Regulatory Flexibility Act: Status of Agencies' Compliance (Letter
Report, 04/27/94, GAO/GGD-94-105).
The Regulatory Flexibility Act requires federal agencies to assess the
effects of their proposed rules on small entities, which include small
businesses, small government jurisdictions, and small not-for-profit
groups. As a result of their assessments, agencies must either do an
analysis describing the impact of the proposed rules on small entities
or certify their rules will not have "a significant economic impact on a
substantial number of small entities." This report reviews (1) the Small
Business Administration's (SBA) annual compliance with the act and
generalizes from the reports about which agencies have or have not
implemented the act effectively and (2) SBA annual reports and related
documents on the extent to which they have complied with the act's
requirements that they periodically examine their rules.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GGD-94-105
TITLE: Regulatory Flexibility Act: Status of Agencies' Compliance
DATE: 04/27/94
SUBJECT: Compliance
Regulatory agencies
Reporting requirements
Internal controls
Federal regulations
Monitoring
Investigations by federal agencies
Legislative procedures
Law enforcement
Interagency relations
**************************************************************************
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Cover
================================================================ COVER
Report to the Chairman, Committee on Small Business, House of
Representatives, and the Chairman, Committee on Governmental Affairs,
U.S. Senate
April 1994
REGULATORY FLEXIBILITY ACT -
STATUS OF AGENCIES' COMPLIANCE
GAO/GGD-94-105
Regulatory Flexibility Act
Abbreviations
=============================================================== ABBREV
APA - Administrative Procedures Act
AMS - Agricultural Marketing Service
ACE - Army Corps of Engineers
DOD - Department of Defense
DOT - Department of Transportation
EPA - Environmental Protection Agency
FAA - Federal Aviation Administration
FDIC - Federal Deposit Insurance Corporation
FCC - Federal Communications Commission
FEMA - Federal Emergency Management Agency
FERC - Federal Energy Regulatory Commission
GSA - General Services Administration
IRS - Internal Revenue Service
OMB - Office of Management and Budget
OSHA - Occupational Safety and Health Administration
RFA - Regulatory Flexibility Act of 1980
SBA - Small Business Administration
SEC - Securities and Exchange Commission
Letter
=============================================================== LETTER
B-255476
April 27, 1994
The Honorable John J. LaFalce
Chairman, Committee on
Small Business
House of Representatives
The Honorable John Glenn
Chairman, Committee on
Governmental Affairs
United States Senate
This letter is in response to your requests that we evaluate federal
agencies' implementation of the Regulatory Flexibility Act of 1980
(RFA), codified in Title 5 of the U.S. Code.\1 Specifically, you
asked that we (1) review the Small Business Administration's (SBA)
annual reports on agency compliance with the RFA and generalize from
the reports about which agencies were and were not implementing the
RFA in an effective manner and (2) review SBA annual reports and
related documents on the extent to which agencies have complied with
the RFA requirement that they periodically examine their rules
(section 610 of Title 5).
--------------------
\1 5 U.S.C. 601-612.
BACKGROUND
------------------------------------------------------------ Letter :1
The RFA requires federal agencies to assess the effects of their
proposed rules on small entities. According to the RFA, small
entities include small businesses, small governmental jurisdictions,
and small not-for-profit organizations. As a result of their
assessments, agencies must either (1) perform a regulatory
flexibility analysis describing the impact of the proposed rules on
small entities or (2) certify that their rules will not have a
"significant economic impact on a substantial number of small
entities." The RFA does not define "significant economic impact" or
"substantial number," but does require the regulatory flexibility
analysis to indicate the objectives of the rule and the projected
reporting, recordkeeping, and other compliance requirements.
Agencies must also consider alternatives to the proposal that will
accomplish the agencies' objectives while minimizing the impact on
small entities. The RFA also requires agencies to publish a
semiannual regulatory agenda that describes any prospective rule that
is likely to have a significant effect on a substantial number of
small entities.
Section 612 of Title 5 requires the SBA Chief Counsel for Advocacy to
monitor and report at least annually on agency compliance with the
RFA.\2 SBA's primary method of monitoring agencies' compliance is to
review and comment on proposed regulations when they are published
for notice and comment in the Federal Register during the federal
rulemaking process. The Chief Counsels have issued 12 annual reports
on RFA compliance since 1980.\3 The reports discuss some, but not
all, federal agencies' RFA compliance.
--------------------
\2 There have been several Chief Counsels since the RFA was enacted,
some of whom served as Acting Chief Counsels. In this report, the
Acting Chief Counsels are referred to as "Chief Counsels."
\3 The first report for 1981 was provided on October 7, 1981, in
testimony before the Subcommittee on Export Opportunities and Special
Small Business Problems of the House Committee on Small Business.
Reports for 1989 and 1990 were not prepared until 1992. All other
reports were prepared the year after the subject year. The report
for 1993 is scheduled to be published in mid-1994.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :2
The SBA annual reports indicated agencies' compliance with the RFA
has varied widely from one agency to another. Some agencies (e.g.,
the Environmental Protection Agency) were repeatedly characterized as
satisfying the RFA's requirements, while other agencies (e.g., the
Internal Revenue Service) were viewed by SBA as recalcitrant in
complying with those requirements. Still other agencies' RFA
compliance reportedly varied over time (e.g., the Federal
Communications Commission) or varied by subagency (e.g., the U.S.
Department of Agriculture). The same lack of uniform compliance is
reflected in SBA documents regarding the section 610 requirement that
agencies periodically examine their rules. Some agencies had
developed plans for the review of their regulations and had acted on
those plans, while other agencies had neither developed plans nor
taken any action.
One reason for this lack of compliance with the RFA's requirements is
that the RFA does not expressly authorize SBA to interpret key
provisions in the statute. Also, the RFA does not require SBA to
develop criteria for agencies to follow in reviewing their rules, and
SBA has not issued any guidance to federal agencies defining key
statutory provisions. Finally, the RFA does not authorize SBA or any
other agency to compel rulemaking agencies to comply with the act's
provisions. The Office of Management and Budget (OMB) said that it
has helped to ensure RFA compliance during the rulemaking process
whenever SBA has notified OMB of SBA's concerns regarding an agency's
RFA compliance. However, OMB's ability to ensure RFA compliance has
been limited because SBA does not normally notify OMB of SBA's RFA
concerns when it comments on agencies' proposed rules. Also, OMB has
no established procedures in its review process to determine whether
agencies have complied with the RFA. Finally, OMB cannot review
rules from independent regulatory agencies or agricultural marketing
orders.
OBJECTIVES, SCOPE, AND
METHODOLOGY
------------------------------------------------------------ Letter :3
The objectives of our review were to determine which agencies SBA's
annual reports and other documents (1) frequently indicated were and
were not implementing the RFA in an effective manner and (2)
indicated were and were not complying with section 610 of Title 5.
To accomplish these objectives, we reviewed the annual reports of the
SBA Chief Counsel for Advocacy for 1981 through 1992; correspondence
from SBA and various agencies regarding section 610 activities; and
related hearing records, reports, and other RFA-related materials.
We also obtained information on the RFA and the regulatory process
from officials at both SBA and OMB. We did not make an independent
determination of agencies' RFA compliance. Any characterizations of
particular agencies in this report are directly attributable to SBA.
We discussed the results of our work with the SBA Chief Counsel for
Advocacy and officials, including the Deputy Administrator, from the
Office of Information and Regulatory Affairs at OMB in March 1994 and
incorporated their comments where appropriate. We conducted our
review from September 1993 to February 1994 at the Washington, D.C.,
headquarters offices of SBA and OMB. The review was conducted in
accordance with generally accepted government auditing standards.
SBA REPORTS INDICATE VARIABLE
AGENCY COMPLIANCE WITH THE RFA
------------------------------------------------------------ Letter :4
The SBA annual reports we reviewed did not evaluate all federal
agencies' compliance with the RFA.\4 Only the Environmental
Protection Agency's compliance record was specifically mentioned in
all 12 reports. Five other agencies--the U.S. Department of
Agriculture (certain subagencies), the U.S. Department of Labor, the
Federal Communications Commission, the Internal Revenue Service, and
the Securities and Exchange Commission--were mentioned in at least 8
of the 12 reports. At the other extreme, some agencies (e.g., the
U.S. Departments of Education, Energy, Housing and Urban
Development, Justice, State, and Veterans Affairs) were either not
mentioned in any annual reports or were only rarely mentioned. The
SBA Chief Counsel said that differences in the degree to which
agencies were mentioned in the reports are primarily due to
differences between the agencies in their levels of regulatory
activity. For example, the State Department issues very few
regulations that affect small entities.
Compliance with the RFA varied widely among those agencies that were
discussed in the SBA annual reports. As the Chief Counsel testified
before the Senate Committee on Small Business in 1989, "(a)gency
compliance with the RFA runs the gamut from near total compliance to
near total disregard for this Act."\5 Some agencies were consistently
viewed by SBA as reluctant to comply with the RFA, while other
agencies' compliance records were considered exemplary virtually
throughout this 12-year period. Still others were characterized
differently at different points in time, with some improving their
compliance record over time and others evidencing no particular
pattern of compliance.
--------------------
\4 All but the first report contained an appendix listing selected
comments filed by the Office of Advocacy regarding agencies' proposed
rules during the year. These listings did not, however, evaluate
agencies' compliance with the RFA.
\5 U.S. Senate, Committee on Small Business, "The Regulatory
Flexibility Act of 1980: An Essential Protection for Small
Business," October 17, 1989, page 49.
SBA CONSIDERED AGENCIES NOT
IN COMPLIANCE WITH THE RFA
FOR A VARIETY OF REASONS
---------------------------------------------------------- Letter :4.1
The SBA annual reports indicated that certain agencies have failed to
comply with the RFA for a variety of reasons. Some agencies
reportedly did not consider the RFA applicable to their regulations,
and therefore did not perform the analyses that the act prescribes.
SBA said other agencies have erroneously certified that their rules
did not have a significant economic impact on a substantial number of
small entities. Still other agencies accepted the fact that the RFA
applied to their rules and that they affected small entities, but
reportedly still did not fully comply with either the letter or
intent of the law.
IRS AND DOD BELIEVED THE
RFA WAS NOT APPLICABLE TO
THEIR REGULATIONS
-------------------------------------------------------- Letter :4.1.1
The RFA requires federal agencies to consider the effect of proposed
rules on small entities whenever the agency is required to issue
notice and receive comments under the Administrative Procedures Act
(APA)\6 or some other law. Because of restrictions in the APA, the
RFA does not pertain to regulations involving certain issues, such as
military or foreign affairs, agency management or personnel matters,
or government loans. Also, except when notice of hearing is required
by statute, the RFA does not cover such issues as interpretive rules
or general statements of policy.
The SBA annual reports repeatedly indicated that the Internal Revenue
Service (IRS) did not believe that the RFA was applicable to most of
IRS' rules. IRS considered the vast majority of its rules to be
"interpretative," and therefore not subject to the requirements of
the RFA. IRS also said that its "pronouncements" (notices, revenue
rulings, and revenue procedures or circulars) were not "rules," and
therefore were not subject to the RFA requirements.
SBA said that many of IRS' "interpretative" rules have the same
impact on small entities as rules requiring notice and comment, and
therefore should have been considered subject to the RFA's
provisions. Eight of the 12 SBA annual reports we reviewed noted
this problem. For example, the first annual report in 1981 stated
that IRS' position was "unacceptable" and "effectively circumvents
the spirit or intent of the law." The 1985 and 1986 SBA reports
stated that IRS had used an "arbitrary distinction" between
interpretative and legislative rules to avoid RFA analysis. In the
report for 1992, the Chief Counsel said that IRS had "provided no
guidelines by which the Service determines whether a particular rule
is interpretative" and had generally "avoided its responsibilities to
consider the impact of its rules on small businesses." SBA also took
a stand against IRS' contention that its "pronouncements" could avoid
RFA requirements. In the report for 1987, the Chief Counsel said
that IRS pronouncements may have a "profound effect" on small
businesses and that IRS should have performed an RFA analysis.
In the early years of the RFA's implementation, the U.S. Department
of Defense (DOD) also claimed that its rules were not subject to the
act's requirements. The APA exempts military functions from the
notice and comment provisions. DOD argued that all of its functions,
including procurement, are military functions and, therefore, exempt
from the RFA. DOD also contended that, since the APA does not
require an agency to follow notice and comment proceedings for rules
relating to contracts, it was not covered by RFA in its contracting
regulations.
In the first SBA annual report in 1981, the Chief Counsel said that
"(e)xcept for the U.S. Army Corps of Engineers (ACE), DOD has
totally ignored the RFA." However, in that same report, the Chief
Counsel said "it is not entirely clear whether the Regulatory
Flexibility Act (RFA) applies to [DOD] regulations." By the report
for 1982, though, the Chief Counsel clearly disagreed with DOD's
arguments. For example, the Chief Counsel stated that DOD's use of
the APA military function exemption for all DOD functions, including
procurement, was "overbroad." He also said that DOD was required by a
law other than the APA to obtain comments on its contracting
regulations, and therefore those regulations were covered by the RFA.
In 1984, Congress resolved the issue by making most significant
procurement policies, regulations, procedures, and forms relating to
the expenditure of appropriated funds covered by the RFA.\7
--------------------
\6 5 U.S.C. 553.
\7 Small Business and Federal Procurement Competition Enhancement Act
of 1984 (41 U.S.C. 418b). These requirements can be waived if
"urgent and compelling circumstances make compliance with such
requirements impracticable."
SEVERAL AGENCIES
CERTIFIED THAT THEIR
RULES HAVE LITTLE IMPACT
-------------------------------------------------------- Letter :4.1.2
Section 605 (b) of Title 5 allows an agency to avoid any regulatory
flexibility analyses if the head of the agency certifies that the
proposed rule will not have a significant economic effect on a
substantial number of small entities. The certification and a brief
explanation are required to be published in the Federal Register and
provided to the SBA Chief Counsel for Advocacy. Section 611 (a) of
Title 5 prohibits judicial review of agency certifications.
Agency certifications are common and SBA has usually considered them
proper. In 1988, the Chief Counsel testified that for 80 to 85
percent of the rules the Office of Advocacy reviewed, agency heads
had certified that they would not have a significant impact on small
entities and "in most cases we agree with that."\8
However, a number of agency certifications have been criticized by
SBA. For example, the Agricultural Marketing Service (AMS) within
the Agriculture Department has been repeatedly criticized by the
Chief Counsel for issuing inadequate certifications. AMS oversees
the issuance of marketing orders controlling the shipment of certain
agricultural products. The orders and rules affecting the shippers
are issued by the Secretary of Agriculture after development and
input by producers. In the SBA report for 1982, the Chief Counsel
said AMS had shown a "lack of concern for the RFA" in not preparing a
regulatory analysis of its marketing order rules. In the report for
1987, the Chief Counsel said AMS certified that its regulations have
no significant impact on small businesses even though it had not
examined the rules' impact. This, he said, constituted a "failure to
comply with the RFA." The Chief Counsel said in SBA's report for 1992
that the certifications AMS issues with regard to these orders and
rules are "boilerplate certifications representing nothing more than
a post hoc rationalization for actions that the Service wants to
take." She said AMS' "lack of compliance demonstrates a cavalier
disregard of the analytical requirements of the RFA," and that its
certifications "are a model of conclusory findings supported by
little or no analysis."
SBA's views regarding the inadequacy of agency certifications were
not confined to AMS. For example, from 1989 through 1991, more than
half of the 494 certifications issued by the Agriculture Department
as a whole were considered inadequate by SBA. The Chief Counsel said
in SBA's report for 1992 that boilerplate certifications similar to
those issued by AMS have also been provided by the Bureau of Land
Management, the Federal Energy Regulatory Commission (FERC), the Food
and Nutrition Service, and the U.S. Department of Energy. She said
that these agencies often failed to perform a regulatory analysis
when rules will have a significant beneficial impact on small
businesses, or failed to consider the entire universe of small
entities covered by the RFA. IRS has also been criticized for
improper certifications. In a 1986 hearing before a subcommittee of
the House Committee on Small Business, the SBA Chief Counsel
testified that even though IRS agreed that one of its rules was not
"interpretative" and was therefore subject to the RFA's requirements,
IRS opted out of doing a regulatory analysis by certifying that the
rule had no impact on small firms.\9 SBA disagreed and said IRS
should have performed a regulatory analysis.
--------------------
\8 U.S. Senate, Committee on Governmental Affairs, "Regulatory
Reform: Federalism and the Regulatory Flexibility Act," September
14, 1988, page 62.
\9 U.S. House of Representatives, Committee on Small Business,
Subcommittee on Export Opportunities and Special Small Business
Problems, April 16, 1986, page 5.
SBA CONSIDERED SOME
AGENCIES NOT IN
COMPLIANCE FOR OTHER
REASONS
-------------------------------------------------------- Letter :4.1.3
Other agencies have been described in the SBA annual reports as not
in compliance with the RFA for a variety of reasons. For example, in
the report for 1986 the Chief Counsel said the General Services
Administration (GSA) had "sidestepped the need to perform a
regulatory flexibility analysis" as it revised one of its
regulations. The Chief Counsel challenged GSA's certification and
recommended that an analysis of the proposed rule change be
conducted.\10 In the SBA report for 1989, the Chief Counsel again
challenged GSA for noncompliance with the RFA and for the substantive
content of a proposed rule. The Chief Counsel also considered two of
GSA's initial regulatory flexibility analyses "inadequate" in that
report.
Other agencies (such as IRS) have also been criticized for inadequate
regulatory flexibility analyses. The Chief Counsel testified in a
hearing before the Senate Governmental Affairs Committee in 1988 that
about half of the Office of Advocacy's time is spent trying to
convince agencies to go further in their analysis of regulatory
impact or to make the regulatory decision more flexible.\11
--------------------
\10 The Chief Counsel did note in this report that GSA issued "very
good semi-annual agendas covering proposed procurement rules quite
comprehensively."
\11 U.S. Senate, Committee on Governmental Affairs, "Regulatory
Reform: Federalism and the Regulatory Flexibility Act," September
14, 1988, page 62.
SBA CONSIDERED OTHER
AGENCIES IN COMPLIANCE WITH
THE RFA
---------------------------------------------------------- Letter :4.2
On the other hand, SBA's annual reports have often described certain
agencies as in compliance with the RFA. The Chief Counsel has
repeatedly considered the Environmental Protection Agency (EPA) to be
in compliance with the RFA. In SBA's first report on RFA compliance
in 1981, the Chief Counsel said that EPA had a "good track record in
implementing regulatory flexibility" and that its initial regulatory
flexibility analysis was "very comprehensive and professional." In
SBA's report for 1986, the Chief Counsel said EPA had "maintained its
lead role in giving real meaning to the RFA" during the act's first 5
years and said the agency was "highly attuned to the potential
adverse impacts its regulations may have on the competitive situation
of small entities." In a 1986 hearing before a subcommittee of the
House Committee on Small Business, the Chief Counsel said EPA was a
"model agency in utilizing the Regulatory Flexibility Act."\12 He
said EPA accepts that its rules have an impact on small firms,
determines what the impact will be, and tailors their regulations to
minimize or even exempt small businesses from their effects.
Therefore, he said, "we feel that the legislation is working well at
EPA."
In a 1988 hearing before the Senate Committee on Governmental Affairs
that focused on environmental policy as a case study of regulatory
reform, the Chief Counsel said "EPA has been absolutely tops in the
federal government in trying to incorporate not only the Regulatory
Flexibility Act but also general principles of regulatory analysis
onto its procedures."\13 In SBA's annual report for 1992, the Chief
Counsel said EPA had adopted agencywide procedures for complying with
the RFA that "favor the performance of a regulatory flexibility
analysis in almost all but the most routine rulemakings." The Chief
Counsel said "this emphasis on analysis, as opposed to methods for
skirting the analytical requirements of the RFA, will result in rules
more closely tailored to entity size and will achieve greater
compliance with the broad statutory mandates imposed on the EPA."
The SBA annual report for 1992 also singled out the Securities and
Exchange Commission (SEC) and the Federal Aviation Administration
(FAA) as having sound RFA programs. SEC was reportedly the only
agency involved in finance and investment regulatory matters that
consistently sought comments specifically related to the impact of
its proposed rules on small business. SBA has long considered SEC
one of the best agencies at RFA compliance. In SBA's first annual
report in 1981, the Chief Counsel said SEC had "embraced the intent
of the Regulatory Flexibility Act" and had done a thorough review of
its major laws that "epitomizes the initiative that all agencies
should be taking in the area." Likewise, FAA reportedly undertook a
major effort to comply with the RFA in the early 1980s. The agency
clarified the definition of small entities and developed guidelines
for determining when a regulatory flexibility analysis was needed.
Several agencies responsible for regulating financial institutions
were praised for their RFA compliance in early SBA annual reports,
but were not mentioned in any reports after 1985. For example, the
SBA report for 1982 said that the Federal Reserve Board, the Office
of the Comptroller of the Currency, the Federal Home Loan Bank Board,
and the Federal Deposit Insurance Corporation (FDIC) "have been in
compliance with the RFA and have been reasonably thorough in
analyzing the impact of their activities on those entities they
regulate." In the SBA report for 1983, the Chief Counsel said that
FDIC "consistently complies with the RFA," and said that the Reserve
Board clearly identified small business impacts and carefully
examines its regulatory burdens on smaller banks. In the SBA report
for 1984, FDIC was praised by the Chief Counsel for incorporating RFA
safeguards in its manual for drafting regulations. In the SBA report
for 1985, the Chief Counsel stated that these financial regulatory
agencies had "generally been considering small business concerns,"
but said opportunities for improvement still existed.
--------------------
\12 U.S. House of Representatives, April 16, 1986, page 3.
\13 U.S. Senate, September 14, 1988, page 63.
SBA SAID SOME AGENCIES HAD
IMPROVED THEIR COMPLIANCE
WITH THE RFA
---------------------------------------------------------- Letter :4.3
The SBA annual report for 1992 noted several agencies that had
responded to suggestions from the Office of Advocacy and/or had
improved their RFA compliance record. For example, SBA reported:
In the early 1980s the National Marine Fisheries Service within the
U.S. Department of Commerce considered the RFA to apply only to
its overall fishery management plan, not the specific measures
within the plan. In the mid-1980s, however, the Service began
applying the RFA to the specific measures. In 1992, the Service
developed guidelines for RFA compliance for all fishery
councils. The Chief Counsel stated that the new guidelines
"have resulted in substantially improved compliance with the
RFA."
The Federal Emergency Management Agency (FEMA) was not complying
with RFA procedural requirements. In 1992, the Office of
Advocacy met with representatives of the FEMA General Counsel's
office. Since then, the SBA Chief Counsel said, FEMA issuances
have shown "remarkable improvement."
The Office of Surface Mining and Enforcement within the U.S.
Department of the Interior and the Consumer Product Safety
Commission had improved their agency certifications as a result
of discussions with the Office of Advocacy.
Other agencies that the Chief Counsel said did not have exemplary
programs in 1992 but were making a concerted effort to comply with
RFA procedural requirements included the Federal Crop Insurance
Corporation, the United States Patent and Trademark Office, the Fish
and Wildlife Service, and the Agricultural Stabilization and
Conservation Service.
SBA SAID OTHER AGENCIES HAD
VARIABLE COMPLIANCE RECORDS
---------------------------------------------------------- Letter :4.4
The SBA annual reports indicated that other agencies have had a
checkered record of RFA compliance. For example, in 1981 the Federal
Communications Commission (FCC) was described by the Chief Counsel as
exhibiting a "fair" level of compliance. In the 1982 annual report,
the Chief Counsel said FCC's overall compliance had "improved
noticeably" and that it had "become more responsive to the RFA." By
1983, however, FCC's regulatory agenda was described as "flawed in
many respects" and its certifications were considered improper. In
1986 hearings before the House Committee on Small Business, the Chief
Counsel said that FCC "has avoided regulatory flexibility analysis by
attempting to exclude groups of small businesses from RFA coverage."
In the reports for both 1987 and 1988, the Chief Counsel said FCC's
compliance with the RFA "continues to be inadequate." In 1988
hearings before the Senate Committee on Governmental Affairs, the
Chief Counsel said FCC "is an example of an agency that in a couple
of instances seeks to certify rules as having no impact, where we
think they broadly do have an impact, and we have a hard time in some
cases convincing them that they need to do some further analysis." In
the SBA report for 1992, however, the Chief Counsel said FCC's
compliance record was "improved," and said FCC personnel regularly
contacted SBA to discuss RFA compliance.
FERC and the U.S. Department of Transportation (DOT) have also been
described as having a variable history of compliance. FERC was
described in the SBA reports for both 1987 and 1988 as having made "a
strong effort to comply with the letter and spirit of the Regulatory
Flexibility Act." The Chief Counsel cited examples in both reports in
which the Commission followed the RFA's procedures. As noted
previously, however, FERC was criticized in the SBA report for 1992
for having issued boilerplate certifications. DOT was described as
"exemplary" in the 1981 SBA report, and in the report for 1983 the
Chief Counsel said DOT "consistently does a good job of identifying
the small business impact of its planned actions." In the report for
1987, however, DOT's record was described as "mixed," with the Coast
Guard and the Federal Highway Administration cited for failing to
heed SBA suggestions regarding their proposed rules. DOT as a whole
was not mentioned in any subsequent SBA reports, although the report
for 1992 said FAA's program was one of the best in the government.
Like DOT, the SBA reports indicated other agencies' compliance
records varied by subagency. For example, in the report for 1988 the
Chief Counsel said the Food Safety and Inspection Service and the
Animal and Plant Health Inspection Service within the U.S.
Department of Agriculture were "cognizant of their RFA
responsibilities, while other parts of the agency ignore the Act." In
the SBA report for 1992, the Food Safety Inspection Service was
described as responsive to SBA comments and, as noted previously, the
Federal Crop Insurance Corporation and the Agricultural Stabilization
and Conservation Service were seen as making an effort to comply with
the RFA. However, AMS was again viewed as recalcitrant in the 1992
SBA report.\14
The SBA annual reports also indicated RFA compliance within the U.S.
Department of Labor varied by subagency. In the report for 1987, the
Chief Counsel said that the Labor Department "has not been consistent
in its application of Regulatory Flexibility Act procedures to its
various regulatory responsibilities." The report cited the
Occupational Safety and Health Administration (OSHA) for failing to
evaluate the most significant consumer products alternatives and
failing to perform a regulatory flexibility analysis. The Wage and
Hour Division, however, was congratulated for its regulatory
flexibility analysis. The Chief Counsel made similar comments
regarding the Labor Department, OSHA, and the Wage and Hour Division
in the SBA annual report for 1988.
--------------------
\14 However, the SBA report for 1992 also noted that AMS did accept
certain SBA recommendations.
SBA ANNUAL REPORTS AND SURVEY
SHOWED MANY AGENCIES HAD NOT
PLANNED FOR OR CONDUCTED REVIEW
OF RULES
------------------------------------------------------------ Letter :5
Section 610 of Title 5 required each agency to publish a plan for the
periodic review of its rules that "have or will have a significant
economic impact upon a substantial number of small entities." The
plan was required to be published in the Federal Register within 180
days after the RFA's effective date of January 1, 1981, and could be
amended at any time by publishing the revision in the Federal
Register. According to the RFA, the purpose of the agencies' reviews
was to determine whether their rules should be continued without
change, amended, or rescinded. The plan was required to provide for
the review of all such agency rules in effect on January 1, 1981,
within 10 years of that date. The plan was also required to provide
for the review of all rules adopted after that date within 10 years
of their publication as a final rule. In reviewing their rules,
agencies were required to consider such factors as the continued need
for the rule, its complexity, and any complaints or comments from the
public.\15 However, any agency that certified that its rules did not
have a significant impact on a substantial number of small entities
was not required to develop a plan or to conduct a review.
--------------------
\15 Executive Order 12866 (Sept. 30, 1993) also requires agencies to
submit a program to OMB under which the agencies will "periodically
review its existing significant regulations to determine whether any
such regulations should be modified or eliminated."
SBA ANNUAL REPORTS RARELY
NOTED AGENCIES' SECTION 610
COMPLIANCE
---------------------------------------------------------- Letter :5.1
Only a few of the SBA annual reports commented on agencies'
compliance with section 610, and those that did indicated certain
agencies were not complying. For example, the SBA report for 1982
stated that, although the RFA as a whole was working well, "(t)he one
area where much more work remains to be done . . . is in the area
of review of existing regulations affecting small business." The
report said that many agencies had not planned a review of existing
regulations as required by the RFA. Furthermore, "(m)any of the
review plans that have been submitted are inadequate, and most
importantly, little or no follow-up action to the plans has been
undertaken." The Chief Counsel specifically noted that the U.S.
Departments of Commerce and Interior had not published a review plan
in the Federal Register.
The SBA report for 1983 noted several agencies' actions and inactions
regarding the section 610 requirement:
The U.S. Department of Health and Human Services' review plan was
described as "very general" and, as a result, "it is difficult
to measure progress and to make recommendations with respect to
future review."
The Labor Department had reportedly developed a good periodic
review plan and "is making excellent progress on the plan every
year."
EPA had reportedly published its periodic review plan on July 16,
1981, soliciting comments from interested groups on which rules
to review. The report said that EPA responded to the comments
in March 1982, identifying the rules selected for review and
when they would be reviewed.
SEC was described as "adhering closely to its periodic review plan,
and making good progress."
FDIC was said to have made "good progress on its periodic review
plan." Also, FDIC reportedly reviewed its existing regulations
at least once every 5 years.
The former Federal Home Loan Bank Board reportedly published a plan
for periodic review on August 4, 1981. For a variety of
reasons, though, the Board was said to have believed it would be
premature to establish a schedule for review of all existing
regulations. Instead, the Board "will publish periodically a
list of the regulations then under review as part of its
semiannual agenda."
The SBA annual reports for 1984 through 1992 did not comment on
specific agencies' section 610 compliance records.
SBA'S 1992 SURVEY TO
DETERMINE AGENCIES' SECTION
610 COMPLIANCE
---------------------------------------------------------- Letter :5.2
In April and May 1992, the Chief Counsel for Advocacy sent letters to
the heads of all 14 executive departments and at least 69 other
federal organizations requesting that they furnish a copy of their
original periodic review plan and any amendments.\16 These 83 federal
entities were also requested to provide a summary of the results of
their regulatory reviews. Finally, they were also asked to submit a
copy of their agencies' plan to review any regulations issued
subsequent to 1981 and the results of any such review.
At least 55 executive departments and other federal organizations
responded to the Chief Counsel's request.\17 A graphic breakdown of
these responses is shown in figure 1, and a listing of which agencies
responded by type of response is in appendix I.
Figure 1: Variances in the 55
Responses to SBA's Request for
Information on Section 610
Compliance
(See figure in printed
edition.)
Note: The percentages do not total 100 due to rounding.
Source: SBA. SBA provided 55 letters from agencies, but said other
letters may have been received but lost.
Of the 55 respondents, 13 (24 percent) stated that they had published
the required plan for the review of their rules. A number of these
agencies also indicated in their responses the results of their
reviews and/or how rules issued subsequent to 1981 were reviewed.
For example, the U.S. Department of Education said that, as a result
of its review, many of its regulations "were revised to reduce
regulatory burden or complexity, to increase flexibility, or to
eliminate unnecessary requirements."
The remaining 42 respondents did not say that they had published a
plan for regulatory review pursuant to section 610. A breakdown of
the 42 respondents' comments follows.
Twenty-four (44 percent of the 55 responses) indicated that their
agencies were not required to comply with section 610 because
none of their regulations had a significant economic impact on a
substantial number of small entities.\18
Four (7 percent) said that they were not required to comply with
section 610 because they were not federal "agencies."
Three (5 percent) said that they had no rulemaking authority and,
therefore, had no rules to review.
Three (5 percent) said that they were not subject to the RFA at
all.\19
Four (7 percent) indicated that they had reviewed their regulations
for reasons other than section 610's requirements.\20
Three (5 percent) admitted that they had not complied with section
610's requirements.\21
One (2 percent) referred to the agendas it published regarding
upcoming regulatory actions, but did not say that it had
published a review plan pursuant to section 610's requirements.
The SBA Chief Counsel said SBA had not contacted any of these
agencies regarding their compliance with section 610 since the
information was collected in 1992 because SBA has no authority to
compel agencies to plan for or conduct a review of their rules. SBA
is required to monitor and report on agency compliance with the RFA,
but did not include information on agencies' section 610 compliance
in its annual report for 1992.
--------------------
\16 SBA officials provided documentation showing that letters were
sent to 14 executive departments and 69 other federal organizations.
They said that more than 69 other federal organizations may have been
sent letters inquiring about section 610 compliance, but copies of
those letters had been lost.
\17 SBA officials said that more than 55 agencies may have responded,
but their responses may have been lost. Other documentation (e.g.,
copies of agencies' plans) also could not be located.
\18 Among these was a response from GSA, which said that "since the
inception of the Act in 1981, GSA has not published a rule that fits
the criteria of the Regulatory Flexibility Act." This
characterization is puzzling given the fact that SBA's 1989 annual
report indicated that GSA did eight initial regulatory flexibility
analyses in 1989, none of which would have been done had GSA
determined that these rules did not have a significant economic
impact on a substantial number of small entities.
\19 DOD's assertion that it is not required to comply with the RFA is
puzzling given that the Small Business and Federal Procurement
Competition Act of 1984 made most significant procurement policies,
regulations, procedures, and forms, including DOD's, covered by the
RFA. Also, the U.S. Information Agency said it was exempt because
of its "foreign affairs mission," but the State Department did not
claim this exemption.
\20 For example, FDIC said it had originally published its plan for
the review of its regulations in 1979, before the enactment of the
RFA. The agency said it had also reviewed its regulations and policy
statements under the regulatory standards set forth in the
President's January 28, 1992, memorandum on reducing the burden of
government regulation.
\21 Each of these agencies did, however, offer some type of
explanation. The Department of Energy responded on behalf of the
Alaska Natural Gas Transportation System and said that the Office of
the Federal Inspector was vacant and that legislation was pending to
abolish the agency. FERC said it was "currently reviewing all
Commission regulations." The Federal Housing Finance Board said it
was a new agency and, as a result, "we have not focused on the
requirement of section 610 to establish a review process."
INTERPRETATION OF THE RFA
VARIES AND ENFORCEMENT
PROCESSES NEED IMPROVEMENT
------------------------------------------------------------ Letter :6
The RFA does not expressly authorize SBA to interpret key provisions
in the statute and does not require SBA to develop criteria for
agencies to follow in reviewing their rules. Neither does the RFA
authorize SBA or any other agency to compel rulemaking agencies to
comply with the act's provisions. By requiring the Chief Counsel to
monitor compliance with the RFA, the act presumably permits SBA to at
least provide agencies with nonbinding guidance on how it believes
the RFA should be implemented. SBA issued some general guidance in
1981, but did not attempt to define terms in the RFA. SBA has not
issued any further guidance on RFA compliance since 1981.
Because of this lack of clarity, different rulemaking agencies are
interpreting the statute differently. In our 1991 report on the RFA
and small governments, we found that each of the four federal
agencies we reviewed had a different interpretation of key RFA
provisions.\22 The report pointed out that the RFA provided neither a
mechanism to enforce compliance with the act nor guidance on
implementing it. We concluded that OMB could help SBA ensure
compliance by applying methods similar to those OMB used for other
regulatory activities. We recommended that Congress consider
amending the RFA to (1) require that, in consultation with OMB, SBA
develop criteria as to whether and how federal agencies should
conduct RFA analyses for small governments and (2) expand SBA's
authority to review and comment on proposed agency regulations
affecting small governments. As part of this expansion, we
recommended that SBA be directed to work with OMB to ensure agency
compliance with the RFA's provisions.
Although Congress has not acted on our recommendations, Executive
Order 12866, issued on September 30, 1993, provides a mechanism by
which OMB can help ensure agency compliance with the RFA. The
executive order allows OMB to review and comment on most agencies'
"significant regulatory actions" as part of the rulemaking
process.\23 In that process, a rulemaking agency covered by the
executive order must submit any significant regulatory action to OMB
along with descriptive and explanatory materials and an assessment of
the potential costs and benefits. If OMB does not object, the
rulemaking agency may then publish the proposed rule in the Federal
Register for notice and comment. The executive order says this
comment period is intended to seek the comments of those who are
intended to benefit from or be burdened by any regulation and, in
most cases, should be not less than 60 days. At the conclusion of
the comment period, the rulemaking agency makes whatever changes it
believes are needed to address the comments received and again
submits the proposed rule to OMB. If OMB does not object, the agency
may then publish the final rule in the Federal Register.
OMB can return most regulatory actions to agencies for further
consideration either before the notice and comment period or before
final publication if it believes the agencies' actions are
inconsistent with applicable law, the president's priorities, or the
executive order's principles. The executive order specifically
mentions the RFA as one of the laws with which agencies must comply.
OMB officials said that they consider the effect of agencies'
proposed rules on small entities as part of their regulatory reviews,
but said that they have no established procedures to determine
whether agencies have complied with the RFA. They said one reason
why OMB has not established procedures is because SBA has not issued
any guidance interpreting key provisions in the RFA. OMB officials
said that if SBA notified them that it believed an agency's rules
were not in compliance with the RFA, OMB would consider the rule
appropriate for OMB review.
There are also legal limits to OMB's regulatory review authority.
According to OMB officials, Congress has attached a rider to OMB's
appropriation for each of the past 9 years forbidding it to return
agricultural marketing orders to AMS for further consideration.
Also, OMB's authority to review and, if necessary, return regulatory
actions to agencies does not cover all agencies. Specifically
excluded from coverage under the executive order are all independent
regulatory agencies or commissions, such as FCC, FDIC, FERC, or SEC.
The Chief Counsel said SBA normally becomes aware of the specifics of
a proposed rule when it is published for notice and comment. If SBA
believes the rulemaking agency has not adequately considered the
effect of the proposed rule on small entities, the Chief Counsel said
SBA will send the agency written comments. However, the Chief
Counsel said that SBA does not usually send OMB a copy of their
compliance concerns. OMB officials said that SBA officials have
occasionally called them on the telephone regarding certain agencies'
RFA compliance and, in those instances, OMB has taken SBA's views
into consideration during its reviews and helped ensure RFA
compliance. For example, they said that if SBA officials told them
that a rulemaking agency should have conducted an RFA analysis, OMB
would ask the agency to show why an analysis was not done before
permitting the proposed rule to be published in its final form.
--------------------
\22 Regulatory Flexibility Act: Inherent Weaknesses May Limit Its
Usefulness for Small Governments (GAO/HRD-91-16, Jan. 11, 1991).
\23 Similar review authority was given to OMB in Executive Order
12291, which was revoked by Executive Order 12866. According to
Executive Order 12866, "significant regulatory action" means any
action that is likely to result in a rule that may, among other
things, adversely affect a sector of the economy, productivity,
competition, jobs, or state, local, or tribal governments or
communities. A proposed rule may be designated as a "significant
regulatory action" by either the rulemaking agency or OMB.
CONCLUSIONS
------------------------------------------------------------ Letter :7
Our review of SBA's annual reports and other documentation indicated
that some agencies have not complied with the RFA as interpreted by
the SBA Chief Counsel for Advocacy. We believe that the reasons for
this apparent lack of compliance include the following: (1) the RFA
does not expressly authorize SBA to interpret the act's key
provisions, (2) the RFA does not require SBA to develop criteria for
agencies to follow in reviewing their rules, (3) SBA has not issued
any guidance to federal agencies defining key statutory provisions in
the RFA, and (4) the RFA does not authorize SBA or any other entity
to compel rulemaking agencies to comply with the act's provisions.
OMB can help ensure certain rulemaking agencies' compliance with the
RFA by reviewing and commenting on those agencies' significant
regulatory actions pursuant to its responsibilities under Executive
Order 12866. OMB can return most regulatory actions to agencies for
further consideration if it believes the actions are inconsistent
with the RFA. However, OMB's authority to play an enforcement role
is limited in several respects. OMB cannot review rules proposed by
independent regulatory agencies and cannot return agricultural
marketing orders to AMS. Also, OMB does not have established
criteria or procedures to determine whether agencies have complied
with the RFA. Finally, while SBA reportedly notifies rulemaking
agencies in writing of its RFA concerns during the rulemaking notice
and comment period, it does not normally provide OMB with a copy of
those concerns and only occasionally telephones OMB about SBA's
compliance concerns. Therefore, OMB's ability to ensure agencies'
RFA compliance is diminished because it is often unaware of SBA's
concerns regarding an agency's compliance.
MATTERS FOR CONSIDERATION OF
CONGRESS
------------------------------------------------------------ Letter :8
If Congress wishes to strengthen the implementation of the RFA, it
should consider amending the act to (1) provide SBA with clearer
authority and responsibility to interpret the RFA's provisions and
(2) require SBA, in consultation with OMB, to develop criteria as to
whether and how federal agencies should conduct RFA analyses.
Congress could also consider focusing its RFA oversight on the
independent regulatory agencies and agricultural marketing orders
over which OMB's review and comment authority is limited.
RECOMMENDATIONS
------------------------------------------------------------ Letter :9
We recommend that the OMB Director, in consultation with SBA,
establish procedures OMB can use to determine agencies' compliance
with the RFA. These procedures should be incorporated into OMB's
processes for reviewing regulations before they are published for
notice and comment and before they are published in final. We also
recommend that the SBA Administrator direct the SBA Chief Counsel for
Advocacy to send OMB a copy of any written notification of RFA
noncompliance the Chief Counsel sends to an agency.
AGENCY COMMENTS AND OUR
EVALUATION
----------------------------------------------------------- Letter :10
We provided a draft of this report to the SBA Chief Counsel for
Advocacy and discussed the report with her on March 23, 1994. She
suggested certain technical changes, which were incorporated into the
final report. Overall, she said she agreed with the report's
conclusions and recommendations. She said SBA welcomes clarification
of its authority to interpret RFA provisions and will work with OMB
to develop criteria and procedures for agency compliance with the
act. The Chief Counsel also said that she will send OMB a copy of
any written notifications of RFA noncompliance she sends to agencies
during the rulemaking process.
We also provided a draft of the report to the Administrator of the
Office of Information and Regulatory Affairs at OMB and discussed the
report with her staff on March 3, 1994. The Deputy Administrator
said OMB has no objection to any changes in the statute or in the
rulemaking process that would strengthen its position in ensuring RFA
compliance. He also said OMB would work with SBA to develop criteria
and procedures for determining RFA compliance. Finally, he said that
if the SBA Chief Counsel notifies OMB during the rulemaking process
that an agency is not complying with the RFA, OMB would discuss the
issue with the agency before concluding its review of any final
regulations.
--------------------------------------------------------- Letter :10.1
We are sending copies of this report to the SBA Administrator, the
SBA Chief Counsel for Advocacy, the OMB Director, the Administrator
of the Office of Information and Regulatory Affairs at OMB,
interested congressional committees, and others who may have an
interest in this matter. Copies will also be made available to
others upon request.
The major contributors to this report are Charles I. Patton, Jr.,
Associate Director, Federal Management Issues, General Government
Division; Curtis W. Copeland, Assistant Director, Federal Management
Issues, General Government Division; and V. Bruce Goddard, Senior
Attorney, Office of the General Counsel. If you have any questions
or require any additional information, please call me on (202)
512-8676.
William M. Hunt
Director, Federal
Management Issues
AGENCIES' RESPONSES TO SBA REQUEST
FOR INFORMATION REGARDING
COMPLIANCE WITH SECTION 610 OF THE
RFA
=========================================================== Appendix I
PUBLISHED PLAN FOR REVIEW OF
RULES
--------------------------------------------------------- Appendix I:1
Agency for International Development
Consumer Product Safety Commission
Equal Employment Opportunity Commission
Federal Communications Commission
Federal Maritime Commission
Federal Trade Commission
National Credit Union Administration
Nuclear Regulatory Commission
U.S. Department of Education
U.S. Department of Health and Human Services
U.S. Department of the Interior
U.S. Department of Justice
U.S. Department of the Treasury
RULES DID NOT SIGNIFICANTLY
AFFECT SMALL ENTITIES
--------------------------------------------------------- Appendix I:2
ACTION
Administrative Conference of the United States
African Development Foundation
Council on Environmental Quality
Farm Credit Administration
Federal Election Commission
Federal Retirement Thrift Investment Board
General Services Administration
Inter-American Foundation
National Aeronautics and Space Administration
National Mediation Board
National Science Foundation
National Transportation Safety Board
Occupational Safety and Health Review Commission
Office of Government Ethics
Office of Management and Budget
Office of Special Counsel
Panama Canal Commission
Peace Corps
Resolution Trust Corporation
Thrift Depositor Protection Oversight Board
U.S. Arms Control and Disarmament Agency
U.S. Commission on Civil Rights
U.S. Merit Systems Protection Board
WERE NOT "AGENCIES" AS DEFINED
BY THE APA
--------------------------------------------------------- Appendix I:3
Appalachian Regional Commission
Legal Services Corporation
Smithsonian Institution
Susquehanna River Basin Commission
NO RULEMAKING AUTHORITY
--------------------------------------------------------- Appendix I:4
Federal Financial Institutions Examination Council
Office of the United States Nuclear Waste Negotiator
U.S. National Commission on Libraries and Information Science
NOT SUBJECT TO THE RFA
--------------------------------------------------------- Appendix I:5
U.S. Department of Defense
U.S. Information Agency
U.S. Postal Service
REVIEWED RULES FOR OTHER
REASONS
--------------------------------------------------------- Appendix I:6
Commodity Futures Trading Commission
Federal Deposit Insurance Corporation
Federal Reserve System
U.S. Department of Housing and Urban Development
HAD NOT COMPLIED, NO OTHER
REVIEWS MENTIONED
--------------------------------------------------------- Appendix I:7
Alaska Natural Gas Transportation System
Federal Energy Regulatory Commission
Federal Housing Finance Board
MENTIONED REGULATORY AGENDAS,
NOT PLAN FOR REVIEW OF RULES
--------------------------------------------------------- Appendix I:8
U.S. Department of State