To determine eligibility for Federal small business assistance programs, SBA establishes small business size definitions (referred to as size standards) for private sector industries in the United States. SBA's existing size standards use two primary measures of business size—average annual receipts and number of employees. Financial assets, electric output and refining capacity are also used as size measures for a few specialized industries. In addition, SBA's Small Business Investment Company (SBIC), 7(a), and Certified Development Company (CDC or 504) Loan Programs determine small business eligibility using either the industry based size standards or alternative net worth and net income size based standards. At the start of the current comprehensive small business size standards review, there were 41 different size levels, covering 1,141 NAICS industries and 18 sub-industry activities ( i.e., “exceptions” in SBA's table of size standards). Of these, 31 were based on average annual receipts, seven based on number of employees, and three based on other measures.

Over the years, SBA has received comments that its size standards have not kept up with changes in the economy, in particular the changes in the Federal contracting marketplace and industry structure. SBA last conducted a comprehensive review of size standards during the late 1970s and early 1980s. Since then, most reviews of size standards were limited to a few specific industries in response to requests from the public and Federal agencies. SBA also makes periodic inflation adjustments to its monetary based size standards. The latest inflation adjustment to size standards was published in the Federal Register on July 18, 2008 (73 FR 41237).

SBA recognizes that changes in industry structure and the Federal marketplace since the last overall review have rendered existing size standards for some industries no longer supportable by current data. Accordingly, in 2007, SBA began a comprehensive review of its size standards to determine whether existing size standards have supportable bases relative to the current data, and to revise them, where necessary.

In addition, on September 27, 2010, the President of the United States signed the Small Business Jobs Act of 2010 (Jobs Act). The Jobs Act directs SBA to conduct a detailed review of all size standards and to make appropriate adjustments to reflect market conditions. Specifically, the Jobs Act requires SBA to conduct a detailed review of at least one-third of all size standards during every 18-month period from the date of its enactment and review all size standards not less frequently than once every 5 years thereafter. Reviewing existing small business size standards and making appropriate adjustments based on current data is also consistent with Executive Order 13563 on improving regulation and regulatory review.

Rather than review all size standards at one time, SBA is reviewing a group of related industries on a Sector by Sector basis.

As part of SBA's comprehensive review of size standards, the Agency evaluated every industry in NAICS Sector 61, Educational Services, to determine whether the existing size standards should be retained or revised. On November 15, 2011, SBA published a proposed rule in the Federal Register seeking public comment on its proposal to increase the size standards for nine industries in NAICS Sector 61. The proposed rule was one of the rules that will examine industries grouped by a NAICS Sector.

SBA has recently developed a “Size Standards Methodology” for establishing, reviewing and modifying size standards, where necessary. SBA has published the document on its Web site at www.sba.gov/size for public review and comment and also included it as a supporting document in the electronic docket of the November 15, 2011 proposed rule at www.regulations.gov .

In evaluating an industry's size standard, SBA examines its characteristics (such as average firm size, startup costs, industry competition, and distribution of firms by size) and the level and small business share of Federal contract dollars in that industry. SBA also examines the potential impact a size standard revision might have on its financial assistance programs and whether a business concern under a revised size standard would be dominant in its industry. SBA analyzed the characteristics of each industry in NAICS Sector 61, mostly using a special tabulation obtained from the U.S. Bureau of the Census from its 2007 Economic Census (the latest available). SBA also evaluated the level and small business share of Federal contract dollars in each of those industries using the data from the Federal Procurement Data System—Next Generation (FPDS-NG) for fiscal years 2008 to 2010. To evaluate the impact of changes to size standards on its loan programs, SBA analyzed internal data on its guaranteed loan programs for fiscal years 2008 to 2010.

SBA's “Size Standards Methodology” provides a detailed description of its analyses of various industry and program factors and data sources, and how the Agency uses the results to derive size standards. In the proposed rule, SBA detailed how it applied its “Size Standards Methodology” to review, and modify, where necessary, the existing standards for industries in NAICS Sector 61. SBA sought comments from the public on a number of issues about its “Size Standards Methodology,” such as whether there are alternative methodologies that SBA should consider; whether there are alternative or additional factors or data sources that SBA should evaluate; whether SBA's approach to establishing small business size standards makes sense in the current economic environment; whether SBA's application of anchor size standards is appropriate in the current economy; whether there are gaps in SBA's methodology because of the lack of comprehensive data; and whether there are other facts or issues that SBA should consider.

SBA also sought comments on its proposal to increase the size standards for nine industries and retain the existing size standard for the remaining eight industries and one sub-industry (“exception”) in NAICS Sector 61. Specifically, SBA requested comments on whether the size standards should be revised as proposed and whether the proposed revisions are appropriate. SBA also invited comments on whether its proposed eight fixed size standard levels are appropriate and whether it should adopt common size standards for some industries in NAICS Sector 61.

SBA's analyses supported lowering existing size standards for six industries and one sub-industry (“exception” to NAICS 611519, Job Corps Centers). However, as SBA explained in the proposed rule, lowering size standards would reduce the number of firms eligible to participate in Federal small business assistance programs and would run counter to what the Federal government and SBA are doing to help small businesses and create jobs. Therefore, SBA proposed to retain the current size standards for those industries and requested comments on whether the Agency should lower size standards for those six industries and one sub-industry for which its analyses might support lowering them.

There were four comments from individuals and businesses on SBA's proposed size standards changes for NAICS Sector 61. Two of the comments were on its proposal to retain the current size standard for NAICS 611512, Flight Training, while another was on the proposal to retain the current size standard for Job Corps Centers, which is an exception to NAICS 611519, Other Technical and Trade Schools. One was a general comment supporting the SBA's methodology and proposed size standards for NAICS Sector 61. These comments are summarized below.

Two commenters opposed SBA's proposal to maintain the current $25.5 million receipts based size standard for NAICS 611512, Flight Training, and recommended a higher size standard. One recommended $33 million, while the other recommended at least $35.5 million, preferably $50 million. The second commenter also proposed an alternative employee based size standard of 1,000 employees. Except for information on a few recent solicitations and a general description of types of services to be performed for Federal contracts within this NAICS code, the commenters offered no alternative industry data or analyses to support their recommendations.

To support the argument for a higher size standard, the first commenter argued that large flight training contracts, previously reserved for full and open competition, are being set aside for small businesses. This has caused, according to the commenter, small incumbent firms to exceed the current size standard with a few contract awards. The commenter added that, with revenues from two small business set aside contracts the commenter's firm is currently performing and one new set aside contract it has recently competed, the firm will exceed the current size standard, thereby making it ineligible to compete as a small business for future set aside contracts in NAICS 611512, unless the size standard is increased. The commenter maintained that this will also cause significant turmoil for the Federal government because the incumbent small businesses will never be able to compete on subsequent bidding opportunities. The commenter stated that the current size standard for NAICS 611512 is counter to the idea of promoting small businesses through set aside contracts. The commenter concluded that given the increased size and scope of small business set aside contracts in NAICS 611512 the current size standard should be increased, not decreased, as shown by SBA's analysis.

In response to the above comment, SBA evaluated the FPDS-NG and Central Contractors Registration (CCR) data for fiscal years 2008 to 2010. The data showed that 60 percent of firms receiving new Federal contracts annually within NAICS 611512 were small businesses. Similarly, about 37 percent of all new contracts and 21 percent of total contract dollars in NAICS 611512 were awarded to small businesses. These statistics demonstrate substantial small business participation in the Federal market under the current size standard. The data also suggest that there already exists a sufficient pool of small businesses from which the Federal government can draw for new set aside contracts, even if some small incumbent businesses outgrow the size standard. Moreover, it should be noted that more than 97 percent of all firms in NAICS 611512 are small under the current $25.5 million size standard. Based on these data and SBA's evaluation of industry and Federal procurement factors as discussed in the proposed rule, the Agency believes that the current $25.5 million is an appropriate size standard for NAICS 611512. In fact, SBA's analyses of the latest industry and Federal procurement data available would have supported a lower $19 million size standard for NAICS 611512. However, in light of current economic conditions as explained in the proposed rule, SBA proposed to retain it at the current level. If the size standard were increased to $33 million from the current $25.5 million, as recommended by the commenter, the 2007 Economic Census data for NAICS 611512 show that only a few relatively large firms would benefit, likely at the expense of many smaller and startup businesses that need the Federal assistance the most. This result was also confirmed using the data on firms that were awarded Federal contracts within this industry during fiscal years 2008 to 2010. Thus, SBA is not adopting the commenter's recommendation for a $33 million size standard for NAICS 611512.

The second commenter supported the size standards review for NAICS Sector 61, but similarly disagreed with SBA's proposal not to increase the size standard for NAICS 611512. The commenter stated that SBA's proposal not to increase the size standard for this industry is at odds with economic characteristics of the military training services, mission crew training, aircrew training, and courseware development industries. The commenter contended that the traditional definition of NAICS 611512 does not reflect several activities typically required for flight training contracts, including simulator based training, instructional training, simulator maintenance, courseware development and application, enhanced learning through Learning Management Systems (LMS), and information technology (IT) and facilities support. The commenter claimed that these contracts may also include modification to the aircraft platforms and simulators. The commenter argued that the size standard for NAICS 611512 is complex and it, therefore, requires additional review to provide a more favorable competitive environment for small businesses to grow and win Federal contracts within this industry. Besides referring to several solicitations assigned NAICS 611512 and NAICS 336413, the commenter did not offer alternative industry data or analyses to support his arguments. The commenter recommended that SBA revise its proposal to address the complexity and economic characteristics of this industry through one or more of the following:

1. Convert the NAICS 611512 size standard from annual receipts to at least 1,000 employees; or

2. Increase the existing size threshold from $25.5 million to $35.5 million, which is the highest proposed level for NAICS Sector 61; or

3. Create a new NAICS code “Aircrew Training and Support” in NAICS Sector 61 with a size threshold of at least $50 million in average annual receipts; or

4. Create a new NAICS code “Aircrew Training and Support” in NAICS Sector 61 with a size standard of at least 1,000 employees; or

5. Create an exception “Aircrew Training and Support” within NAICS 611512 for Federal procurement with a size standard of at least $35.5 million in annual receipts or 1,000 employees.

The commenter provided several reasons for his recommendations. First, the commenter contended that NAICS 611512, Flight Training, is similar to NAICS 336413, Other Aircraft Part and Auxiliary Equipment Manufacturing and should have the same 1,000-employee size standard as that for NAICS 336413. To support the argument, the commenter added that due to a low size standard for NAICS 611512, many contracting officers have used NAICS 336413 and its 1,000-employee size standard for Federal contracts involving aircrew training and related logistic and support services. Second, the commenter maintained that the value of Federal contracts has created unintended ceilings for competition. Third, the commenter purported that SBA's methodology does not consider relevant Federal contracting factors. Fourth, the commenter argued that SBA has not considered the complexity of multiple services required by the military to support a “Flight Training” contract.

SBA addresses each of the commenter's recommendations above, as follows:

1. Providing Flight Training Services is a service function, not manufacturing, and SBA does not apply employee based size standards to NAICS codes that represent services industries. SBA's experience and analyses generally support receipts based size standards for services industries. See SBA's Methodology, cited elsewhere in this rule.

2. SBA's analysis of this industry does not support a size standard over $25.5 million, as detailed in the proposed rule ( see 76 FR 70667 (November 15, 2011)). Additional information that the commenter supplied did not support anything higher than that either.

3. & 4. SBA does not establish NAICS codes. Rather, only the U.S. Office of Management and Budget together with the U.S. Bureau of the Census defines what is and what is not included within any NAICS Industry. Recommendations regarding NAICS industry definitions should be directed to the Office of Management and Budget, which is responsible for establishing, modifying, or updating an NAICS code.

5. As stated above, the data do not support increasing the size standard for this industry beyond the current $25.5 million, and an employee based size standard is not appropriate. SBA has in the past established exceptions for a limited number of NAICS codes. However, that is not applicable to this industry because SBA believes the current size standard is already appropriate.

SBA disagrees with the commenter's contention that NAICS 611512 is similar to NAICS 336413. NAICS 611512 includes establishments primarily engaged in offering aviation and flight training, while NAICS 336413 comprises establishments primarily engaged in (1) manufacturing aircraft parts or auxiliary equipment (except engines and aircraft fluid power subassemblies), and/or (2) developing and making prototypes of aircraft parts and auxiliary equipment (such as crop dusting apparatus, armament racks, inflight refueling equipment, and external fuel tanks) ( see www.census.gov/naics ). Accordingly, the activities that are required for flight training contracts, including, according to the commenter, simulator based training, instructional training, courseware development and application, enhanced learning through LMS, and IT and facilities support fall under NAICS 611512, not NAICS 336413. The industry data also demonstrates that these two industries are significantly different. For example, based on the 2007 Economic Census, firms in NAICS 336413 average about $39 million in receipts and 145 employees, as compared to $2.6 million and 18 employees for NAICS 611512.

The Small Business Size Regulations require Federal agencies to designate the proper NAICS code and size standard in a solicitation, selecting the NAICS code which best describes the principal purpose of the product or service being acquired. Primary consideration is given to the industry descriptions in the NAICS United States Manual, the product or service description in the solicitation and any attachments to it, the relative value and importance of the components of the procurement making up the end item being procured, and the function of the goods or services being purchased. A procurement is usually classified according to the component which accounts for the greatest percentage of contract value. See 13 CFR 121.402(b). Therefore, if the principal purpose of the procurement is “flight training,” then NAICS 611512 is the code that the contracting officer must apply. Similarly, if a solicitation involves the acquisition of aircraft parts, auxiliary, or other equipment, the contracting officer must apply an appropriate manufacturing NAICS code and the corresponding size standard. SBA's regulations also provide that any interested party adversely affected by a NAICS code designation for a specific Federal procurement may appeal the designation to SBA's Office of Hearings and Appeals. See 13 CFR 121.1102-1103.

The commenter argued that contract values have created unintended ceilings for small business participation in the Federal market for flight training services. On the contrary, size standards are intended to provide ceilings; they determine the maximum size of a business that can compete as a small business, but do not affect the size of the contracts themselves. The commenter added that increased complexity and scope of services required for flight training contracts have rendered many small businesses unable to compete under the current size standard. To accurately reflect increased complexity and scope of multiple services required for flight training contracts, the commenter recommended a new “Aircrew Training and Support” NAICS code and a separate size standard. SBA believes most of the services required for flight training contracts, as cited above by the commenter, are not necessarily new activities warranting a new NAICS code or an exception under NAICS 611512; rather they are new tools and methods for delivering flight training services as defined under NAICS 611512.

In response to the commenter's argument that small businesses under the current $25.5 million are not able to compete for Federal contracts in NAICS 611512, SBA evaluated recent data from FPDS-NG and CCR. The data showed that small business account for 60 percent of all firms winning Federal contracts, 37 percent of all new contracts, and 21 percent of total contract dollars in NAICS 611512. Thus, small businesses have been quite successful in receiving Federal contracts under the current size standard. The commenter's firm itself appeared to be very successful in getting several small business set aside contracts under the current size standard.

SBA disagrees with the commenter's allegation that the methodology it used to evaluate size standards for NAICS Sector 61 does not consider relevant Federal contracting factors. As explained in the proposed rule as well as in SBA's “Size Standards Methodology” White Paper, Federal contracting is one of the five primary factors SBA evaluates when reviewing a size standard. Specifically, for each of the industries averaging $100 million or more in Federal contracts annually, SBA compares the small business share of total Federal contracts with the small business share of total industry receipts. If the difference between the former and latter is between 10 percent and 30 percent, SBA designates a size standard one fixed level higher than the current one. If that difference is more than 30 percent, SBA designates a size standard two levels above the current size standard. Accordingly, the Federal contracting factor supported a higher $30 million size standard for NAICS 611512, as compared to the current $25.5 million. Based on all factors combined, the calculated size standard was $19 million. However, in light of current economic conditions, SBA proposed to retain the current size standard.

The commenter argued that SBA did not consider the complexity of multiple services required to support “Flight Training” contracts. SBA disagrees. As noted above, most of activities that are required for flight training contracts, including, according to the commenter, simulator based training, instructional training, courseware development and application, and enhanced learning through LMS are part of NAICS 611512. SBA believes the industry data from the Economic Census and procurement data from FPDS-NG that it evaluated to examine this industry already reflect those activities. Moreover, the current size standard, which is one of the highest in NAICS Sector 61, also reflects the characteristics of the flight training industry.

SBA recognizes that, as in most other industries, small businesses in NAICS 611512 face challenges in the Federal marketplace when they outgrow the size standard. As stated above, more than 97 percent of firms already qualify as small under the current $25.5 million size standard. SBA is concerned that “smaller” small and startup companies would not be able to compete effectively with “larger” small businesses for Federal small business contracts if the size standards were too high, such as $35.5 million or $50 million in average annual receipts, or 1,000 employees, as recommended by the commenter. At these levels, only a few larger firms are likely to benefit, mostly at the expense of many smaller businesses. For example, based on the 2007 Economic Census tabulation, only three firms would benefit if SBA increased the size standard to $35.5 million and three more firms would benefit if it increased to $50 million. At 1,000 employees, the 2007 Economic Census data show that all but 12 of the largest firms, possibly including some of the dominant firms with annual receipts of several hundred million dollars, would qualify as small. The data on firms receiving Federal contracts within NAICS 611512 during the fiscal years 2008 to 2010 also confirmed that only a few large firms would benefit if the size standard were increased to those levels. The commenter argued that those higher size standards would help small businesses to compete for Federal contracts for several years and allow them to grow and develop necessary expertise. However, given that 97 percent of firms in NAICS 611512 have less than $25.5 million in receipts and fewer than 100 employees, SBA believes that such high size standards would adversely affect the ability of many small businesses to compete for Federal opportunities in that industry.

This commenter also recommended that SBA impose a temporary moratorium on calculation of average annual receipts based on 2008, 2009, and 2010. In other words, the commenter recommended excluding year 2011 from the calculation, although he did not justify why. SBA does not adopt this recommendation. For SBA's size standards, annual receipts of a concern means the average annual receipts over its most recently completed three fiscal years ( see 13 CFR 121.104(c)). Accordingly, average annual receipts for 2012 must be an average over 2011, 2010, and 2009. Selectively excluding the most recent year or any other year from the calculation for one or few industries, as suggested by the commenter, will cause widespread inconsistency in how businesses calculate their average annual receipts to determine if they are small. In addition, this would more likely benefit successful small businesses that have exceeded the size standard by allowing them to prolong their small business eligibility, thereby reducing opportunities for other small and startup businesses.

For the above reasons, SBA is not adopting any of the alternatives recommended by the commenter. Instead the Agency is adopting $25.5 million as proposed. SBA has also retained the current method of calculating average annual receipts based on the firm's most recently completed three fiscal years.

SBA received one comment on its proposal to retain the current size standard for Job Corps Centers, which is an exception to NAICS 611519, Other Technical and Trade Schools. Citing its success in getting Federal contracts as a small business prime contractor over the years, the commenter argued that the commenter's firm will exceed the current $35.5 million size standard for Job Corps Centers within the next 2-3 year period, making it no longer eligible to recompete for any of the four Job Corps Centers it now operates. The commenter added that there is no “graduation plan or process” in place allowing small businesses to compete as an incumbent contractors for Centers they operate when they exceed the current size standard. The commenter recommended that the size standard should be increased to $50 million. However, the commenter offered no alternative data on or analyses of the Job Crops Centers industry segment supporting his recommendation. While SBA recognizes the challenges small businesses face when they exceed the size standard for their industries, the agency is not adopting the commenter's recommendation for two reasons. First, only one firm would benefit if the size standard were increased from $35.5 million to $50 million. Second, this will also cause adverse competitive impact on firms operating Job Corps Centers as small business under the current size standard. SBA's regulation has no “graduation plan” for any industry for Government contracting purposes, when a firm exceeds the size standard. Thus, SBA is adopting $35.5 million, as proposed.

The fourth commenter fully supported the SBA's size standards methodology used to derive the proposed size standards for NAICS Sector 61. The commenter also fully endorsed the adoption of all size standards, as proposed. The commenter recommended October 1, 2012 as the effective date, so that the Federal Government and industry will have enough time to prepare for the change. SBA will publish the final rule as soon as the necessary review and clearance as required under the rulemaking process is complete. The revised size standards will become effective after 30 days from the date of publication.

All comments to the proposed rule are available for public review at http://www.regulations.gov , using RIN 3245-AG29 or docket number SBA-2011-0021.

Based on the analyses of relevant industry and program data and public comments it received on the proposed rule, SBA has decided to increase the small business size standards for the nine industries in NAICS Sectors 61 to the levels it proposed. Those industries and their revised size standards are shown in Table 1, Summary of Revised Size Standards in NAICS Sector 61, below.

For the reasons as stated above in this rule and in the proposed rule, SBA has decided to retain the current size standards for six industries and one sub-industry for which analytical results suggested lower size standards. Not lowering size standards in NAICS Sector 61 is consistent with SBA's recent final rules on NAICS Sector 44-45, Retail Trade (75 FR 61597 (October 6, 2010)), NAICS Sector 72, Accommodation and Food Services (75 FR 61604 (October 6, 2010)), NAICS Sector 81, Other Services (75 FR 61591 (October 6, 2010)), NAICS Sector 54, Professional, Scientific and Technical Services (77 FR 7490 (February 10, 2012)), and NAICS Sector 48-49, Transportation and Warehousing (77 FR 10943 (February 24, 2012)). In each of those final rules, SBA adopted its proposal not to reduce small business size standards for the same reasons. SBA is also retaining the existing size standards for two industries for which the results supported them at their current levels.

The Office of Management and Budget (OMB) has determined that this final rule is not a “significant regulatory action” for purposes of Executive Order 12866. In order to help explain the need for this rule and the rule's potential benefits and costs, SBA is providing a Cost Benefit Analysis in this section of the rule. This is also not a “major rule” under the Congressional Review Act (5 U.S.C. 800).

SBA believes that the revised changes to small business size standards for nine industries in NAICS Sector 61, Educational Services, reflect changes in economic characteristics of small businesses in those industries and the Federal procurement market. SBA's mission is to aid and assist small businesses through a variety of financial, procurement, business development, and advocacy programs. To assist the intended beneficiaries of these programs effectively, SBA establishes distinct definitions to determine which businesses are deemed small. The Small Business Act delegated to SBA's Administrator the responsibility for establishing small businesses definitions (15 U.S.C. 632(a)). The Act also requires that small business definitions vary to reflect industry differences. The Jobs Act requires the Administrator to review at least one-third of all size standards within each 18-month period from the date of its enactment, and review all size standards at least every five years thereafter. The supplementary information sections of the November 15, 2011 proposed rule and this final rule explained in detail SBA's methodology for analyzing a size standard for a particular industry.

The most significant benefit to businesses obtaining small business status as a result of this final rule is gaining eligibility for Federal small business assistance programs, including SBA's financial assistance programs and Federal procurement opportunities reserved for small businesses. Federal small business programs provide targeted opportunities for small businesses under various SBA's business development programs, such as the 8(a) Business Development program and programs benefitting small businesses located in Historically Underutilized Business Zones (HUBZone), women owned small businesses (WOSB), and service disabled veteran owned small businesses (SDVOSB). Other Federal agencies also may use SBA size standards for a variety of regulatory and program purposes. These programs help small businesses become more knowledgeable, stable and competitive. In the nine industries in NAICS Sector 61 for which SBA has decided to increase size standards, SBA estimates that about 1,500 firms exceeding the current size standards will gain small business status and become eligible for these programs. That number is 2.1 percent of the total number of firms that are currently classified as small in all industries in NAICS Sector 61. SBA estimates that this would increase the small business share of total industry receipts in those industries from about 18 percent under the current size standards to 23 percent.

The benefits of increasing size standards to a more appropriate level will accrue to three groups in the following ways: (1) Some businesses that are above the current size standards will gain small business status under the higher size standards, thereby enabling them to participate in Federal small business assistance programs; (2) growing small businesses that are close to exceeding the current size standards will be able to retain their small business status under the higher size standards, thereby enabling them to continue their participation in the programs; and (3) Federal agencies will have a larger pool of small businesses from which to draw for their small business procurement programs.

For the November 15, 2011 proposed rule, SBA analyzed FPDS-NG data for fiscal years 2007 to 2009 and found that 88 percent of Federal contracting dollars in Sector 61 were accounted for by those nine industries for which SBA has increased size standards. This also held true in SBA's updated analysis using the FY 2008-2010 FPDS-NG data. SBA estimates that additional firms gaining small business status in those industries under the revised size standards could potentially obtain Federal contracts totaling between $20 million and $25 million annually through the 8(a), HUBZone, WOSB and SDVOSB programs, and other unrestricted procurements. The added competition for many of these procurements may also result in lower prices to the Government for procurements reserved for small businesses, although SBA cannot quantify this benefit.

Under SBA's 7(a) and 504 Loan Programs, based on the data for fiscal years 2008 to 2010, SBA estimates that around 16 to 20 additional loans totaling between $3 million and $4 million in new Federal loan guarantees will be made for newly defined small businesses under the revised size standards. Under the Jobs Act, SBA can now guarantee substantially larger loans than in the past. In addition, the Jobs Act established an alternative size standard for SBA's 7(a) and 504 Loan Programs for those applicants that do not meet the size standards for their industries. That is, under the Jobs Act, if a firm applies for a SBA's 7(a) or 504 loan but does not meet the size standard for its industry, it might still qualify if, including its affiliates, it has a tangible net worth that does not exceed $15 million and also has average net income after Federal income taxes (excluding any carry-over losses) for its preceding two completed fiscal years that do not exceed $5 million. Thus, increasing the size standards will likely result in an increase in small business guaranteed loans to small businesses in these industries, but it is impractical to try to estimate the extent of their number and the total amount loaned.

The newly defined small businesses will also benefit from SBA's Economic Injury Disaster Loan (EIDL) Program. Since this program is contingent on the occurrence and severity of disasters, SBA cannot make a meaningful estimate of future EIDL benefits.

To the extent that all 1,500 newly defined small firms under the revised size standards could become active in Federal procurement programs, this may entail some additional administrative costs to the Federal Government associated with additional bidders for Federal small business procurement opportunities, additional firms seeking SBA guaranteed lending programs, additional firms eligible for enrollment in the Central Contractor Registration's Dynamic Small Business Search database and additional firms seeking certification as 8(a) or HUBZone firms or those qualifying for small business, WOSB, SDVOSB, and SDB status. Among businesses in this group seeking SBA's assistance, there could be some additional costs associated with compliance and verification of small business status and protests of small business status. These added costs are likely to be minimal because mechanisms are already in place to handle these administrative requirements.

The costs to the Federal Government may be higher on some Federal contracts under the higher revised size standards. With a greater number of businesses defined as small, Federal agencies may choose to set aside more contracts for competition among small businesses rather than using full and open competition. The movement from unrestricted to set-aside contracting will likely result in competition among fewer total bidders, although there will be more small businesses eligible to submit offers. In addition, higher costs may result when additional full and open contracts are awarded to HUBZone businesses because of a price evaluation preference. The additional costs associated with fewer bidders, however, will likely be minor since, as a matter of law, procurements may be set aside for small businesses or reserved for the small business, 8(a), HUBZone, WOSB, or SDVOSB Programs only if awards are expected to be made at fair and reasonable prices.

The revised size standards may have some distributional effects among large and small businesses. Although SBA cannot estimate with certainty the actual outcome of gains and losses among small and large businesses, there are several likely impacts. There may be a transfer of some Federal contracts from large businesses to small businesses. Large businesses may have fewer Federal contract opportunities as Federal agencies decide to set aside more Federal contracts for small businesses. In addition, some agencies may award more Federal contracts to HUBZone concerns instead of large businesses since HUBZone concerns may be eligible for price evaluation adjustments when they compete on full and open bidding opportunities. Similarly, currently defined small businesses may obtain fewer Federal contracts due to the increased competition from more businesses defined as small under the revised size standards. This transfer may be offset by more Federal procurements set aside for all small businesses. The number of newly defined and expanding small businesses that are willing and able to sell to the Federal Government will limit the potential transfer of contracts away from large and small businesses under the existing size standards. The SBA cannot estimate with precision the potential distributional impacts of these transfers.

The revisions to the existing size standards for Sector 61, Educational Services, are consistent with SBA's statutory mandate to assist small business. This regulatory action promotes the Administration's objectives. One of SBA's goals in support of the Administration's objectives is to help individual small businesses succeed through fair and equitable access to capital and credit, Government contracts, and management and technical assistance. Reviewing and modifying size standards, when appropriate, ensures that intended beneficiaries have access to small business programs designed to assist them.

A description of the need for this regulatory action and benefits and costs associated with this action including possible distributions impacts that relate to Executive Order 13563 is included above in the Cost Benefit Analysis.

In an effort to engage interested parties in this action, SBA has presented its methodology (discussed under Supplementary Information in the proposed rule and this final rule) to various industry associations and trade groups. SBA also met with various industry groups to obtain their feedback on its methodology and other size standards issues. SBA also presented its size standards methodology to businesses in 13 cities in the U.S. and sought their input as part of the Jobs Act tours. The presentations also included information on the latest status of the comprehensive size standards review and how interested parties can provide SBA with input and feedback on the size standards review.

Additionally, SBA sent letters to the Directors of the Offices of Small and Disadvantaged Business Utilization (OSDBU) at several Federal agencies with considerable procurement responsibilities requesting their feedback on how the agencies use SBA size standards and whether current standards meet their programmatic needs (both procurement and non-procurement). SBA gave appropriate consideration to all input, suggestions, recommendations, and relevant information obtained from industry groups, individual businesses, and Federal agencies in preparing the proposed rule and this final rule for Sector 61.

Furthermore, when SBA issued the proposed rule, it provided notice of its publication to individuals and companies that had in recent years exhibited an interest by letter, email, or phone, in size standards for NAICS Sector 61 so they could comment.

The review of size standards in NAICS Sector 61, Educational Services, is consistent with Section 6 of Executive Order 13563 calling for retrospective analyses of existing rules. The last overall review of size standards occurred during the late 1970s and early 1980s. Since then, except for periodic adjustments for monetary based size standards, most reviews of size standards were limited to a few specific industries in response to requests from the public and Federal agencies. SBA recognizes that changes in industry structure and the Federal marketplace over time have rendered existing size standards for some industries no longer supportable by current data. Accordingly, in 2007, SBA began a comprehensive review of all size standards to ensure that existing size standards have supportable bases and to revise them when necessary. In addition, the Jobs Act directs SBA to conduct a detailed review of all size standards and to make appropriate adjustments to reflect market conditions. Specifically, the Jobs Act requires SBA to conduct a detailed review of at least one-third of all size standards during every 18-month period from the date of its enactment and do a complete review of all size standards not less frequently than once every 5 years thereafter.

This action meets applicable standards set forth in Sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. The action does not have retroactive or preemptive effect.

For purposes of Executive Order 13132, SBA has determined that this final rule will not have substantial, direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, SBA has determined that this final rule has no Federalism implications warranting preparation of a Federalism assessment.

For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA has determined that this final rule would not impose any new reporting or record keeping requirements.

Under the Regulatory Flexibility Act (RFA), this final rule may have a significant impact on a substantial number of small entities in NAICS Sector 61, Educational Services. As described above, this final rule may affect small entities seeking Federal contracts, SBA's 7(a), 504 and economic injury disaster loans, and various small business benefits under other Federal programs.

Immediately below, SBA sets forth a final regulatory flexibility analysis of this final rule addressing the following questions: (1) What are the need for and objective of the rule? (2) What are SBA's description and estimate of the number of small entities to which the rule will apply? (3) What are the projected reporting, record keeping, and other compliance requirements of the rule? (4) What are the relevant Federal rules which may duplicate, overlap or conflict with the rule? and (5) What alternatives will allow the Agency to accomplish its regulatory objectives while minimizing the impact on small entities?

Most of SBA's size standards in NAICS Sector 61, Educational Services, had not been reviewed since the 1980s. Technological changes, productivity growth, international competition, mergers and acquisitions and updated industry definitions may have changed the structure of many industries in that Sector. Such changes can be sufficient to support a revision to size standards for some industries. Based on the analysis of the latest industry and program data available, SBA believes that the revised standards in this rule more appropriately reflect the size of businesses in those industries that need Federal assistance. Additionally, the Jobs Act requires SBA to review all size standards and make appropriate adjustments to reflect current data and market conditions.

SBA estimates that approximately 1,500 additional firms will become small because of increases in size standards in nine industries in NAICS Sector 61. That number is 2.1 percent of the total number of firms that are currently classified as small in all industries in NAICS Sector 61. This will result in an increase in the small business share of total industry receipts in those industries from about 18 percent under the current size standards to 23 percent under the revised size standards. SBA does not anticipate a significant competitive impact on smaller businesses in these industries. The revised size standards will enable more small businesses to retain their small business status for a longer period. Under current size standards, many small businesses may have lost their eligibility or found it difficult to compete with companies that are significantly larger than they are, and this final rule attempts to correct that impact. SBA believes these changes will have a positive impact for existing small businesses and for those that have either exceeded or are about to exceed current size standards.

Revising size standards does not impose any additional reporting or record keeping requirements on small entities. However, qualifying for Federal procurement and a number of other Federal programs requires that entities register in the Central Contractor Registration (CCR) database and certify at least annually that they are small in the Online Representations and Certifications Application (ORCA). Therefore, businesses opting to participate in those programs must comply with CCR and ORCA requirements. There are no costs associated with either CCR registration or ORCA certification. Revising size standards alters the access to Federal programs that are designed to assist small businesses, but does not impose a regulatory burden as they neither regulate nor control business behavior.

Under section 3(a)(2)(C) of the Small Business Act, 15 U.S.C. 632(a)(2)(c), Federal agencies must use SBA's size standards to define a small business, unless specifically authorized by statute. In 1995, SBA published in the Federal Register a list of statutory and regulatory size standards that identified the application of SBA's size standards as well as other size standards used by Federal agencies (60 FR 57988, November 24, 1995). SBA is not aware of any Federal rule that would duplicate or conflict with establishing or revising size standards.

However, the Small Business Act and SBA's regulations allow Federal agencies to develop different size standards if they believe that SBA's size standards are not appropriate for their programs, with the approval of SBA's Administrator (13 CFR 121.903). The Regulatory Flexibility Act authorizes an agency to establish an alternative small business definition after consultation with the Office of Advocacy of the U.S. Small Business Administration (5 U.S.C. 601(3)).

By law, SBA is required to develop numerical size standards for establishing eligibility for Federal small business assistance programs. Other than varying size standards by industry and changing the size measures, no practical alternative exists to the existing system of numerical size standards. The possible alternative size standards considered for the individual industries within NAICS Sector 61 are discussed in the supplementary information to the proposed rule and this final rule.

For reasons set forth in the preamble, SBA amends 13 CFR part 121 as follows:

To determine eligibility for Federal small business assistance programs, SBA establishes small business size definitions (referred to as size standards) for private sector industries in the United States. The SBA's existing size standards use two primary measures of business size, average annual receipts and number of employees. Financial assets, electric output and refining capacity are used as size measures for a few specialized industries. In addition, SBA's Small Business Investment Company (SBIC), 7(a), and Certified Development Company (CDC or 504) Loan Programs determine small business eligibility using either the industry based size standards or alternative net worth and net income size based standards. At the start of the current comprehensive review of SBA's small business size standards, there were 41 different size standards levels, covering 1,141 NAICS industries and 18 sub-industry activities. Of these, 31 were based on average annual receipts, seven based on number of employees, and three based on other measures.

Over the years, SBA has received comments that its size standards have not kept up with changes in the economy, and in particular, that they do not reflect changes in the Federal contracting marketplace and industry structure. The last comprehensive review of size standards was during the late 1970s and early 1980s. Since then, most reviews of size standards were limited to a few specific industries in response to requests from the public and Federal agencies. SBA also makes periodic inflation adjustments to its monetary based size standards. The latest inflation adjustment to size standards was published in the Federal Register on July 18, 2008 (73 FR 41237).

SBA recognizes that changes in industry structure and the Federal marketplace since the last overall review have rendered existing size standards for some industries no longer supportable by current data. Accordingly, in 2007, SBA began a comprehensive review of its size standards to determine whether existing size standards have supportable bases relative to the current data, and to revise them, where necessary.

In addition, on September 27, 2010, the President of the United States signed the Small Business Jobs Act of 2010 (Jobs Act). The Jobs Act directs SBA to conduct a detailed review of all size standards and to make appropriate adjustments to reflect market conditions. Specifically, the Jobs Act requires SBA to conduct a detailed review of at least one-third of all size standards during every18-month period from the date of its enactment and review of all size standards not less frequently than once every 5 years thereafter. Reviewing existing small business size standards and making appropriate adjustments based on current data are also consistent with Executive Order 13563 on improving regulation and regulatory review.

SBA has chosen not to review all size standards at one time. Rather, it is reviewing groups of related industries on a Sector by Sector basis.

As part of SBA's comprehensive review of size standards, the Agency reviewed all size standards in NAICS Sector 53, Real Estate and Rental and Leasing, to determine whether the existing size standards should be retained or revised. After its review, SBA published a proposed rule for public comment in the November 15, 2011 issue of the Federal Register (76 FR 70680) on its proposal to increase the size standards for 20 industries and one sub-industry in NAICS Sector 53. The rule was one of a series of proposed rules that examines industries grouped by NAICS Sector.

SBA recently developed a “Size Standards Methodology” for developing, reviewing, and modifying size standards, when necessary. SBA published the document on its Web site at www.sba.gov/size for public review and comments, and also included it as a supporting document in the electronic docket of the proposed rule at www.regulations.gov .

In evaluating an industry's size standard, SBA examines its characteristics (such as average firm size, startup costs, industry competition and distribution of firms by size) and the level and small business share of Federal contract dollars in that industry. SBA also examines the potential impact a size standard revision might have on its financial assistance programs, and whether a business concern under a revised size standard would be dominant in its industry. SBA analyzed the characteristics of each industry in NAICS Sector 53, mostly using a special tabulation obtained from the U.S. Bureau of the Census from its 2007 Economic Census (the latest available). SBA also evaluated the level and small business share of Federal contracts in each of those industries using the data from the Federal Procurement Data System—Next Generation (FPDS-NG) for fiscal years 2008-2010. To evaluate the impact of changes to size standards on its loan programs, SBA analyzed internal data on its guaranteed loan programs for fiscal years 2008-2010.

SBA's “Size Standards Methodology” provides a detailed description of its analyses of various industry and program factors and data sources, and how the Agency uses the results to establish and revise size standards. In the proposed rule itself, SBA detailed how it applied its “Size Standards Methodology” to review and modify where necessary, the existing size standards for industries in NAICS Sector 53. SBA sought comments from the public on a number of issues about its “Size Standards Methodology,” such as whether there are alternative methodologies that SBA should consider; whether there are alternative or additional factors or data sources that SBA should evaluate; whether SBA's approach to establishing small business size standards makes sense in the current economic environment; whether SBA's application of anchor size standards is appropriate in the current economy; whether there are gaps in SBA's methodology because of the lack of comprehensive data; and whether there are other facts or issues that SBA should consider.

SBA sought comments on its proposal to increase size standards for 20 industries and one sub-industry in NAICS Sector 53 (Real Estate and Rental and Leasing) and retain the existing size standards for the remaining four industries in that Sector. Specifically, SBA requested comments on whether the size standards should be revised as proposed and whether the proposed revisions are appropriate. SBA also invited comments on whether its proposed eight fixed size standard levels are appropriate and whether it should adopt common size standards for several Industry Groups in NAICS Sector 53.

The SBA's analyses supported lowering existing receipts based standards for one industry. However, as SBA pointed out in the proposed rule, lowering size standards will reduce the number of firms eligible to participate in Federal small business assistance programs and this is counter to what the Federal government and SBA are doing to help small businesses. Therefore, SBA proposed to retain the current size standards for that industry and requested comments on whether the Agency should lower size standards for which its analyses might support lowering them.

SBA received eight comments on the proposed rule. These comments are summarized below.

Two commenters addressed SBA's proposed size standard for NAICS 532291, Home Health Equipment Rental. SBA had proposed to increase the size standard for that NAICS code from $7 million in average annual receipts to $30 million. Both commenters generally supported the SBA's proposed increase. One of the commenters stated the $7 million size standard has not kept up with changes in industry structure and the Federal marketplace and that more small businesses will become eligible for Federal government programs under the proposed, higher size standard, thereby helping both small businesses and the Federal government. However, both suggested that SBA adopt a 500-employee standard instead of the proposed $30 million receipts based size standard. Both argued that services provided under NAICS 532291 are similar to those under NAICS 339112 (Air and Gas Compressor Manufacturing), which has a 500-employee size standard. However, they did not provide any industry data and analyses supporting the similarities between the two industries. To support the recommendation for a 500-employee size standard for NAICS 532291, one of the commenters highlighted two Veterans Administration solicitations for the same service and product (oxygen supplies) for which the Agency used NAICS 532291 at one location and NAICS 339112 at another. The commenters argued such inconsistent practice would not occur if SBA adopted the 500-employee size standard for NAICS 532291. They added that the 500-employee size standard applies to all manufacturing industries as well as to SBA's non-manufacturer's rule. They also argued that employment is a more suitable and stable measure of business size as it is not influenced by inflation and changes in economic conditions.

SBA disagrees with the commenters' arguments that companies involved in NAICS 532291 are similar to those in NAICS 339112. NAICS 532291 comprises establishments primarily engaged in renting home-type health equipment, such as wheel chairs, hospital beds, oxygen tanks, walkers, and crutches, while NAICS 339112 comprises establishments primarily engaged in manufacturing medical, surgical, ophthalmic, and veterinary instruments and apparatus (except electrotherapeutic, electro-medical and irradiation apparatus), such as syringes, hypodermic needles, anesthesia apparatus, blood transfusion equipment, catheters, surgical clamps, and medical thermometers ( see www.census.gov/naics ). Two other related codes are NAICS 325120 (Industrial Gas Manufacturing) and NAICS 332420 (Metal Tank (Heavy Gauge) Manufacturing). NAICS 325120 includes manufacturing oxygen and NAICS 332420 includes manufacturing oxygen tanks. The Small Business Size Regulations require Federal agencies to designate the proper NAICS code and size standard in a solicitation, selecting the NAICS code which best describes the principal purpose of the product or service being acquired. See 13 CFR 121.402(b). Accordingly, if a solicitation is for renting health equipment (such as oxygen tanks), Federal agencies should apply NAICS 532291 and its corresponding size standard. Similarly, if a solicitation involves purchasing health equipment and supplies (such as oxygen tanks and oxygen), the contracting officers should apply an appropriate manufacturing NAICS code and its corresponding size standard. In a rental situation, the Federal government is procuring a service. On the other hand, if the Federal government is purchasing the products themselves, then the manufacturing NAICS codes and accompanying size standards apply. An entity that qualifies under the nonmanufacturer rule (13 CFR 121.406(b)) may also supply products it did not produce. However, it is important to note that the nonmanufacturer rule does not apply to service contracts. The regulations also provide that any interested party adversely affected by a NAICS code designation for a specific Federal procurement may appeal the designation to the Office of Hearings and Appeals. See 13 CFR 121.1102-121.1103.

For the reasons explained in its “Size Standards Methodology,” SBA uses employment as the measure of size for manufacturing industries and average annual receipts for most service industries, including all industries in NAICS Sector 53. SBA recognizes that employment is less influenced by inflationary factors than receipts, but it is not immune to changes in economic conditions. For example, businesses shed millions of employees during and after the recent economic recession. Because receipts are sensitive to inflation, SBA defines annual receipts as the average over a firm's three most recently completed fiscal years. See 13 CFR 121.104. In addition, SBA adjusts its monetary based size standards for inflation at least once every five years.

For the above reasons, SBA is not adopting the commenter's recommendation to adopt a 500-employee size standard for NAICS 532291. Instead, it is adopting the $30 million receipts based size standard, as proposed.

SBA received one comment concerning the proposed size standard for NAICS 531311, Residential Property Management. SBA had proposed to increase the size standard for this NAICS code from $2 million to $7 million in average annual receipts. Opposing the SBA's proposed $7 million size standard, the commenter suggested a much higher $15 million size standard for NAICS 531313. He argued that services offered by small businesses in this NAICS code are quite diverse and involve services from several industries within NAICS Subsectors 541 and 561, including NAICS 541310, 561622, 561710, 561720, 561730, and 561790. The commenter contended that most of these industries have size standards higher than $7 million. However, except for NAICS 561720, all of them have a $7 million size standard currently. Furthermore, except for NAICS 561710, current industry and Federal contracting data for those industries do not support a size standard higher than $7 million ( see 77 FR 7490 (February 10, 2012) and 76 FR 63510 (October 12, 2011)). The commenter maintained that a higher size standard would enable his business to remain eligible for SBA's 8(a) Program; however, the commenter did not provide other information to support why $15 million is a more appropriate size standard for NAICS 531311 than the proposed $7 million. For the above reasons, SBA is adopting the proposed $7 million size standard for NAICS 531311, as proposed.

SBA received one comment on the proposed size standard for NAICS 531320, Offices of Real Estate Appraisers. The commenter supported SBA's proposed increase from the current $2 million to $7 million in average annual receipts. The commenter contended that the current size standard has both prevented small businesses from participating in government contracts and kept Federal agencies from receiving quality services to meet their needs. The commenter stated that both small businesses and the Federal government will benefit under the higher $7 million size standard. SBA is adopting the $7 million size standard, as proposed.

SBA received one comment concerning the proposed size standards for NAICS 532111, Passenger Car Rental, and NAICS 532112, Passenger Car Leasing. For both industries, SBA had proposed to increase the size standard from $25.5 million to $35.5 million, which is the highest level of receipts based size standards. Arguing that SBA's proposed increase to $35.5 million is inadequate and that it would not create a level playing field for small businesses, the commenter suggested increasing it to $150 million. He contended that his business and others with fewer than 500 employees are not dominant and should be able to qualify as small. He argued that SBA's current $25.5 million or proposed $35.5 million size standard for the rental car industry makes it difficult for small businesses to grow and develop and increase their market share. To support his argument, the commenter provided copies of testimony he presented at SBA's June 2005 Public Hearings on Size Standards and previous correspondence with SBA. His comment also included data on the rental car industry from 2000 to 2011, showing the increasing market dominance of the industry by the largest companies and high degree of industry concentration. In addition, the commenter argued that national networks operated by large companies make competition more limited and restrictive for his company and other local competitors.

SBA recognizes that although the proposed $35.5 million size standard would include 98 percent of firms in NAICS 532111 and 93 percent of firms in NAICS 532112, it includes a small percentage of total industry receipts. However, to be consistent with SBA's size standards methodology and with proposed and final rules for other NAICS Sectors that SBA has issued to date, $35.5 million is the highest receipts based size standards that SBA will propose or adopt. Thus, SBA is adopting the $35.5 million size standard for NAICS 532111, Passenger Car Rental and NAICS 532112, Passenger Car Leasing, as proposed.

SBA received a comment from an association representing the U.S. equipment rental industry. The association's comments concerned the proposed size standards for three NAICS codes: NAICS 532310 (General Rental Centers), NAICS 532412 (Construction, Mining and Forestry Machinery and Equipment Rental and Leasing), and NAICS 532490 (Other Commercial and Industrial Machinery and Equipment Rental and Leasing). The association fully supported SBA's proposal to increase the size standard for NAICS 532412 and NAICS 532490 from the current $7 million to $30 million. It also fully supported the SBA's proposal to establish a common $30 million size standard for all industries within NAICS Industry Group 5324, Commercial and Industrial Machinery and Equipment Rental and Leasing. However, the association opposed the SBA's proposal to retain the current $7 million size standard for NAICS 532310 and recommended the same $30 million size standard as proposed for the other two codes. To support its suggestion, the association argued that many rental companies maintain a wide variety of rental goods in their inventories to meet the needs of their customers and that they should be treated equally for SBA's size standards.

The association provided several reasons supporting the proposed increase to the size standard for NAICS 532412 and NAICS 532490. First, as it stated, the equipment rental industry has undergone significant structural changes, thereby warranting a significant increase to the current size standard. Second, as the association pointed out, the equipment rental industry has larger capital requirements and higher barriers to entry than the construction industry, and yet the size standard for most equipment rental industries is only $7 million as compared to $33.5 million for most construction related industries. Third, it added that since equipment rental companies derive a significant portion of their revenue from the construction equipment rental sector, the size standards for the equipment rental industries should be in line with those for construction industries. Fourth, the association noted that small businesses at the current $7 million size standard lack resources and equipment to compete with their larger counterparts and that they will be able to more effectively compete with large companies under the proposed, higher size standard.

SBA recognizes that many companies operating under NAICS 532310 may also be engaging in activities within one or more of the other equipment rental NAICS codes, including NAICS 532412 and NAICS 532490. However, based on the industry and Federal procurement data, there exist significant differences between the companies that are primarily engaged in NAICS 532310, General Rental Centers, and those that are primarily engaged in one of the industries within NAICS Industry Group 5324. For example, companies primarily engaged in industries within NAICS Industry Group 5324 have four times the average revenues and six times the average assets (proxy for start-up costs entry barriers) than companies primarily engaged in NAICS 532310. In addition, during fiscal years 2008 to 2010, Federal contracting dollars averaged less than $5 million for NAICS 532310 as compared to $675 million for industries within NAICS Industry Group 5324.

The association generally supported the five factors SBA evaluates in reviewing a size standard, but suggested giving more weight to average assets size and Federal procurement factor for the equipment rental industry. However, it did not provide any specific values.

For the above reasons, SBA is adopting the proposed $30 million common size standard for all industries within NAICS Industry Group 5324 (including NAICS 532412 and 532490) and the proposed $7 million size standard for NAICS 532310.

A national association representing recreational vehicle rental companies commented on the proposed size standard for NAICS 532120, Truck, Utility Trailer and RV (Recreational Vehicle) Rental and Leasing. SBA had proposed to increase the size standard for NAICS 532120 from $25.5 million to $35.5 million. The association fully supported the proposed increase and noted that this increase is consistent with the $30 million size standard that SBA adopted for NAICS 441210, Recreational Vehicle Dealers, in 2010. It stated that changes in industry structure since SBA first established a size standard for the RV industry in the 1980s warranted an increase to the current size standard. The association argued that a higher size standard would create opportunity for businesses that have either exceeded or may be about to exceed the current size standard for Federal small business loans and contracts. Accordingly, SBA is adopting the proposed $35.5 million size standard for NAICS 532120.

SBA received two comments on its proposal to increase the size standard for NAICS 531210, Offices of Real Estate Agents and Brokers, from $2 million to $7 million. Both commenters generally supported the SBA's proposed increase to the size standard for NAICS 531210 as it would help small businesses better compete with large businesses, but they recommended a higher increase. Specifically, one commenter recommended at least $19 million, while the other suggested $10 million.

One commenter argued that there is a gap between the current $2 million, or proposed $7 million size standard, and revenues of large real estate brokerage firms receiving Federal contracts, thereby hurting small businesses with revenues above the size standard but way below the size of large firms. The commenter pointed out that the General Services Administration (GSA) recently awarded four prime contracts to large firms with revenues ranging from $225 million to $4 billion, but provided no information on whether those contracts could have been awarded to small businesses if the size standard were much higher than the current $2 million or proposed $7 million. He added that because of the low size standard, many otherwise small businesses must compete with large firms as a large business. As a result, the commenter stated, large brokerage firms continue to increase their Federal market share at the expense of qualified small businesses. The commenter contended that currently GSA does not have small business set aside contracts for real estate brokerage services, because of its perception that companies below the current $2 million size standard are too small to be sufficiently qualified to complete the work. He argued that raising the size standard to $19 million would increase the pool of eligible of small businesses for Federal contracting opportunities and encourage Federal agencies to set aside more contracts for small businesses. The commenter, who suggested a higher $10 million size standard for NAICS 531210, added that small firms must grow much larger to compete with largest firms in the industry, some of which exceed $1 billion in sales.

SBA recognizes that many mid-sized companies face challenges in the Federal market for brokerage and real estate services when they outgrow the size standard. Under the $7 million size standard, more than 98 percent of firms will qualify as small. SBA did not propose a higher standard because it is very concerned that “smaller” small firms cannot compete effectively with “larger” small businesses for Federal small business contracts when the size standards are too large, such as $19 million or $10 million as suggested by the commenters. SBA is also very aware that the small business share of Federal contracts in NAICS 531210 is very low under the current $2 million size standard. However, SBA estimates that about 5,700 more businesses above the current $2 million threshold will now qualify as small under the $7 million size standard. This will not only provide more opportunities for small businesses and increase small business share in the Federal market, but it will also encourage Federal agencies to set aside more contracts for small businesses because there will be a much larger pool of more qualified small businesses. Small businesses will also be able to grow and still maintain their small business status under the higher $7 million size standard.

One of the commenters argued that raising the size standard for NAICS 531210 to $19 million would make small businesses providing real estate services to the Federal government at par with other professional and property/facility related services, such as Architectural Services (NAICS 541310), Landscape Architectural Services (NAICS 541320), Engineering Services (NAICS 541330), Building Inspection Services (NAICS 541350), Marketing Consulting Services (NAICS 541613), and Advertising Services (NAICS 541810). However, the commenter did not provide any reasons or supporting information on why NAICS 531210 should have the same size standard as these industries. In fact, in the recently published Final Rule, Small Business Size Standards: Professional, Technical, and Scientific Services, SBA adopted the $7 million size standard for NAICS 541310, 541320 and 541350 ( see 77 FR 7490 (February 10, 2012)).

One commenter suggested continuing the SBA's exclusion of funds received in trust for an unaffiliated third party from the calculation of annual receipts for NAICS 531210. SBA did not propose to discontinue the exclusion of funds received in trust for unaffiliated third parties, and is continuing the exclusion under this rule. In addition, the commenter proposed to add to the exclusion commissions paid to third party brokers, independent contractors, or third party firms. SBA is not adopting this recommendation for two reasons. First, commissions shared with third party brokers, independent contractors, or third party firms are not the same as the funds received in trust for an unaffiliated third party. When brokers or independent contractors work for or with a brokerage firm, the firm earns income by sharing a certain percentage of their commissions. SBA treats commissions paid out to brokers and independent contractors as costs of doing business, similar to subcontractor costs (such as fees paid to a third-party or independent agent), employee based costs (such as wages and payroll taxes), and material costs. For SBA's size standards, receipts means “total income” plus “costs of goods sold.” The definition of receipts ( see 13 CFR 121.104) provides a number of exclusions, but “cost of doing business” is not one of them. Second, SBA is concerned that very large brokerage firms with hundreds of brokers and contractors may qualify as small if the firms are allowed to exclude commissions paid out to brokers and contractors, thereby causing competitive disadvantage to small firms with fewer brokers and contractors. Thus, SBA is not adopting the commenter's proposal.

For the above reasons, SBA is adopting the $7 million size standard for NAICS 531210, as proposed, and retaining the current definition of receipts without modification.

SBA received no comments on the SBA's proposal to revise size standards for other industries in NAICS Sector 53. SBA also received no comments on its proposal to retain the current size standards where analyses suggested lowering them.

All comments to the proposed rule are available for public review at http://www.regulations.gov, using RIN-3245-AG28 or docket number SBA-2011-0020.

Based on the analyses of relevant industry and program data and evaluation of public comments it received on the proposed rule, SBA has decided to increase the small business size standards for the 20 industries and one sub-industry in NAICS Sector 53 to the levels it proposed. Those industries and their revised size standards are shown in Table 1, Summary of Size Standards Revisions, below.

For the reasons as stated above in this rule and in the proposed rule, SBA has decided to retain the current receipts based size standards for one industry for which analytical results suggested lower size standards. Not lowering size standards in NAICS Sector 53 is consistent with SBA's recent final rules on NAICS Sector 44-45, Retail Trade (75 FR 61597 (October 6, 2010)), NAICS Sector 72, Accommodation and Food Services (75 FR 61604 (October 6, 2010)), NAICS Sector 81, Other Services (75 FR 61591 (October 6, 2010)), NAICS Sector 54, Professional, Scientific and Technical Services (77 FR 7490 (February 10, 2012)), and NAICS Sector 48-49, Transportation and Warehousing (77 FR 10943 (February 24, 2012)). In each of those final rules, SBA adopted its proposal not to reduce small business size standards for the same reasons. SBA is also retaining the existing receipts based size standards for three industries for which the results supported them at their current levels.

The Office of Management and Budget (OMB) has determined that this final rule is not a “significant regulatory action” for purposes of Executive Order 12866. In order to help explain the need for this rule and the rule's potential benefits and costs, SBA is providing a Cost Benefit Analysis in this section of the rule. This is also not a “major rule” under the Congressional Review Act, 5 U.S.C. 800.

SBA believes that the revised changes to small business size standards for 20 industries and one sub-industry in NAICS Sector 53, Real Estate and Rental and Leasing, reflect changes in economic characteristics of small businesses in those industries and the Federal procurement market. SBA's mission is to aid and assist small businesses through a variety of financial, procurement, business development, and advocacy programs. To assist the intended beneficiaries of these programs effectively, SBA establishes distinct definitions to determine which businesses are deemed small businesses. The Small Business Act (15 U.S.C. 632(a)) delegated to the SBA's Administrator the responsibility for establishing definitions for small business. The Act also requires that small business definitions vary to reflect industry differences. The Jobs Act requires the Administrator to review at least one-third of all size standards within each 18-month period from the date of its enactment, and review all size standards at least every five years thereafter. The SUPPLEMENTARY INFORMATION section of the May 13, 2011 proposed rule and this rule explained in detail SBA's methodology for analyzing a size standard for a particular industry.

The most significant benefit to businesses obtaining small business status as a result of this rule is gaining eligibility for Federal small business assistance programs, including SBA's financial assistance programs, economic injury disaster loans, and Federal procurement opportunities intended for small businesses. Federal small business programs provide targeted opportunities for small businesses under SBA's various business development and contracting programs. These include the 8(a), small disadvantaged businesses (SDB), small businesses located in Historically Underutilized Business Zones (HUBZone), women owned small businesses (WOSB), and the service disabled veteran owned small business (SDVOSB) Programs. Other Federal agencies also may use SBA's size standards for a variety of regulatory and program purposes. These programs help small businesses become more knowledgeable, stable, and competitive. In the 20 industries and one sub-industry in NAICS Sector 53 for which SBA has decided to increase size standards, SBA estimates that about 13,000 additional firms will gain small business status and become eligible for these programs. That number is 5 percent of the total number of firms in industries in NAICS Sector 53 that have receipts based size standards. SBA estimates that this would increase the small business share of total industry receipts in those industries from 27 percent under the current size standards to 39 percent.

The benefits of increasing size standards to a more appropriate level will accrue to three groups: (1) Some businesses that are above the current size standards will gain small business status under the higher size standards, thereby enabling them to participate in Federal small business assistance programs; (2) growing small businesses that are close to exceeding the current size standards will be able to retain their small business status under the higher size standards, thereby enabling them to continue their participation in the programs; and (3) Federal agencies will have a larger pool of small businesses from which to draw for their small business procurement programs.

Based on the data for fiscal years 2008-2010, more than 99 percent of total Federal contracting dollars spent in industries reviewed in this proposed rule were accounted for by the 20 industries and one sub-industry for which SBA is increasing size standards. The SBA estimates that additional firms gaining small business status in those industries under the revised size standards could potentially obtain Federal contracts totaling up to $75 million to $80 million per year under the small business, 8(a), SDB, HUBZone, WOSB, and SDVOSB Programs and other unrestricted procurements. The added competition for many of these procurements may also result in lower prices to the Government for procurements reserved for small businesses, although SBA cannot quantify this benefit.

Under SBA's 7(a) Business Loan and 504 Programs, based on the 2008-2010 data, SBA estimates that approximately 50 to 60 additional loans totaling $15 million to $20 million in new Federal loan guarantees could be made to the newly defined small businesses under the revised size standards. Under the Jobs Act, SBA can now guarantee substantially larger loans than in the past. In addition, the Jobs Act established an alternative size standard for SBA's 7(a) and 504 Loan Programs for those applicants that do not meet the size standards for their industries. That is, under the Jobs Act, if a firm applies for a 7(a) or 504 loan but does not meet the size standard for its industry, it might still qualify if, including its affiliates, it has a tangible net worth that does not exceed $15 million and also has average net income after Federal income taxes (excluding any carry-over losses) for its preceding two completed fiscal years that do not exceed $5 million. Thus, increasing the size standards may result in an increase in small business guaranteed loans to small businesses in these industries, but it would be impractical to try to estimate the extent of their number and the total amount loaned.

Newly defined small businesses will also benefit from SBA's Economic Injury Disaster Loan Program. Since this program is contingent on the occurrence and severity of a disaster, SBA cannot make a meaningful estimate of benefits for future disasters.

To the extent that all 13,000 newly defined small firms under the revised size standards could become active in Federal procurement programs, this may entail some additional administrative costs to the Federal Government associated with additional bidders for Federal small business procurement opportunities, additional firms seeking SBA guaranteed lending programs, additional firms eligible for enrollment in the Central Contractor Registration's Dynamic Small Business Search database and additional firms seeking certification as 8(a) or HUBZone firms or those qualifying for small business, WOSB, SDVOSB, and SDB status. Among businesses in this group seeking SBA assistance, there could be some additional costs associated with compliance and verification of small business status and protests of small business status. These added costs are likely to be minimal because mechanisms are already in place to handle these administrative requirements.

The costs to the Federal Government may be higher on some Federal contracts under the higher revised size standards. With a greater number of businesses defined as small, Federal agencies may choose to set aside more contracts for competition among small businesses rather than using full and open competition. The movement from unrestricted to set-aside contracting will likely result in competition among fewer total bidders, although there will be more small businesses eligible to submit offers. In addition, higher costs may result when additional full and open contracts are awarded to HUBZone businesses because of a price evaluation preference. The additional costs associated with fewer bidders, however, will likely be minor since, as a matter of law, procurements may be set aside for small businesses or reserved for the small business, 8(a), HUBZone, WOSB, or SDVOSB Programs only if awards are expected to be made at fair and reasonable prices.

The revised size standards may have some distributional effects among large and small businesses. Although SBA cannot estimate with certainty the actual outcome of gains and losses among small and large businesses, there are several likely impacts. There may be a transfer of some Federal contracts from large businesses to small businesses. Large businesses may have fewer Federal contract opportunities as Federal agencies decide to set aside more Federal contracts for small businesses. In addition, some agencies may award more Federal contracts to HUBZone concerns instead of large businesses since HUBZone concerns may be eligible for price evaluation adjustments when they compete on full and open bidding opportunities. Similarly, currently defined small businesses may obtain fewer Federal contracts due to the increased competition from more businesses defined as small under the revised size standards. This transfer may be offset by more Federal procurements set aside for all small businesses. The number of newly defined and expanding small businesses that are willing and able to sell to the Federal Government will limit the potential transfer of contracts away from large and small businesses under the existing size standards. The SBA cannot estimate with precision the potential distributional impacts of these transfers.

The revisions to the existing size standards for Sector 53, Real Estate and Rental and Leasing, are consistent with SBA's statutory mandate to assist small business. This regulatory action promotes the Administration's objectives. One of SBA's goals in support of the Administration's objectives is to help individual small businesses succeed through fair and equitable access to capital and credit, Government contracts, and management and technical assistance. Reviewing and modifying size standards, when appropriate, ensures that intended beneficiaries have access to small business programs designed to assist them.

A description of the need for this regulatory action and benefits and costs associated with this action including possible distributions impacts that relate to Executive Order 13563 is included above in the Cost Benefit Analysis.

In an effort to engage interested parties in this action, SBA has presented its methodology (discussed under SUPPLEMENTARY INFORMATION in the proposed rule and this rule) to various industry associations and trade groups. The SBA also met with various industry groups to obtain their feedback on its methodology and other size standards issues. The SBA also presented its size standards methodology to businesses in 13 cities in the U.S. and sought their input as part of the Jobs Act tours. The presentations also included information on the latest status of the comprehensive size standards review and how interested parties can provide SBA with input and feedback on the size standards review.

Additionally, SBA sent letters to the Directors of the Offices of Small and Disadvantaged Business Utilization (OSDBU) at several Federal agencies with considerable procurement responsibilities requesting their feedback on how the agencies use SBA size standards and whether current standards meet their programmatic needs (both procurement and non-procurement). The SBA gave appropriate consideration to all input, suggestions, recommendations, and relevant information obtained from industry groups, individual businesses, and Federal agencies in preparing the proposed rule for Sector 53.

Furthermore, when SBA issued the proposed rule, it provided notice of its publication to individuals and companies that had in recent years exhibited an interest by letter, email, or phone, in size standards for NAICS Sector 53 so they could comment.

The review of size standards in NAICS Sector 53, Real Estate and Rental and Leasing, is consistent with Section 6 of Executive Order 13563 calling for retrospective analyses of existing rules. The last overall review of size standards occurred during the late 1970s and early 1980s. Since then, except for periodic adjustments for monetary based size standards, most reviews of size standards were limited to a few specific industries in response to requests from the public and Federal agencies. The SBA recognizes that changes in industry structure and the Federal marketplace over time have rendered existing size standards for some industries no longer supportable by current data. Accordingly, in 2007, SBA began a comprehensive review of all size standards to ensure that existing size standards have supportable bases and to revise them when necessary. In addition, the Jobs Act directs SBA to conduct a detailed review of all size standards and to make appropriate adjustments to reflect market conditions. Specifically, the Jobs Act requires SBA to conduct a detailed review of at least one-third of all size standards during every 18 month period from the date of its enactment and do a complete review of all size standards not less frequently than once every 5 years thereafter.

This action meets applicable standards set forth in Sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. The action does not have retroactive or preemptive effect.

For purposes of Executive Order 13132, SBA has determined that this final rule will not have substantial, direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, SBA has determined that this final rule has no Federalism implications warranting preparation of a Federalism assessment.

For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA has determined that this final rule would not impose any new reporting or record keeping requirements.

Under the Regulatory Flexibility Act (RFA), this rule may have a significant impact on a substantial number of small entities in NAICS Sector 53, Real Estate and Rental and Leasing. As described above, this rule may affect small entities seeking Federal contracts, SBA's 7(a) and 504 Guaranteed Loans, SBA's Economic Injury Disaster Loans, and various small business benefits under other Federal programs.

Immediately below, SBA sets forth a final regulatory flexibility analysis of this final rule addressing the following questions: (1) What are the need for and objective of the rule? (2) What are SBA's description and estimate of the number of small entities to which the rule will apply? (3) What are the projected reporting, record keeping, and other compliance requirements of the rule? (4) What are the relevant Federal rules which may duplicate, overlap or conflict with the rule? and (5) What alternatives will allow the Agency to accomplish its regulatory objectives while minimizing the impact on small entities?

Most of SBA's size standards for the Real Estate and Rental and Leasing industries had not been reviewed since the 1980s. Technological changes, productivity growth, international competition, mergers and acquisitions and updated industry definitions may have changed the structure of many industries in that Sector. Such changes can be sufficient to support a revision to size standards for some industries. Based on the analysis of the latest industry and program data available, SBA believes that the revised standards in this rule more appropriately reflect the size of businesses in those industries that need Federal assistance. Additionally, the Jobs Act requires SBA to review all size standards and make appropriate adjustments to reflect current data and market conditions.

The SBA estimates that approximately 13,000 additional firms will become small because of increases in size standards in 20 industries and one sub-industry in NAICS Sector 53. That represents 5 percent of total firms in industries in that Sector that have receipts based size standards. This will result in an increase in the small business share of total industry receipts in those industries from about 27 percent under the current size standards to nearly 39 percent under the revised size standards. The SBA does not anticipate a significant competitive impact on smaller businesses in these industries. The revised size standards will enable more small businesses to retain their small business status for a longer period. Under current size standards, many small businesses may have lost their eligibility or found it difficult to compete with companies that are significantly larger than they are and this final rule attempts to correct that impact. The SBA believes these changes will have a positive impact for existing small businesses and for those that have either exceeded or are about to exceed current size standards.

Revising size standards does not impose any additional reporting or record keeping requirements on small entities. However, qualifying for Federal procurement and a number of other Federal programs requires that entities register in the Central Contractor Registration (CCR) database and certify at least annually that they are small in the Online Representations and Certifications Application (ORCA). Therefore, businesses opting to participate in those programs must comply with CCR and ORCA requirements. There are no costs associated with either CCR registration or ORCA certification. Revising size standards alters the access to SBA programs that are designed to assist small businesses, but does not impose a regulatory burden as they neither regulate nor control business behavior.

Under section 3(a)(2)(C) of the Small Business Act, 15 U.S.C. 632(a)(2)(c), Federal agencies must use SBA's size standards to define a small business, unless specifically authorized by statute. In 1995, SBA published in the Federal Register a list of statutory and regulatory size standards that identified the application of SBA's size standards as well as other size standards used by Federal agencies (60 FR 57988 (November 24, 1995)). SBA is not aware of any Federal rule that would duplicate or conflict with establishing or revising size standards.

However, the Small Business Act and SBA's regulations allow Federal agencies to develop different size standards if they believe that SBA's size standards are not appropriate for their programs, with the approval of SBA's Administrator ( see 13 CFR 121.903). The Regulatory Flexibility Act authorizes an agency to establish an alternative small business definition after consultation with the Office of Advocacy of the U.S. Small Business Administration (5 U.S.C. 601(3)).

By law, SBA is required to develop numerical size standards for establishing eligibility for Federal small business assistance programs. Other than varying size standards by industry and changing the size measures, no practical alternative exists to the existing system of numerical size standards.

For reasons set forth in the preamble, SBA amends 13 CFR part 121 as follows:

To determine eligibility for Federal small business assistance programs, SBA establishes small business size definitions (referred to as size standards) for private sector industries in the United States. SBA's existing size standards use two primary measures of business size—average annual receipts and number of employees. Financial assets, electric output and refining capacity are used as size measures for a few specialized industries. In addition, SBA's Small Business Investment Company (SBIC), 7(a), and the Certified Development Company (CDC or 504) Loan Programs determine small business eligibility using either the industry based size standards or alternative net worth and net income based size standards. At the start of the current comprehensive SBA's size standards review, there were 41 different size levels, covering 1,141 NAICS industries and 18 sub-industry activities ( i.e., “exceptions” in SBA's table of size standards). Of these, 31 were based on average annual receipts, seven based on number of employees, and three based on other measures.

Over the years, SBA has received comments that its size standards have not kept up with changes in the economy, in particular the changes in the Federal contracting marketplace and industry structure. The last comprehensive review of size standards occurred during the late 1970s and early 1980s. Since then, most reviews of size standards were limited to a few specific industries in response to requests from the public and Federal agencies. SBA also makes periodic inflation adjustments to its monetary based size standards. The latest inflation adjustment to size standards was published in the Federal Register on July 18, 2008 (73 FR 41237).

SBA recognizes that changes in industry structure and the Federal marketplace since the last overall review have rendered existing size standards for some industries no longer supportable by current data. Accordingly, in 2007, SBA began a comprehensive review of its size standards to determine whether existing size standards have supportable bases relative to the current data, and to revise them, where necessary.

In addition, on September 27, 2010, the President of the United States signed the Small Business Jobs Act of 2010 (Jobs Act). The Jobs Act directs SBA to conduct a detailed review of all size standards and to make appropriate adjustments to reflect market conditions. Specifically, the Jobs Act requires SBA to conduct a detailed review of at least one-third of all size standards during every 18-month period from the date of its enactment and review all size standards not less frequently than once every 5 years thereafter. Reviewing existing small business size standards and making appropriate adjustments based on current data is also consistent with Executive Order 13563 on improving regulation and regulatory review.

Rather than review all size standards at one time, SBA is reviewing a group of related industries on a Sector by Sector basis.

As part of SBA's comprehensive review of size standards, the Agency evaluated every industry in NAICS Sector 62, Health Care and Social Assistance, to determine whether the existing size standards should be retained or revised. On February 24, 2012, SBA published a proposed rule in the Federal Register (77 FR 11001) seeking public comment on its proposal to increase the size standards for 28 industries in that Sector. The comment period ended on April 24, 2012.

SBA has recently developed a “Size Standards Methodology” for establishing, reviewing and modifying size standards, where necessary. SBA has published the document on its Web site at www.sba.gov/size for public review and comment and also included it as a supporting document in the electronic docket of the February 24, 2012 proposed rule at www.regulations.gov.

In evaluating an industry's size standard, SBA examines its characteristics (such as average firm size, startup costs, industry competition, and distribution of firms by size) and the level and small business share of Federal contract dollars in that industry. SBA also examines the potential impact a size standard revision might have on its financial assistance programs and whether a business concern under a revised size standard would be dominant in its industry. SBA analyzed the characteristics of each industry in NAICS Sector 62, mostly using a special tabulation obtained from the U.S. Bureau of the Census from its 2007 Economic Census (the latest available). SBA also evaluated the level and small business share of Federal contract dollars in each of those industries using the data from the Federal Procurement Data System—Next Generation (FPDS-NG) for fiscal years 2008 to 2010. To evaluate the impact of changes to size standards on its loan programs, SBA analyzed internal data on its guaranteed loan programs for fiscal years 2008 to 2010.

SBA's “Size Standards Methodology” provides a detailed description of analyses of various industry and program factors and data sources, and how the Agency uses the results to derive size standards. In the proposed rule, SBA detailed how it applied its “Size Standards Methodology” to review, and modify, where necessary, the existing standards for industries in NAICS Sector 62. SBA sought comments from the public on a number of issues about its “Size Standards Methodology,” such as whether there are alternative methodologies that SBA should consider; whether there are alternative or additional factors or data sources that SBA should evaluate; whether SBA's approach to establishing small business size standards makes sense in the current economic environment; whether SBA's application of anchor size standards is appropriate in the current economy; whether there are gaps in SBA's methodology because of the lack of comprehensive data; and whether there are other facts or issues that SBA should consider.

In the proposed rule, SBA sought comments on its proposal to increase the size standards for 28 industries and retain the existing size standards for the remaining 11 industries in Sector 62. Specifically, SBA requested comments on whether the size standards should be revised as proposed and whether the proposed revisions are appropriate. SBA also invited comments on whether its proposed eight fixed size standard levels are appropriate and whether it should adopt common size standards for certain Industry Groups and Subsectors in NAICS Sector 62.

SBA's analyses could allow lowering existing size standards for two industries in NAICS Sector 62, should the Agency choose to do so. However, as SBA explained in the proposed rule, lowering size standards would reduce the number of firms eligible to participate in Federal small business assistance programs and would be counter to what the Federal government and SBA are doing to help small businesses and create jobs. Therefore, SBA proposed to retain the current size standards for those industries and requested comments on whether the Agency should lower size standards for those two industries for which its analyses might support lowering them.

SBA received only one response to the proposed rule. The respondent asked what the fine is for a firm that performs sterilization procedures and does not use an autoclave to sterilize. The question does not address or relate to the size standards changes that SBA proposed for NAICS Sector 62, Health Care and Social Assistance. The regulations or guidelines governing sterilization procedures are beyond the purview of SBA and hence this proposed rule. Thus, SBA is not making any adjustment to proposed size standards based on this comment.

The comment to the proposed rule is available for public review at http://www.regulations.gov, using RIN 3245-AG30 or docket number SBA-2012-0003.

Based on the analyses of relevant industry and program data and no public comments against the proposed rule, SBA has decided to increase the small business size standards for the 28 industries in NAICS Sectors 62, as proposed. The revised size standards are shown in Table 1, Summary of Revised Size Standards in NAICS Sector 62, below.

For the reasons as stated above in this rule and in the proposed rule, SBA is retaining the current size standards for the two industries for which analytical results suggested the Agency could lower. This is consistent with SBA's recent final rules on NAICS Sector 44-45, Retail Trade (75 FR 61597 (October 6, 2010)), NAICS Sector 72, Accommodation and Food Services (75 FR 61604 (October 6, 2010)), NAICS Sector 81, Other Services (75 FR 61591 (October 6, 2010)), NAICS Sector 54, Professional, Scientific and Technical Services (77 FR 7490 (February 10, 2012)), and NAICS Sector 48-49, Transportation and Warehousing (77 FR 10943 (February 24, 2012)). In each of those final rules, SBA retained the existing size standards for those that it could have reduced. SBA is also retaining the existing size standards for the nine industries in NAICS Sector 62 for which the results supported their current levels.

The Office of Management and Budget (OMB) has determined that this final rule is not a “significant regulatory action for purposes of Executive Order 12866. In order to help explain the need for this rule and the rule's potential benefits and costs, SBA is providing a Cost Benefit Analysis in this section of the rule. This is also not a “major rule” under the Congressional Review Act (5 U.S.C. 801)

SBA believes that the revised changes to small business size standards for 28 industries in NAICS Sector 62, Health Care and Social Assistance, reflect the changes in economic characteristics of small businesses and the Federal procurement market. SBA's mission is to aid and assist small businesses through a variety of financial, procurement, business development, and advocacy programs. To assist the intended beneficiaries of these programs, SBA establishes distinct definitions to determine which businesses are deemed small. The Small Business Act delegates to SBA's Administrator the responsibility for establishing small business size definitions (15 U.S.C. 632(a)). The Act also requires that small business size definitions vary to reflect industry differences. The Jobs Act requires the Administrator to review at least one-third of all size standards within each 18-month period from the date of its enactment, and review all size standards at least every five years thereafter. The supplementary information sections of the February 24, 2012 proposed rule and this final rule explained in detail SBA's methodology for analyzing a size standard for a particular industry.

The most significant benefit to businesses obtaining small business status because of this rule is gaining eligibility for Federal small business assistance programs. These include SBA's financial assistance programs and Federal procurement programs reserved for small businesses. Federal small business programs provide targeted opportunities for small businesses under SBA's business development programs, such as 8(a), Small Disadvantaged Businesses (SDB), small businesses located in Historically Underutilized Business Zones (HUBZone), women-owned small businesses (WOSB), and service-disabled veteran-owned small businesses (SDVOSB). Other Federal agencies may also use SBA's size standards for a variety of regulatory and program purposes. These programs assist small businesses to become more knowledgeable, stable, and competitive. In the 28 industries in NAICS Sector 62 for which SBA has increased size standards, SBA estimates that more than 4,100 additional firms will obtain small business status and become eligible for these programs. That is about 0.7 percent of the total number of firms that are classified as small under the current standards in all industries within NAICS Sector 62. SBA estimates this will increase the small business share of total industry receipts in all industries within NAICS Sector 62 from about 30 percent under the current size standards to nearly 32 percent.

Three groups will benefit from the revised size standards in NAICS Sector 62 in the following ways: (1) Some businesses that are above the current size standards may gain small business status under the higher size standards, thereby enabling them to participate in Federal small business assistance programs; (2) growing small businesses that are close to exceeding the current size standards will be able to retain their small business status under the higher size standards, thereby enabling them to continue their participation in the programs; and (3) Federal agencies will have a larger pool of small businesses from which to draw for their small business procurement programs.

During fiscal years 2008 to 2010, about 66 percent of Federal contracting dollars spent in industries in NAICS Sector 62 were accounted for by the 28 industries for which SBA has increased size standards. SBA estimates that additional firms gaining small business status in those industries under the revised size standards could potentially obtain Federal contracts totaling up to $25 million to $30 million annually under SBA's small business, 8(a), SDB, HUBZone, WOSB, and SDVOSB Programs, and other unrestricted procurements. The added competition for many of these procurements can also result in lower prices to the Government for procurements reserved for small businesses, although SBA cannot quantify this benefit.

Under SBA's 7(a) and 504 Loan Programs, based on the data for fiscal years 2008 to 2010 data, SBA estimates about 35 to 45 additional loans totaling about $11 million to $15 million in Federal loan guarantees could be made to these newly defined small businesses under the proposed standards. Under the Jobs Act, SBA can now guarantee substantially larger loans than in the past. In addition, as described above, the Jobs Act established an alternative size standard ($15 million in tangible net worth and $5 million in net income after income taxes) for business concerns that do not meet the size standards for their industry. Thus, increasing the size standards will likely result in more small business guaranteed loans to businesses in these industries, but it would be impractical to try to estimate the extent of their number and the total amount loaned.

Newly defined small businesses will also benefit from SBA's Economic Injury Disaster Loan (EIDL) Program. Since this program is contingent on the occurrence and severity of one or more disasters, SBA cannot make a meaningful estimate of future EIDL benefits.

To the extent that all 4,100 newly defined additional small firms under the revised size standards become active in Federal procurement programs, there may be some additional administrative costs to the Federal Government associated with additional bidders for Federal small business procurement opportunities. In addition, there will be new firms seeking SBA's guaranteed loans, more firms eligible for enrollment in the Central Contractor Registration's Dynamic Small Business Search database, and more firms seeking certification as 8(a) or HUBZone forms or those qualifying for small business, WOSB, SDVOSB, and SDB status. Among businesses seeking SBA's assistance, there could be some additional costs associated with compliance and verification of small business status and protests of small business status. These added costs are likely to be minimal because mechanisms are already in place to handle these administrative requirements.

The costs to the Federal Government may be higher on some Federal contracts under the higher revised size standards. With a greater number of businesses defined as small, Federal agencies may choose to set aside more contracts for competition among small businesses rather than using full and open competition. The movement from unrestricted to set-aside contracting might result in competition among fewer total bidders, although there will be more small businesses eligible to submit offers. In addition, higher costs may result when more full and open contracts are awarded to HUBZone businesses because of a price evaluation preference. The additional costs associated with fewer bidders, however, will likely be minor since, as a matter of law, procurements may be set aside for small businesses or reserved for the small business, 8(a), HUBZone, WOSB, or SDVOSB Programs only if awards are expected to be made at fair and reasonable prices.

The revised size standards may have some distributional effects among large and small businesses. Although SBA cannot estimate with certainty the actual outcome of the gains and losses among small and large businesses, there are several likely impacts. There may be a transfer of some Federal contracts to small businesses from large businesses. Large businesses may have fewer Federal contract opportunities as Federal agencies decide to set aside more Federal contracts for small businesses. In addition, some Federal agencies may award more Federal contracts to HUBZone concerns instead of large businesses since HUBZone concerns may be eligible for price evaluation adjustments when they compete on full and open bidding opportunities. Similarly, currently defined small businesses may obtain fewer Federal contracts due to the increased competition from more businesses defined as small under the revised size standards. This transfer may be offset by more Federal procurements set aside for all small businesses. The number of newly defined and expanding small businesses that are willing and able to sell to the Federal Government will limit the potential transfer of contracts away from large and small businesses under the existing size standards. SBA cannot estimate with precision the potential distributional impacts of these transfers.

The revisions to the existing size standards in NAICS Sector 62, Health Care and Social Assistance, are consistent with SBA's statutory mandate to assist small business. This regulatory action promotes the Administration's objectives. One of SBA's goals in support of the Administration's objectives is to help individual small businesses succeed through fair and equitable access to capital and credit, Government contracts, and management and technical assistance. Reviewing and modifying size standards, when appropriate, ensures that intended beneficiaries have access to small business programs designed to assist them.

A description of the need for this regulatory action and benefits and costs associated with this action including possible distributional impacts that relate to Executive Order 13563 are included above in the Cost Benefit Analysis.

In an effort to engage interested parties in this action, SBA has presented its methodology (discussed above under Supplementary Information) to various industry associations and trade groups. SBA also met with various industry groups to get their feedback on its methodology and other size standards issues. In addition, SBA presented its size standards methodology to businesses in 13 cities in the U.S. and sought their input as part of the Jobs Act tours. The presentation also included information on the latest status of the comprehensive size standards review and how interested parties can provide SBA with input and feedback on the size standards review.

Furthermore, when SBA issued the proposed rule, it provided notice of its publication to individuals and companies that had in recent years exhibited an interest by letter, email, or phone, in size standards for NAICS Sector 62 so they could comment.

Additionally, SBA sent letters to the Directors of the Offices of Small and Disadvantaged Business Utilization (OSDBU) at several Federal agencies with considerable procurement responsibilities requesting their feedback on how the agencies use SBA size standards and whether current standards meet their programmatic needs (both procurement and non-procurement). SBA gave appropriate consideration to all input, suggestions, recommendations, and relevant information obtained from industry groups, individual businesses, and Federal agencies in preparing the proposed rule and this final rule for NAICS Sector 62.

The review of size standards in NAICS Sector 62, Health Care and Social Assistance, is consistent with Executive Order 13563, Section 6, calling for retrospective analyses of existing rules. The last overall review of size standards occurred during the late 1970s and early 1980s. Since then, except for periodic adjustments for monetary based size standards, most reviews of size standards were limited to a few specific industries in response to requests from the public and Federal agencies. SBA recognizes that changes in industry structure and the Federal marketplace since the last overall review have rendered existing size standards for some industries no longer supportable by current data. Accordingly, in 2007, SBA began a comprehensive review of all size standards to ensure that existing size standards have supportable bases and to revise them, where necessary. In addition, the Jobs Act requires SBA to conduct a detailed review of all size standards and to make appropriate adjustments to reflect market conditions. Specifically, the Jobs Act requires SBA to conduct a detailed review of at least one-third of all size standards during every 18-month period from the date of its enactment and review all size standards not less frequently than once every 5 years thereafter.

This action meets applicable standards set forth in Sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. The action does not have retroactive or preemptive effect.

For the purposes of Executive Order 13132, SBA has determined that this final rule will not have substantial, direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, SBA has determined that this final rule has no Federalism implications warranting preparation of a Federalism assessment.

For the purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA has determined that this final rule will not impose any new reporting or record keeping requirements.

Under the Regulatory Flexibility Act (RFA), this final rule may have a significant impact on a substantial number of small entities in NAICS Sector 62, Health Care and Social Assistance. As described above, this rule may affect small entities seeking Federal contracts, SBA's 7(a), 504 and economic injury disaster loans, and various small business benefits under other programs.

Immediately below, SBA sets forth a final regulatory flexibility analysis (RFA) of this final rule addressing the following questions: (1) What are the need for and objective of the rule? (2) What are SBA's description and estimate of the number of small businesses to which the rule will apply? (3) What are the projected reporting, record keeping, and other compliance requirements of the rule? (4) What are the relevant Federal rules that may duplicate, overlap, or conflict with the rule? and (5) What alternatives will allow the Agency to accomplish its regulatory objectives while minimizing the impact on small entities?

Although size standards for three Subsectors of NAICS 62 (NAICS Subsector 621, Ambulatory Health Care Services; NAICS Subsector 622, Hospitals; and NAICS Subsector 623, Nursing and Residential Care Facilities) were reviewed during 1999-2000, size standards for NAICS Subsector 624, Social Assistance, which includes nine industries, have not been reviewed since the early 1980s. Changes in industry structure, technological changes, productivity growth, mergers and acquisitions, and updated industry definitions may have changed the structure of many industries within NAICS Sector 62. Such changes can be sufficient to support revisions to current size standards for some industries. Based on the analysis of the latest data available, SBA believes that the revised size standards in this final rule more appropriately reflect the size of businesses in those industries that need Federal assistance. Additionally, the Jobs Act requires SBA to review all size standards and make appropriate adjustments to reflect current data and market conditions.

SBA estimates that more than 4,100 additional firms will become small because of increases in size standards in 28 industries in NAICS Sector 62. That represents 0.7 percent of total firms that are small under current size standards in all industries within that Sector. This will result in an increase in the small business share of total industry receipts for the Sector from about 30 percent under the current size standard to nearly 32 percent under the proposed standards. The revised size standards will enable more small businesses to retain their small business status for a longer period. Many have lost their eligibility and find it difficult to compete at current size standards with companies that are significantly larger than they are. SBA believes the competitive impact will be positive for existing small businesses and for those that exceed the size standards but are on the very low end of those that are not small. They might otherwise be called or referred to as mid-sized businesses, although SBA only defines what is small; other entities are other than small.

Revising size standards does not impose any additional reporting or record keeping requirements on small entities. However, qualifying for Federal procurement and a number of other programs requires that entities register in the Central Contractor Registration (CCR) database and certify at least once annually that they are small in the Online Representations and Certifications Application (ORCA). Therefore, businesses opting to participate in those programs must comply with CCR and ORCA requirements. There are no costs associated with either CCR registration or ORCA certification. Revising size standards alters the access to Federal programs that assist small businesses, but does not impose a regulatory burden as they neither regulate nor control business behavior.

Under § 3(a)(2)(C) of the Small Business Act, 15 U.S.C. 632(a)(2)(c), Federal agencies must use SBA's size standards to define a small business, unless specifically authorized by statute to do otherwise. In 1995, SBA published in the Federal Register a list of statutory and regulatory size standards that identified the application of SBA's size standards as well as other size standards used by Federal agencies (60 FR 57988 (November 24, 1995)). SBA is not aware of any Federal rule that would duplicate or conflict with establishing size standards.

However, the Small Business Act and SBA's regulations allow Federal agencies to develop different size standards if they believe that SBA's size standards are not appropriate for their programs, with the approval of SBA's Administrator (13 CFR 121.903). The Regulatory Flexibility Act authorizes an Agency to establish an alternative small business definition, after consultation with the Office of Advocacy of the U.S. Small Business Administration (5 U.S.C. 601(3)).

By law, SBA is required to develop numerical size standards for establishing eligibility for Federal small business assistance programs. Other than varying size standards by industry and changing the size measures, no practical alternative exists to the existing system of numerical size standards. The possible alternative size standards considered for the individual industries within NAICS Sector 62 are discussed in the supplementary information to the proposed rule and this final rule.

For the reasons set forth in the preamble, SBA amends 13 CFR Part 121 as follows:

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an AD that would apply to the specified products. That NPRM was published in the Federal Register on June 18, 2012 (77 FR 36224). That NPRM proposed to correct an unsafe condition for the specified products. The MCAI states:

We gave the public the opportunity to participate in developing this AD. We received no comments on the NPRM (77 FR 36224, June 18, 2012) or on the determination of the cost to the public.

We reviewed the available data and determined that air safety and the public interest require adopting the AD as proposed.

Based on the service information, we estimate that this AD will affect about 668 products of U.S. registry. We also estimate that it will take about 12 work-hours per product to comply with the basic requirements of this AD. The average labor rate is $85 per work-hour. Required parts will cost about $2,507 per product. Where the service information lists required parts costs that are covered under warranty, we have assumed that there will be no charge for these parts. As we do not control warranty coverage for affected parties, some parties may incur costs higher than estimated here. Based on these figures, we estimate the cost of the AD on U.S. operators to be $2,356,036, or $3,527 per product.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that this AD:

1. Is not a “significant regulatory action” under Executive Order 12866;

2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979);

3. Will not affect intrastate aviation in Alaska; and

4. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a regulatory evaluation of the estimated costs to comply with this AD and placed it in the AD docket.

You may examine the AD docket on the Internet at http://www.regulations.gov; or in person at the Docket Operations office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains the NPRM (77 FR 36224, June 18, 2012), the regulatory evaluation, any comments received, and other information. The street address for the Docket Operations office (telephone (800) 647-5527) is in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

Discussion

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to supersede AD 2012-06-23 (77 FR 20508, April 5, 2012). That AD applies to the specified products. The NPRM published in the Federal Register on May 3, 2012 (77 FR 26216). That NPRM proposed to continue to require initial and repetitive UIs of certain LP compressor blades identified by S/N. This AD requires the same actions but expands the population of blades.

We gave the public the opportunity to participate in developing this AD. The following presents the comments received on the proposal and the FAA's response to each comment.

Commenters RR and The Boeing Company (Boeing) requested that the initial inspection thresholds listed in Table 1 of the proposed AD be the same as those in RR ASB RB.211-72-AG244. Alternatively, RR and Boeing asked that we adjust the calendar months after the effective date of the AD to make them equivalent to the calendar dates in the ASB. RR claims that allowing parts to remain on wing longer than the times specified in the ASB will increase the risk of a fan blade failure before a crack is detected.

We do not agree. The number of months for compliance after the effective date of this AD is the same as in the EASA AD 2012-0025, dated February 8, 2012. Also, shortening the initial inspection thresholds now would require renotice and therefore delay implementation of the AD. We did not change the AD.

RR asked that we change the unsafe condition statement in the AD to indicate that the AD is being issued to prevent multiple blades from the same engine from failing. RR indicated that this change is needed because a single blade failure from the root is, by design, a contained event.

We agree because multiple blades in an engine may develop cracks and fail if not inspected. We changed the AD by revising the unsafe condition statement in paragraph (d) of the AD from: “We are issuing this AD to prevent LP compressor blades from failing due to blade root cracks, which could lead to uncontained engine failure and damage to the airplane” to “We are issuing this AD to prevent multiple LP compressor blades from failing due to blade root cracks, which could lead to uncontained engine failure and damage to the airplane.”

Commenter American Airlines (American) requested that we change paragraph (e)(3) from “* * * and paragraphs 1. through 3.B. of Appendix 1 of that ASB, or paragraphs 3.B.(1) through 3.B.(3) of Accomplishment Instructions of RR ASB No. RB.211-72-AG244 * * *,” to “* * * and paragraphs 1. through 3.B. of Appendix 1 of that ASB, or paragraph 3.B.(3) of Accomplishment Instructions of RR ASB No. RB.211-72-AG244 * * *.”. American argued that paragraphs 3.B.(1) and 3.B.(2), which require removal of the air intake fairing/spinner and spinner extension and annulus fillers, are not needed to resolve the unsafe condition noted in the AD.

We agree in part. We agree to remove the references to paragraphs 3.B.(1) and 3.B.(2) from the AD because it is not necessary to mandate the procedures used to remove the air intake fairing/spinner and spinner extension and annulus fillers. We disagree that removal of these parts does not need to be mentioned in the AD because these parts need to be removed before performing the UI. We therefore revised paragraph (e)(3) in the AD from: “Use paragraph 3.A.(2) of Accomplishment Instructions of RR ASB No. RB.211-72-AG244, Revision 4, dated December 22, 2011, and paragraphs 1. through 3.B. of Appendix 1 of that ASB, or paragraphs 3.B.(1) through 3.B.(3) of Accomplishment Instructions of RR ASB No. RB.211-72-AG244, Revision 4, dated December 22, 2011, and paragraphs 1. through 3.C. of Appendix 2 of that ASB, to perform the UIs.” to “Use paragraph 3.A.(2) of Accomplishment Instructions of RR ASB No. RB.211-72-AG244, Revision 4, dated December 22, 2011, and paragraphs 1. through 3.B. of Appendix 1 of that ASB, or paragraphs 3.B.(3) of Accomplishment Instructions of RR ASB No. RB.211-72-AG244, Revision 4, dated December 22, 2011, and paragraphs 1. through 3.C. of Appendix 2 of that ASB, to perform the UIs. Prior to inspecting the blades per paragraph 3.B.(3) of the Accomplishment Instructions remove the air intake fairing/spinner and spinner extension and annulus fillers.”

American requested that paragraph (e)(6) of the AD be revised to read: “After the effective date of this AD, do not install any affected LP compressor blade that has reached the initial inspection threshold in Table 1, unless it has passed the UI required by this AD.” American indicated that the wording of the proposed AD implied that if a blade fails a visual inspection, it may not be reinstalled even if it passes a subsequent UI.

We agree. We revised the paragraph to read: “After the effective date of this AD, do not install any affected LP compressor blade that has reached the initial inspection threshold in Table 1 to paragraph (e), unless it has passed the UI required by this AD.” We also moved this paragraph to a separate Installation Prohibition paragraph (f).

American asked that the AD allow compressor blades inspected ultrasonically before the effective date of this AD using RR SB RB.211-72-E175, Revision 7, dated April 11, 2011, to be installed without further inspection. American indicated that the UI instructions in SB RB.211-E175, Revision 7, are identical to the UI instructions in ASB RB.211-72-AG244.

We agree. We changed the Credit for Previous Actions paragraph in the AD from, “You may take credit for the initial inspection that is required by paragraph (e)(1) of this AD if you performed the initial inspection before the effective date of this AD using RR ASB No. RB.211-72-AG244, dated August 7, 2009; ASB No. RB.211-72-AG244, Revision 1, dated January 26, 2010; ASB No. RB.211-72-AG244, Revision 2, dated August 18, 2011; or ASB No. RB.211-72-AG244, Revision 3, dated December 13, 2011,” to “You may take credit for the initial inspection that is required by paragraph (e)(1) of this AD if you performed the initial inspection before the effective date of this AD using RR ASB No. RB.211-72-AG244, dated August 7, 2009; ASB No. RB.211-72-AG244, Revision 1, dated January 26, 2010; ASB No. RB.211-72-AG244, Revision 2, dated August 18, 2011, ASB No. RB.211-72-AG244, Revision 3, dated December 13, 2011 or RB.211-72-E175, Revision 7, dated April 11, 2011.”

We reviewed the relevant data, considered the comments received, and determined that air safety and the public interest require adopting the AD with the changes described previously. We also determined that these changes will not increase the economic burden on any operator nor increase the scope of the AD.

Based on the service information, we estimate that this AD affects about 158 engines installed on airplanes of U.S. registry. We also estimate that it will take about 3 hours per engine inspection and six inspections will be needed per year. The average labor rate is $85 per work-hour. We estimate that one LP compressor blade per year will need replacement at a cost of about $82,000. Based on these figures, we estimate the annual cost of the AD on U.S. operators to be $323,740. Our cost estimate is exclusive of possible warranty coverage.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an AD that would apply to the specified products. That NPRM was published in the Federal Register on June 12, 2012 (77 FR 34872). That NPRM proposed to correct an unsafe condition for the specified products. The MCAI states:

We gave the public the opportunity to participate in developing this AD. We received no comments on the NPRM (77 FR 34872, June 12, 2012) or on the determination of the cost to the public.

We reviewed the available data and determined that air safety and the public interest require adopting the AD as proposed—except for minor editorial changes. We have determined that these minor changes:

• Are consistent with the intent that was proposed in the NPRM (77 FR 34872, June 12, 2012) for correcting the unsafe condition; and

• Do not add any additional burden upon the public than was already proposed in the NPRM (77 FR 34872, June 12, 2012).

We estimate that this AD will affect 4 products of U.S. registry. We also estimate that it will take about 4 work-hours per product to comply with the basic requirements of this AD. The average labor rate is $85 per work-hour. Required parts will cost about $210 per product. Where the service information lists required parts costs that are covered under warranty, we have assumed that there will be no charge for these parts. As we do not control warranty coverage for affected parties, some parties may incur costs higher than estimated here. Based on these figures, we estimate the cost of this AD to the U.S. operators to be $2,200, or $550 per product.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that this AD:

1. Is not a “significant regulatory action” under Executive Order 12866;

2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979);

3. Will not affect intrastate aviation in Alaska; and

4. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a regulatory evaluation of the estimated costs to comply with this AD and placed it in the AD docket.

You may examine the AD docket on the Internet at http://www.regulations.gov; or in person at the Docket Operations office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains the NPRM (77 FR 34872, June 12, 2012), the regulatory evaluation, any comments received, and other information. The street address for the Docket Operations office (telephone (800) 647-5527) is in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

I. Background

The Indian Gaming Regulatory Act (IGRA or Act), Public Law 100-497, 25 U.S.C. 2701, et seq., was signed into law on October 17, 1988. The Act established the Commission and set out a comprehensive framework for the regulation of gaming on Indian lands.

The Act provides for tribal gaming on Indian lands within such tribe's jurisdiction. 25 U.S.C. 2710. The Act requires “a separate license issued by the Indian tribe * * * for each place, facility, or location on Indian lands at which Class II (and Class III) gaming is conducted.” 25 U.S.C. 2710(b)(1) and (d)(1)(A)(iii). The Act also requires that tribal ordinances provide that “the construction and maintenance of the gaming facilities, and the operation of that gaming is conducted in a manner which adequately protects the environment and public health and safety.” 25 U.S.C. 2710(b)(2)(E).

Part 559 of the NIGC's regulations serves three purposes. The first is for the Commission to receive information from tribes regarding the Indian lands status of each gaming facility. The second is for the Commission to obtain information from tribal governments regarding the construction, maintenance, and operation of the gaming facilities. Finally, part 559 serves to inform the Commission of those places, facilities, or locations at which Indian gaming is presently being conducted.

On November 18, 2010, the Commission issued a Notice of Inquiry and Notice of Consultation advising the public that the NIGC was conducting a comprehensive review of its regulations and requesting public comment on which of its regulations were most in need of revision, in what order the Commission should review its regulations, and the process that the Commission should utilize to make revisions. 75 FR 70680, Nov. 18, 2010. On April 4, 2011, after holding eight consultations and reviewing all comments, the Commission published a Notice of Regulatory Review Schedule (NRRS) setting forth a consultation schedule and process for review. 76 FR 18457, April 4, 2011. Part 559 was included in the first regulatory group reviewed pursuant to the NRRS.

The Commission conducted multiple tribal consultations as part of its review of part 559. Tribal consultations were held in every region of the country and attended by tribal leaders or their representatives. In addition to tribal consultations, on June 11, 2011, the Commission requested public comment on a preliminary draft of amendments to part 559. After considering all public comments, the Commission published a Notice of Proposed Rulemaking. 77 FR 4731, Jan. 31, 2012.

In response to its Notice of Proposed Rulemaking, published January 31, 2012, the Commission received the following comments:

Comment: Commenters stated generally that the prior versions of the facility license rules are troublesome and that the proposed amendments to the rules alleviate much of that concern.

Response: The Commission agrees.

Comment: A few commenters questioned the need for a 120-day notification period prior to the opening of a new gaming facility, considering that a tribe is not legally required to receive an Indian lands determination before gaming on the land. Two commenters stated that, while the Commission has clarified that gaming tribes could open a facility prior to the expiration of the 120-day period, many tribes view this as a de facto required waiting period. Thus, the commenters stated that the 120-day period seems unreasonably long, and that a shorter notification period is more reasonable and appropriate. Two commenters stated further that even a 60-day expedited review period seems altogether unnecessary for such a limited review. Thus, one commenter suggested a notice period of 30 days, another commenter suggested a notice period of 15-30 days, and the third commenter suggested an unspecified shorter notice period. If the Commission does not amend the rule to a shorter notice period, one commenter suggested that the Commission grant waivers of the 120-day period for reasonable cause shown.

Response: The Commission does not believe that providing a shorter notification period is appropriate. Commenters are correct that there is no legal requirement that the Commission issue a formal determination (also known as an Indian lands determination) prior to a tribe gaming on a specific site. However, the rule does require a tribe to wait 120 days after notification before opening a new facility, unless the tribe has requested an expedited review, pursuant to which the Chair may grant a waiver of the 120-day notification period. The Commission notes that the notification requirement does not involve an approval or disapproval action by the Chair or the Commission. If a tribe opens a facility on lands not eligible for gaming, it does so at the risk of violating IGRA and other applicable laws.

Lastly, the Office of Inspector General, U.S. Department of the Interior, recommended in a September 2005 report that the Commission establish a process by which tribes that have taken land into trust since October 1988 certify the land's status, and that the Commission establish and maintain a database containing eligibility information for all Indian gaming operations. Therefore, although the Commission does not issue an Indian lands determination for every facility, the Commission reviews Indian lands information to ensure compliance with IGRA.

Comment: A few commenters noted that, although the Commission has stated that an Indian lands determination is not required prior to opening a new gaming facility, tribes that wish to have a lands determination need to be assured that the submission of the facility license notification will trigger the Commission to act, as these tribes will likely amend their gaming ordinances to be site-specific that would then require the Chair to approve or disapprove the ordinance amendment within 90 days. Therefore, the commenters suggested that the rule be modified to permit the tribes to request an Indian lands determination, or at the very least, to amend the notification period from 120 days to 90 days.

Response: The Commission declines to make the requested changes, because the notification requirement does not involve an approval or disapproval action by the Chair or the Commission. Although it is true that an ordinance amendment must be approved or disapproved within 90 days of submission, in practice, tribes often withdraw and then re-submit the site-specific ordinance to provide for a longer period of review. In addition, under the final rule, tribes can now request an expedited 60-day review of a facility license notification.

Comment: A commenter requested clarification regarding whether a tribe can begin construction of a new facility more quickly if the tribe requests an expedited review.

Response: The notification requirement does not provide for approval or disapproval by the Chair. The notification does not grant or deny permission to a tribe to begin construction on a new gaming facility.

Comment: In order for tribes to feel more comfortable with moving ahead with construction of a new gaming facility, one commenter suggested that the Commission automatically send tribes a standard letter stating that the Commission has received and reviewed the facility license notification and the Indian lands information and that the Commission has no objections to the information submitted.

Response: The Commission chose not to incorporate the commenter's suggested amendment. The preliminary discussion draft issued for comment on June 11, 2011 originally provided for the Commission to quickly review the status of the Indian lands where Class II or Class III gaming was to occur and to notify the tribes once the Commission had completed these reviews. However, many commenters objected, stating that the draft created a new process committing the Chair to act while tribes waited for the Chair's action. In objecting to this change, the tribes noted that there is no legal requirement for an Indian lands determination prior to gaming on that land, and that the notification process does not require the Commission to verify the Indian lands status within the 120-day timeframe.

Comment: One commenter was very supportive of the removal of the three-year facility license renewal requirement, as it recognizes the role of tribes as the primary regulators of their gaming facilities.

Response: The Commission agrees and has retained this provision in the final rule.

Comment: Several commenters stated that they are pleased and strongly support the rule changes to § 559.4, which eliminate duplicative and burdensome environmental and public health and safety (EPHS) reporting requirements (previously found in 25 CFR 502.22) in favor of an attestation by the tribe. Two commenters stated specifically that they support the incorporation of § 502.22 into § 559.4, thereby removing § 502.22. One commenter noted that the NIGC, as a federal regulatory body, is primarily responsible for the regulatory oversight of Indian gaming, while other Federal agencies are responsible for EPHS issues.

Response: The Commission agrees and has retained these provisions in the final rule.

Comment: One commenter requested clarification regarding whether the EPHS attestation should come from the tribe or from its counsel.

Response: The Commission expects that the attestation will come from a designated official or regulatory body authorized by the tribal government to attest to the EPHS determinations.

Comment: A commenter requested clarification regarding whether a tribe must submit an EPHS attestation with every license renewal, even if there has been no new construction at the specific gaming facility.

Response: An EPHS attestation must be submitted with every license renewal, as the rule requires a tribe to not only attest that the construction of the gaming facility is conducted in a manner which adequately protects the environment and public health and safety, but also that the ongoing maintenance and operation of the gaming facility is conducted in a manner which adequately protects the environment and public health and safety.

Comment: One commenter requested clarification regarding whether tribes must still have a list of the environmental, public health, and safety laws and regulations to be available to the Commission upon request, even though tribes no longer have to automatically submit the list with the EPHS certification.

Response: Tribes should have such documentation available to be provided to the Commission upon request.

Comment: Some commenters stated that they are pleased with the proposed notice exemption for temporary or seasonal closures not exceeding 180 days, as it will help reduce administrative burdens for tribal governments.

Response: The Commission agrees and has retained this provision in the final rule.

Comment: Some commenters suggested that the rule should be amended further to allow for an exemption from the notification requirement for temporary gaming facilities that are opened for estimated periods of less than 12 months. The commenters stated that such an exemption is necessary following a natural disaster or other unforeseeable event that leads to a forced closure of a permanent gaming facility, because the opening of a temporary facility may be necessary to secure critical revenues and guarantee continued funding of governmental programs and services until the permanent facility is fully rehabilitated for opening.

Response: The Commission declines to amend the rule as suggested by the commenters. Notifications to the Commission of new gaming facility openings, whether permanent or temporary, are necessary so that the Commission has accurate, up-to-date records of the Indian gaming facilities operating on Indian lands in order for the Commission to be able to perform its statutory responsibilities.

Comment: A few commenters recommended that the NIGC include an exemption for temporary gaming facility openings that is similar to the exemption for temporary closures.

Response: The Commission declines to adopt the suggested changes. Notifications to the Commission of new gaming facility openings, whether permanent or temporary, are necessary so that the Commission has accurate, up-to-date records of the Indian gaming facilities operating on Indian lands in order for the Commission to perform its statutory responsibilities.

Comment: A few commenters suggested that the rule should be amended to exempt tribal gaming regulatory authorities that issue temporary facility licenses from the Commission's notification requirements, stating that such an amendment would be consistent with tribal sovereignty and self-governance. The commenters further stated that, in light of the time-sensitive nature of opening and operating a temporary gaming facility, such an amendment would minimize disruptions and revenue losses as a result of a forced closure. Otherwise, tribes will be required to wait 30 days for temporary facility openings (as the rule suggests that the opening must be delayed pending the end of the notice period).

Response: The Commission declines to amend the rule as suggested by the commenters. Notifications to the Commission of new gaming facility openings, whether permanent or temporary, are necessary so that the Commission has accurate, up-to-date records of Indian gaming facilities operating on Indian lands in order for the Commission to be able to perform its statutory responsibilities. The notice period is 120 days for both new and temporary facilities.

Comment: Some commenters suggested that minimum reasonableness standards are needed to govern agency discretion and to minimize the risk of arbitrary and capricious decision-making. One commenter noted that, although the Commission has explained that it decided against an amendment to this proposed rule because “it is not possible to identify every possible scenario under which the Chair would exercise” his or her discretion to request additional Indian lands or EPHS documentation from a tribe, minimum standards would provide greater predictability and consistency with respect to Commission actions and other benefits.

Response: The Commission disagrees, because it is not possible to identify every possible scenario under which the Chair would exercise this discretion.

The rule will not have a significant impact on a substantial number of small entities as defined under the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. Moreover, Indian tribes are not considered to be small entities for the purposes of the Regulatory Flexibility Act.

The rule is not a major rule under the Small Business Regulatory Enforcement Fairness Act, 5 U.S.C. 804(2). This rule does not have an annual effect on the economy of $100 million or more. This rule will not cause a major increase in costs or prices for consumers, individual industries, federal, state or local government agencies or geographic regions and does not have a significant adverse effect on competition, employment, investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based enterprises.

The Commission, as an independent regulatory agency, is exempt from compliance with the Unfunded Mandates Reform Act. 2 U.S.C. 1502(1); 2 U.S.C. 658(1).

In accordance with Executive Order 12630, the Commission has determined that the rule does not have significant takings implications. A takings implication assessment is not required.

In accordance with Executive Order 12988, the Commission has determined that the rule does not unduly burden the judicial system and meets the requirements of sections 3(a) and 3(b)(2) of the Executive Order.

The Commission has determined that the rule does not constitute a major federal action significantly affecting the quality of the human environment and that no detailed statement is required pursuant to the National Environmental Policy Act of 1969, 42 U.S.C. 4321, et seq.

The information collection requirements contained in this rule were previously approved by the Office of Management and Budget (OMB) as required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3501, et seq. ) and assigned OMB Control Number 3141-0012, which expired on January 31, 2011. The Commission is in the process of reinstating that Control Number. The rule will reduce the burden hours of the information collection under the Paperwork Reduction Act of 1995 by eliminating: (i) The Commission-imposed 3-year facility license renewal requirement, although tribes will still have to submit a copy of each renewed facility license should they choose to institute their own facility license renewal periods; (ii) the requirement that tribes submit a document listing all non-federal environmental and/or public health and safety laws, resolutions, codes, policies, standards, or procedures, and must now only submit an attestation certifying that by issuing the facility license, the tribe has determined that the construction, maintenance, and operation of the gaming facility is being conducted in a manner that adequately protects the environment and the public health and safety; and (iii) the requirement that tribes provide notifications of seasonal closures or temporary closures with a duration of less than 180 days.

For the reasons set forth in the preamble, the Commission amends its regulations at 25 CFR parts 502 and 559 to read as follows:

The Metro North (Peck) Bridge, across the Pequonnock River, mile 0.3, at Bridgeport, Connecticut, has a vertical clearance in the closed position of 26 feet at mean high water and 32 feet at mean low water. The drawbridge operation regulations are listed at 33 CFR 117.219(b).

The waterway users are recreational vessels and commercial lobster boats. The Metro North (Peck) Bridge rarely opens for vessel traffic. The bridge has received no requests to open during the past two years except for bridge testing and repairs.

The operator of the bridge, Metro North Railroad, requested a temporary deviation from the regulations to facilitate scheduled bridge maintenance, miter rail repair, at the bridge. The Coast Guard previously granted a temporary deviation (77 FR 40266) to Metro North in effect from July 9, 2012 through September 30, 2012 to facilitate bridge repairs; however, the bridge repair work will not be completed by the end of September as planned due to various scheduling issues.

As a result of the above information, a second temporary deviation was requested by Metro North to facilitate completion of the repairs at the bridge.

Under this temporary deviation the Metro North (Peck) Bridge may remain in the closed position from October 1, 2012 through October 31, 2012.

There are no alternate routes available to marine traffic. Vessels that can pass under the bridge in the closed position may do so at all times. The bridge can be opened in the event of an emergency.

The waterway users were advised of the requested bridge closure and offered no objection.

In accordance with 33 CFR 117.35(e), the bridge must return to its regular operating schedule immediately at the end of the designated time period. This deviation from the operating regulations is authorized under 33 CFR 117.35.

Curtis Contracting, Inc., on behalf of the Virginia Department of Transportation who owns and operates this vertical-lift type drawbridge, has requested a temporary deviation from the current operating regulations to facilitate grid deck replacement on the structure.

Under the regular operating schedule, the US 17/258 Bridge over the James River, mile 5.0, at Newport News, VA opens on signal as required by 33 CFR 117.5 and has vertical clearances in the full open and closed positions of 145 feet and 60 feet above mean high water, respectively.

Under this temporary deviation, the drawbridge will be closed to navigation on weekends only beginning Fridays, at 9 p.m. through 5 a.m., on Mondays, from September 14, 2012 through December 10, 2012 and vessel openings will be provided with a two-hour advance notice to the bridge tender. During the temporary deviation period, the drawbridge will be unable to open in the event of an emergency. Vessels that can pass under the bridge without a bridge opening may do so at all times. There are no alternate routes for vessels transiting this section of the James River.

The James River caters to a variety of vessels from freighters to tug and barge traffic to recreational vessels. The Coast Guard has carefully coordinated the restrictions with commercial and recreational waterway users. Additionally, the Coast Guard will inform unexpected users of the waterway through our Local and Broadcast Notice to Mariners of the closure periods for the bridge so that vessels can arrange their transits to minimize any impacts caused by the temporary deviation.

In accordance with 33 CFR 117.35(e), the draw must return to its original operating schedule immediately at the end of the designated time period. This deviation from the operating regulations is authorized under 33 CFR 117.35.

The separation of mail destinating within the origin mixed ADC (OMX) surface reach of the mailer's plant (or entry point) from the remaining mixed ADC mail is crucial for maintaining acceptable service performance, for the benefit of both Periodicals customers and USPS® processing operations. To assure that these separations are being made, effective January 27, 2013, the Postal Service will revise DMM 705.8.10.2 to provide the option for mailers to prepare both the OMX and mixed ADC pallets at no minimum volume threshold, and to require the preparation of both pallets at volumes of 100 pounds or more. Mailers will be required to sack the bundles if they choose not to prepare either pallet level below the 100-pound threshold. The Postal Service also will require that mailers prepare the mixed ADC pallet in accordance with labeling list L009 instead of the currently required L004.

In response to inquiries from the mailing industry, the Postal Service also will provide an option for mailers of merged pallets of Periodicals, prepared under DMM 705.10, 705.12 and 705.13, to place Periodicals bundles directly on OMX and mixed ADC pallets.

These changes will be effective January 27, 2013. However, to provide for the most expeditious processing of OMX and mixed ADC Periodicals mailpieces in USPS networks, the Postal Service strongly encourages mailers to begin using these new standards immediately.

Prior to January 22, 2012, mailers were required to prepare bundles of flat-size Periodicals in mixed ADC sacks (or similar containers), labeled according to labeling list L009; and in OMX sacks (or similar containers), labeled according to labeling list L201. These standards assured that the OMX and the mixed ADC separations were always made, so the sacks that were prepared could then be presented directly for acceptance or placed on pallets in accordance with DMM 705.8.10.2.

On January 22, 2012, the Postal Service revised DMM 705.8.10.2 to allow mailers to place bundles of flat-size Periodicals directly onto mixed ADC and OMX pallets, but retained the existing language describing these pallet levels as optional. The long-standing language that required the mixed ADC pallet to be labeled in accordance with labeling list L004 was also retained. As a result of this change, some mailers have discontinued the practice of making the mixed ADC and OMX separations when placing bundles of flat-size Periodicals directly on pallets. It was not the intent of the January 22, 2012 revision to eliminate the requirement to perform the OMX and mixed ADC separations. As a result, on June 29, 2012, the Postal Service published a proposed rule, Federal Register notice (77 FR 38759-38760), signaling its intent to change DMM standards to clarify that the mixed ADC and OMX separations must always be made.

The Postal Service received only one comment in response to the June 29, 2012 proposed rule, relating to the optional programs for mailers to merge bundles of flats from different price categories on pallets. This commenter requested that the Postal Service consider providing an option for mailers, creating merged pallets under DMM 705.10, 705.12 and 705.13, to place bundles directly on mixed ADC and OMX pallets, instead of requiring these bundles to be sacked. The Postal Service believes that the operational impact will be minimal if it extends the option for mailers using these optional programs. As a result, it will revise the DMM to extend this option to mailers using these advanced preparation programs.

The Postal Service hereby adopts the following changes to Mailing Standards of the United States Postal Service, Domestic Mail Manual (DMM), incorporated by reference in the Code of Federal Regulations. See 39 CFR 111.1.

Accordingly, 39 CFR part 111 is amended as follows:

Statutory and Regulatory Background

In 1996, in response to the finding that many U.S. fisheries have excess fishing capacity, Congress provided for fishing capacity reduction programs. The intent of a program is to decrease the number of harvesters in the fishery, increase the economic efficiency of harvesting, and facilitate the conservation and management of fishery resources in each fishery in which NMFS conducts a reduction program. Typically, permit holders are paid to voluntarily surrender their fishing permits including relevant fishing histories for that fishery, or surrender all of their fishing permits and cancel their fishing vessels' fishing endorsements by permanently withdrawing the vessels from all fisheries. The cost of the program is paid either by the remaining harvesters through a loan or by taxpayers through a direct appropriation from Congress. Section 312(b)-(e) (16 U.S.C. 1861a(b)-(e)) was added to the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act) to authorize such programs. Congress also amended Title XI of the Merchant Marine Act, 1936 (Title XI), adding new sections 1111 and 1112 to finance capacity reduction costs. The Title XI provisions involving fishing capacity reduction loans have been codified at 46 U.S.C. 53735.

To implement capacity reduction programs, NMFS promulgated regulations published as subpart L to 50 CFR part 600, which contain a framework rule for buyback programs generally. For each individual program, NMFS promulgates regulations at subpart M to 50 CFR part 600 to implement the specific terms of that particular buyback. NMFS publishes these regulations in order to undertake this second round of capacity reduction for the BSAI Longline Catcher Processor Subsector.

The measures contained in this final rule to establish the capacity reduction program are authorized by the Appropriations Act. The Appropriations Act authorizes the establishment of fishing capacity reduction programs for catcher processor subsectors within the Alaska groundfish fisheries (i.e., the longline catcher processor subsector, the American Fisheries Act (AFA) trawl catcher processor subsector, the non-AFA trawl catcher processor subsector, and the pot catcher processor subsector) based on capacity reduction plans and contracts developed by industry and approved by NMFS. Additionally, Public Law 108-199 provided the initial $500,000 subsidy cost to fund a $50 million loan, and Public Law 108-447 provided an additional $250,000 subsidy cost to fund $25 million more (in addition to providing for the buyback program itself). Under the Authorization Act, each subsector was allocated a specific amount of the total loan authority.

In 2007, NMFS approved and implemented a $35.7 million fishing capacity reduction loan program for the Longline Catcher Processor Subsector, which represented the full amount authorized for that subsector. The initial program removed three fishing vessels and 12 fishing licenses and permits for a loan amount of $35 million. All long-line catcher processors harvesting non-pollock groundfish were required to pay and forward a fee to NMFS to repay the loan. The original fee assessment was $0.02 per pound caught with payment and collection beginning on October 24, 2007. That rate has since been reduced to $0.0145 per pound.

None of the other subsectors have expressed an interest in implementing a capacity reduction program for their subsector. A provision in the Appropriations Act permits the Secretary of Commerce to make available any of the unused loan amounts, originally allocated for each subsector, for capacity reduction programs in any of the subsectors after January 1, 2009.

Members of the BSAI Longline Catcher Processor Subsector informed NMFS that they wished to access the remaining loan amounts to undertake a second buyback. To implement this next buyback, the Freezer Longline Conservation Cooperative (FLCC) on behalf of the Reduction Fishery was required by the Appropriations Act to draft and submit to NMFS a Reduction Plan. On August 27, 2010, the FLCC submitted a Reduction Plan to access $2.7 million of the remaining funds. A Reduction Agreement, Reduction Contract, and application of the statutes and regulations referred to above are the basis for the Reduction Plan. The FLCC's Reduction Plan involves just one permit.

The Reduction Agreement and the Reduction Contract are the two key components of the Reduction Plan and this final rule. Substantive provisions of the Reduction Agreement and the Reduction Contract would be codified at 50 CFR 600.1108.

NMFS received two comments in response to the proposed rule. One was from an individual and the other from the FLCC. The individual generally expressed opposition to NMFS management of fisheries. The comment did not reference any issues specific issues with respect to the proposed rule. Therefore, no response is necessary. The FLCC expressed its support of the proposed rule noting that removing this last inactive permit removes future uncertainty in a cost effective manner and provides the ability to fish in a voluntary cooperative. NMFS made two minor corrections to the proposed rule.

All permit holders in the Longline Subsector who wished to relinquish their fishing permits were welcome to participate in the Reduction Program. The Program was divided into four phases: (1) Enrollment; (2) offer selection; (3) plan submission; and (4) implementation, after approval by referendum. The first three phases have been completed. Thus, this rule concerns itself only with the implementation phase of the program.

Capitalized terms used in the Reduction Agreement are defined in Schedule A to the Reduction Agreement; other terms are defined within the text of the Reduction Agreement. Reduction Agreement terms that are essential to understanding the regulatory provisions are set forth in § 600.1108(b).

There are three major sections of the Reduction Agreement: Qualification and Enrollment of Subsector Members; Selection of Offers to Remove Fishing Capacity by the Reduction Plan; and Submission of the Reduction Plan, including the repayment requirements. Identical provisions previously codified in 50 CFR 600.1105 are incorporated into this section by reference. This rule includes a fee collection system similar to the one codified at § 600.1106.

The FLCC received four offers from the Subsector Members. Each of the four offerors executed a Reduction Agreement and submitted specified supporting documents evidencing an applicant's status as a Subsector Member. The FLCC Auditor reviewed all documents for strict compliance with the regulatory provisions in § 600.1105.

The selection process was consistent with the buyback previously codified at § 600.1105(d) except that the funding source for the loan comes from the residual funds outlined above. In accordance with the previously developed procedures, the FLCC completed the selection process to rank the offers. Following completion of the selection process, the FLCC accepted only one latent permit to be bought out for $2,700,000.

After the Selection Process was completed, the FLCC developed the Reduction Plan. The Reduction Plan was submitted to NMFS for its approval on behalf of the Secretary of Commerce. As required by the Appropriations Act, the FLCC has notified the North Pacific Fishery Management Council. Only one License Limitation Program (LLP) license and its fishing history are being submitted for removal from the Reduction Fishery. This latent LLP license is not associated with a vessel. Therefore, no vessel is being removed from the fishery under this Reduction Program. Fees to repay the loan will be collected as set forth in § 600.1108.

The criteria for NMFS, on behalf of the Secretary, to approve any Reduction Plan are specified in § 600.1108(k). Among other things, the Assistant Administrator of NMFS must find that the Reduction Plan is consistent with the Appropriations and the Magnuson-Stevens Acts, and that it will result in the maximum sustained reduction in fishing capacity at the least cost and in the minimum amount of time.

The Reduction Plan includes the LLP license selected through the offer process as the asset to be purchased in the Reduction Program. The Reduction Plan also includes the FLCC's supporting documents and rationale for establishing that the current offer represents the expenditure of the least money for the greatest capacity reduction. Acceptance of the offer is at the sole discretion of NMFS.

The FLCC may be required to revise and resubmit the Reduction Plan to conform to the provisions of this final rule.

NMFS will conduct a referendum to determine the industry's willingness to repay a fishing capacity reduction loan to purchase the license and fishing rights identified in the Reduction Plan. A successful referendum by a majority of all members of the Reduction Fishery would bind all parties and complete the reduction process.

The current Fishing Capacity Reduction Framework regulatory provisions at § 600.1010 stipulate the procedural and other requirements by which NMFS shall conduct referenda on fishing capacity reduction programs. Section 600.1108(l) makes those framework referendum requirements applicable to this Reduction Program. Only after approval of the Reduction Program via a referendum will the Reduction Program be implemented.

Upon completion of a successful referendum to approve a fishing capacity reduction loan, the repayment plan, amortized over a 30-year term, will be implemented. Once the Reduction Program is implemented, repayment of the loan by monthly collection of fees from the remaining Subsector Members operating in the Reduction Fishery will be initiated.

In accordance with § 600.1013, the fees for each individual program should not exceed 5 percent of the average ex-vessel production value of the Reduction Fishery. Thus, the total possible fee from the two programs will not exceed 10 percent of the average ex-vessel pacific cod revenues for one year. In the event that the total principal and interest due for this program exceeds this level, an additional fee for the season will be assessed. This temporary fee assessment will be $0.01 per pound round weight for pollock, arrowtooth flounder, Greenland turbot, skate, yellowfin sole and rock sole.

The fee will be calculated on an annual basis as: The principal and interest payment amount necessary to amortize the loan over a 30-year term, divided by the Reduction Fishery portion of the BSAI Pacific cod initial total allowable catch (ITAC) allocation in metric tons (converted to pounds). NMFS estimates that the actual fees for this program will be $0.001 per pound, based upon the estimated fishery revenue from 2010 amortized over a 30-year loan. This program, coupled with the previously codified program in § 600.1105, will bring total fish catch fees to approximately $0.016 per pound.

For more specific information on submission of the Reduction Plan, including fees to repay the Reduction Loan, see § 600.1108(e). For specific information on the fee payment and collection system, see § 600.1108(k).

The Reduction Agreement provided for an expedited process to review any decision by the Auditor and for settlement of disputes utilizing an expedited review process by pre-selected legal counsel and, if necessary, binding arbitration. However, this provision was not activated as no disputes occurred during the selection process of this proposed buyback.

Proposed regulatory provisions mirroring the Reduction Agreement's provisions for Specific Performance, Miscellaneous, Amendment, and Warranties are specified at § 600.1108(g), (h), (i), and (j), respectively.

The payment and collection system will remain the same for the loan the subsector previously approved in 2007. Under this rule, § 600.1108(k) outlines the requirements for repayment of this loan. This provision mirrors the fee system codified in § 600.1106 for the 2007 loan, except in total amount. The amount of the loan in this rule is $2,700,000.

An appendix to § 600.1108 sets forth the Contract component of the Reduction Program for the Longline Subsector. The appendix, or Contract, was previously codified as an appendix to the regulatory text of § 600.1105. This rule references the appendix without reprinting it.

Pursuant to section 304(b)(1)(A) of the Magnuson-Stevens Act, the NMFS Assistant Administrator has determined that this final rule is consistent with the provisions of the Magnuson-Stevens Act, and other applicable law.

This final rule has been determined to be not significant for purposes of Executive Order 12866.

In compliance with the National Environmental Policy Act, NMFS prepared an environmental assessment for this rule. The assessment discusses the impact of this final rule on the natural and human environment and integrates a Regulatory Impact Review (RIR) and a Final Regulatory Flexibility Analysis (IRFA). NMFS will send the assessment, the review, and the analysis to anyone who requests a copy (see ADDRESSES ).

NMFS prepared a FRFA, as required by section 604 of the Regulatory Flexibility Act (RFA), to describe the economic impacts that this rule, if adopted, would have on small entities. NMFS intends the analysis to aid us in considering regulatory alternatives that could minimize the economic impact on affected small entities. The rule does not duplicate or conflict with other Federal regulations.

The Small Business Administration (SBA) has defined small entities as all fish harvesting businesses that are independently owned and operated, are not dominant in their field of operation, and have annual receipts of $4 million or less. In addition, processors with 500 or fewer employees for related industries involved in canned or cured fish and seafood, or preparing fresh fish and seafood, are also considered small entities. Small entities within the scope of this rule include individual U.S. vessel owners and fish dealers. There are no disproportionate impacts between large and small entities.

The FRFA uses the most recent year of data available to conduct the analysis (2009-2010). The vessel owners that might be considered large entities were either affiliated with owners of multiple vessels or were catcher processors. In the Reduction Fishery, 17 of the 36 vessel owners meet the threshold for small entities based on gross revenue. However, these vessels are not considered small entities for purposes of the RFA because of their affiliations with the larger fishing entities through the FLCC. All vessels in the Longline Subsector would benefit from a permit buyback because there will be less potential competition for the harvest. Because the potential action would not result in changes to allocation percentages and participation is voluntary, net effects are expected to be minimal relative to the status quo.

Implementation of the buyback program will not change the overall reporting structure and recordkeeping requirements of the vessels in the BSAI Pacific cod fisheries. However, this program will impose collection of information requirements totaling 16 hours 10 minutes.

The final rule's impact would be positive for both the selected Offeror and for the post-reduction catcher processors whose landing fees repay the reduction loan because the Offeror and a majority of the remaining catcher processors will have voluntarily assumed the impact:

1. The Offeror voluntarily made an offer of $2,700,000. Presumably, no Offeror would volunteer to make an offer with an amount that is inconsistent with the Offeror's interest; and

2. Reduction loan repayment landing fees would be instituted, and NMFS will complete the Reduction Program, only if a majority of all Subsector Members vote in favor of the Reduction Plan in a referendum. Presumably, Subsector Members will not vote in favor of the Reduction Plan unless they conclude that the Reduction Program's prospective capacity reduction will be sufficient to enable them to increase their revenues enough to justify the fee.

Those participants who remain in the fishery after the buyback will incur additional fees of up to 5 percent of the ex-vessel production value of post-reduction landings. However, the additional costs would likely be mitigated by increased harvest opportunities for those remaining in the fishery.

NMFS believes that this rule would not affect authorized BSAI Pacific cod ITAC or other non-pollock groundfish harvest levels nor harvesting practices.

NMFS rejected the no action alternative considered in the EA because if adopted NMFS would not be in compliance with the mandate of section 219 of the Appropriations Act to establish a buyback program. In addition, the Longline Catcher Processor Subsector of the non-pollock groundfish fishery would remain overcapitalized. Although too many vessels compete to catch the current subsector's total allowable catch (TAC) allocation, fishermen remain in the fishery because they have no other means to recover their significant capital investment. Overcapitalization reduces the potential net value that could be derived from the non-pollock groundfish resource by dissipating rents, driving variable operating costs up, and imposing economic externalities. At the same time, excess capacity and effort diminish the effectiveness of current management measures (e.g. landing limits and seasons, bycatch reduction measures). Overcapitalization has diminished the economic viability of members of the fleet and increased the economic and social burden on fishery-dependent communities.

This final rule contains information collection requirements subject to the Paperwork Reduction Act (PRA). The Office of Management and Budget (OMB) previously approved this information collection under OMB Control Number 0648-0376 with requirements for 878 respondents with a total response time of 38,653 hours.

NMFS estimates that Sector Members would require an average of four hours to vote in a referendum. Persons affected by this rule would also be subject to other collection-of-information requirements referred to in the rule and also approved under OMB Control Number 0648-0376. These requirements and their associated response times are: Completing and filing a fish ticket (10 minutes), submitting monthly fish buyer reports (2 hours), submitting annual fish buyer reports (4 hours), and tendering fish buyer/fish seller reports when a person fails either to pay or to collect the loan repayment fee (2 hours).

These response estimates include the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the information collection. Public comment is sought regarding: Whether this collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; the accuracy of the burden estimate; ways to enhance the quality, utility, and clarity of the information to be collected; and ways to minimize the burden of the collection of information, including through the use of automated collection techniques or other forms of information technology. Interested persons may send comments regarding this burden estimate or any other aspect of this data collection requirement, including suggestions for reducing the burden, to both NMFS and OMB (see ADDRESSES ).

Notwithstanding any other provision of law, no person is required to respond to, and no person is subject to a penalty for failure to comply with, an information collection subject to the PRA requirements unless that information collection displays a currently valid OMB control number.

This action would not result in any adverse effects on endangered species or marine mammals.

For the reasons set out in the preamble, NMFS amends 50 CFR part 600 to read as follows: