The Administrative Procedure Act (5 U.S.C. 553) generally requires federal agencies to publish notices of proposed rulemaking in the Federal Register and to permit interested individuals to participate in the rulemaking process by submitting written data, views, or arguments. Notices of proposed rulemaking may include a preamble that contains supplementary information providing a context for the proposed rule and the text of the proposed rule representing the agency’s preferred regulatory option. Agencies are to consider the comments received during the public comment period and then publish the final rule in the Federal Register. Agencies may incorporate suggested changes in the text of the final rule or provide other insights into their consideration of public comments in the rule’s preamble. After publication in the Federal Register as a final rule, the text of the rule is then to be codified in the Code of Federal Regulations. The RFA requires agencies to prepare an initial regulatory flexibility analysis for each draft rule, unless the head of the agency certifies in the Federal Register that “the rule will not have a significant economic impact on a substantial number of small entities.” If a draft rule is expected to have a significant economic impact on a substantial number of small entities, agencies must publish their initial regulatory flexibility analysis, or a summary of it, in the Federal Register when they publish the proposed rule. Section 603 of the RFA requires that the initial regulatory flexibility analysis describes the expected impact of the rule on small entities and describes (1) why the agency is considering the regulatory action; (2) the objectives and legal basis for the rule; (3) the type and, where feasible, an estimate of the number of small entities to which the rule will apply; (4) the projected reporting, recordkeeping, and other compliance requirements of the rule; (5) all federal rules, to the extent practicable, that may duplicate, overlap, or conflict with the proposed rulemaking; and (6) significant alternatives to the rule that would minimize the impact on small entities while accomplishing the purpose of the statute. Section 604 of the RFA requires agencies to conduct a similar final regulatory flexibility analysis when they promulgate the final rule and publish the final analysis, or a summary thereof, with the final rule. However, agencies do not have to conduct either the initial analysis or the final analysis if they certify that the rule will not have a significant economic impact on a substantial number of small entities and they explain the reasons for the certification. Before publication of an initial regulatory flexibility analysis, section 609 of the RFA, as amended by SBREFA, requires the appropriate regulatory agency (EPA or OSHA) to notify the SBA Chief Counsel for Advocacy and to provide information on the draft rule’s potential impacts on small entities and the type of small entities that might be affected. Section 609 also requires the Chief Counsel, within 15 days of this notification, to identify representatives of affected small entities for the purpose of obtaining advice and recommendations from those individuals about the potential impacts of the draft rule. The Chief Counsel may waive the requirements to convene a panel under certain circumstances if he or she, in consultation with representatives of affected small entities and the Administrator of OIRA, finds that the panel requirements would not advance the effective participation of small entities in the rulemaking process. SBREFA also requires each panel to consist of full-time federal employees from the office within the agency responsible for carrying out the draft rule and from OIRA and SBA’s Chief Counsel for Advocacy. SBREFA requires the panel to report on the comments received from small entities and on the panel’s recommendations no later than 60 days after the panel is convened, and states that the panel’s report shall be made public as part of the rulemaking record. Finally, SBREFA requires the heads of EPA and OSHA to each designate a small business advocacy chair to act as a permanent chair of each agency’s panels no later than April 29, 1996. To determine whether OSHA and EPA convened all required advocacy review panels for rules that they proposed in the first year after the panel requirements took effect, we first did an electronic search of the Federal Register to identify all OSHA- and EPA-proposed rules published between June 28, 1996, and June 28, 1997. That search indicated that OSHA had published 2 proposed rules during the period, and that EPA had published more than 350 proposed rules. Because of the large number of EPA-proposed rules, we decided to limit our review of EPA rules to the 17 that were subject to review by OIRA. We asked SBA’s Chief Counsel for Advocacy whether he agreed with OSHA’s and EPA’s certifications that these 19 proposed rules would not have a significant economic impact on a substantial number of small entities. We interviewed officials from SBA’s Office of Advocacy, EPA, OSHA, and OIRA and reviewed the RFA, as amended by SBREFA, to identify any criteria that could be used to determine what constitutes a “significant economic impact on a substantial number of small entities.” We also examined the legislative history of the RFA and SBREFA to determine if there were any discussions relevant to defining this term or providing criteria for its implementation. To determine whether the EPA and OSHA panels, the regulatory agencies themselves, and SBA’s Chief Counsel for Advocacy followed the advocacy review panel procedural requirements and whether there were differences in how the panels were conducted, we interviewed (1) selected officials from EPA, OSHA, SBA’s Office of Advocacy, and OIRA who participated in the panels that had been convened as of November 1, 1997, and (2) 32 of the 63 small entity representatives who were identified by the agencies and were asked to provide advice and recommendations to the panels. We selected the agency officials by contacting at least one official from each agency for each panel. We selected the small entity representatives by contacting every other small entity representative that EPA and OSHA listed for each panel. We also interviewed representatives of five associations who had been identified as possible small entity representatives so that we could determine why they decided not to participate in the panels. In addition, we interviewed 13 of the small entity representatives who provided advice and recommendations to an unofficial panel that EPA convened for a draft implementation strategy that related to EPA’s rules establishing national ambient air quality standards for ozone and particulate matter. Finally, we reviewed documents pertaining to the panels, including the panel requirements in SBREFA; materials that EPA and OSHA provided to the small entity representatives; and the final reports prepared by each panel. To identify any changes that EPA and OSHA made to their draft rules as a result of the panels, we compared the recommendations in the panels’ final reports with the related notices of proposed rulemaking as published in the Federal Register. As of November 1, 1997, only two of the five draft rules for which panels had been conducted had been published as proposed rules. To obtain suggestions about how the advocacy review panel process could be improved, we asked officials from EPA, OSHA, OIRA, and SBA’s Office of Advocacy and the 32 small entity representatives we interviewed to identify possible improvements in that process. Because EPA and OSHA had convened only five advocacy review panels at the time of our review (four at EPA and one at OSHA), our review results should be viewed as preliminary information on the operation of the panel provisions. Our first objective was to determine whether any EPA- or OSHA-proposed rules should have triggered the advocacy review panel requirements but did not. As previously mentioned, we limited our review of EPA rules to those that were subject to review by OIRA pursuant to Executive Order 12866. However, there may have been other EPA rules that had a significant economic impact on a substantial number of small entities but were not subject to OIRA review. Because EPA panel reports for three of its panels were not publicly available as of November 1, 1997, we did not include them in our report. As of November 1, 1997, OSHA had published a notice for proposed rulemaking for the panel it had held. However, EPA had not published notices of proposed rulemaking for three of the four panels it had held by that date. Therefore, we only could identify changes related to one OSHA and one EPA rule. We did our work between August 1997 and January 1998 in Washington, D.C., in accordance with generally accepted government auditing standards. We requested comments on a draft of this report from the Director of OMB, the Secretary of Labor, and the Administrators of EPA and SBA or their designees. Their comments are discussed near the end of this letter. We reviewed a total of 19 notices of proposed rulemaking that EPA and OSHA published (17 and 2 notices, respectively) during the first year’s implementation of SBREFA’s advocacy review panel requirements. (See app. I for a list of these 19 proposed rules.) The agencies did not convene panels for any of these proposed rules because they certified that the rules would not have a significant economic impact on a substantial number of small entities. SBA’s Chief Counsel for Advocacy agreed with OSHA’s certifications that neither of its two proposed rules required an advocacy review panel. However, the Chief Counsel said that EPA should have convened advocacy review panels for 2 of its 17 proposed rules—the national ambient air quality standards for ozone and for particulate matter. EPA’s certification of these two rules was based on EPA’s interpretation of the term “impact” under the RFA. EPA concluded that the term refers to the impact of a proposed rule on small entities subject to the rule’s requirements because the purpose of a regulatory flexibility analysis is to consider ways of easing a rule’s requirements as they will apply to small entities.