The Regulatory Flexibility Act: Implementation Issues and Proposed Reforms

The Regulatory Flexibility Act: Implementation
Issues and Proposed Reforms
Updated February 12, 2008
Curtis W. Copeland
Specialist in American National Government
Government and Finance Division

The Regulatory Flexibility Act: Implementation Issues
and Proposed Reforms
Summary
The Regulatory Flexibility Act (RFA) of 1980 (5 U.S.C. §§601-612) requires
federal agencies to assess the impact of their forthcoming regulations on “small
entities” (i.e., small businesses, small governments, and small not-for-profit
organizations). For example, the act requires the analysis to describe why a regulatory
action is being considered; the small entities to which the rule will apply and, where
feasible, an estimate of their number; the projected reporting, recordkeeping, and
other compliance requirements of the rule; and any significant alternatives to the rule
that would accomplish the statutory objectives while minimizing the impact on small
entities. This analysis is not required, however, if the head of the agency certifies
that the rule will not have a “significant economic impact on a substantial number of
small entities.” The RFA does not define “significant economic impact” or
“substantial number of small entities,” thereby giving federal agencies substantial
discretion regarding when the act’s requirements are triggered. Other requirements
in the RFA and elsewhere (e.g., that agencies reexamine their existing rules, develop
compliance guides, and convene advocacy review panels) also depend on the whether
the agencies determine that their rules have a “significant” impact on a “substantial”
number of small entities.
GAO has examined the implementation of the RFA many times during the past
20 years, and has consistently concluded that the lack of clear definitions for key
terms like “significant economic impact” and “substantial number of small entities”
have hindered the act’s effectiveness. Therefore, GAO has repeatedly recommended
that Congress define those terms, or give the Small Business Administration or some
other federal agency the authority and responsibility to do so.
H.R. 4458, the “Small Business Regulatory Improvement Act,” was introduced
on December 12, 2007, and was reported by the House Committee on Small Business
the next day. Among other things, H.R. 4458 would define “economic impact” as
including indirect effects that are “reasonably foreseeable,” and would clarify that
agencies’ reviews of existing rules should not be limited to rules for which a
regulatory flexibility analysis had been conducted. The bill would also require
agencies to develop a plan for the review of all existing rules within 10 years, require
more details in agencies’ analyses and notifications, and require annual reports to
Congress on certain agency “determinations” as part of their reviews. Although
some of these provisions address long-standing issues, some provisions seem unclear
and some may add time and costs to the rulemaking process. Most notably, though,
H.R. 4458 does not address GAO’s long-standing concerns about the lack of clear
definitions for key terms in the RFA.
This report will be updated if H.R. 4458 is acted upon, or if other relevant
actions occur.

Contents
Regulatory Flexibility Act Requirements...........................1
Other Requirements Are Linked to RFA Determinations...............3
Compliance Guides........................................3
Advocacy Review Panels....................................4
GAO Assessments of the RFA’s Implementation.....................4
Proposed Changes to the RFA by H.R. 4458.........................6
Analysis of H.R. 4458..........................................8
Long-standing Issues.......................................8
Additional Requirements....................................9
Some Requirements Appear Unclear..........................10
Value of Mandatory Reviews...............................11
Bill Does Not Clarify Key RFA Terms........................11

The Regulatory Flexibility Act:
Implementation Issues and Proposed
Reforms
Regulatory Flexibility Act Requirements
The Regulatory Flexibility Act (RFA) of 1980 (5 U.S.C. §§601-612), requires
federal agencies to assess the impact of their forthcoming rules on “small entities,”
which the act defines as including small businesses, small governmental
jurisdictions, and certain small not-for-profit organizations. Under the RFA, virtually
all federal agencies (i.e., Cabinet departments and independent agencies as well as
independent regulatory agencies) must prepare a regulatory flexibility analysis at the
time that proposed and certain final rules are published in the Federal Register. The
analysis for a proposed rule is referred to as an “initial regulatory flexibility analysis”
(IRFA), and the analysis for a final rule is referred to as a “final regulatory flexibility
analysis” (FRFA). The act requires the analyses to describe, among other things, (1)
why the regulatory action is being considered and its objectives; (2) the small entities
to which the rule will apply and, where feasible, an estimate of their number; (3) the
projected reporting, recordkeeping, and other compliance requirements of the rule;
and, for final rules, (4) steps the agency has taken to minimize the impact of the rule
on small entities, including the alternatives considered and why the selected
alternative was chosen.
However, these analytical requirements are not triggered if the head of the
issuing agency certifies that the rule would not have a “significant economic impact
on a substantial number of small entities” (hereafter referred to as a “SEISNSE”).
The RFA does not define “significant economic impact” or “substantial number of
small entities,” thereby giving federal agencies substantial discretion regarding when
the act’s analytical requirements are initiated. Also, the RFA’s analytical
requirements do not apply to final rules for which the agency does not publish a¹
proposed rule.
The RFA also contains several other notable provisions. For example, Section
602 requires each federal agency to publish a “regulatory flexibility agenda” in the
Federal Register each April and October listing regulations that the agency expects

¹ Many agencies are apparently aware of this limitation; the General Accounting Office
(GAO, now the Government Accountability Office) estimated that in more than 500 final
rules published in 1997 the agencies specifically stated that the RFA was not applicable or
that a regulatory flexibility analysis was not required because the action was not preceded
by an NPRM. See U.S. General Accounting Office, Federal Rulemaking: Agencies Often
Published Final Actions Without Proposed Rules, GAO/GGD-98-126, Aug. 31, 1998, p. 31.

to propose or promulgate which are likely to have a SEISNSE.² Section 612 of the
act requires the Chief Counsel of the Small Business Administration’s (SBA’s)
Office of Advocacy to monitor and report at least annually on agencies’ compliance
with the act. The statute also specifically authorizes the Chief Counsel to appear as
amicus curiae (i.e., “friend of the court”) in any court action to review a rule.
The RFA initially did not permit judicial review of agencies’ actions under the
act. However, amendments to the act in 1996 as part of the Small Business
Regulatory Enforcement Fairness Act (SBREFA) (110 Stat. 857, 5 U.S.C. §601 note)
permitted judicial review regarding, among other things, agencies’ regulatory
flexibility analyses for final rules and any certifications that their rules will not have
a SEISNSE. As a result, for example, a small entity that is adversely affected or
aggrieved by an agency’s determination that its final rule would not have a significant
impact on small entities could seek judicial review of that determination within one
year of the date of the final agency action. In granting relief, a court may remand the
rule to the agency or defer enforcement against small entities. The addition of judicial
review in 1996 is generally viewed as a significant strengthening of the RFA, and is
believed to have improved agencies’ compliance with the act.³
In August 2002, President George W. Bush issued Executive Order 13272,
which was intended to promote compliance with the RFA.⁴ The executive order
requires agencies to issue written procedures and policies to ensure that the potential
impacts of their draft rules on small entities are properly considered, and requires
them to notify the Office of Advocacy of any draft rules with a SEISNSE. Also, the
order requires the SBA Chief Counsel for Advocacy to “notify agency heads from
time to time” of the requirements of the RFA, and to provide training to agencies on
RFA compliance. It also permits the Chief Counsel to provide comments on draft
rules to the issuing agency and to the Office of Information and Regulatory Affairs
(OIRA) at the Office of Management and Budget. The Office of Advocacy published

² This requirement, as well as a similar requirement in Executive Order 12866, is generally
met via entries in the Unified Agenda of Federal Regulatory and Deregulatory Actions. The
Unified Agenda is published twice each year in the Federal Register by the Regulatory
Information Service Center, and provides uniform reporting of data on regulatory activities
under development throughout the federal government.
³ U.S. Small Business Administration, 20 Years of the Regulatory Flexibility Act:
Rulemaking in a Dynamic Economy (Washington: 2000).
⁴ U.S. President (Bush), “Proper Consideration of Small Entities in Agency Rulemaking,”
Executive Order 13272, 67 Federal Register 53461, Aug. 13, 2002. This executive order
essentially formalized agreements that had been in place for more than seven years. In
response to a previous GAO recommendation, on Jan. 11, 1995, the SBA Chief Counsel for
Advocacy and the OIRA Administrator exchanged letters committing the two offices to
work together more closely. Specifically, SBA said it would develop new guidance for
agencies to follow in complying with the act, and would provide OIRA with a copy of any
comments it files with an agency concerning compliance with the RFA. OIRA said it would
consider RFA compliance as part of its reviews under Executive Order 12866, and would
include SBA in the process when appropriate. See U.S. General Accounting Office,
Regulatory Flexibility Act: Status of Agencies’ Compliance, GAO/T-GGD-95-112, Mar. 8,

1995, pp. 4-5.

guidance on the RFA in 2003 and reported training more than 20 agencies on
compliance with the act in FY2005.⁵
Other Requirements Are Linked to RFA Determinations
In addition to triggering an initial or final regulatory flexibility analysis, an
agency’s determination that a rule has a SEISNSE can initiate other actions. For
example, when enacted in 1980, Section 610 of the RFA required agencies to publish
a plan in the Federal Register within 180 days that would provide for the review of
all of their then-existing rules within 10 years, and for the review of all subsequent
rules within 10 years of their publication as a final rule. The Section 610 requirement
applies to those rules that the agencies determined “have or will have” a SEISNSE,
and the purpose of the review is to determine whether the rule should be continued
without change or should be amended or rescinded to minimize its impact on small
entities. One way some agencies have decided which rules should be reviewed is by
focusing only on those rules for which a final regulatory flexibility analysis was
conducted at the time the final rule was issued. However, other agencies view
Section 610 as requiring them to review all of their rules to determine whether they
have currently a SEISNSE, regardless of their previous determinations.⁶ Either way,
agencies have considerable discretion in deciding what constitutes a “significant”
impact and a “substantial” number of small entities, and therefore what rules (if any)
are covered by this requirement.
SBREFA established two new requirements that are also triggered by agencies’
determinations under the RFA — e.g., compliance guides and advocacy review
panels.
Compliance Guides. Section 212 of SBREFA requires agencies to develop
one or more compliance guides for each final rule or group of related final rules for⁷
which the agency is required to prepare an FRFA. Specifically, Section 212 requires
the guides to be posted in an easily identifiable location on the agency’s website and
distributed to “known industry contacts,” be entitled “small entity compliance
guides,” and explain the actions a small entity is required to take to comply with an
associated final rule. The statute also requires the guide to be published not later than

⁵ See U.S. Small Business Administration, Office of Advocacy, A Guide for Government
Agencies: How to Comply with the Regulatory Flexibility Act (Washington: May 2003),
available at [http://www.sba.gov/advo/laws/rfaguide.pdf]. The Office of Advocacy had
issued similar guidance previously. For example, see U.S. Small Business Administration,
Office of Advocacy, The Regulatory Flexibility Act: An Implementation Guide for Federal
Agencies (Washington: 1998), available from the author.
⁶ GAO reported in 1999 that EPA conducted Section 610 reviews only for rules that it
concluded had a SEISNSE at the time the final rules were promulgated. The Department
of Transportation, on the other hand, interpreted the statute to require a review of all rules.
See U.S. General Accounting Office, Regulatory Flexibility Act: Agencies’ Interpretations
of Review Requirements Vary, GAO/GGD-99-55, Apr. 2, 1999, pp. 11-12.
⁷ Section 212 was amended by Subtitle C of the U.S. Troop Readiness, Veterans Care,
Katrina Recovery, and Iraq Accountability Appropriations Act, 2007 (P.L. 110-28, May 25,

2007). This description includes those amendments.

the date that the associated rule’s requirements become effective. However, an
agency does not have to prepare the compliance guides at all if it determines that the
rule or group of rules does not have a “significant” economic impact on a
“substantial” number of small entities.
Advocacy Review Panels. Section 244 of SBREFA amended Section 609
of the RFA to require the Environmental Protection Agency (EPA) and the
Occupational Safety and Health Administration (OSHA) to convene “advocacy
review panels” before publishing an IRFA for a proposed rule. Specifically, the
agency issuing the regulation (either OSHA or EPA) must notify the SBA Chief
Counsel for Advocacy and provide information on the draft rule’s potential impacts
on small entities and the type of small entities that might be affected. The Chief
Counsel then must identify representatives of affected small entities within 15 days
of the notification. The review panel must consist of full-time federal employees
from the rulemaking agency, the Office of Management and Budget, and SBA’s
Chief Counsel for Advocacy. During the panel process, the panel must collect the
advice and recommendations of representatives of affected small entities about the
potential impact of the draft rule. The panel must report on the comments received
and on its recommendations no later than 60 days after the panel is convened, and the
panel’s report must be made public as part of the rulemaking record.⁸ However, EPA
and OSHA do not have to hold an advocacy review panel at all if the issuing agency
certifies that the subject rule will not have a “significant” economic impact on a
“substantial” number of small entities.
GAO Assessments of the RFA’s Implementation
GAO has commented on the implementation of the RFA numerous times within
the past 15 to 20 years, and a recurring theme in GAO’s reports is a lack of clarity in
the act regarding key terms and a resulting variability in the act’s implementation.
For example, in 1991, GAO reported that each of the four federal agencies that it
reviewed had a different interpretation of key RFA provisions — most notably, what
constitutes a “significant” economic impact or a “substantial” number of small
entities.⁹ In 1994, GAO again reported that agencies’ compliance with the RFA
varied widely from one agency to another and that agencies were interpreting the
statute differently.¹⁰ In a 1999 report on the implementation of Section 610 of the
RFA and in a 2000 report on the implementation of the RFA at EPA, GAO
concluded that agencies had broad discretion to determine what the statute required.¹¹

⁸ For an examination of how the first five advocacy review panels were implemented, see
U.S. General Accounting Office, Regulatory Reform: Implementation of the Small Business
Advocacy Review Panel Requirements, GAO/GGD-98-36, March 18, 1996.
⁹ U.S. General Accounting Office, Regulatory Flexibility Act: Inherent Weaknesses May
Limit Its Usefulness for Small Governments, GAO/HRD-91-16, Jan. 11, 1991.
¹⁰ U.S. General Accounting Office, Regulatory Flexibility Act: Status of Agencies’
Compliance, GAO/GGD-94-105, Apr. 27, 1994.
¹¹ U.S. General Accounting Office, Regulatory Flexibility Act: Agencies’ Interpretations of
Review Requirements Vary, GAO/GGD-99-55, Apr. 2, 1999; U.S. General Accounting
(continued...)

In the 2000 report, GAO determined that EPA had certified virtually all of its rules
after 1996 as not having a SEISNSE, and that the rate of certifications increased
substantially after the passage of SBREFA. In all of these reports, GAO suggested
that Congress consider clarifying the act’s requirements, give SBA or some other
entity the responsibility to develop criteria for whether and how agencies should
conduct RFA analyses, or both. In 2001, GAO testified that the promise of the RFA
may never be realized until Congress or some other entity defines what a “significant
economic impact” and a “substantial number of small entities” mean in a rulemaking
setting. ¹²
In 2002, GAO again testified that the implementation of the RFA was still
problematic, and raised more questions about how the statute should be interpreted.¹³
For example, GAO said, in determining whether a rule has a significant impact on
small entities, should agencies take into account the cumulative impact of similar
rules in the same area? Should agencies consider the RFA triggered when a rule has
a significant positive impact on small entities? GAO went on to say the following:
These questions are not simply matters of administrative conjecture within the
agencies. They lie at the heart of the RFA and SBREFA, and the answers to the
questions can have a substantive effect on the amount of regulatory relief
provided through those statutes. Because Congress did not answer these
questions when the statutes were enacted, agencies have had to develop their
own answers — and those answers differ. If Congress does not like the answers
that the agencies have developed, it needs to either amend the underlying statutes
and provide what it believes are the correct answers or give some other entity the¹⁴
authority to issue guidance on these issues.
In 2006, GAO again testified that “the full promise of RFA may never be
realized until Congress clarifies key terms and definitions in the Act, such as ‘a
substantial number of small entities,’ or provides an agency or office with the clear¹⁵
authority and responsibility to do so.” In addition to the areas raised previously,
GAO said that numerous other issues regarding the RFA remain unresolved,
including:
^!how Congress believes that the economic impact of a rule should be
measured (e.g., in terms of compliance costs as a percentage of

¹¹ (...continued)
Office, Regulatory Flexibility Act: Implementation in EPA Program Offices and Proposed
Lead Rule, GAO/GGD-00-193, Sept. 20, 2000.
¹² U.S. General Accounting Office, Regulatory Flexibility Act: Key Terms Still Need to Be
Clarified, GAO-01-669T, Apr. 24, 2001.
¹³ U.S. General Accounting Office, Regulatory Flexibility Act: Clarification of Key Terms
Still Needed, GAO-02-491T, Mar. 6, 2002.
¹⁴ Ibid., pp. 2-3.
¹⁵ U.S. Government Accountability Office, Regulatory Flexibility Act: Congress Should
Revisit and Clarify Elements of the Act to Improve Its Effectiveness, GAO-06-998, July 20,

2006.

businesses’ annual revenues, the percentage of work hours available
to the firms, or some other metric);
^!whether agencies should count the impact of the underlying statutes
when determining whether their rules have a significant impact;
^!what should be considered a “rule” for purposes of the requirement
that agencies review their rules within 10 years of their
promulgation; and
^!whether agencies should review all rules that had a SEISNSE at the
time they were originally published as final rules, or only those rules
that currently have that effect.
Therefore, GAO said “Congress might wish to review the procedures, definitions,
exemptions, and other provisions of RFA to determine whether changes are needed
to better achieve the purposes Congress intended.” Also, GAO said “attention should
... be paid to the domino effect that an agency’s initial determination of whether RFA
is applicable to a rulemaking has on other statutory requirements, such as preparing
compliance guides for small entities and periodically reviewing existing regulations.”
Although GAO has consistently called for greater clarity in the RFA’s
requirements, other observers have indicated that the definitions of key terms like
“significant economic impact” and “substantial number of small entities” should
remain flexible because of significant differences in each agency’s operating
environment. Notably, the SBA Office of Advocacy said that “[n]o definition could,
or arguably should, be devised to apply to all rules given the dynamics of the
economy and changes that are constantly occurring in the structure of small-entity
sectors.”¹⁶ In its guidance on the RFA, SBA said the lack of clear definitions in the
act “does not mean that Congress left the terms completely ambiguous or open to
unreasonable interpretations.”¹⁷ Quoting the legislative history of the act in 1980,
SBA said the diversity of both the community of small entities and of rules
themselves makes a precise definition of the term “significant economic impact”
virtually impossible and possibly counterproductive. Illustrative examples of
“significant” economic impacts cited in the guidance range widely — from $500 in
compliance costs to a 2% reduction in revenues if an industry’s profits are 3% of
revenues. Similarly, the guidance suggests that determinations of whether a
“substantial number” of small entities are affected should begin with what it called
the “more than just a few” standard, but ultimately does not require agencies to find
that more than half of small entities would be affected.
Proposed Changes to the RFA by H.R. 4458
On December 12, 2007, H.R. 4458 — the “Small Business Regulatory
Improvement Act” — was introduced by Representative Brad Ellsworth and nine

¹⁶ U.S. Small Business Administration, Office of Advocacy, The Regulatory Flexibility Act:
An Implementation Guide for Federal Agencies (Washington: 1998), p. 16.
¹⁷ Ibid., p. 18.

cosponsors, and the bill was referred to the House Committee on the Judiciary and
the House Committee on Small Business. On December 13, 2007, the House Small
Business Committee unanimously reported the bill. No action on H.R. 4458 has been
scheduled by the House Committee on the Judiciary, and no comparable legislation
has been introduced in the Senate. Similar legislation was introduced in the 109^th
Congress (H.R. 682 and S. 1388), but was not acted upon.
H.R. 4458 would make a number of changes to the RFA — all of which are
supported by the SBA Office of Advocacy and small business representatives.¹⁸ For
example, Section 3 of the bill would amend Section 601 of the RFA and define
“economic impact” to include direct economic effects of a rule on small entities as
well as any indirect effect “which is reasonably foreseeable and results from such
rule.” Section 4 of the bill would make several changes to the RFA’s requirements
for IRFAs, FRFAs, and certifications — adding new analytical or reporting
requirements, and adding to the level of detail in existing requirements. (Most of
those changes are discussed later in this report.)
Section 5 of H.R. 4458 would amend Section 610 of the RFA and establish new
requirements for the periodic review of rules. Specifically, within 180 days after
enactment, the bill would require agencies to publish in the Federal Register and on
their websites a plan for reviewing all existing rules that the agency heads determine
have a SEISNSE — regardless of whether the agency published a FRFA under
Section 604 of the RFA at the time the rule was promulgated. The plan must provide
for the review of all existing rules within 10 years after the enactment of the
legislation (although the agency head may extend that deadline by two years if
completion of the reviews is not feasible), and for the review of rules issued after
enactment within 10 years of their publication in the Federal Register. Also, each
agency must publish a list of the rules to be reviewed pursuant to the plan, including
why the agency determined each rule has a SEISNSE, and must request comments
from the public, the SBA Chief Counsel for Advocacy, and the Regulatory
Enforcement Ombudsman on the “enforcement” of the rule. Finally, the bill would
require agencies to submit reports annually to Congress and, for agencies other than
independent regulatory agencies, the OIRA Administrator. The annual report is to
include (1) the identification of any rule for which the agency head had “made a
determination” regarding whether the rule overlaps or conflicts with other rules, and
the length of time since the rule had previously been evaluated; and (2) a “detailed
explanation of the reasons for such determination.”

¹⁸ Ralph Lindeman, “SBA Advocacy Chief Urges Legislation To Strengthen Regulatory
Flexibility Act,” BNA Daily Report for Executives, Dec. 7, 2007, p. A-28. The Office of
Advocacy has supported similar provisions in other legislation. See testimony of SBA Chief
Counsel for Advocacy Thomas M. Sullivan, in U.S. Congress, House Committee on the
Judiciary, Subcommittee on Commercial and Administrative Law, Regulatory Flexibility^th^nd
Improvements Act — H.R. 682, hearings, 109 Cong., 2 sess., July 20, 2006. Individuals
from SBA have also written in support of similar provisions. See Keith W. Holman, “The
Regulatory Flexibility Act at 25: Is the Law Achieving Its Goal?” Fordham Urban Law
Journal, vol. 33 (May 2006), pp. 1119-1137.

Analysis of H.R. 4458
Some of the provisions in H.R. 4458 appear to address certain long-standing
issues of concern regarding the implementation of the RFA. Other provisions appear
to add to the number or depth of the analytical and notification requirements placed
on rulemaking agencies, and some other provisions seem unclear. But H.R. 4458
may be most notable for what it does not do; it does not clarify what constitutes a
“significant” economic impact on a “substantial” number of small entities.
Therefore, agencies will still be able to determine when a regulatory flexibility
analysis is needed (and, consequently, when related requirements are triggered).
Long-standing Issues. For more than 20 years, courts have ruled that
agencies need not prepare regulatory flexibility analyses if the effects of a rule on an¹⁹
industry are indirect. Therefore, for example, if a federal agency is issuing a final
rule establishing a health standard that is implemented by states or other entities, the
federal agency issuing the rule need not prepare a regulatory flexibility analysis even
if it is clear that the implementation ultimately will have significant effect on a²⁰
substantial number of small entities. Likewise, if a federal agency issues a rule
directly regulating how long non-immigrant aliens can remain in the United States
but indirectly affecting small businesses in the travel industry, the agency can certify
that the rule does not have a SEISNSE.²¹ Agencies have also indicated that they do
not consider the secondary effects that a rule may have on the cost of compliance
with other programs.²²

¹⁹ See, for example, Mid-Tex Electric Cooperative, Inc. v. FERC, 773 F.2d 327, 343 (D.C.
Cir. 1985).
²⁰ For example, when EPA published a final rule establishing national ambient air quality
standards (NAAQS) for particulate matter in October 2006, the agency certified the rule as
not having a SEISNSE “because NAAQS themselves impose no regulations on small
entities.” In its cost-benefit analysis for the rule, EPA estimated the cost of installing
controls to meet the health standard at $5.6 billion in 2020. See U.S. Environmental
Protection Agency, “National Ambient Air Quality Standards for Particulate Matter; Final
Rule,” 71 Federal Register 61144, 61217. In a similar case (American Trucking
Associations, Inc. v. U.S. Environmental Protection Agency, 175 F.3d 1027 (D.C. Cir.

1999)), affirmed in part and reversed in part, Whitman v. American Trucking Associations,

532 U.S. 457 (2001), the U.S. Court of Appeals for the District of Columbia ruled that EPA
had complied with the RFA because the states, not EPA, had the direct authority to impose
requirements to control ozone and particulate matter consistent with EPA health standards.
²¹ This example of a 2002 rule issued by the Immigration and Naturalization Service was
cited in testimony by the SBA Chief Counsel for Advocacy in support of H.R. 682 in the^th
109 Congress. Testimony of SBA Chief Counsel for Advocacy Thomas M. Sullivan, in
U.S. Congress, House Committee on the Judiciary, Subcommittee on Commercial and^th
Administrative Law, Regulatory Flexibility Improvements Act — H.R. 682, hearings, 109^nd
Cong., 2 sess., July 20, 2006.
²² For example, in a 1991 rule, EPA acknowledged that the rule in question may have
“trickle down” effects on other EPA programs under the Clean Air Act (CAA), Superfund,
or the Resource Conservation and Recovery Act (RCRA), but went on to say that “the
purpose of today’s action is solely to establish drinking water standards that public water
systems must comply with. Consequently, EPA does not consider the cost of secondary
(continued...)

By clarifying that the term “economic impact” includes indirect effects that are
“reasonably foreseeable and result from the rule,” H.R. 4458 might result in more
agency rules being viewed as requiring an IRFA, an FRFA, or both.²³ Nevertheless,
agencies appear to have substantial discretion in determining what indirect effects are
“reasonably foreseeable,” because the proposed legislation does not define that term.
Also, even when the indirect effects of a rule are foreseeable, in some cases the
agencies may not be able to provide much detail regarding those effects in their
IRFAs and FRFAs (e.g., when the implementation details are left to states or local
governments).
H.R. 4458 would also clarify how agencies’ reviews under Section 610 of the
RFA should be conducted. As a result, agencies would be required to review all of
their rules to determine if they currently have a SEISNE, and could not simply rely
on their previous determinations when the final rule was published in the Federal
Register. Enactment of this change could result in substantially more Section 610
reviews, but with a concomitant increase in time and effort required by federal
agencies. Still unclear, however, is what constitutes a “rule” under this requirement
(e.g., only the provision published in the Federal Register or the entire Code of
Federal Regulations part that the provision amended).
Additional Requirements. Other elements of H.R. 4458 appear to add to
the number or depth of the analytical and notification requirements that the RFA
currently places on agencies. For example:
^!Whereas the RFA currently requires an IRFA to contain a
“description” of the reasons why the agency action is being
considered and a “succinct statement” of the objectives of and legal
basis for the proposed rule, H.R. 4458 would require a “detailed
statement” describing those elements.
^!Whereas the RFA currently requires that the IRFA contain a
description of “and, where feasible, an estimate of the number of
small entities to which the proposed rule will apply,” H.R. 4458
would require a detailed description of the type of small entities
affected, and would require an estimate of the number of small
entities affected or an explanation of why such an estimate is not
available.
^!If an agency certifies a rule as not requiring an IRFA or a FRFA,
H.R. 4458 would require that the statement providing the factual
basis for the certification be “detailed.”

²² (...continued)
impacts which may occur under the CAA, Superfund, or RCRA.” U.S. Environmental
Protection Agency, “Drinking Water; National Primary Drinking Water Regulations;
Monitoring for Volatile Organic Chemicals,” 56 Federal Register30266, July 1, 1991.
²³ The SBA Chief Counsel for Advocacy said his office’s “biggest concern with the RFA
is that it does not require agencies to analyze indirect impacts.” See [http://www.sba.gov/
advo/press/07-38.html ].

^!Regarding FRFAs, the bill would eliminate the current requirement
that the statement of the need for and objectives of the rule be
“succinct,” and would require that any explanation of why the
number of small entities affected is not available be “detailed.”
^!The bill would also require that the FRFA contain the agency’s
response to any comments from the SBA Chief Counsel for
Advocacy in response to the proposed rule and a detailed statement
of changes made to the rule as a result of those comments.
Some public interest groups have expressed concerns that these and other provisions
in H.R. 4458 would “add additional layers of analysis to a regulatory process already
thick with prescriptive requirements and would further tilt the regulatory playing
field in favor of regulated interests.”²⁴ To the extent that agencies strictly adhere to
the precise wording of these requirements (e.g., developing a “detailed” statement
describing a rule instead of a “succinct” statement), agencies could experience
substantially increased rule-development time and compliance costs. However, some
of the bill’s requirements appear to codify requirements that are currently in
Executive Order 13272 (e.g., the requirement that each agency notify the Chief
Counsel for Advocacy when the agency concludes that a rule may have a SEISNSE).
Therefore, if agencies are already performing these executive order-required tasks,
their codification via H.R. 4458 would not appear to add to the time or agency effort
required to issue rules.
On the other hand, some other parts of H.R. 4458 appear to place substantial
new requirements on rulemaking agencies — perhaps most notably, the requirement
that agencies implement a new 10-year plan for the review of all of their existing
rules. For agencies like EPA that have taken a narrow view of Section 610 and only
reviewed rules for which they had published an FRFA, this requirement would
greatly expand the scope of their Section 610 reviews to all rules. As a result, some
agency rules issued decades earlier that had never before been reviewed would, under
H.R. 4458, be required to be reviewed. However, this requirement would also affect
agencies that have broadly interpreted Section 610. Therefore, for example, even
though the Department of Transportation is expected to complete a comprehensive,
10-year process of reviewing all of its rules in 2008, H.R. 4458 would require the
department to review all of those rules again.
Some Requirements Appear Unclear. Some elements of this new Section
610 process seem unclear. For example, H.R. 4458 states that each agency is to
submit a report annually that includes “the identification of any rule with respect to
which the head of the agency made a determination described in paragraph (5) or (6)
of subsection (d) and a detailed explanation of the reasons for such determination.”
Subsection (d) lists the factors that agencies are to consider in reviewing rules, with
paragraph (5) being “The extent to which the rule overlaps, duplicates, conflicts with
other Federal rules and, unless the head of the agency determines it to be infeasible,
State and local rules.” Paragraph (6) of subsection (d) indicates that agencies’

²⁴ Ralph Lindeman, “House Panel Approves Measure to Require More Agency Review of
Regulatory Burdens,” BNA Daily Report for Executives, Dec. 14, 2007, p. A-2.

reviews of their rules should consider “The length of time since the rule has been
evaluated or the degree to which technology, economic conditions, or other factors
have changed in the area affected by the rule.”
If an agency determines during its review that a rule does not conflict with any
other rule, and that the relevant technology and economic conditions have not
changed since the rule was issued, is the agency to include this “determination” and
a detailed explanation of how it reached this conclusion in its annual report? Or is
the agency only to include such determinations and explanations for rules that do
conflict with other rules, or where the technology, economic conditions, or other
factors have changed? If agencies are expected to provide detailed explanations for
decisions in either direction for all the rules they review each year, the agencies’
annual reports to Congress and OIRA could be time consuming and voluminous. On
the other hand, if agencies are only to provide information regarding rules that they
consider in conflict with other rules, or rules for which relevant factors have changed,
then agencies will have strong incentives to reduce their reporting burden and
conclude that those conditions are not present. Also, the bill indicates that the annual
reports, as well as agency certifications that the 10-year review process needs to be
extended, are to be sent to “the Congress,” but the precise recipient is unclear (e.g.,
the Parliamentarians or a particular committee). It also seems unclear what “the
Congress” is to do with the reports and certifications once they arrive.
Value of Mandatory Reviews. More generally, recent work by GAO
indicates that statutorily required regulatory reviews are less frequent, and may be
less effective, than reviews undertaken at the agencies’ discretion — thereby raising
questions about the overall value of statutory review requirements such as Section
610 of the RFA. In a July 2007 report, GAO said most “retrospective reviews” of
agency rules between 2001 and 2006 were conducted at the agencies’ discretion, not²⁵
as a result of mandatory requirements such as Section 610. GAO also said that
discretionary reviews were more likely to involve the public in the process than
mandatory reviews, and were more likely to result in changes to the rules. On the
other hand, statutorily required reviews were more likely to have review standards,
and were more likely to be documented. GAO recommended that agencies
incorporate various elements into their policies and procedures to improve the
effectiveness and transparency of retrospective regulatory reviews, and that they
identify opportunities for Congress to revise and consolidate existing review
requirements.
Bill Does Not Clarify Key RFA Terms. Most notably, however, H.R. 4458
does not appear to address the central criticism that GAO has raised regarding the
RFA during the past 20 years — i.e., the lack of clarity and inconsistency in how
agencies determine what constitutes a “significant” economic impact or a
“substantial” number of small entities. As GAO has pointed out numerous times in
the past, unless Congress defines those key terms or requires SBA or some other
entity to do so, agencies will be allowed to develop their own definitions, and

²⁵ U.S. Government Accountability Office, Reexamining Regulations: Opportunities Exist
to Improve Effectiveness and Transparency of Retrospective Reviews, GAO-07-791, July

16, 2007.

therefore can determine when a regulatory flexibility analysis is required. In some
cases, agencies have concluded that rules imposing direct compliance costs of
thousands of dollars per year on thousands of small entities did not represent a
“significant” economic effect on a “substantial” number of small entities.²⁶ With the
addition of new requirements that IRFAs and FRFAs be “detailed,” agencies will
have even greater incentives to certify their rules and avoid conducting the analyses
altogether (although this may be somewhat counterbalanced by the requirement that
the factual basis of any certification also be detailed). A similar phenomenon
occurred in 1996 when SBREFA required that agencies prepare compliance guides,
and that EPA and OSHA conduct advocacy review panels, for any rule that the
agencies did not certify. At EPA, the percentage of rules that were certified as not
having a SEISNSE increased from 78% in the 30-month period before SBREFA to

96% in the 30-month period after SBREFA.²⁷

As the previous discussion suggests, when agencies certify their rules as not
having a SEISNSE, they not only exempt themselves from the requirements that they
conduct an IRFA and an FRFA; the agencies will also be able to avoid the related
requirements to produce compliance guides and hold advocacy review panels (the
“domino effect” that GAO mentioned). Also, agencies will continue to have broad
discretion in deciding which rules currently have a SEISNSE, and therefore require
review under Section 610 of the RFA. Therefore, the issue of what constitutes a
“significant” economic impact and a “substantial” number of small entities affects
a number of rulemaking requirements.
As GAO has pointed out in the past, if Congress wanted to address this issue,
it could define what a SEISNSE is itself, or it could require that SBA’s Office of
Advocacy or some other entity define the term. A combination of both approaches
is also possible. For example, even if Congress were to establish a broadly
applicable “bright line” for when an IRFA or an FRFA must be prepared (e.g., any
rule that is expected to have at least a $5,000 annual economic impact on at least
5,000 small entities cannot be certified), more industry-specific standards could be
developed below that threshold — similar to the way that industry-specific standards
have been developed for what constitutes a “small” entity.²⁸

²⁶ For example, EPA concluded that one proposed rule issued in 1999 would affect more
than 5,000 small businesses and impose more than $100 million in compliance costs in the
first year, but EPA still certified the rule as not having a SEISNSE. See U.S. General
Accounting Office, Regulatory Flexibility Act: Implementation in EPA Program Offices and
Proposed Lead Rule, GAO/GGD-00-193, Sept. 20, 2000. In 1989, EPA certified a rule as
not having a SEISNE even though EPA estimated it would impose compliance costs on
about 11,000 small public water systems of between $333 million and $439 million per year.
See U.S. Environmental Protection Agency, “Drinking Water; National Primary Drinking
Water Regulations,” 54 Federal Register 27486, June 29, 1989.
²⁷ U.S. General Accounting Office, Regulatory Flexibility Act: Implementation in EPA
Program Offices and Proposed Lead Rule, GAO/GGD-00-193, Sept. 20, 2000, p. 16.
²⁸ SBA size standards may be viewed at [http://www.sba.gov/services/
contractingopportunities/sizest andardstopics/index.html ].