of the RFA.Chapter 2: The initial regulatory flexibility analysis 41 

### Using o ther a nalyses to s atisfy the IRFA r equirements

Th e RFA permits agencies to prepare IRFAs in conjunction with, or as a part of, other analys e s required by law as long as the RFA’s requirements are satisfied. 131 Agencies need to exercise caution when rely ing 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 s 12866 and 13563

, 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 b enefits and costs and does not necessarily focus on the cost effectiveness of regulatory compliance for small entities. Thus, the focus of the RIA under the executive order s is not a substitute for the IRFA. Agencies can coordinate their preparation of reg ulatory flexibility analyses with any other analyses accompanying a rule. 132 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 dev elop 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.



### When an IRFA m ay b e w aived or d elayed

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 th e rule in response to an emergency that makes compliance with the RFA impracticable. 133 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 ag ency must explain clearly why the circumstances constitute an emergen cy

.

T he 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 ti me 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

. T his assessment, if it results in a certification, is judicially reviewable.

131 5 U.S.C. § 605(a).

132 Many requirements of Exec. Order No. 12,866 parallel those in the RFA. See a discussion in the Introduction. Executive Order 12,866 directs agencies to “assess both the cos ts and the benefits of the intended regulation....[and] propose or adopt a regulation only upon a reasoned determination that the benefits...justify the costs.” Further, E.O. 12,866 requires agencies to develop and analyze regulatory alternatives, including, w here appropriate, small business alternatives that achieve statutory objectives. Thus, it is often most effective to coordinate or combine analytic products used to satisfy both the E.O. and

the RFA.

133 5 U.S.C. § 608(a).42 RFA guide for government agencies 

### What an IRFA s hould l ook l ike : A r eal

- l ife e xample

In Appendix J , a satisfactory IRFA by the Environmental Protection Agency contains the elements required by the RFA and a thorough analysis of the regulation’s potential impact on small entities when insu fficient data are available on cost or impact. 134

134 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 u nder the Physician Fee Schedule for Calendar 2003, 67 Fed. Reg. 43,846 (June 28, 2002), 43,865 ff. For another example , see U .S. Departm ent 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.Chapter 3: The final regulatory flexibility analysis 43 

## C HAPTER 

## 3 P REPARING A FINAL RULE 

## : T HE FINAL REGULATORY

FLEXIBILITY ANALYSIS



### The RFA d ecision p rocess

N O

Y ES D EFINE THE PROBLEM

AND D ESCRIBE THE
R EGULATED E NTITIES

BY S IZE AND N UMBER E STIMATE E CONOMIC

I MPACTS BY S IZE
C ATEGORY D ETERMINE WHICH S IZE
C ATEGORIES I NCUR
S IGNIFICANT I MPACTS

D O A
S UBSTANTIAL N UMBER OF
E NTITIES IN A NY S IZE C ATEGORY

I NCUR S IGNIFICANT I MPACTS ?

C HAPTER 2—B EGIN

I NITIAL R EGULATORY

F LEXIBILITY

A NALYSIS C ERTIFY R ULE A S R EQUIRING

N O F URTHER RFA A NALYSIS

D ECISIONMAKERS OR

R EG

. N EGOTIATING

P ANELS

D ISCUSS

R EG

. A LTERNATIVES D ISTRIBUTE A D RAFT

I NITIAL R EGULATORY

F LEXIBILITY A NALYSIS S ELECTION OF A

R EGULATORY

P ROPOSAL

C OMPLETE I NITIAL

R EGULATORY

F LEXIBILITY A NALYSIS P UBLISH P ROPOSAL IN

THE F EDERAL

R EGISTER E XAMINE P UBLIC
C OMMENTS

C HAPTER 3—P REPARE

F INAL R EGULATORY F LEXIBILITY A NALYSIS M AKE F INAL R ULE

D ECISIONS P UBLISH F INAL R ULE

IN THE F EDERAL
R EGISTER44 RFA guide for government agencies When promulgating a final rule

, agencies must prepare a f inal r egulatory f lexibility

a nalysis (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

. 135

When th e agency publishes its final rule, it must also publish the FRFA, or a summary of the FRFA, in the Federal Register

. 136 Draft final rule s that are not certified must be submitted to Advocacy before publication in the Federal Register. 137 The FRFA must
include the agency’s response to any comments filed by the Chief Coun s el f or Advocacy, including a detailed statement of any changes made to the proposed rule in the final rule

as a result of such comments. 138 The agency must also make copies of the FRFA

available t o the public. These published FRFAs are then subject to judicial review. 139

The RFA mandates that agencies revise their i nitial r egulatory f lexibility a nalysis 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 signific ant 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

. 140



### Issues to b e a ddressed in the a nalysis

Secti on 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 th e 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.

135 5 U.S.C. § 604 and 605(b). The AP A provision is found in 5 U.S.C. § 553 (b)(B).

136 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 preamble as published in the Federal Register

. 137 Exec. Order No. 13,272, 67 Fed. Reg. 53,462 (Aug. 16, 2002).

138 5 U.S.C. § 6 04(3).

139 5 U.S.C. § 611.

140 As indicated earlier in the discussion concerning certifications, RFA § 605(b) requires that the

certifi cation 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 fina l 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 p roposed rule. Doing so will help demonstrate the continued validity of the certification after receipt of public comments. In addition, significant changes between the proposed and final rule could warrant a change in the agency’s certification

evaluation for the final rule. For a more detailed discussion of certifications, see Chapter 1 of this guide.Chapter 3: The final regulatory flexibility analysis 45 The requirements for a FRFA are somewhat different f rom 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. 141 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

d evelopment 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 robust consideration of significant alternatives that are more cost

- effective to small entities but still achieve the objectives of the agency. The requirements, outlined in seven provisions in section 604(a)(1)

– ( 6 ), are highlighted in italics below:

1) A statement of the need for, and objectives of, the rule

. The agency can cross

reference to a similar stat ement in the supplementary information if the cross reference enables small entities to easily identify the need for and objectives of

the rule.

2) A s tatement of the significant issues raised by the public comments in response
to the IRFA, a s tatement 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. 142 Since the RFA co nstitutes 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) The response of the agency to any comments filed by the Chief Counsel for Advocacy of the Small Business Administration in response to the proposed rule, and a detailed statement of any change made to the proposed rule in the final rule as a result of the comments

. 143

4) 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

.

5 ) 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

.

141 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 (11 th 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, 407 F.2d 330, 338 (D.C. Cir. 1968).

142 Id.

143 The Small Business Jobs Act of 2010, Pub. Law 111

- 240 added this provision.46 RFA guide for government agencies 6 ) 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 of the other

s ignificant alternatives to the rule considered by the agency which affect the impact on small entities was rejected. Again this requirement already is mandated by the rational rulemaking requirements of the APA. 144

6 ) For a covered agency, as defined in section 609(d)(2), a description of the steps the agency has taken to minimize any additional cost of credit for small

entities. 145

As noted in the third provision above, section 1601 of the Small Business Jobs Act 146
further amended the final regulatory flexibility analysis (FRFA) section of the RFA by requiring agencies to respond to any comments filed by the Chief Counsel f or Advocacy in response to a proposed rule and a detailed statement of any changes made in res ponse to the comments.



### Additional q uestions to b e a ddressed 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 reg arding 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 , as well as comments from the SBA’s Chief Counsel for Advocacy

. 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 en tities 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

144 See American Textile Mfrs

. Inst. v. Donovan, 452 U.S. 490, 539

- 41 (1981).

145 The numbering is as shown

— two paragraphs (6) were enacted. The Dodd

- Frank Wall Street Reform

and Consumer Protection Act of 2010, Pub. Law 111

- 203, added this provision.

146 Public Law 111

- 240.Chapter 3: The final regulatory flexibility analysis 47 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 wit h the requirements of the RFA and explain why such data w ere 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. 147 Some of the traditional alternatives may include lengthening the time for compliance; t ier ing 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 stat utory 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 prescri ptive; etc. Such alternatives also include providing regulatory relief to all regulated entities, such as lowering the overall st ringency 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 afte r 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

alternati ves based on the analysis already performed by the agency, i.e., the analysis 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 alter natives to the final regulatory solution as mandated by the RFA.

147 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 entitie s. Development of regulations that have 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,

i ncreased 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 in 2001, it is unlikely that many small entities could have complied. The Department of Labor would have expended

sc arce resources to obtain compliance without accomplishing the goal of increasing worker safety.48 RFA guide for government agencies **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 rejecti ng other significant alternatives, been

included or appropriately cross

- referenced for easy identification by small entities ? The Small Business Regulatory Enforcement Fairness Act (SBREFA) 148 made significant changes to this section of the RFA with re spect 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 le gal 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 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 r e j ecting alternatives. President

Obama reaffirmed the principle of documenting a decision to reject an alternative that may reduce regulatory burden for small entities. 149 T he development and consideration of alternatives is subject to judicial review. 150



### Permissible d elays in p ublication ; provision for lapse of final

rule

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, t he 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.

148 5 U.S.C. § 604(a)( 6 ).

149 Memorandum for the Heads of Executive Departments and Agencies, “Regulatory Flexibility, Small Business, and Job Creation” (76 Fed. R eg. 3827, January 21, 2011).

150 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 discuss ed less burdensome alternatives considered and rejected in order to com ply with the RFA

.Chapter 3: The final regulatory flexibility analysis 49 

### What a FRFA s hould l ook l ike : A r eal

- l ife e xample

In Appendix K is an example of a satisfactory FRFA released by the Environmental Protection Agency. This FRFA contains each of the elements required by the RFA and presents a thorough analysis of the regulation’s impact on small entities. 151

151 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 (July 9, 1993).Chapter 4: Small business advocacy review panels 51 

## C HAPTER 

## 4 S BREFA P ANELS

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 t o the issuance of a proposed rule. This outreach is accomplished through the work of s mall

b usiness a dvocacy r eview p anels, sometimes referred to as SBREFA or SBAR (small business advocacy review) panels.

In July 2010, the United States Congress passed th e Dodd

- Frank Wall Street Reform and Consumer Protection Act (Act). 152 Section 1011 of the act establishes the Consumer Financial Protection Bureau to supervise certain activities of financial institutions. Section 1100G, titled “Small Business Fairness and R egulatory Transparency,” amends 5 U.S.C. § 609(d), to require the CFPB to comply with the SBREFA panel process, making it the third agency with this responsibility, along with the Environmental Protection Agency and the Occupational Safety and Health Admin istration

.

I n addition to the regular requirements of the initial regulatory flexibility analysis (IRFA)

found in 5 U

. S

. C . § 603, a CFPB IRFA must include “a description of (A) any projected increase in the cost of credit for small entities; (B) any si gnificant alternatives to the proposed rule which accomplish the stated objectives of applicable statutes and which minimize any increase in the cost of credit for small entities; and (C) advice and recommendations of representatives of small entities rela ting to issues described in subparagraphs (A) and (B) and subsection (b).” When the Bureau produces a final regulatory flexibility analysis, it must include “a description of the steps the agency has taken to minimize any additional cost of credit for smal l entities.”



### Who must hold SBREFA panels?

The statute requires that EPA , CFPB, and OSHA evaluate their regulatory proposals to

determine whether SBREFA panels should be convened. 153 The requirement for

SBREFA panels may appear to impose additional steps for these age n cies 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, obje ctions from the public are reduced. Experience has shown that the panel process results in better rules, better compliance

, and reduced litigation. In at least two
instance s , EPA withdrew a regulatory proposal based on work performed in connection

with the panel process. 154

152 Public Law 111

- 203.

153 5 U.S.C. § 60 9 ( d )( 2 )

. 154 See EPA’s Effluent Limitations Guidelines for Industrial Laundries; 64 Fed. Reg. 45071 (Dec. 12, 1997) , withdrawn by EPA on August 18, 199 9, Effluent Limitations Guidelines for Construction and Development, 67 Fed. Reg. 42644 (June 24, 2002), withdrawn April 26, 2004

.52 RFA guide for government agencies 

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

For each proposed rule, the RFA requires that an agency either certif y that the proposal has no significant economic impact on a substantial number of small entities, or prepare

an IRFA on the proposal. 155 Whenever EPA , CFPB, 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 review panel. SBREFA panels are required for all EPA, CFPB, and OSHA rules for which an IRFA is required.

P anel outreach must take place before the publication of the proposed rule. However, the Chief Counsel for Advocacy may waive the panel requirement upon the request of EPA

, CFPB, or OSHA unde r 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.



### How does a SBREFA panel work?

A SBREFA panel consists of a representative or representative s from the rulemaking

agency, the O ffice 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 s mall e ntity r epresentatives (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 valuabl e 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. Th e date is normally fixed after consultation with both Advocacy and OIRA. Before convening, the three agencies work together to discuss regulatory alternatives and their advantages and disadvantages. The agencies also d iscuss what data, information, and regulatory alternatives will be

presente d to the SERs so that they can provide informed advice. As EPA advises in its

SBREFA panel guidance, the agency “need(s) to describe in sufficient detail, including some analysis of the impact on small entities and environmental benefits, each significant regulatory alternative you have identified that accomplishes the statutory mandate.” 156
With this information, the small entity representatives will be able to provide informed

advice to the panel. T he rulemaking agency usually has preliminary discussions with small entities about its draft proposal before the panel is formally convened. These

155 See Chapter 1 for a detailed discussion o f how to certify a proposed rule and Chapter 2 on how to

prepare an i nitial r egulatory f lexibility a nalysis.

156 2006 EPA Final Guidance, s ection 5.8.2. See section 5.8.2 for more guidance on what information should be provided to the panel and the small entity representatives.Chapter 4: Small business advocacy review panels 53 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 benefi t 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 en sures that small

entities that w ould 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 p roposal 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. 157



### Suggested SBREFA panel timeline

T he 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.

The EPA procedure is to hold two meetings with the SERs, one prece ding and one following the formal convening of the panel. There are two opportunities for oral exchanges with the panel members, followed by two opportunities for written comments 15 days after the meetings. The two sessions facilitate a robust discussion of the issues, and give the agency the ability to further refine its draft regulatory alternatives in light of

the initial round of written SER comments. The timeline on the next page is based on the OSHA practice of a single SER meeting after convening; h owever, the OSHA practice is to start with a fully developed draft propped rule and preamble.

157 2006 EPA Final Guidance, Chapter 5, is a good source for effective panel procedures implementation, http://www.epa.gov/rfa/documents/Guidance

- RegFlexAct.pdf

.54 RFA guide for government agenciesSuggested panel timeline1Chapter 5: What the courts have said about the RFA 55 

## C HAPTER 

## 5 RFA LITIGATION 

## : W HAT THE COURTS HAVE SA ID

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 int ended 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 a**  **pply?**

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.

I f, under the APA or any rule of genera l 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. 158 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. 159 Pursuant to RFA section 601(2), the term “rule” does not include a rule of particular applicability to rates, wages, corporate or financial structures or reorganization thereof, prices, facilities, appliances, services, or allowances.

158 5 U.S.C. § 604(a). See also National Association of Home Builders v. Army Corps of Engineers

, 417 F.3d 1272 (D.C. Cir. 2005) where the plaintiffs challenged nationwide permits issued under the Clean Water Act by the Corps as violating, inter alia , the RFA, because the Corps did not conduct a flexibility analysis as required by the RFA. The Army Co rps of Engineers argued that its permitting action did not constitute a “rule.” It was an “order” because “order” included a “licensing” disposition and a “license” included a “permit.” The court considered the argument an “elaborate statutory construction ” and rejected it for a more straightforward one. The court found that the permitting action fit within the APA’s definition of “rule” because each permit was a legal prescription of general and prospective applicability which the Corps issued to implement permitting authority that Congress entrusted to it pursuant to the Clean Water Act. As such, the action constituted a rule because it was an agency statement of general or particular applicability and future effect designed to implement, interpret, or pre scribe law or policy. In addition, the court found that the Army Corps of Engineers action was a legislative rule because the permits authorized the discharge of certain materials, granted rights, imposed obligations, produced other significant effects on private interests. Accordingly, it was subject to the notice and comment requirements of the APA and to the requirements of the RFA.

159 In Roche v. Evans

, 249 F. Supp. 2d 47 (D. Mass. 2003), the New England Fishery Management Council (Council) adopted an ad justment to the existing Northeast Multispecies Fisheries Management Plan (FMP) mandating that certain fishing areas would be closed to fishing for varying lengths of time. The court stated that the RFA does not apply to the adoption of such a framework ad justment to an FMP because, under the abbreviated framework adjustment procedure permitted under 50 C.F.R. § 648.90, there is no requirement that the Council “publish a general notice of proposed rulemaking.” The court noted, “the whole purpose of

the fram ework adjustment procedure is to dispense with that requirement.” 249 F.Supp.2d at 57. With the trigger of notice and comment lacking, the court granted summary judgment in favor of the agency.56 RFA guide for government agencies Further, only actions that qualify as rulemaking under the APA that affect small entities or small entity concerns trigger the protections of the RFA. 160 Small entities whose concerns must be accounted for include small businesses, small not

- for

- profit organizations, and small governm ental jurisdictions

— cities, counties, towns, townships, villages, school districts, or special districts, with a population of less than 50,000. 161

**What qualifies as a rulemaking under the APA?**

Rules are exempt from APA requirements, and therefore from th e RFA requirements, when any of the following is involved:

1. Military or foreign affairs functions of the United States. 162

2. Matters relating to agency management or personnel or to public property, loans, grants, benefits, or contracts. 163

Also exempt from th e APA requirement for notice and comment rulemaking are interpretative rules. 164 Interpretative rules generally require no judgments and little by the agency on implementation, but rather interpret the language or intent expressed by Congress. Legislative ru les 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 re quiring 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:

160 Atlantic Fish Spotters Association v. Evans, 206 F. Supp. 2 F.d 81, 93 (D. Mass. 2002).

161 5 U.S.C. § 601(3)

- (5). See also Chapter 1 of this guide for a discussion of what qualifies as a small entity. State v. Centers for Medicare & Medicaid Services

. 2010 WL 1268090 (M.D. Ala. 2010) (memorandum and order) where th e court held that the State of Alabama did not have standing as a small entity; La Gloria Oil & Gas Co. v. United States, 56 Fed. Cl. 211 (2003), the court declined to address the plaintiff’s arguments concerning alleged violation of the RFA because plaint iff was not a small business; Williams Alaska Petroleum v. United States, 57 Fed. Cl. 789 (2003), the plaintiff was precluded from asserting a claim under the RFA because the plaintiff was not a small entity; Navajo Refining Co. v. United States, 58 Fed. C l. 200 (2003), the court declined to address the plaintiffs’ arguments concerning the defendant’s alleged violation of the RFA because they were not small businesses and lacked standing to challenge the defendant’s compliance with the RFA.

162 APA § 553(a)(1) exempts from notice and comment rule making those rules involving “a military or foreign affairs function of the United States.” The legislative history of § 553(a)(1) indicates the exception should be construed narrowly to include only those “ ‘affairs' which so affect relations with other governments that, for example, public ru lemaking provisions would clearly provoke definitely undesirable international consequences.” S.Rep. No. 752, 79th Cong., 1st Sess. 13 (1945). Jean v. Nelson , 711 F.2d 1455 (11 th Circuit 1983).

163 5 U.S.C. § 553(a).

164 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 interpret ative rules, but that impose a “collection of information” requirement on small entities. For a more detailed discussion, see Chapter 1.Chapter 5: What the courts have said about the RFA 57 Military or f oreign a ffairs f unctions of the United States

. In reviewing the early RFA

case, In re Sealed Case, 165 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

a ffairs 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. 166

Interpretative r ules

. In National Association for Home Care v. Shalala, 167 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 n eed 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. 168

Publications n ot s ubject to the APA and r ate e xemptions

. In American Moving and Storage Association, Inc., v. DOD

, 169 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 as serted that the policy change was not a “rule” as defined by the RFA, and therefore it did not 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 fo und 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. 170 As a result, the RFA did not apply. 171

Good Cause. In O regon Trollers Ass ociation v. Gutierrez

, 172 the Ninth Circuit upheld the lower court’s decision regarding NMFS’s invocation of the good cause exception to the APA’s notice and comment provisions in an action involving the management of the

Chinook salmon sea son. The p laintiffs argued that NMFS failed to prepare the economic analyses required by the RFA. The RFA applies to any rule requiring notice and

165 In re Sealed Case , 666 F. Supp. 231, 236 (D.D.C. 1987).

166 Id. See also Jean V. Nelson, 711 F.2d 1455.

167 National Ass ociation for Home Care v. Shalala, 135 F. Supp. 2d 161, 165 (D.D.C. 2001).

168 Id. See also, Cent. Tex. Tel. Coop. v. F.C.C., 402 F.3d 205 (D.C. Cir. 2005); Broadgate, Inc. v. United

States Cit iz enship & Immigration Services, 730 F. Supp. 2d 240 (D.D.C. 2010 ).

169 American Moving and Storage Association v. DOD, 91 F. Supp. 2d 132, 136 (D.D.C. 2000).

170 5 U.S.C. § 553(b) (1996).

171 Id. at 136.

172 Oregon Trollers Association v. Gutierrez, 452 F.3d 1104 (9th Cir. 2006).58 RFA guide for government agencies comment under section 553(b) of the APA. T he court held that NMFS’ s invocation of the “good cause” exception to the RFA requirement was valid because the NMFS gave

season

- specific reasons for the exception. NMFS explained that management measures are based on data from the prior season, which are not available until January. Because the new season opens on May 1, the 60

- day comment period is infeasible. The court added that as long as the NMFS provides fresh reasoning related to the season in which the exception applies, repeated invocation of the exception is not a problem.



### The c ertification s tatement

**The d**  **ecision p**  **rocess**

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 r ule. 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. 173

Cases in which the c ertification v iolated the RFA

. In a number of cases, the

certification was found to have violated the RFA.

In Northwest Mining Association v. Babbitt

, 174 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

— provis ions 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 reman ding 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. 175

In North Carolina Fisheries Assoc iation v. Daley, 176 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 re main 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. 177

173 North Carolina Fisheries Association v. Daley, 16 F. Supp. 2d 647, 652 (E.D. Va. 1997).

174 Northwest Mining Association v. Babbitt, 5 F. Supp. 2d 9, 14 (D.D.C. 1998).

175 Id. at 652.

176 North Carolina Fisheries Association v. Daley, 16 F. Supp. 2d 647 (E.D. Va. 1997).

177 See additional discussion of this case later in this chapter.Chapter 5: What the courts have said about the RFA 59 In Harlan Land Co. v. United States Depar tment of Agriculture

, 178 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 p ublished 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 nu mber of small entities. Based on that determination, APHIS did not prepare an RFA analysis. 179 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’s 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 p est 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.

In Am erican Fed erat ion of Labor v. Chertoff

, 180 t he Department of Homeland Security (DHS) promulgated a final rule titled Safe

- Harbor Procedures for Employers Who

Receive a No

- Match Letter. Under the rule, an employer who received a “no

- match

letter” (indicating that an employee’s name and social security number did not match ) could take certain actions to avoid liability

. The p laintiff s (union and business representatives) sought a preliminary injunction to bar enforcement of the rule , asserting that it was arbitrary and capricious in violation of the APA, and that promulgation of the

rule violated the RFA. In promulgating the rule, DHS certif ied that the rule wou l d not have a significant impa ct on small entities. However, in briefing, DHS claimed that an RFA analysis was unnecessary because the rule was voluntary, and that the RFA does not apply to interpre ta tive rules. The court did not consider the post

- rule rationalization that the rule was interpretive, focusing instead on DHS’s first argument, which was that there

w a s no impact on small entities because the rule was voluntary. The court was persuaded by the p laintiff ’ s declarations that the rule c ould have significant costs, noting the potential costs of hiring human resources staff to track and solve mismatches, hiri ng legal services help, and training staff. The court decided that there were “serious questions [about] whether DHS violated the RFA,” and granted the plaintiff’s motion for preliminary injunction

. 181

Where the court f ound that c ertification w as a ppropriate

. In other cases, courts found that agencies properly certified rules.

178 Harlan Land Co. v. United States Dept. of Agriculture., 186 F. Supp. 2d 1076 (E.D. Cal. 2001).

179 Id. at 1097.

180 American Federation of Labor v . Chertoff, 552 F.Supp.2d 999, ( N.D.Cal., 2007)

. 181 Id. at 1013.60 RFA guide for government agencies 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. 182
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. T he court up held

the certification , because the rule preserved the status quo, and DOL estimated few firms would have taken advantage of the helper classifications during the interim period pending final rulemaking

. 183

In Environmental Defense Center. v. E.P.A

, 184 EPA issued a ru le, pursuant to the Clean Water Act, to control pollutants introduced into the nation’s waters by storm sewers. The rule mandated that discharges from small municipal storm sewers and construction sites

sized 1

- 5 acres be subject to the permitting requirem ents of the National Pollutant Discharge Elimination System (NPDES). The EPA certified that the r ule would not yield “significant impacts.” The p laintiffs argued that the EPA’s certification was erroneous

because the EPA mislabeled significant costs as “no t significant,” failed to account for the costs of all affected small entities, and failed to account for all significant costs to

small entities. The Ninth Circuit agreed with the N atural R esources D efense C ouncil ’s view that “plain language of § 605(b) s ets ou t a three

- component test indicating that EPA need not perform a regulatory flexibility analysis if it finds that the proposed rule will not have: (1) “a significant economic impact” on (2) “a substantial number” of (3) “ s mall

entities.” 185 The Ninth Circuit determined that the EPA complied with the RFA and reasonably certified that the rule would not have a significant economic impact , but did not explain clearly its reasoning, beyond stating the legal test described above

.

The court also noted that any procedural defect was harmless error because the EPA had already conducted the economic analyses the p etitioners sought when they convened a

s mall b usiness a dvocacy r eview p anel before publishing notice of the proposed rule. The

EPA had fol lowed the advice and recommendations of the p anel and included provisions designed to minimize impacts on such entities, such as alternative compliance and reporting mechanisms responsive to the resources of small entities, simplified procedures, performan ce rather than design standards, and waivers. The court noted that “...the analyses required by RFA are essentially procedural hurdles; after considering the relevant impacts and alternatives, an administrative agency remains free to regulate as it

sees fit

. ” 186

In Cactus Corner v. U.S.D.A

., 187 USDA promulgated a rule allowing and setting conditions for resumption of the importation of Spanish clementines, following a ban after the discovery of live Mediterranean fruit fly (Medfly) larvae. Domestic fruit

grower s and packers sought declaratory and injunctive relief to set aside and hold the rule

182 Associated B uilders and Contractors, Inc., v. Herman, 976 F. Supp. 1 (D.D.C. 1997).

183 Id.

184 Environmental Defense Center. v. E.P.A, 344 F.3d 832 (9th Cir. 2003).

185 Id. at 879

- 880.

186 344 F.3d at 879.

187 Cactus Corner v. U.S.D.A., 346 F. Supp. 2d 1075 (E.D. Cal. 2004).Chapter 5: What the courts have said about the RFA 61 unlawful, claiming, inter alia , that the rule violated the RFA because the agency had failed to prepare an initial or final regulatory flexibility analysis. It also sough t to enjoin

the d efendant from implementing the rule or otherwise allowing the importation of clementines from Spain, and an award of costs, disbursements, and reasonable attorneys ’

fees. USDA conducted a r egulatory i mpact a nalysis (RIA), which concluded that the regulatory benefits outweighed the regulatory costs associated with the implementation of the rule. Based on the RIA, the agency determined that the proposed rule would not have a significant economic impact on a substantial number of small entiti es. The court stated that, because the agency certified that the rule would “likely not have a significant economic impact on a substantial number of small Medfly host crop producers in the

United States

, ” initial and final regulatory flexibility analyses were not needed. 188 It

further stated that the certification was supported by an analytical statement including factors such as the relatively low percentage of income derived by small wholesalers from clementine sales, and that small importers and wholesal ers would likely be “better off” under the proposed regulations when compared with their status under the current ban on the importation of clementines as well as compared with the less strict conditions imposed before the ban. 189 The court stated that the ag ency relied on other analyses supporting its overall conclusion that the rule itself will result in a sufficiently high probability that Medfly infestation will not occur to conclude that any impact the new rule will have on small entities will be positive rather than negative, negating the need for a regulatory flexibility analysis. 190

**Size s**  **tandards**

It is important that an agency use the size standard contained in the Small Business Administration’s small business size standard regulations, 191 promulgated by the SBA under the Small Business Act, or follow the consultation procedures outlined in section 601(3) of the RFA.

Incorrect s ize s tandard

. In Northwest Mining Association v. Babbitt , discussed above,

the court held that BLM violated the RFA because t he agency failed to use the appropriate size standard as defined by the Small Business Administration (SBA). The

court noted that “t he RFA requires agencies to use the Small Business Administration's definition of small entity .” 192 Continuing, the court stat ed 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' ....’” 193 The term “small business” has the same meaning as the term “small business concern” under section 3 of

the Small Business Act. 194 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

188 Id. at 1087

. 189 Id

. at 1115

190 Id. at 1116.

191 13 C.F.R. § 121.201 (1996).

192 Northwest Mining Association

, 5 F. Supp. 2d at 15. See Chapter 1 for detail on exceptions to using SBA

size standards.

193 5 U.S.C. § 601(6).

194 15 U.S.C. § 632; 5 U.S.C. § 601(3).62 RFA guide for government agencies concerns must have 500 or fewer employees to be considered “small.” 195 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

e mployee standard. By using a definition other than the SBA's, the BLM violated the procedure of law mandated by the statute. The court found t hat the definitions section of the RFA uses phrases such as “ 'small entity' shall have the same meaning ...” and “'small

business' has the same meaning ...” 196 (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)

, 197 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. 198 If the agency modifies a small business size standard in the implementation of a rule, it must seek approval from the SBA Administrator. 199

**The agency must conduct an adequate analysis befo re 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. 200 In that matter, the National Marine Fis heries 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 agenc y 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. 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 th e 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 “underta ke a rational consideration of the economic effects and potential [regulatory] alternatives.” 201

195 Id.

196 5 U.S.C. § 601

. 197 Small Businesses in Telecomm. v. FCC, 251 F.3d 1015, 1025 (D.C. Cir. 2001 ).

198 Id.

199 Id. at 1025.

200 Southern Offshore Fishing, 995 F. Supp. at 1437.

201 Id.Chapter 5: What the courts have said about the RFA 63 North Carolina Fisheries

. The North Carolina Fisheries cases provide further guidance on what constitutes adequate analysis prior to certification that there w ill be no significant economic impact on a substantial number of small entities.

The first case arose in 1997. 202 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.” 203 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.” 204 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.” 205

The issue returned to the court in 1998. 206 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. 207

After review, the court concluded that “the Se cretary 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 repo rt that obviously is designed to justify a prior

determination.” 208 The court further stated that as part of an adequate analysis before certification, the agency must consider alternatives less burdensome to small entities. 209
The court concluded that “Congre ss 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 an effort to avoid the require ments 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 q uota 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. 210 In

202 North Carolina Fisheries , 16 F. Supp. 2d at 647.

203 Id at 653.

204 Id.

205 Id.

206 N orth Carolina Fisheries Association v

. Daley, 27 F. Supp. 2d 650 (E.D. Va. 1998).

207 Id. at 660.

208 Id. at 668.

209 Id. at 660.

210 See generally

, National Truck Equip. Association v. NHTSA

, 919 F.2d 1148 (6th Cir. 1990); Northwest Mining Association v. Babbitt, 5 F. Supp. 2d 9 (D.D.C. 1998).64 RFA guide for government agencies Northwest Mining Association v. Babbitt

, 211 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 th at 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. 212

Bare Certification Not Suffi cient

. In Theiss v. Principi

, 213 the Veteran’s Administration promulgated an amendment to define “educational institution,” excluding home schools. The court determined that this was a substantive, legislative rule and was invalid for failure to comply with n otice

- and

- comment procedures under the APA. The court warned that any future amendment should comply with the APA as well as with the provisions of the RFA and that a “bare certification” like the one in this case would likely be

insufficient because it wa s not accompanied by a “statement providing the factual basis

for such certification.” 214

**Direct versus i**  **ndirect i**  **mpact on s**  **mall e**  **ntities**

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. 215 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 r ule 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.” 216

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 ec onomy.” 217 The court concluded that “an agency may properly certify that no regulatory flexibility analysis is necessary when it determines that the rule

211 Northwest Mining Association

, 5 F. Supp. 2d 9.

212 Id at 13.

213 Theiss v. Principi, 18 Vet. App. 204 (2004).

214 Id. at 214.

215 Mid

- Tex Elec. Coop v. FERC, 773 F.2d 327, 342 (D.C. Cir. 1985).

216 Id. at 341.

217 Id.Chapter 5: What the courts have said about the RFA 65 will not have a significant economic impact on a substantial number of small entities that are subject t o the requirements of the rule.” 218

In viewing this decision, the same court later held in United Distribution Companies. v.

FERC 219 that an agency is under no obligation to conduct a small entity impact analysis of effects on entities it does not regulate. B ecause 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

gas. 220

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 Association v.
Nichols, 221 the court found that because the d eemed

- 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. 222

Likewise in American Trucking Associations v. EPA, 223 EPA established a primary national ambient air quality standard (NAAQS) for ozone and particul ate matter. At the time of the rulemaking, EPA certified the rule pursuant to 5 U

. S

. C

. § 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 indi rectly through the state implementation plans. 224 Although the court remanded the rule to the agency for non

RFA reasons, the court found that EPA had complied with the requirements of the RFA.

Similarly, in Michigan v. EPA

, 225 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 i tself imposed no regulations upon small entities. Instead, several states regulate small entities through the state implementation plans the y 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 regulati on.” 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

218 Id. at 343.

219 United Dist. Cos. v. FERC

, 88 F.3d 1105, 1170 (D.C. Cir. 1996).

220 Id.

221 Motor and Equip. Mfrs. Association v. Nichols, 142 F.3d 449, 467 (D.C. Cir. 1998).

222 See American Trucking Associations. 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).

223 American Trucking

, 175 F.3d at 1027.

224 Id.

225 Michigan v. EPA, 213 F.3d at 689.66 RFA guide for government agencies imposing upon small entities any of the burdens of complying with a revised NAAQS.” 226

The court in Cement Kiln Recycling Coalition v. EPA 227 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 modelin g, an approach we have already rejected.” 228

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 necessar y equipment. Some courts have stated that this impact would likewise not require a regulatory flexibility analysis. 229

In White Eagle Cooperative Association v. Conner

, 230 the plaintiffs, a cooperative of milk producers

, brought action challenging USDA ’s amen dment of a regional milk marketing

order. The United States District Court for the Northern District of Indiana entered summary judgment in government's favor, and the association appealed. Among other things, plaintiffs asserted that in adopting the amend ments to the marketing order, USDA violated the RFA by failing to undertake an analysis and by employing the certification option without sufficient factual support. USDA asserted that plaintiffs could not challenge the agency’s RFA compliance because the order regulates handlers

— not producers. Since the plaintiffs are an association of producers, not handlers, USDA argued that plaintiffs lacked standing to challenge the agency’s compliance. The court

held that the association did not have standing to raise a challenge under the RFA because the impact was indirect.

Where an Agency Argued Indirect Impact Unsuccessfully

. In Aeronautical Repair

Station Association v. F.A.A

. 231 , t he plaintiff challenged a final rule of the Federal Aviation Administration (FAA) which amend ed its drug and alcohol testing regulations to expressly mandate that air carriers require drug and alcohol te sts of all employees of its

contractors

, including employees of s ubcontractors at any tier

, who perform safety

related functions such as aircraft maintenance. The plaintiff challenged the r ule on the

226 Id. ; see also, Nat’l Women, Infants, & Children Grocers Association v. Food & Nutr. Serv

. , 416 F. Supp. 2d 92 (D.D.C. 2006) where the court granted summary judgment to the d efendant and denied the

p laintiffs’ motion for summary judgment, holding the FNS certification proper because the interim rule regulated state agencies

— the impac t on small businesses was indirect. Furthermore, the court bolstered its reasoning by citing the fact that FNS stated in the Federal Register that it planned to use data collected from the interim rule to strengthen its ultimate FRFA.

227 Cement Kiln , 255 F .3d at 868.

228 Id.

229 See , e.g., Nichols, 142 F.3d at 467; Cement Kiln, 255 F.3d at 868.

230 White Eagle Cooperative Association, et al.

, v. Charles F. Conner, Acting Secretary, United States Department of Agriculture, 553 F.3d 467 (7 th Cir. 2009)

. 231 Aero. Rep air Station Association v. F.A.A. 494 F.3d 161 (D.C. Cir. 2007).Chapter 5: What the courts have said about the RFA 67 grounds that it impermissibly expand ed the scope of employees tested in violation of the unambiguous statutory language o f § 45102(a)(1)

, the Administrative Procedure Act, 5 U.S.C. §§ 701

- 06 , and the Fourth and Fifth Amendments to the United States

Constitut ion. In addition, it challenge d the FAA's conclusion that it was not required to conduct a regulatory flexibility analysis

. The court uph e ld the substance of the r ule but reject ed the FAA's RFA determination.

In the NPRM, the FAA performed a tentative RFA analysis and counted among RFA small entities both air carriers and Part 145 repair stations because it could not determine how many of the 2,412 P art 145 repair stations are considered small entities. In the

second NPRM, the FAA determined that the small entity group is considered to be P art 145 repair stations, but it still could not determine how many of the P art 145 repair

stations and their subcontractors were considered small entities. The FAA concluded t hat

mos t, if not all of the non certificated maintenance contractors would be considered small

entities

. Based on its calculation of annualized costs of less than 1 percent of annual median revenue, the FAA certified that the proposed action would not have a signi ficant economic impact on a substantial number of small entities.

Although commentators raised RFA issues, in the final rule FAA disagreed and asserted that contractors were not among entities regulated under the testing regulations for the purpose of the RFA. The FAA noted that the directly regulated employers were a ir carriers operating under 14 CFR P arts 121 and 135

, § 135.1(c) operators

, and air traffic control facilities not operated by the FAA or under contract to the U.S. military, who

must conduct drug and alcohol testing under the FAA regulations. For drug and alcohol testing purposes, certificated repair stations were contractors, and contractors were not regulated employers. Accordingly, the FAA concluded it was not required to conduct an

RFA ana lysis, including considering significant alternatives, because contractors (including subcontractors at any tier) were indirectly regulated entities.

In making its determination, the FAA relied on the Mid

- Tex case and other cases that held

that under the RFA the regulating agency need consider only the economic impact o n businesse s directly affected and regulated by the subject regulations. The p laintiffs

asserted that the FAA's determination was incorrect. The court found that

, unlike the parties claiming economic injury in the cited cases, the contractors and subcontractors were directly affected and therefore regulated by the challenged regulations. Although the regulations immediately addressed the employer air carriers which we re in fact the parties

ce rtified to operate aircraft

, the regulations expressly required that the employees of contractors and subcontractors be tested. Thus, the contractors and subcontractors (at whatever tier) were entities subject to the proposed regulation

.

The FAA also asserted that it had substantially complied with the RFA because it

conducted initial evaluations and a final economic evaluation of the effects on the industry, responding to comments following the proposal. The court found that the final

evaluation was n ot a FRFA because the FAA determined that contractors and subcontractors are not regulated entities for the purpose of the RFA. In addition, the FAA did not consider alternatives as required by the RFA. The court uphe ld the subst ance of68 RFA guide for government agencies the FAA's 2006 f ina l f ule and remand ed for the limited purpose of conducting the analysis required under the RFA, treating the contractors and subcontractors as regulated

entities.



### The initial regulatory flexibility analysis

Because an agency’s initial regulatory flexibil ity analysis cannot be the subject of litigation, 232 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 provid e 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. 233

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 pain ts. 234
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 co atings 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 determ ine 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

c ommercial products, and that its decisions were neither arbitrary nor capricious. The court, therefore, found that EPA had met its obligations under the RFA.

Similarly, in U.S. Cellular Corp. v. FCC, 235 the court noted that an IRFA is not subject to judici al 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 th e 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

232 Because § 611 of the RFA does not mention § 603, the IRFA requirement, a court would consider a pre

promulgation challenge unripe.

233 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”).

234 Allied Local and Reg’l Mfrs. Caucus v. EPA, 215 F.3d 61 (D.C. Cir. 2000).

235 U.S. Cellular Corp. v. FCC, 254 F.3d 78, 89 (D.C. Cir. 2001).Chapter 5: What the courts have said about the RFA 69 expressly prohibits courts from considering claims of noncompliance with RFA section 603’s req uirement to issue an IRFA. 236



### The final regulatory flexibility analysis

**General c**  **ontent**

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 mea ningful, easily understood analysis that covers each requisite component dictated by the statute and makes the end product readily available to the public.” 237 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

, 238 the court held that the regulatory analysis was compliant with the terms of the RFA where t he 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. 239

T he court addressed the issue in National Association of Mortgage Brokers v. Bo ard of Governors of the Federal R eserve System

. 240 In that case, the National Association of Independen t Housing Professionals, Inc. ( NAIHP) and the National Association of Mortgage Brokers (NAMB) “requested the Court to issue a temporary restra ining order and preliminary injunction to enjoin the Board of Governors of the Federal Reserve System [Board] from implementing a Final Rule . . . that restricts certain compensation practices of loan originators relating to mortgage loans.” Among other cl aims, the Plaintiffs argued that the Board failed to comply with the RFA because they “[1] failed to provide a statement of need for or objectives of the rule; [2] failed to meaningfully analyze the Rule’s impact on small businesses; [3] failed to respond to public comments; and [4] failed to analyze alternatives to the proposed regulation.” The court disagreed, finding that the FRFA stated that the r ule address ed problems that have been observed in the mortgage market in order to prohibit unfair and decept ive acts and practices in connection with mortgage loans , and recognized that the r ule would have a “‘significant economic impact on a substantial number of small entities but the precise compliance

costs w ere difficult to ascertain . The FRFA also discusse d and rejected alternatives from

236 Id.

237 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 Association 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).

238 Alenco Communications v. FCC, 201 F.3d 608 (5th Cir. 2000).

239 Id. at 625.

240 National Association of Mortgage Brokers v. Board. Of Governors of the Federal Reserve System, 773

F. Supp. 2d 151 (D.D.C. 2011).70 RFA guide for government agencies public comments . The court stated that the Board did not need to address each portion of the rule challenged in the comments because it “addressed the effects of all of the Rule’s prohibitions regarding loan originator comp ensation collectively, and this satisfies the Board’s obligations under 5 U.S.C. § 604(a). ” In making its ruling the court reiterated that the RFA’s requirements are purely procedural and al though it directs agents to state, summarize, and describe, the RF A in and of itself imposes no substantive constraints on agency decisionmaking. Moreover, the agency does not need to present its FRFA in any particular mode of presentation, as long as the FRFA 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. Finally, the court noted that failure to comply with the RFA may be, but does not have to be, grounds for overturning a rule. Additionally, while m aking a s ection 604 challenge, parties may raise the related but distinct claim that an agency did not reasonably address the r ule’s impact on small businesses and such challenges are evaluated under the arbitrary and capricious standard

of review. 241

**I s 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.

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 b y publishing a FRFA subsequent to the rulemaking. 242 In National Propane Gas Ass ociation v. DOT, 243 t he 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 rulemak ing 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 a ll affected parties, including small businesses. The court agreed, and found that although the agency did not prepare a FRFA, all of the

241 Id. at 178.

242 National Propane Gas Association , 43 F. Supp. 2d at 681.

243 Id.Chapter 5: What the courts have said about the RFA 71 elements of a FRFA were available throughout their summary of such analysis published

in the Federal Register . The cour t 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 pr ovide comment, and it also found that to require an additional analysis by the agency would be duplicative.

**Considering a**  **lternatives to t**  **he f**  **inal r**  **ule**

Section 604 of the RFA requires the agency to consider alternatives that would achieve the statutory ob jectives 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.” 244

In AML International, Inc., v. Daley

, 245 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. The p laintiffs asserted that NMFS failed to comply with the RFA because the NMFS failed to c onsider alternatives.

The court found that NMFS’ s 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. 246

Similarly, in Ace Lobster Co. v. Evans

, 247 t he 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 Departme nt 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 f ishery, 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 t he 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. 248 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 minim ize 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 o ther

244 National Association of Psychiatric Health Sys

. v. Shalala , 120 F. Supp. 2d 33, 42 (D. D.C. 2000).

245 AML Int’l v. Daley

, 107 F. Supp. 2d 90 (D. Mass. 2000).

246 Id. at 105.

247 Ace Lobster Co. v. Evans, 165 F. Supp. 2d 148 (D. R.I. 2001).

248 Id. at 185.72 RFA guide for government agencies 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. 249

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 eve ry alternative, only significant ones. 250 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. 251

What is a significant alternative? This question was clarified by the court in Little Bay

Lobster Co. v. Evans

. 252 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

- à

- vis other similarly af fected small

entities. 253

In Hall v. Evans

, 254 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 ca tegories 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

sm all 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 addres s 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 eno ugh

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. 255

249 Id.

250 Associated Fisheries of Maine , 127 F.3d at 115; See also Grand Canyon Air Tour Coalition

, 154 F.3d at

470 and Blue Water Fisherm e n’s Association v. Mineta, 122 F. Supp. 2d 150, 178 (D. D.C. 2000).

251 Associated Fisheries of Maine , 127 F.3d at 114.

252 Little Bay Lobster Co v. Evans , 2002 WL 1005105, Slip. Op. (D. N.H. May 16, 2002).

253 Id. at 25.

254 Hall v. Evans, 165 F. Supp. 2d 114 (D.R.I. 2001).

255 Id. at 147.Chapter 5: What the courts have said about the RFA 73 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

s mall entities was rejected.

In Ashley County Medical Center v. Thompson

, 256 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 hosp itals 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 wer e 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 consid ered and rejected in the Federal Register

, and thus all the requirements of the RFA were clearly satisfied. 257

Conversely, in Nat’l Assoc. of Psychiatric Health Sys. v. Shalala

, 258 the p laintiffs 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 adop ting 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. 259
Specifically, the Secretary did not obtain data o r 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 o f section 604(a) of the RFA. 260 The court thus remanded the matter to HHS for completion of a compliant FRFA. 261

However, in Southern Offshore Fishing Ass’n v. Daley

, 262 the court stated that the agency’s consideration of alternatives was inadequate. Particular ly troublesome to the

256 Ashley County Med. Ctr. v. Thompson

, 205 F. Supp. 2d 1026 (E.D. Ark. May 13, 2002).

257 Id. See also Nat’l Coal. for Marine Conservation v. Evans, 231 F. Supp. 2d 119 (D.D.C. 2002) where plai ntiffs argued that the Florida Closure violated the RFA, alleging that the DOC’s analysis of the economic, social

, and environmental effects of the closure as well as alternatives to minimize harm impacts Florida’s fishing communities was flawed or superfi cial. The court held that the DOC considered alternatives, and granted the DOC’s motion for summary judgment.

258 National Association of Psychiatric Health Sys. v. Shalala, 120 F. Supp. 2d 33 (D.D.C. 2000 ).

259 Id. at 44.

260 Id. Note that because of renumberin g resulting from an added provision in the RFA, section 5 is now

section 6.

261 Id . at 42.

262 Southern Offshore Fishing Association v. Daley, 995 F. Supp. 1411 (M.D. Fla. 1998).74 RFA guide for government agencies 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 page s to considering potential

alternatives.” 263

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 propo sals which include differing compliance standards. 264

• Where the Secretary is not granted the authority to examine alternatives in implementing the regulation. 265

**Analysis of the e**  **conomic i**  **mpact**

What type of analysis must the agency conduct? It is now well established that the RFA does not require an economic modeling, per se. 266 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 statute s.” 267 Neither cost

benefit analysis nor economic modeling is specifically required, 268 as long as the agency compiles a meaningful, easily understood analysis that covers each requisite component dictated by the statute and makes the end product

— whatever form it reasonably may

take

— readily available to the public. 269 However, such an 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 provi ding 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. 270 Courts have stated that sufficient analysi s and

263 Southern Offshore Fishing Association. at 1437.

264 Greater Dallas Home Care Alliance v. United States, 10 F. Supp. 2d 638, 648 (N.D. Tex. 1998).

265 Greater Dallas Home Care Alliance v. United States, 36 F. Supp. 2d 765, 769 (N.D. Tex. 1999).

266 Alenco Communications, 201 F.3d at 625; s ee also Ashley County Med. Ctr 205 F. Supp. 2d a t 1026; and Ace Lobster, 165 F. Supp. 2d at 184

. 267 Alenco Communications

, 201 F.3d at 625.

268 See National Telephone Cooperative Associat i on v. Federal Communications Commission and United States of America, 563 F.3d 536, 385 U.S. App. D.C. 327, 47 Communications Reg. (P&F) 985 (C.A. D.C. 2009) , where the court reiterated its previous finding that the RFA’s requirements are “purely procedural.” Though it directs the agencies to state, summarize, and describe, the a ct in and of itself im poses no substantive constraint on agency decisionmaking. The RFA requires agencies to publish analyses that address certain legally delineated topics. Because the analysis at issue addressed all of the legally mandated subject areas, it complied with the RFA

. See also Association of American Physicians & Surgeons v.
H.H.S., 224 F. Supp 2d 1115 (S.D. Tex. 2002).

269 National Association of Mortgage Brokers at 178.

270 Alenco Communications

, 201 F.3d at 625

.Chapter 5: What the courts have said about the RFA 75 explanations for the rejection of alternatives are all that is necessary to satisfy this requirement. 271

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. 272

What is the relevant economic impact that agencies should consider? For the purpose of flexibility analysis, the relevant econo mic “impact” is the impact of compliance. 273

The RFA requires only that the agency consider the economic effect on the entity, and not the effect on specific revenue earned. 274 This means that the agency need not consider how one particular element of the aff ected 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 profil e 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 r esearch, 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. 275

In North Carolina Fisheries Ass’n v. Daley

, 276 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 following criteria: 277

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?

271 Ace Lobster, 165 F. Supp. 2d at 185.

272 Associated F isheries of Maine , 127 F.3d at 115.

273 Mid

- Tex , 773 F.2d at 342.

274 Washington v. Daley, 173 F.3d 1158, 1170 (9th Cir. 1999).

275 North Carolina Fisheries , 27 F. Supp. 2d at 660.

276 Id.

277 It should be noted that NMFS no longer uses these criteria for its RFA analyses.76 RFA guide for government agencies 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 permit s 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 woul d 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 fle et 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. 278 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 communi ty 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. Th e 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. 279

**Public c**  **omments**

O rdinarily, 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 informatio n regarding the regulated industry’s profile and regulatory impacts through public comments.

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 enti tled to rely on information not exposed to comment only as long as it is not substantially related to the agency’s rationale. 280 Any information relied on in the analytical process at all, however, must be included in the IRFA.

278 North Carolina Fisheries

, 27 F. Supp. 2d at 660.

279 Id.

280 National Mining Association v. Chao, 160 F. Supp. 2d 47, 88 (D.D.C. 2001).Chapter 5: What the courts have said about the RFA 77 

### 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. “In any such action, the Chief Counse l 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.” 281 The standard of review is wh e ther the agency acted in a manner that was arbitrary and capricious. 282

281 5 U.S.C. § 6 12 (b).

282 National Associat ion of Mortgage Brokers v. Board of Governors at 178.Chapter 6: Section 610 periodic review of rules 79 

## C HAPTER 

## 6 S ECTION 

## 610 R EVIEW OF E XISTING R ULES

Section 610 of the Regulatory Flexibility Act 283 requires federal agencies to review regulations that have a significant economic impact on a substantial number of small

entities 284 within 10 years of their adoption as final rules. In Executive Orders 13563 and 13579, President Obama reaffirmed the need for agencies to carry out r etrospective analyses of existing rules. 285 For example, Executive Order 13563 says that:

Within 120 days of the date of this order, each agency shall develop and submit to the Office of Information and Regulatory Affairs a preliminary plan, consistent with law and its resources and regulatory policies, under which the agency will periodically review its existing significant regulations to determine whether any such regulations should be modified, streamlined, expanded, or repealed so as to make the agency’s regulatory program more effective or less burdensome in achieving the regulatory objecti ves. 286

Executive Order 13579 reiterates the provisions relating to retrospective analyses of existing rules, noting that independent agencies should, within 120 days of the date of the order, develop and release to the public a plan as described in E.O. 13563. 287 President Obama issued a memorandum with the executive order, asking the independent agencies to reassess their regulations and to follow the principles of E.O. 13563.

These periodic rule reviews are a mechanism for agencies to assess the impact o f 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 require ment has varied substantially from agency to agency since 1980. 288 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 invol vement they allow, and the amount of information they provide to the public about their reviews.

Statements made during the 1980 debate on the Regulatory Flexibility Act demonstrate that Congress intended for section 610 to be a mechanism that requires ag encies to

283 5 U.S.C. § 610 (2000).

284 “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 juri sdictions 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).

285 Exec. Order No. 13,563 § 6 and Exec. Order No. 13,579 § 2.

286 Exec. Order No. 13,563 § 6(b).

287 Exec. Order No. 13,579 § 2(b).

288 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 Re quirement

– and Current Proposals to Invigorate the Act,

33 Fordham Urb. L.J. 1199

- 1255 (2006).80 RFA guide for government agencies periodically re

- examine the regulatory burden of their rules vis

- à

- vis small entities, considered in the light of changing circumstances. 289 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 an d technology may necessitate modifications of existing, anachronistic regulations to assure that they do not unnecessarily impede the growth and development of small entities. 290



### RFA s ection 610 review

T he objective of a section 610 review is like the goal of many other retrospective rule

reviews: 291 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.

**R eview**  **of rules that were originally certified** 

In some cases

, e ven 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, 292 changed conditions may mean that the rule now

does have a significant impact and therefore should be reviewed under section 610. For

289 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 as sess 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

r ules 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 mirr or 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 Execu tive 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.

290 Office of Advocacy, The Regulatory Flexibility Act (October 1982).

291 Typ ical 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.

292 See 5 U.S. C. § 605(b).Chapter 6: Section 610 periodic review of rules 81 example, many more small businesses may be subject to the rule now than when the rule was promulgated. The cost of compliance with a current rule may have increased sharply because of a required new technology. If there is evidence (such as new cost or burden data) that a rule is now having a sign ificant economic impact on a substantial number of small entities, including small communities or small nonprofit 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) is 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.” Th ird, 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 the intent of section 610. EPA and OSHA, for example

— which b etween them determine that at most one or two rules each year will have such an impact

— will exclude from section 610 review each of the hundreds of other rules promulgated annually that may now have a significant impact

on small entities. Given the legisla tive 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 tha t originally had a significant impact, rather than rules that now 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 s ection 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 the rule is now having an impact on small

entities

.

**Scope of the review**

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 6 10(b)(1)

- (5):

• 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

r egulatory objective as this rule; and82 RFA guide for government agencies • The length of time since the agency has reviewed this rule, and/or the extent to

wh ich circumstances have changed which may affect regulated entit ies.

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

ec onomic ana lysis similar to the initial regulatory flexibility a nalysis (IRFA) under section 603 of the RFA, taking into account the limitations on data availability and limited agency resources. 293 Agencies have the discretion to place significant weight on

other rele vant 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

ben efit 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 sub

sectors, and widespread noncompliance with reporting and other paperwork

r equirements. Thus, a useful review should go beyond obvious measures such as ensur ing 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 have a significant impact on 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

information and data supplied by the public, and indicate the sources of the data. To the

extent t hat 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.

**Timing of the review** 

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 pl ace prior to the 10

- year mark. If an agency substantially revises a rule after its initial promulgation, it is

293 See 5 U.S.C. § 603. T he 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.Chapter 6: Section 610 periodic review of rules 83 arguable 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 age ncy’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.

**Outreach to regulat**  **ed small**  **entities**

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 pu rpose. 294 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 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 w ebsite 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

610 reviews. 295

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

294 The Unified Regulatory Agenda can be accessed at http://www.reginfo.gov

. 295 See, e.g., www.osha.gov

, www.epa.gov , and www.dot.gov and search for “RFA section 610.”84 RFA guide for government agencies through trade groups, and getting a specific me ssage to a targeted audience. Advocacy is ready to assist agencies in their outreach efforts.

**Using other agency reviews to satisfy section 610**

Agencies that undertake retrospective rule reviews to satisfy other agency objectives may

also be able to sat isfy 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 Executive Order 13563 296 , or earlier, the Office of Management and Budget’s 20 02 publicly nominated rule reform process 297 or OMB’s manufacturing rule reform process 298 could qualify as section 610 reviews, if they otherwise met the criteria for section 610 review. Similarly, agencies that undertook retrospective reviews of their regula tory 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 i n these circumstances is to communicate adequately with stakeholders, and with Advocacy.



### Examples of successful retrospective rule reviews

Federal Rail road Administration’s Section 610 Review of Railroad Workplace Safety

. On December 1, 2003, the Department of Transportation’s Federal Railroad

Administration (FRA) completed a section 610 review of its railroad workplace safety regulations. After determining that the workplace safety regulations had a significant

economic i mpact 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 t he workplace safety regulations under each review factor and the agency’s

conclusions. 299

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 Conser vation 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

296 See, for ex ample, p. 61 of 20 11 Report to Congress on the Costs and Benefits of Federal Regulations and Unfunded Mandates on State, Local, and Tribal Entities (20 11 ) available at http://www.whitehouse.gov/sites/default/files/omb/inforeg/2011_cb/2011_cba_report.pdf

. 297 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 http://yosemite.epa.gov/SAB/sabcvpess.nsf/0/5143268e911789ba85256db900562c4b/$FILE/2003_cost

ben_final_rpt.pdf

. 298 See Regulatory Reform of the U.S. Manufacturing Sector (2005) at http://georgewbush

whitehouse.archives.gov/omb/inforeg/reports/manufacturing_initiative.pdf

. 299 See http://www.fra.dot.gov/downloads/safety/railroad_workplace_safety.pdf

.Chapter 6: Section 610 periodic review of rules 85 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 an d 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. 300

OSHA Excavations Standard. In March 2007, the Occupational Safety and Health Administration 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

tr enches 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 t hat 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. O SHA concluded that its current

e xc avations standard has reduced deaths from approximately 90 per year to about 70 per

year. 301

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. 302



### 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. For more information about this guidance, or for other questions about c ompliance with section 610, contact Advocacy at (202) 205

- 6533.

300 71 Fed. Reg. 16,862 (April 4, 2006).

301 72 Fed. Reg. 14,727 (March 29, 2007).

302 70 Fed. Reg. 33,416 (June 8, 2005).Chapter 7: Additional RFA requirements 87 

## C HAPTER 

## 7 A DDITIONAL 

## RFA AND 

## SBREFA R EQUIREMENTS

This c hapter addresses additional agency responsibilitie s 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) developing compliance guides, ( 3 ) establishing penalty reduction policies, and ( 4 ) offering compliance

assistance. In addition, SBREFA created a process for small businesses to report excessive federal agency enforcement actions.



### Semi

- a nnual r egulatory a genda

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. 303 Each agency is required to list all rules it expects to propose or promulgate that are likely to hav e 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 c oming year. Agencies generally prepare and publish their regulatory flexibility agenda with the

u nified r egulatory a genda required by Executive Order 12866

. 304

The regulatory flexibility agenda must contain:

• A brief description of the subject area of any r ule 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 g uide for a discussion o f h ow to

c ertify a r ule.)

• A summary of the nature of each such r ule 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

.

• T he name and telephone number of an ag ency 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. 305

303 5 U.S.C. § 602(a).

304 Exec. Order 12,866 § 4(b).

305 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 offe rs a service (listserv) to which a small entity can subscribe and

tailor to receive notification when certain documents reach the DMS.88 RFA guide for government agencies 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 opportunity to provide an agency with input on a pre

- publication draft of the agency’s regulatory flexibility agenda. Advocacy w ill review the draft agenda and may provide comment on its completeness and t he 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.



### Small e ntity c ompliance g uides

For each rule (or related series of rules) requiring a final regulatory flexibility analysis,

sectio n 212 of SBREFA requires the agency to publish one or more small entity compliance guides. 306 Agencies are required to publish the guides with publication of the final rule, post them to websites, distribute them to industry contacts, and report annually

to Congress

. 307

Agency compliance with this requirement is varied. 308 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 entit y 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. 309

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 co nsultants 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 throu gh small business associations and organizations.

306 Small Business Regulatory Enforcement Fairness Act, Pub. Law 104

- 121 § 212.

307 The Small Business and Work Opportunity Act of 2007 added these additional requirements for agency compliance to SBREFA.

308 See generally Regulatory Reform: Compliance Guide Requirement Has Had Little Effect on Agency

Practices (GAO

- 02

- 172, December 2001).

309 See § 215 of the Small Business Regula tory Enforcement Fairness Act of 1996, Pub. L. No. 104

- 121, 110 Stat. 857 (codified at 5 U.S.C. § 601 et seq.).Chapter 7: Additional RFA requirements 89 Most important, the agency must issue the compliance guide with the final rule

, well before the deadline for small entity compliance. To accomplish this, an agency should include development of the complia nce 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 in ception 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

wh ich agencies have failed to meet even the mo st basic requirements of the statute. For instance, the Federal Acquisition Regulation ( FAR ) Council 310 publishe d a list of rules for which a FRFA was prepared. This is no t 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 sma ll business for a violation. 311



### Informal c ompliance a ssistance

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 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 u sing 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. 312

310 The (FAR Council prepares and issues revisions to the uniform policies and procedures for acquisition by all executive agencies. The FAR Counc il does this in conjunction with the Defense Acquisition Regulations (DAR) Council and the Civilian Agency Acquisition (CAA) Council. 48 C.F.R § 1 (2000).

311 Sections 231

– 233 of SBREFA amended the Equal Access to Justice Act (EAJA). These provisions expande d 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 unreaso nable 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.

312 The Committee on Sm all 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 SBRE FA.90 RFA guide for government agencies 

### Regulatory e nforcement f airness

Section 222 of SBREFA establishes a process for small businesses to register complaints

a bout excessive enforcement actions. Pursuant t o the law, the A dministrator of the U.S. Small Business Administration has designated a National Ombudsman and Assistant Administrator for Regulatory Enforcement Fairness and established Small Business Regulatory Fairness Board s in each of the SBA’s 10 reg ions.

Each s mall b usiness r egulatory f airness b oard 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 f airness b oards have the aut hority to hold hearings. Fairness b oard members are small business owners and operators appointed by the SBA A dministrator after consultation with the chairperson and ranking minority members of the House and Senate Committees on Small Business.

The Ombud sman 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 r egulatory f airness b oards.

For more information on the Ombudsman, visit http://www.sba.gov/ombudsman/

.



### Penalty r eduction p olicies

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. 313 Agencies were to imp lement their small entity penalty reduction and waiver programs within one year of the enactment of SBREFA in 1996 and to report on their programs to Congress one year

later. 314 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:

• R equiring a small entity to correct the violation within a reasonab le period of

time

.

313 See generall y 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 sectio n 601 of the RFA.

314 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.Chapter 7: Additional RFA requirements 91 • L imiting 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

.

• E xcluding small entities that have been subject to multiple enforcement actions by the agency

.

• E xcluding violations involving willful or criminal conduct

.

• E xcluding violations that pose serious health, safety

, or environmental threats

.

• R equiring a good

- faith effort to comply with the law.



### Congressional r eview

The Congressional Review Act, Section 251 of the Contract with America Advancement Act of 1996 (which also includes SBREFA)

, requires agencies to provide Congress with notice of final agency rulemaking actions and the opportunity to r eview a “ major rule ”

before it becomes effective. 315 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). 316
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

. ” 317

• T he proposed effective date of the regulation.

In ad dition, 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

.

• T he agency's actions relevant to secti on s 603, 604, 605, 607, and 609 of the RFA

.

• T he agency's actions relevant to section s 202, 203, 204, and 205 of the Unfunded

Mandates Reform Act of 1995. 318

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

315 Codified at Chapter 8 of title 5, United States Code.

316 5 U.S.C. § 801. The GAO’s website, http://www.gao.gov , includes information on major rules, including a form for submitting a rule under the Congressional Review Act ( http://www.gao.gov/decisions/majrule/fedrule2.pdf ).

317 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

an nual 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).

318 2 U.S.C. § 1501.92 RFA guide for government agencies rule’s publication in the Federal Register

. Congress may disapprove or rescind a rule by a joint resolution of disapproval, subject to a p residential veto. 319



## C ONCLUSION

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 es t ablishes 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 s eeks 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 hope s that this guide helps to achieve this objective.

319 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 Hea lth Administration from going into effect.Appendix A: The Regulatory Flexibility Act 93 

## A PPENDIX 

## A T HE 

## R EGULATORY 

## F LEXIBILITY 

## A CT

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), the Dodd

- Frank Wall

Street Reform and Consumer Protection Act (P.L. 111

- 203) , and the Small Business Jobs Act of 2010 (P.L. 111

- 240)

.

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 age ncies 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 busin esses, small organizations, and small governmental jurisdictions even though 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

ins tances 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 diff erences 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 m any 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 regu latory 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 st ated 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 a dopted 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 continue d 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.94 RFA guide for government agencies 

### 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 Perio dic 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 whi ch 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

s ection 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 th e 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 establis hes, 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 appr opriate 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 t erm “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 ob taining, 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

—Appendix A: The Regulatory Flexibility Act 95 (i) answers to identical questions posed to, or identica l 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 whic h 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 requir ement 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 c onsideration 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 o f 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 Busine ss 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 o btained 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 t o 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 rul e, 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 sh all 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 ag ency 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 a pplies 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 r egulatory 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;96 RFA guide for government agencies (3) a descripti on 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 c lasses 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, ov erlap 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 minimiz e 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 performanc e rather than design standards; and (4) an exemption from coverage of the rule, or any part thereof, for such small entities. (d) (1) For a covered agency, as defined in section 609(d)(2), each initial regulatory flexibility analysis shall include a descri ption of

— (A) any projected increase in the cost of credit for small entities; (B) any significant alternatives to the proposed rule which accomplish the stated objectives of applicable statutes and which minimize any increase in the cost of credit for small entities; and (C) advice and recommendations of representatives of small entities r elating to issues described in subparagraphs (A) and (B) and subsection (b). (2) A covered agency, as defined in section 609(d)(2), shall, for purposes of complying with paragraph (1)(C)

— (A) identify representatives of small entities in consultation with the Chief Counsel for Advocacy of the Small Business Administration; and (B) collect advice and recommendations from the representatives identified under subparagraph (A) relating to issues described in subparagraphs (A) and (B) of paragraph (1) and subsec tion (b).

§ 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 statement of the need for, and objectives of, the rule; (2) a statement of the significant issues raised by the public comments in response to the initial regulatory flexibility analysis, a statement of the assessment of the agency of such issues,

and a statement o f any changes made in the proposed rule as a result of such comments; (3) the response of the agency to any comments filed by the Chief Counsel for Advocacy of the Small Business Administration in response to the proposed rule, and a detailed statement of any change made to the proposed rule in the final rule as a result of the comments; (4) 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;Appendix A: The Regulatory Flexibility Act 97 (5) 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

re port or record; (6) 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; (6) 1 for a covered agency, as defined in section 60 9(d)(2), a description of the steps the agency has taken to minimize any additional cost of credit for small entities.

(b) The agency shall make copies of the final regulatory flexibility analysis available to members of the public and shall publish in th e Federal Register such analysis or a summary thereof..

1 So in original. Two paragraphs (6) were enacted.

§ 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. (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 s uch 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

agenc y 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 sect ions 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 w ith 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 promulgated98 RFA guide for government agencies in response to an emergency that makes compliance or timely compliance with the provisions of section 603 of this title impractica ble. (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 an d 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 respon se 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 dat e 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 t hat 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 advance notice of proposed rulemaking, if issued, of a statement that the proposed rul e may have a significant economic effect on a substantial number of small entities; (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 entiti es; (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

comp lexity 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 aff ected; (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 tho se 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 advi ce 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) andAppendix A: The Regulatory Flexibility Act 99 (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 (1) the Environmental Protection Agency, (2) the Consumer Financial Protection Bureau of the Federal Reserve System; and (3) the Occupational Safety and Health Administration of the Depa rtment 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. F or 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 respec t 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.

§ 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 revi ew 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 th e 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

substanti al 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 R egister 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 t he 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) th e 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, eco nomic conditions, or other factors have changed in the area affected by the rule.100 RFA guide for government agencies (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 accordanc e 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 pr ovision 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 jud icial 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 actio n 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

— (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 fina l 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 secti on, 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 o f 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.Appendix A: The Regulatory Flexibility Act 101 § 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 Re presentatives. (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 p resent 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 Chi ef Counsel for Advocacy of the Small Business Administration to appear in any such action for the purposes described in subsection (b).102 RFA guide for government agencies 

## A PPENDIX 

## B RFA RECENT DEVELOPMENTS

January 31, 2011

MEMORANDUM FOR THE HEADS OF EXECUTIVE DEPARTMENTS AND AGENCIES

FROM: Winslow Sargeant, Ph.D Chief Counsel for Advocacy, U.S. Small Business Administration

SUBJECT: Regulatory Flexibility Act: Recent Developments

As required by Executi ve Order 13272 1 , I am writing to advise you of recent activity related to the Regulatory Flexibility Act (RFA) and provide additional guidance related to these changes.

Since 2007, several amendments to the RFA have become law, and this memorandum descri bes these changes. President Obama has also recently expressed his renewed commitment to regulatory review and regulatory relief. On January 18, 2011, President Obama issued Executive Order 13563, “Improving Regulation and Regulatory Review,” 2 and a Memora ndum on Regulatory Flexibility, Small Business, and

Job Creation. 3

The Office of Advocacy strongly endorses these principles and policies and is ready to assist you and your agencies in compliance with the RFA, Executive Order 13563, and the President ‟ s memorandum. The Office of Advocacy provides RFA training to agencies as required by Executive Order 13272. Requests for training should be directed to Claudia Rodgers, Deputy Chief Counsel for Advocacy,

Claudia. Rodgers @sba.gov

.

The Small Business and Work Opportunity Act of 2007 requires timely publication of small entity compliance guides.

Congress enacted additional requirements for agency compliance guides in 2007, as part of the U.S. Troop Readiness, Veterans' Care, Katrin a Recovery, and Iraq Accountability Appropriations Act of 2007. 4
This statute requires an agency to:

• Publish one or more „small entity compliance guides ‟ for any rule for which it must prepare a Final Regulatory Flexibility Analysis; 5

___________________________

1 Executive Order 13272, signed August 13, 2002 (67 Fed. Reg. 53,461 (August 16, 2002). Section 2(a) requires the Chief Counsel for Advocacy to ““notify agency heads from time to time of the requirements of the [Regulatory Flexibility] Act.”

2 76 Fed. Reg . 3821 (January 21, 2011).

3 Memorandum for the Heads of Executive Departments and Agencies, “Regulatory Flexibility, Small Business, and Job Creation” (76 Fed. Reg. 3827 (January 21, 2011)).

4 Pub. Law 110

- 28 (May 27, 2007). See Title VI, Subtitle B, sec. 7005.

5 See 5 U.S.C. 604 for the requirements for a Final Regulatory Flexibility Analysis.Appendix B: RFA recent developments 103 Page 2

• Publish these guides with publication of the final rule, if possible, but before the effective date of the rule;

• Post these guides to its website and distribute to known industry contacts; and

• Report annually to Congress.

The statute also describes generally what should be included in a compliance assistance guide.

The Dodd

- Frank Wall Street Reform and Consumer Protection Act requires Small Business Advocacy Panels for CFPB rulemakings.

The Dodd

- Frank Wall Street Reform and Consumer Protection Act,6 passed July 2010, establishes the

Consumer Financial Protection Bu reau (CFPB) to supervise certain activities of financial institutions. This Act requires the CFPB to comply with the RFA section 609 panel process, making it the third agency with this responsibility, joining EPA and OSHA.7 The Office of Advocacy looks for ward to working with this

new agency.

The Small Business Jobs Act of 2010 requires Final Regulatory Flexibility Analyses to be more detailed and to respond to Advocacy comments.

On September 27, 2010, President Obama signed into law the Small Business Jobs Act of 2010.8 This act amended the RFA by making the following three changes to the requirements for Final Regulatory Flexibility Analyses.

• It struck the word “succinct” from the requirement for “a succinct statement of the need for, and objectives of, the rule.” 9

• It replaced the word “summary” with the word “statement” in the requirement for “a summary statement of the significant issues raised by the public comments in response to the initial regulatory flexibility analysis, a summary statement 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.” 10

• It added a new paragraph to require “the response of the agency to any comments filed by the Chief Counsel for Advocacy of the Small Business Administration in response to the proposed rule, and a detailed statement of any change made to the proposed rule in the final rule as a result

of the comments.” 11

__________________________________

6 Pub. Law 111

- 203 (July 21, 2010).

7 Id. , Sec. 1100G. See 5 U.S.C. § 609(d).

8 Pub. Law 111

- 240 (September 27, 2010).

9 Id. , Sec. 1601(1), amending 5 U.S.C. § 604(a)(1).

10 Id. , Sec. 1601(2), amending 5 U.S.C. § 604(a)(2).

11 Id. , Sec. 1601(3), insert ing 5 U.S.C. § 604(a)(3). This codifies the requirement from E.O. 13272, Sec. 3(c) without an exemption for a public interest. Page 3104 RFA guide for government agencies Executive Order 13563 requires consultation with affected entities and reviews of existing regulations.

Executive Order 13563, Improving Regulation and Regulatory Review, 12 reaffirms the principles of Executive Order 12866, including the consideration of alternatives, cost

- benefit analysis, and the consideration of distributional and cumulative economic impacts. These principles reinforce the agencies ‟ obligations under the RFA.

This new Executive Order instructs agencies to seek the views of affected entities prior to proposed rulemaking. 13 The Office of Advocacy strongly urges agencies to ensure their consultations include small entities. We are available to assist you in arranging these consultations or identifying appropriate small

entities with which to consult.

The Executive Order also calls on agencies to engage in periodic reviews of existing regulations. 14
Agencies already have an existing obligation to periodically review regulations under the RFA. 15 In your development of plans for reviews of existing regulations, I strongly encourage you to consider your obligations under the RFA and integrate the two eff orts. The Office of Advocacy is available to consult with you on your agency ’ s plans.

The President’s Memorandum on Regulatory Flexibility, Small Business, and Job Creation reaffirms the purposes of the RFA.

On January 18, 2011, President Obama signe d a memorandum 16 to you in which he stated:

My Administration is firmly committed to eliminating excessive and unjustified burdens on small businesses, and to ensuring that regulations are designed with careful consideration of their effects, including t heir cumulative effects, on small businesses.

He emphasized the importance of compliance with the RFA and its purposes. The President also expanded the existing requirement for an agency to document its decision to reject an alternative that may reduce regulatory burdens on small entities. The RFA currently requires agencies to explain in the Final Regulatory Flexibility Analysis accompanying final rules why significant alternatives were not selected. 17
The President has directed that a similar explanati on be provided for proposed rules as well. 18

_____________________________ 12 76 Fed. Reg. 3821 (January 21, 2011).

13 E.O. 13563, Sec. 2(c).

14 Id., Sec. 6.

15 See 5 U.S.C. § 610.

16 Memorandum for the Heads of Executive Departments and Agencies, “Regulatory Flexibility, Small Business, and Job Creation” (76 Fed. Reg. 3827 (January 21, 2011)).

17 See 5 U.S.C. § 604(a)(5) (“. . . a statement of the factual, policy, and legal reasons f or 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.”)

18 See 76 Fed. Reg. 3827 (“I further direct that whenever an executive agency chooses, for reasons other than legal limitations, not to provide such flexibility in a proposed or final rule that is likely to have a significant economicAppendix B: RFA recent developments 105 Page 4

I remind you that alternatives include, but are not limite d to, the flexible approaches described in section 4
of E.O. 13563, and the alternatives enumerated in the RFA19 and the President ‟ s memorandum. Alternatives under the RFA may include reasonable regulatory alternatives that relieve burden on all affected entities, not just small entities. I encourage agencies to consider all reasonable regulatory alternatives that impact small entities in their RFA analyses.

Regulatory Flexibility Analyses should be readily available to and easily identified by the public.

In light of the President ‟ s renewed commitment to the principles of Executive Order 12866 and the RFA, and in the spirit of tra nsparency in decisionmaking, I want to remind you that Regulatory Flexibility Analyses must be available to the public at the same time as the proposed or final rule.20 While Advocacy generally encourages agencies to publish Regulatory Flexibility Analyses or summaries in a separate RFA section within the rule preamble for transparency purposes, your agency is not required to prepare a wholly separate analysis to comply with the RFA.21 However, your agency should make sure that those sections of the preambl e or other supporting documents intended to demonstrate compliance with the RFA are labeled as such. For example, in responding to public comments filed by the Chief Counsel for Advocacy, I recommend you separately identify Advocacy comments and label your response as being presented in compliance with the RFA.

If you have any questions about this memorandum or your agency ‟ s compliance with the RFA, please contact Charles Maresca, Director of Interagency Affairs, SBA Office of Advocacy, at (202) 205

- 6978 or Charles.Maresca@sba.gov

.

cc: Cass R. Sunstein, Administrator Office of Information and Regulatory Affairs Office of Management and Budget

________________________ impact on a substantial number of small entities, it should explicitly justify its decision not to do so in the explanation that accompanies that proposed or final rule.”)

19 See § 603(c).

20 See 5 U.S.C. § 603(a) and § 604(c).

21 See 5 U.S.C. § 605(a).106 RFA guide for government agencies 

## A PPENDIX 

## C S MALL B USINESS BY THE N UMBERS



## Frequently Asked Questions About Small Business

What is a small business?

The Office of Advocacy defines a small business as an in

- dependent business having fewer than 500 employees. (The definition of “small business” used in government programs and contracting varies by industry; see http://www.sba.gov/size .)

How important a r e small businesses to the U.S. economy?

Small firms:

• Represent 99.7 percent of all employer firms.

• Employ about half of all private sector employees.

• Pay 43 percent of total U.S. private payroll.

• Have generate d 6 5 percen t o f ne t ne w job s ove r th e pas t 17 y ears.

• Create more than half of the nonfarm private GD P

.

• Hire 43 percent of high tech workers (scientists, engineers, computer programmers, and others).

• Are 52 percent home

- based and 2 percent franchises.

• Made up 97.5 percent of all identified expor ters and produced 31 percent of export value in FY 2008.

• Produce 16.5 times more patents per employee than la r ge patenting firms.

Source: U.S. Dept. of Commerce, Census Bureau and Intl. T rade Admin.; Advocacy

- funded research by Kathryn Kobe, 2007
( http://archive.sba.gov/advo/research/rs299tot.pdf ) and CHI Research, 2003 ( http://archive.sba.gov/advo/research/rs225tot.pdf ); U.S

. Dept. of Labo r , Bureau of Labor Statistics.
How many small businesses a r e the r e?

In 2009, the r e we r e 27.5 million businesses in the United States, according to Office of Advocacy

estimates. The latest available Census data show that there were 5.9 million firms with employees in 2008 and 21.4 million without employees in 2008. Small firms with fewer than 500 employees represent 99.9 percent of the total (employers and none m ployers), as the most recent data show there were 18,469 la r ge businesses in 2008.

Source: Office of Advocacy estimates based on data from the U.S. Dept. of Commerce, Census Bureau, and trends from the U.S. Dept. of Labo r , Bureau of Labor Statistics, Business Employment Dynamics.

Wha t i s smal l firms ’ sha r e o f employment?

Small businesses employ about half of U.S. workers. Of the 120.9 million nonfarm private sector workers in 2008, small firms employed 59.7 million and la r ge firms employed 61.2 million. About half of

small firm employment is in second

- stage companies (10

- 99 employees), and half is in firms that are 15 years or olde r . Small firms’ share of employment in rural areas is slightly higher than in urban areas; their share of part

- time workers (22 percent) is similar to la r ge firms’ share (19 percent). Small f irms’ employment share remains steady since some small firms grow into la r ge firms over time.

Source: U.S. Dept. of Commerce, Census Bureau: Statistics of U.S. Businesses, Current Population Surve y , and Business Dynamics
Statistics; and the Edward Lowe Fo undation ( http://you r econom y .org ).

What sha r e of net new jobs do small businesses c r eate?

Small firms accounted for 65 pe r cent (or 9.8 million) of the 15 million net new jobs c r eated

between 1993 and 2009. Much of the job growth is from fast

- growing high

- impact firms, which represent about 5

– 6 percent of all firms and are on average 25 years old.

Source: U.S. Dept. of Labo r , Bureau of Labor Statistics, Business Employment Dynamics; Advocacy

- funded research by Zoltan
Acs, W illiam Parsons and Spencer T rac y , 2008 ( http://archive.sba.gov/advo/research/rs328tot.pdf ).Appendix D: Small business statistics for regulatory analysis 107 How many businesses open and close each year?

A n estimate d 552,60 0 ne w employe r firm s opene d fo r busines s i n 2009

, an d 660,90 0 firm s closed

. Thi s

amount s t o an annua l turnove r o f abou t 1 0 percent

. Nonemploye r firm s have turnove r rate s thre e time s a s high

, mostl y becaus e i t i s much easie r fo r the m t o g o int o busines s an d ceas e operations.

Start s an d Closu r e s o f Employe r Firms

, 2005

– 2009

Category 2005 2006 2007 2008 2009

Births 644,122 670,058 668,395 626,400e 552,600e

Closures 565,745 599,333 592,410 663,900e 660,900e
Bankruptcies 39,201 19,695 28,322 43,546 60,837

Notes: e = Advocacy estimate. Bankruptcies include nonemployer firms.

Source: U.S. Dept. of Commerce, Census Bureau; Administrative Office of the

U.S. Courts; U.S. Dept. of Labo r , Business Employment Dynamics (BED).

Estimates based on Census data and BED trends.

W hat is the survival rate for new firms?

Seven out of 10 new employer firms survive at least 2 years, half at least 5 years, a third at least 10 years, and a quarter stay in business 15 years or mo r e. Census data report that 69 percent of new employer establishments born to new firms in 2000 survived at least 2 years, and 51 percent survived 5 or more years. Survival rates were similar across states and major industries. Bureau of Labor Statistics data on establishment age show that 49 percent of establ ishments survive 5 years or more; 34 percent survive 10 years or more; and 26 percent survive 15 years or more.

Source: U.S. Dept. of Commerce, Census Bureau, Business Dynamics Statistics; U.S. Dept. of Labo r , Bureau of Labor Statistics,

BED.

Ho w a r e c r edi t condition s fo r smal l firms?

C r edit conditions a r e imp r oving. In mid

- 2010, commercial banks began to ease the tight lending conditions on small businesses that had begun in early 2007. And credit has continued to flo w
, as loans under $1 million totaled $695 billion in FY 2009. Also, after declining over the past few years, venture capital investment dollars increased in mid

- 2010.

Source: Federal Reserve Board, Senior Loan Officer Opinion Survey and Call Report data; National

V

enture Capital Association

.

How a r e small businesses financed?

Small businesses r ely heavily upon owner investment and bank c r edit, averaging about $80,000 a

year for young firms. Startups rely about equally on the owners’ cash injections into the business and bank credit; young firms receive about three

- quarters of their funds from banks via loans, credit cards, and lines

of credit. One

- tenth of startups and about a third of young firms do not use capital injections.

Source: Kau f fman Foundation, An Overview of the Kauffman Firm Survey: Results f r om the 2004

– 2008 Data, (Alicia Robb, E.J.

Reed y , Janice Ballou, David DesRoches, Frank Potte r , Zhanyun Zhao), May 2010.

Whom do I contact about r egulations?

T

o learn about pending regulation, visit Advocacy ’ s Regulatory Alerts webpage, http://www.sba.gov/advocacy/815 ; to comment on pending regulations, email advocacy@sba.gov

. T o report unfair regulatory enforcement, contact SB A ’ s National Ombudsman at ombudsman@sba.gov

What is the r ole of women, minorit y , and veteran ent r ep r eneurs?

Of the 27.1 million nonfarm businesses in 2007, women owned 7.8 million businesses, which generated $1.2 trillion in revenues, employed 7.6 million workers, and paid $218 billion in payroll. Another 4.6

million firms were 50 percent women owned. Minorities owned 5.8 million firms, which generated $1 trillion in revenues and employed 5.9 million people. Hispanic Americans owned 8.3 percent of all U.S. businesses; African Americans, 7.1 percent; Asian Americans, 5.7 percent; American Indians and Alaska Natives,0.9 percent; and Native Hawaiian or other Pacific Islanders, 0.1 percent. V eterans owned 2.410 8 RFA guide for government agencies million businesses in 2007, generating $1.2 trillion in receipts; another 1.2 million firms were 50 percent

veteran owned. About 7 percent of veteran business owners had service

- connected disabilities in 2002.

In 2008, the overall rate of self

- employment (unincorp o rated and incorporated) was 9. 8 percent, and the rate was 7.1 percent for women, 7.2 percent for Hispanic Americans, 4.7 percent for African Americans, 9.7 percent for Asian Americans and Native Americans, and 13.6 percent for veterans.

Service

- disabled veterans had lower self

- employme nt rates than non

- service

- disabled veterans.

Source: U.S. Dept. of Commerce, Census Bureau, Survey of Business Owners; Advocacy

- funded research by Open Blue Solutions,
2007 ( http://archive.sb a.gov/advo/research/rs291tot.pdf ) , and Office of Advocacy: The Small Bus in ess Economy
( http://www.sba.gov/advocacy/849 ).

A

t wha t rate s a re th e self

- employe d taxed?

Of the 15.5 million individuals whose primary occupation was self

- employment (incorporated and unincorporated), the median personal ma r ginal federal tax rate was 10 percent in 2008. Only 4.1 percent

of the self

- employed were in the ma r ginal tax bracket of 33 percent or more.

Source: U.S. Dept. of Co mmerce, Census Bureau, Current Population Su r ve y , March Supplement (special tabulation).

What r esea r ch exists on the cost and availability of health
insurance?

A Kaiser Family Foundation study confirmed the connection between firm size and o f fering health

insurance. The survey shows that almost 60 percent of businesses with 3

– 9 workers o f fer health benefits to their employees. The ratio grows to more than three

- fourths for firms with 10

– 24 employees, to 92 percent for firms with 25

– 49 employees, and to 99 percent for firms with 200 employees or more.

Almost two

- thirds of workers take health insurance coverage when o f fered. Overall in 2009, small firm employees were almost twice as likely as la r ge firm employees to be uninsured (27.2 percent vs. 14.7

percent , respectively).

Source: Kaiser Family Foundation and the Health Research and Educational T rust, Employer Health Benefits 2010 Annual Survey; Employee Benefit Research Institute, Sou r ces of Health Insurance and Characteristics of the Uninsu r ed: Analysis of the Ma r ch

2010 Cur r ent Population Survey

. How can I get mo r e information?

For mo r e information, visit Advocacy ’ s website: http://www.sba.gov/advocacy

. Specific points of interest

include:

• Economic research: http://www.sba.gov/advocacy/847

.

• Firm size data: http://www.sba.gov/advocacy/849

.

• Lending: http://www.sba.gov/advocacy/852

.

• Small firm data resources: http://www.sba.gov/sites/default/files/Small_Business_Data_Resources.pdf

• Small business profiles by state and territory: http://www.sba.gov/advocacy/848

.

• The Small Business Advocate newsletter: http://www.sba.gov/advocacy/810

. For email delivery of Advocacy ’ s newslet te r , press, regulatory news, and research, visit http://web.sba.gov/list

. Direct questions to (202) 205

- 6533 or advocacy@sba.gov

.

The SBA ’ s Office of Ad v ocacy w as created b y Con g ress in 1976 to protect, strengthen, and ef f ecti v ely represent the

nation ’ s small b usinesses within the f ede r al g o v e r nment. As pa r t of this mandat e , the office conducts policy studies and

economic research on issues of conce r n to small b usiness and pu b lishes data on small b usiness cha r acte r istics and

cont r i b ution s

. F or small b usiness resource s , statistic s , and research, visit the Office of Ad v ocacy ’ s home page at http://www.sba.gov/advocacy

Is there a PDF version of the FAQ?
Yes. The pdf version is located at: http://www.sba.gov/sites/default/files/files/sbfaq.pdf

.

Updated January 2011Appendix D: Small business statistics for regulatory analysis 109 

## A PPENDIX 

## D S MALL BUSINESS STATIS TICS FOR REGULATOR Y

ANALYSIS

One of the key 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.

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 t ime: 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 chang es 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 finan cial

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. Whil e 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 s ources

.



### 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 informati on is collected. The establishment concept does not refer to either ownership or taxpaying status. Establishments may be branches of 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 concept110 RFA guide for government agencies to study the characteristics of small firms since the ownership issue is critical for

assess ing the impact of a given policy.



### Advocacy 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/advocacy

.

Census

- Based Small Business Database

Beginning in late 1991, the SBA’s Office of Advocacy contracted with the Ec onomic Surveys Division of the Bureau of the Census to produce linked longitudinal data files on an enterprise basis. (To see these data, go to the Office of Advocacy’s website at http://www.sba.gov/advocacy/84 9 .) 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 a re generally available at the six

- digit North American Industry Classification System (NAICS) code level of industrial detail

. ( The NAICS system replaced the previous Standard Industrial Classification ( SIC )

. The data can be accessed through the Office of Advocacy’s website.



### Other Federal Agency Data on Small Firms

C urrent Population Survey

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 fi rm

- 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 questi ons about the industry of the firm. These data are available from the Population Division of the Bureau of the Census at (301) 763

- 4100.

D ata from the Current Population Survey can be use d to describe the businesses’ sources of capital, their profitabilit y, employment, major industry, and home

- based status of women and minority business owners. T his data source provides some information on potential regulatory impacts on very small firms, particularly their ability to absorb the burden of federal regulatio n.Appendix D: Small business statistics for regulatory analysis 111 Characteristics of Business Owners Survey 320

T he Minority Business Development Agency of the U.S. Department of Commerce and the SBA’s Office of Advocacy have in the past contracted with the Census Bureau to produce the Characteristics of Business Owne rs (CBO) Survey data. 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, fran chise status, hours and weeks worked by the business owner, sources of debt and equity capital, etc.

Statistics of Income

Each quarter, the Statistics of Income (SOI) division of the Internal Revenue Service publishes the SOI Bulletin . This publication c ontains 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. Bala nce sheet and income statement information is available for corporations in 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) corporati ons.

320 U.S. Department of Commerce, Bureau of the Census, Characteristics of Business Owners: 1992 , CBO

1 (Washington, D.C.: U.S. Government Printing Office, 1997).112 RFA guide for government agencies 

## A PPENDIX 

## E E XECUTIVE 

## O RDER 

## 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 unacceptabl e 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 th is 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

revi ew 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 en trusted 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) Th e 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 improv e 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 t o 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.Appendix E: Executive Order 12866 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 asses s 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 m odified 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 mark etable 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 cost

effective 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 c osts.

(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 alterna tive 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 Stat e, 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, including114 RFA guide for government agencies s pecifically 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, agenci es 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), consi stent 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 peo ple. (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 t he 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 O MB, 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 regulatoryAppendix E: Executive Order 12866 115 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 Environment al 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 a gency 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 agenc y. 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 pro curement 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 the116 RFA guide for government agencies promulgation of a final rule or regulation, including notices of i nquiry, 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 mor e 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 arisi ng 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 an d 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 fort h 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 ind ependent 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 incorporat e 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 regulatoryAppendix E: Executive Order 12866 117 agencies, as defi ned 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 f inal 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 whe ther 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 ris k 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 pers on 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 Adminis trator 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 t he 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.118 RFA guide for government agencies (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 O IRA.

(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 Adminis trator 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 ri sk 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 subgroup s 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) Conferenc es. 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 O IRA 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

unnecessa ry 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 t he 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 toAppendix E: Executive Order 12866 119 determine whether any such regulations should be modified or eliminated so as to make the agency's regulatory program more effe ctive 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 a nnual 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 O IRA 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 appropri ate 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 reconsidera tion 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 o f 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 affor d 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 develop ing 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 e ach 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, the120 RFA guide for government agencies 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

respe ct 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 acti ons 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 a ction 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 signif icant 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 P resident'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 a ction 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 elimi nation 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, t he 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 efficientAppendix E: Executive Order 12866 121 functioning of the economy, private markets (including productivity, employment, a nd 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 reason ably 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 t he 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 su bsections (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

c onduct 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 inf ormation 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:122 RFA guide for government agencies (A) For any notices of inquiry, advance notices of proposed rulemaking, or other preliminary regulatory actions prior to a Notice of P roposed 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

agen cy 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, an d 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 exe cutive 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 regul atory 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 workin g 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); andAppendix E: Executive Order 12866 123 (iii) OIRA shall publicly disclose relevant information ab out 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 secti on; 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 th e 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 recomme ndations 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 b e 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 a nd directed to the Advisors or their staffs or to124 RFA guide for government agencies 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, s hall 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 p ublic 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 pre ceding 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 receip t 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 Author ity. 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 instr umentalities, 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 g ranted 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, 1993Appendix F: Executive Order 13272 125 

## A PPENDIX 

## F E XECUTIVE 

## O RDER 

## 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 Amer ica, 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 thoroughl y 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 o f 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 A ct, 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 th e 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' procedur es 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) Notif y 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 12,866126 RFA guide for government agencies 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. Consi stent 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 w ritten 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 Ad ministrator 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 w ith 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 publi cly 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 Revi ew. 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.Appendix G: Executive Order 13563 127 

## A PPENDIX 

## G E XECUTIVE 

## O RDER 

## 135 6 3 AND 

## M EMORANDA



### Improving Regulation and Regulatory Review

By the authority vested in me as President by the Constitution and the laws of the United States of America, and in order to improve regulation and regulatory review, it is hereby ordered as follows:

Section 1

. General Principles of Regulation

. (a) Our regulatory system must protect public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness, and job creation. It must be based on the best available

science. It must allow for public participation and an open exchange of ideas. It must promote predictability and reduce uncertainty. It must identify and use the best, most innovative, and least burdensome tools for achieving regulatory ends. It must take into account benefits and costs, both quantitative and qualitative. It must ensure that regulations are accessible, consistent, written in plain language, and easy to understand. It must measure, and seek to impr ove, the actual results of regulatory requirements.

(b) This order is supplemental to and reaffirms the principles, structures, and definitions governing contemporary regulatory review that were established in Executive Order 12866 of September 30, 19 93. As stated in that Executive Order and to the extent permitted by law, each agency must, among other things: (1) propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs (recognizing that some benefits and c osts are difficult to quantify); (2) tailor its regulations to impose the least burden on society, consistent with obtaining regulatory objectives, taking into account, among other things, and to the extent practicable, the costs of cumulative regulations; (3) select, in choosing among alternative regulatory approaches, those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity); (4) to the extent feasible, specify performance objectives, rather than specifying the behavior or manner of compliance that regulated entities must adopt; and (5) identify and assess available alternatives to direct regulation, including providing economic

incentives to e ncourage the desired behavior, such as user fees or marketable permits, or providing information upon which choices can be made by the public.

(c) In applying these principles, each agency is directed to use the best available techniques to quantify a nticipated present and future benefits and costs as accurately as possible. Where appropriate and permitted by law, each agency may consider (and discuss qualitatively) values that are difficult or impossible to quantify, including equity, human dignity, fairness, and distributive impacts.

Sec. 2

. Public Participation

. (a) Regulations shall be adopted through a process that involves public participation. To that end, regulations shall be based, to the extent feasible and consistent with law, on the open exchange of information and perspectives among State, local, and tribal officials, experts in relevant disciplines, affected stakeholders in the private sector, and the public as a whole.128 RFA guide for government agencies (b) To promote that open exchange, each agency, consisten t with Executive Order 12866 and other applicable legal requirements, shall endeavor to provide the public with an opportunity to participate in the regulatory process. To the extent feasible and permitted by law, each agency shall afford the public a mea ningful opportunity to comment through the Internet on any proposed regulation, with a comment period that should generally be at least 60 days. To the extent feasible and permitted by law, each agency shall also provide, for both proposed and final rules , timely online access to the rulemaking docket on regulations.gov, including relevant scientific and technical findings, in an open format that can be easily searched and downloaded. For proposed rules, such access shall include, to the extent feasible a nd permitted by law, an opportunity for public comment on all pertinent parts of the rulemaking docket, including relevant scientific and technical findings.

(c) Before issuing a notice of proposed rulemaking, each agency, where feasible and appropria te, shall seek the views of those who are likely to be affected, including those who are likely to benefit from and those who are potentially subject to such rulemaking.

Sec. 3

. Integration and Innovation

. Some sectors and industries face a significa nt number of regulatory requirements, some of which may be redundant, inconsistent, or overlapping. Greater coordination across agencies could reduce these requirements, thus reducing costs and simplifying and harmonizing rules. In developing regulatory actions and identifying appropriate approaches, each agency shall attempt to promote such coordination, simplification, and harmonization. Each agency shall also seek to identify, as appropriate, means to achieve regulatory goals that are designed to prom ote
innovation.

Sec. 4

. Flexible Approaches

. Where relevant, feasible, and consistent with regulatory objectives, and to the extent permitted by law, each agency shall identify and consider regulatory approaches that reduce burdens and maintain flexi bility and freedom of choice for the public. These approaches include warnings, appropriate default rules, and disclosure requirements as well as provision of information to the public in a form that is clear and intelligible.

Sec. 5

. Science

. Consi stent with the President's Memorandum for the Heads of Executive Departments and Agencies,

"Scientific Integrity" (March 9, 2009), and its implementing guidance, each agency shall ensure the objectivity of any scientific and technological information and p rocesses used to support the agency's regulatory actions.

Sec. 6

. Retrospective Analyses of Existing Rules

. (a) To facilitate the periodic review of existing significant regulations, agencies shall consider how best to promote retrospective analysis of rules that may be outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance

with what has been learned. Such retrospective analyses, including supporting data,

should be released on line whenever possible.Appendix G: Executive Order 13563 129 (b) Within 120 days of the date of this order, each agency shall develop and submit to the Office of Information and Regulatory Affairs a preliminary plan, consistent with law and its resources and regulatory priorities, under which the agency will periodically review its existing significant regulations to determine whether any such regulations should be modified, streamlined, expanded, or repealed so as to make the agency's regulatory program more effective or less burdensome in achieving the regulatory objectives.

Sec. 7

. General Provisions

. (a) For purposes of this order, "agency" shall have the meaning set forth in section 3(b) of Executive Order 12866.

(b) Nothing in this order shall be construed to impair or ot herwise affect:

(i) authority granted by law to a department or agency, or the head thereof; or

(ii) functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.

(c) This ord er shall be implemented consistent with applicable law and subject to the availability of appropriations.

(d) This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any p arty against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.

BARACK OBAMA

THE WHITE HOUSE, January 18, 2011.130 RFA guide for government agencies The White House

Office of the Press Secretary

For Immediate Release January 18, 2011

Presidential Memoranda

- Regulatory Flexibility, Small Business, And Job Creation

Memorandum for the H eads of E xecutive D epartments and A gencies

Subject: R egulatory F lexibility, S mall B usiness, and J ob C reation

Small businesses play an essential role in the American economy; they help to fuel productivity, economic growth, and job creation. More than half of all Americans working in the private sector either are employed by a small business or own one. During a recent 15

- year p eriod, small businesses created more than 60 percent of all new jobs in the Nation.

Although small businesses and new companies provide the foundations for economic growth and job creation, they have faced severe challenges as a result of the recession.

O ne consequence has been the loss of significant numbers of jobs.

The Regulatory Flexibility Act (RFA), 5 U.S.C. 601

- 612, establishes a deep national commitment to achieving statutory goals without imposing unnecessary burdens on the public. The RFA emphas izes the importance of recognizing "differences in the scale and resources of regulated entities" and of considering "alternative regulatory approaches . . . which minimize the significant economic impact of rules on small businesses, small organizations, and small governmental jurisdictions." 5 U.S.C. 601 note.

To promote its central goals, the RFA imposes a series of requirements designed to ensure that agencies produce regulatory flexibility analyses that give careful

consideration to the effects of thei r regulations on small businesses and explore significant alternatives in order to minimize any significant economic impact on small

businesses. Among other things, the RFA requires that when an agency proposing a rule with such impact is required to prov ide notice of the proposed rule, it must also produce an initial regulatory flexibility analysis that includes discussion of significant

alternatives. Significant alternatives include the use of performance rather than design standards; simplification of compliance and reporting requirements for small businesses;

establishment of different timetables that take into account the resources of small businesses; and exemption from coverage for small businesses.

Consistent with the goal of open government, the R FA also encourages public participation in and transparency about the rulemaking process. Among other things, the statute requiresAppendix G: Executive Order 13563 131 agencies proposing rules with a significant economic impact on small businesses to provide an opportunity for public comment on any required initial regulatory flexibility analysis, and generally requires agencies promulgating final rules with such significant economic impact to respond, in a final regulatory flexibility analysis, to comments filed by the Chief Counsel for Advo cacy of the Small Business Administration.

My Administration is firmly committed to eliminating excessive and unjustified burdens on small businesses, and to ensuring that regulations are designed with careful consideration of their effects, including thei r cumulative effects, on small businesses. Executive Order 12866 of September 30, 1993, as amended, states, "Each agency shall tailor its regulations to impose the least burden on society, including individuals, businesses of differing sizes, and other en tities (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."

In the current economic envir onment, it is especially important for agencies to design regulations in a cost

- effective manner consistent with the goals of promoting economic growth, innovation, competitiveness, and job creation.

Accordingly, I hereby direct executive departments and a gencies and request independent agencies, when initiating rulemaking that will have a significant economic impact on a substantial number of small entities, to give serious consideration to whether and how it is appropriate, consistent with law and regulat ory objectives, to reduce regulatory burdens on small businesses, through increased flexibility. As the RFA recognizes, such flexibility may take many forms, including:

• extended compliance dates that take into account the resources available to small

ent ities;

• performance standards rather than design standards;

• simplification of reporting and compliance requirements (as, for example, through streamlined forms and electronic filing options);

• different requirements for large and small firms; and

• partial or total exemptions.

I further direct that whenever an executive agency chooses, for reasons other than legal limitations, not to provide such flexibility in a proposed or final rule that is likely to have a significant economic impact on a substantial n umber of small entities, it should explicitly justify its decision not to do so in the explanation that accompanies that proposed or final rule.

Adherence to these requirements is designed to ensure that regulatory actions do not place unjustified economic burdens on small business owners and other small entities. If regulations are preceded by careful analysis, and subjected to public132 RFA guide for government agencies comment, they are less likely to be based on intuition and guesswork and more likely to be justified in light of a clear understanding of the likely consequences of alternative

courses of action. With that understanding, agencies will be in a better position to protect the public while avoiding excessive costs and paperwork.

This memorandum is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person. Nothing in this memorandum sh all be construed to impair or otherwise affect the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.

The Director of the Office of Management and Budget is authorized and direc ted to publish this memorandum in the Federal Register

.

BARACK OBAMAAppendix G: Executive Order 13563 133 The White House

Office of the Press Secretary

For Immediate Release January 18, 2011

PRESIDENTIAL MEMORANDA

- REGULATORY COMPLIANCE

Memorandum for the H eads of E xecutive D epartments and A gencies

S ubject : Regulatory Compliance

My Administration is committed to enhancing effectiveness and efficiency in

Government. Pursuant to the Memorandum on Transparency and Open Government, issued on January 21, 2009, executive dep artments and agencies (agencies) have been working steadily to promote accountability, encourage collaboration, and provide

information to Americans about their Government's activities.

To that end, much progress has been made toward strengthening our demo cracy and improving how Government operates. In the regulatory area, several agencies, such as the Department of Labor and the Environmental Protection Agency, have begun to post online (at ogesdw.dol.gov and www.epa

- echo.gov ), and to make readily accessible to the public, information concerning their regulatory compliance and enforcement activities, such as information with respect to administrative inspections, examinations, reviews, warnings, c itations, and revocations (but excluding law enforcement or otherwise sensitive information about ongoing enforcement actions).

Greater disclosure of regulatory compliance information fosters fair and consistent enforcement of important regulatory obligati ons. Such disclosure is a critical step in encouraging the public to hold the Government and regulated entities accountable. Sound regulatory enforcement promotes the welfare of Americans in many ways, by increasing public safety, improving working condi tions, and protecting the air we breathe

and the water we drink. Consistent regulatory enforcement also levels the playing field among regulated entities, ensuring that those that fail to comply with the law do not have an unfair advantage over their law

- abiding competitors. Greater agency disclosure of compliance and enforcement data will provide Americans with information they need to

make informed decisions. Such disclosure can lead the Government to hold itself more accountable, encouraging agencies to identify and address enforcement gaps.

Accordingly, I direct the following:

First, agencies with broad regulatory compliance and administrative enforcement responsibilities, within 120 days of this memorandum, to the extent feasible and permitted by law , shall develop plans to make public information concerning their regulatory compliance and enforcement activities accessible, downloadable, and134 RFA guide for government agencies searchable online. In so doing, agencies should prioritize making accessible information

that is most useful t o the general public and should consider the use of new technologies to allow the public to have access to real

- time data. The independent agencies are encouraged to comply with this directive.

Second, the Federal Chief Information Officer and the Chief T echnology Officer shall work with appropriate counterparts in each agency to make such data available online in searchable form, including on centralized platforms such as data.gov, in a manner that facilitates easy access, encourages cross

- agency comparis ons, and engages the public in new and creative ways of using the information.

Third, the Federal Chief Information Officer and the Chief Technology Officer, in coordination with the Director of the Office of Management and Budget (OMB) and their

counterpa rts in each agency, shall work to explore how best to generate and share enforcement and compliance information across the Government, consistent with law. Such data sharing can assist with agencies' risk

- based approaches to enforcement: A lack of compli ance in one area by a regulated entity may indicate a need for examination and closer attention by another agency. Efforts to share data across agencies, where appropriate and permitted by law, may help to promote flexible and coordinated enforcement regi mes.

This memorandum is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agent s, or any other person. Nothing in this memorandum shall be construed to impair or otherwise affect the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.

The Director of OMB i s authorized and directed to publish this memorandum in the Federal Register

.

BARACK OBAMAAppendix H: Memorandum on cumulative impacts 135 

## A PPENDIX 

## H M EMORANDUM ON CUMULAT IVE IMPACTS

EXECUTIVE OFFICE OF THE PRESIDENT

OFFICE OF MANAGEMENT AND BUDGET WASHINGTON, D.C. 20503

ADMINISTRATOR

OFFICE OF
INFORMATION AND

REGULATORY

AFFAIRS March 20, 2012

MEMORANDUM FOR THE HEADS OF EXECUTIVE DEPARTMENTS AND AGENCIES

FROM: Cass R. Sunstein

Administrator

SUBJECT: Cumulative Effects of Regulations

On January 18, 2011, the President issued Executive Order 13563, “Improving Regulation and Regulatory Review,” which states that to the extent permitted by law, each agency must take into account “among other things, an d to the extent practicable, the costs of cumulative regulations.” Executive Order 13563 emphasizes that some “sectors and industries face a significant number of regulatory requirements, some of which may be redundant, inconsistent, or overlapping,” and i t directs agencies to promote “coordination, simplification, and harmonization.” Executive Order 13563 also states that to the extent permitted by law, each agency shall “propose or adopt a regulation only upon a reasoned determination that its benefits ju stify its costs.”

Executive Order 13563 directs that regulations “shall be adopted through a process that involves public participation,” including an “open exchange of information and perspectives.” Public participation can and should be used to evaluat e the cumulative effects of regulations, for example through active engagement with affected stakeholders well before the issuance of notices of proposed rulemaking. The President’s Council on Jobs and Competitiveness has emphasized

the need for a smart an d efficient regulatory system and has drawn particular attention to the cumulative effects of regulation. Cumulative burdens can create special challenges for small businesses and startups.

Consistent with Executive Order 13563, and to the extent permitt ed by law, agencies should take active steps to take account of the cumulative effects of new and existing rules and to identify opportunities to harmonize and streamline multiple rules. The goals of this effort should be to simplify requirements on the pu blic and private sectors; to ensure against unjustified, redundant, or excessive requirements; and ultimately to increase the net benefits of regulations.

To promote consideration of cumulative effects, and to reduce redundant, overlapping,

and inconsist ent requirements, agencies should carefully consider the following steps, where appropriate and feasible, and to the extent permitted by law:136 RFA guide for government agencies  Early consultation with, advance notice to, and close engagement with affected stakeholders to discuss potenti al interactions between rulemakings under consideration and existing regulations as well as other anticipated regulatory requirements;

 Early engagement with state, tribal, and local regulatory agencies to identify opportunities for harmonizing regulato ry requirements, reducing administrative costs, avoiding unnecessary or inconsistent requirements, and otherwise improving regulatory

outcomes;

 Use of Requests for Information and Advance Notices of Proposed Rulemaking to obtain public input on potenti ally overlapping rulemakings and on rulemakings that may have significant cumulative effects;

 Specific consideration of the cumulative effects of regulations on small businesses

and start

- ups;

 Identification of opportunities to increase the net ben efits of regulations and to reduce administrative and other costs, while meeting policy goals and legal requirements;

 Careful consideration, in the analysis of costs and benefits, of the relationship between new regulations and regulations that are already in effect;

 Identification of opportunities to integrate and simplify the requirements of new and existing rules, so as to eliminate inconsistency and redundancy;

 Coordination of timing, content, and requirements of multiple rulemakings that are contemplated for a particular industry or sector, so as to increase net benefits; and

 Consideration of the interacti ve and cumulative effects of multiple regulations affecting individual sectors as part of agencies’ retrospective analysis of existing rules,

consistent with Executive Order 13563.

Where appropriate and feasible, agencies should consider cumulative effec ts and opportunities for regulatory harmonization as part of their analysis of particular rules, and should carefully assess the appropriate content and timing of rules in light of those effects and opportunities. Consideration of cumulative effects and of opportunities to reduce burdens and to increase net benefits should be part of the assessment of costs and benefits, consistent with the requirement of Executive Order 13563 that, to the extent permitted by law, agencies must “select, in choosing among al ternative regulatory approaches, those approaches that maximize net benefits.” Agencies should avoid unintentional burdens that could result from an exclusive focus on the most recent regulatory activities. As noted, the cumulative effects on small busines ses and

start

- ups deserve particular attention.

This guidance is effective immediately.Appendix I: Executive Order 13579 137 

## A PPENDIX 

## I E XECUTIVE 

## O RDER 

## 13579

Regulation and Independent Regulatory Agencies

By the authority vested in me as President by the Constitution and the laws of the United States of America, and in order to improve regulation and regulatory review, it is hereby

ordered as follows:

Section 1

. Policy

. (a) Wise regulatory decisions depend on p ublic participation and on careful analysis of the likely consequences of regulation. Such decisions are informed and improved by allowing interested members of the public to have a meaningful opportunity to participate in rulemaking. To the extent permi tted by law, such decisions should be made only after consideration of their costs and benefits (both quantitative and qualitative).

(b) Executive Order 13563 of January 18, 2011, "Improving Regulation and Regulatory Review," directed to executive agencies, was meant to produce a regulatory system that protects "public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness, and job creation." Independent regulatory agencies,

no less than executive agencies, should promote that goal.

(c) Executive Order 13563 set out general requirements directed to executive agencies concerning public participation, integration and innovation, flexible approaches, and

science. To the extent permitted by law, indep endent regulatory agencies should comply with these provisions as well.

Sec

. 2

. Retrospective Analyses of Existing Rules. (a) To facilitate the periodic review of existing significant regulations, independent regulatory agencies should consider how

best to promote retrospective analysis of rules that may be outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal

them in accordance with what has been learned. Such retrospective analyses, including

supp orting data and evaluations, should be released online whenever possible.

(b) Within 120 days of the date of this order, each independent regulatory agency should develop and release to the public a plan, consistent with law and reflecting its resources

a nd regulatory priorities and processes, under which the agency will periodically review its existing significant regulations to determine whether any such regulations should be modified, streamlined, expanded, or repealed so as to make the agency's regulat ory program more effective or less burdensome in achieving the regulatory objectives.

Sec

. 3

. General Provisions

. (a) For purposes of this order, "executive agency" shall have the meaning set forth for the term "agency" in section 3(b) of Executive Orde r 12866 of September 30, 1993, and "independent regulatory agency" shall have the meaning set forth in 44 U.S.C. 3502(5).

(b) Nothing in this order shall be construed to impair or otherwise affect:138 RFA guide for government agencies (i) authority granted by law to a department or agency, or the head thereof; or

(ii) functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.

(c) This order shall be implemented consistent with applicable law and subject to the

availabi lity of appropriations.

(d) This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.

BARACK OBAMA

THE WHITE HOUSE, July 11, 2011.

.Appendix J: Example of a successful IRFA 139 

## A PPENDIX 

## J E XAMPLE OF A SUCCESSFUL 

## IRFA140 RFA guide for government agenciesAppendix J: Example of a successful IRFA 141142 RFA guide for government agenciesAppendix J: Example of a successful IRFA 143144 RFA guide for government agenciesAppendix J: Example of a successful IRFA 145146 RFA guide for government agenciesAppendix J: Example of a successful IRFA 147148 RFA guide for government agenciesAppendix J: Example of a successful IRFA 149150 RFA guide for government agenciesAppendix J: Example of a successful IRFA 151152 RFA guide for government agenciesAppendix J: Example of a successful IRFA 153154 RFA guide for government agenciesAppendix J: Example of a successful IRFA 155156 RFA guide for government agenciesAppendix J: Example of a successful IRFA 157158 RFA guide for government agenciesAppendix J: Example of a successful IRFA 159160 RFA guide for government agenciesAppendix J: Example of a successful IRFA 161162 RFA guide for government agenciesAppendix J: Example of a successful IRFA 163164 RFA guide for government agenciesAppendix J: Example of a successful IRFA 165166 RFA guide for government agenciesAppendix J: Example of a successful IRFA 167168 RFA guide for government agenciesAppendix J: Example of a successful IRFA 169170 RFA guide for government agenciesAppendix K: Example of a successful FRFA 171 

## A PPENDIX 

## K E XAMPLE OF A SUCCESSFUL 

## FRFA172 RFA guide for government agenciesAppendix K: Example of a successful FRFA 173174 RFA guide for government agenciesAppendix K: Example of a successful FRFA 175176 RFA guide for government agenciesAppendix K: Example of a successful FRFA 177178 RFA guide for government agenciesAppendix K: Example of a successful FRFA 179180 RFA guide for government agenciesAppendix K: Example of a successful FRFA 181182 RFA guide for government agenciesAppendix K: Example of a successful FRFA 183184 RFA guide for government agenciesAppendix K: Example of a successful FRFA 185186 RFA guide for government agenciesAppendix K: Example of a successful FRFA 187188 RFA guide for government agenciesAppendix K: Example of a successful FRFA 189190 RFA guide for government agenciesAppendix K: Example of a successful FRFA 191192 RFA guide for government agenciesAppendix K: Example of a successful FRFA 193194 RFA guide for government agenciesAppendix K: Example of a successful FRFA 195196 RFA guide for government agenciesAppendix K: Example of a successful FRFA 197198 RFA guide for government agenciesAppendix K: Example of a successful FRFA 199200 RFA guide for government agencies 

## A PPENDIX 

## L A BBREVIATIONS USED IN THIS GUIDE

Advocacy Office of Advocacy, U.S. Small Business Administration

AFO animal feeding operation

ANPR M advance notice of proposed rulemaking

APHIS Animal and Plant Health Inspection Service

APA Administrative Procedure Act

AT A American Trucking Association

AU animal unit

BLM Bureau of Land Management

CAFO concentrated animal feeding operation

CFPB Consumer Financial Protection Bureau

C.F.R Code of Federal Regulations

CMS Centers for Medicare and Medicaid Services

DO C Department of Commerce

DOD Department of Defense

DOT Department of Transportation

DHS Department of Homeland Security

E.O. Executive Order

EPA Environmental Protection Agency EQIP Environmental Quality Assessment Program

ERS Economic Research Service (USDA)

FAA Federal Aviation Administration

FAR Federal Acquisition Regulation

FCC Federal Communications Commission

FERC Federal Energy Regulatory Commission

F R Federal Register

FRA Federal Railroad Administration

FRFA final regulatory flexibility analysis

GAO General Accounting Office , now Government Accountability Office

HHS U.S. Department of Health and Human Services

ICR information collection request

IPS Interim Payment System

IRFA initial regulatory flexibility analysis

IRS I nternal Revenue Service

MMS Minerals Management Service NAAQS national ambient air quality standard

NAICS North American Industry Classification System

NAIHP National Association of Independent Housing Professionals

NAMB National Association of Mortgage B rokers

NEPA National Environmental Policy Act

NMFS National Marine Fisheries Service

NOAA National Oceanic and Atmospheric Administration

NPDES National Pollutant Discharge Elimination System

NPRM notice of proposed rulemaking

NWMA Northwest Mining As sociationAppendi x L: Abbreviations 201 OIRA Office of Information and Regulatory Affairs

OMB Office of Management and Budget

OSHA Occupational Safety and Health Administration

P.L. Public Law

RCRA Resource Conservation and Recovery Act

RFA Regulatory Flexibility Act

RIA regulatory impact analysis

RSPA Research and Special Programs Administration

RUS Rural Utilities Service

SBA Small Business Administration

SBIC small business investment company

SBJA Small Business Jobs Act

SBREFA Small Business Regulatory Enforcement Fairness Act

SERS small entity representatives

SIC Standard Industrial Classification system

SMR specialized mobile radio

USDA U.S. Department of Agriculture

U.S.C. United States Code

UPL upper payment limit

VOCs volatile organic compounds202 RFA guide for government agencies 

## A PPENDIX 

## M O FFICE OF 

## A DVOCACY STAFF

Telephone (202) 205

- 6533 Fax (202) 205

- 6928

Office of the Chief Counsel Winslow Sargeant Chief Counsel for Advocacy 202

- 205

- 65 33 Claudia Rayford Deputy Chief Counsel 202

- 205

- 6804

Michael Landweber Senior Advisor 202

- 205

- 6945

Elizabeth Horowitz Confidential Assistant 202

- 205

- 6934

Erik Gulbrandsen Special Assistant 202

- 205

- 7990

Office of Interagency Affairs (Legal Staff)

Charles Maresca Director 202

- 205

- 6978

Jamie Belcore Saloom Telecommunications and Energy 202

- 205

- 6890

Sarah Bresolin Environment 202 205

- 6790 Kevin Bromberg Environment 202

- 205

- 6964 Major Clark , III Procurement and Small Business 202

- 205

- 7150

Kia Dennis Agriculture and Natural Resources 202

- 205

- 6936 Bruce Lundegren Safety, Transportation, and Security 202

- 205

- 6144 Linwood Rayford Food, Drugs, and Health 202

- 4 0 1

- 6 880 Janis Reyes Labor and Immigration 202

- 619

- 0312

David Rostker Environment and Regulatory Reform 202

- 205

- 6966

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

Joe Johnson Director 202

- 205

- 6951

Brian Headd Small Business Dynamics 202

- 205

- 695 3

Victoria Williams Jackson Finance 202

- 205

- 6191 Christine Kymn Regulation, Women, Minorities 202

- 205

- 6972

Jules Lichtenstein Labor and Benefits 202

- 205

- 6537

Radwan Saade Regulatory Analysis 202

- 205

- 6878

Office of Information Jody Wharton Director 202

- 205

- 6 933 Kyle Kempf Congressional Affairs 202

- 205

- 6888

Robert Kleinsteuber Writer/Editor 202

- 205

- 6958

Rebecca Krafft Writer/Editor 202

- 205

- 6224

Patrick Morris Public Liaison/Media Manager 202

- 205

- 6941 Kathryn Tobias Senior Editor 202

- 205

- 6 938

A dministrative Support Branch

Lucie tte Wren Director 202

- 205

- 7749 Ange la Hamilton Program Assistant 202

- 205

- 65 62 Shelia Myles Administrative Specialist 202

- 205

- 6564 Tymillia Robertson Program Assistant 202

- 619

- 2310 Natalyn Tart

- Jones Administrative Specialist 202

- 205

- 6181

Regional A ffairs

Michael Landweber Director 202

- 205

- 6945 Lynn Bromley Region I 617

- 565

- 8418

Teresa Coaxum Region II 212

- 264

- 7750 Ngozi Bell Region III 610

- 382

- 3093

Mark Berson Region IV 404

- 331

- 3081 Henry Sanders Region V 608

- 441

- 5264

Caitlin Cain Region VI 504

- 589

- 2838 Becky Greenwald Region VII 515

- 284

- 4554

John Hart Region VIII 303

- 844

- 0503

Yvonne Lee Region IX 415

- 744

- 8493

Jennifer Clark Region X 206

- 553

- 0390
Updated April 2012Index 203 

## I NDEX

Ace Lobster Co. v. Evans , 71 Administrative Procedure Act, 9, 10 and RFA litigation, 55ff

adverse v. beneficial impact of regulations, 23 Aeronautical Repair Station Association v. FAA

,

66

Alenco Communications v. FCC , 69 Allied Local and Regional Manufacturers

Caucus v. EPA , 68 alternatives to regulations, 37 American Federation of Labor v. Chertoff

, 59 American Moving and Storage Association, Inc.

v

. DOD , 57 American Trucking Associations v. EPA , 23, 65 AML International, Inc., v. Daley , 71 Ashley County Medical Center v. Thompson , 73
Associated Builders and Contractors, Inc. v.

Herma n , 60 Associated Fisheries of Maine, Inc., v. Daley , 69,

72 Atlantic Fish Spotters Association v. Evans , 56n

beneficial impact of regulations, 23

Cactus Corner v. U.S.D.A. , 60 Cement Kiln Recycling Coalition v. EPA , 66 Certification, 11 adequate vs. inadequate, 24 checklist, 29 factual basis for, 13 litigation regarding, 58 compliance assistance, 89 compliance guides, 88 Congressional Review Act, 91

Consumer Financial Protection Bureau and Regulatory Flexibility Act, 2 and SBREFA panels, 51

costs of regulatory compliance, 1 cumulative effects of rules, 135

see also Section 610 review

data resources, 106, 109

direct vs

. indirect impact of regulations, 22, 64

Dodd

- Frank Wall Street Reform and Consumer

Protection Act of 2010, 2, 51, 103

economic impact analysis, 74 economic research on small business, 109 Environmental Defense Center v. E.P.A. , 60 Environmental Protection Agency, and Regulatory Flexibility Act, 2 and SBREFA panels, 51 Executive Order 12866, 4, 112 Executive Order 13272, 3, 125 Executive Order 13563, 4, 79, 104, 127 Executive Order 13579, 5, 79, 137 exemptions from RFA, 9, 56 existing rules, review of, 79

factual basis for certification, 13 frequently asked questions about small business,

106 final regulatory flexibility ana lysis, 43 adverse economic impact minimized, 47 delays in publication of, 48 example of, 17 1 issues to address, 44 litigation concerning, 69 small entities estimated, 46 foreign affairs functions exemption from RFA,

56, 57 Friends of Fiery Gizzard v. Farmers Home

Administration, 24

“Good cause” exception, 57

Hall v. Evans , 72 Harlan Land Co. v. United States Department of

Agriculture , 59

indirect impact of regulations, 22 litigation concerning, 64 Industry analysis, 16, 18

initial regulatory flexibility analysis, 31 compliance requirements, 36 duplicative rules considered, 40 elements of, 33 example of, 139 issues to address, 32 litigation concerning, 68 objectives of rule, 35 and other analyses, 41 reasons for rule, 35 significant alternatives, 37 small entities affected, 36 threshold analysis, 11 waiver of, 41 Internal Revenue Service rules and RFA, 10 interpretative rules, 9, 10, 57

Judicial review provision of RFA, 77

LaGloria Oil & Gas Co. v. United States , 56n legislati ve rules and the RFA, 9204 RFA guide for government agencies l itigation and the RFA, 55 Little Boy Lobster Co. v. Evans , 72

Michigan v. EPA , 65

Mid

- Tex Electric Cooperative, Inc. v. FERC , 22,

64, 65, 67, 75n military functions exemption, 9, 56, 57 Motor and Equipment Manufacturers

Association v. Nichols , 65

National Association for Home Care v. Shalala

, 57 National Association of Home Builders v. Army Corps of Engineers , 55n National Association of Mortgage Brokers v.

Board of Governors of the Federal Reserve System

, 69, 77n National Association of Psychiatric Health

Systems v. Shalala , 73 National Environmental Policy Act, 2, 7 National Mining Association v. Chao , 76n National Propane Gas Association v. DOT , 70 National Truck Equipment Association v.

NHTSA , 63n National Women, Infants & Children Grocers

Association v. Food and Nutrition Service , 66n Navajo Refining Co. v. United States , 56n North Carolina Fisheries Association v. Daley

,

58, 63, 75, 76n Northwest Mining Association v. Babbitt , 58, 61

,

63 n, 64

Occupational Safety and Health Administration and Regulatory Flexibility Act, 2 and SBREFA panels, 51 Oregon Trollers Association v. Gutierrez , 57

penalty reduction policies, 90

rates and the RFA, 10, 57 regulatory agendas, 87 regulatory enforcement fairness, 90 Regulatory Flexibility Act, 93 additional requirements of, 87 adverse v. beneficial impact, 23 analysis under, 16 applicability of, 9 certification of rules under, 11, 29

direct vs. indirect impact, 22 exemptions, 9, 56

final re gulatory flexibility analysis, 43 history of, 1 impact assessment under, 15 initial regulatory flexibility analysis, 31 judicial review provision, 77 litigation concerning, 55 purpose of, 7 recent developments concerning, 102 retrospective review, 79

SBREF A panels, 51 Section 610 review, 79

semi

- annual regulatory agendas, 87 significant impact determination, 18 substantial number determination, 21 threshold analysis under, 11, 12

Roche v. Evans , 55n

SBREFA panels, 51 timeline for, 54 Section 610 review of existing rules, 79

see also cumulative effects of rules

semi

- annual regulatory agendas, 87 Significant impact, 18 Size standards, 15, 17 litigation concerning, 61 Small Business and Work Opportunity Act of

2007, 2,102

Small busin ess definition, 14

Small Business in Telecommunications v. FCC

,

62 Small Business Jobs Act of 2010, 3, 103 Small Business Regulatory Enforcement

Fairness Act background and provisions of, 2 and interpretative rules, 10 SBREFA panels, 51 Small entity definition, 14 Small governmental jurisdiction definition, 15 Small organization definition, 14 Southern Offshore Fishing Association v. Daley,

25, 62, 73 State v. Centers for Medicare & Medicaid

Services , 56n Statistics for regulatory analysis, 109 Substantial number, 21

Theiss v. Principi , 64

U.S. Cellular Corporation v. FCC , 68 Unfunded Mandates Act, 91 United Distribution Companies v. FERC , 65

Washington v. Daley , 75n White Eagle Cooperative Association v. Conner

,

66

Whitman v. American Trucking Association , 9

Williams Alaska Petroleum v. United States , 56n

Updated May 20 1 2