Beefing Up Reg Flex

Thomas Sullivan, the chief counsel for SBA’s Office of Advocacy testified on December 6 before the U.S. House of Representatives Committee on Small Business. The topic was “Legislation to Improve the Regulatory Flexibility Act (RFA).”

Sullivan explained the background of this legislation:

“In 1980, Congress enacted the RFA after determining that uniform federal regulations produced a disproportionate adverse economic hardship on small entities. In order to minimize the burden of these regulations on small entities, the RFA mandates that federal agencies consider the potential economic impact of federal regulations on small entities. The RFA also requires agencies to examine regulatory alternatives that achieve the agencies’ public policy goals while minimizing small entity impacts. Agency compliance with the RFA, however, was not judicially reviewable. Since agencies could not be held legally accountable for their noncompliance with the statute, many agencies ignored the RFA and did not conduct full regulatory flexibility analyses in conjunction with their rulemakings. In response, Congress amended the RFA in 1996 by enacting the Small Business Regulatory Enforcement Fairness Act (SBREFA), which provided for judicial review of agencies’ final decisions under the RFA and added requirements for the Environmental Protection Agency (EPA) and the Occupational Safety and Health Administration (OSHA).”

The key suggestions for improvement by Sullivan were summarized by Office of Advocacy as follows:

• Consideration of Indirect Impacts. Under current law, federal agencies are only required to analyze direct impacts, even though there may be foreseeable and costly indirect impacts. In addition, many times, especially with environmental regulation, the duty of regulating is passed on to the states without any corresponding analysis or requirements for states to consider less burdensome alternatives for small businesses. Amending the RFA to require federal agencies to consider indirect impacts will help state officials craft less burdensome regulatory alternatives. The RFA should be amended to require federal agencies to consider indirect impacts and less burdensome regulatory alternatives.

• Review of Existing Rules. Since new regulations are promulgated each year, the cumulative impact can be staggering. It is necessary to amend section 610 of the RFA to strengthen the current requirements mandating federal agencies to periodically evaluate existing regulations to minimize this impact

• Proper Consideration of Small Entities in Agency Rulemaking. Section 3 of Executive Order 13272 (“Proper Consideration of Small Entities in Agency Rulemaking,” August 13, 2002), requires agencies to notify the Office of Advocacy of draft rules that will have a significant economic impact on a substantial number of small entities. It also requires agencies to give appropriate consideration to Advocacy’s comments and address the comments in final rules. Codifying this key component of E.O. 13272 would ensure that small entities have a legitimate voice in the rulemaking process.

The RFA and SBREFA have been positive pieces of legislation for small businesses. The Office of Advocacy also has been urging the states to pass their own versions. Sullivan’s suggestions on December 6 for beefing up Reg Flex are right on target.