REGULATORY FLEXIBILITY ACT

The Regulatory Flexibility Act is perhaps the most comprehensive effort by the U.S. federal government to balance the social goals of federal regulations with the needs and capabilities of small businesses and other small entities in American society.
In practice, the RFA has been an interesting and much-imitated attempt to "scale" the actions of the federal government to the size of the groups and organizations affected.
Passed in 1980, the RFA has been gradually strengthened in the intervening years, and has historically enjoyed strong bipartisan support.
Since the federal government began calculating the economic impact of the RFA in 1998, the law is estimated to have saved small entities (and the U.S. economy as a whole) more than $200 billion [[1]] without undermining the broad purposes of the regulations it affects. More than 40 U.S. states have enacted similar laws.

Contents

History of The Regulatory Flexibility Act

Requirements of the Regulatory Flexibility Act

Implementing the RFA

The 1995 White House Conference and SBREFA

Executive Order 13272

Implementing the Executive Order

Law Review Articles

Federal Case Law Citations

History of The Regulatory Flexibility Act

The origins of the RFA can be traced back to expressions of discontent about federal regulations by small businesses from the 1930's onward, but the urgency of these concerns grew sharply as new federal agencies were created, and older ones given fresh mandates to pursue, in the 1960's and 1970's.
A parallel development, beginning in the 1970's, was the publication of increasingly compelling research on the economic role of smaller enterprises. These studies showed a strong link between the vitality of small business in the U.S. (and other nations) and the growth of overall employment and technological innovation.
These factors, together with the increasing political assertiveness of U.S. small businesses, provided impetus for a remarkable series of laws enacted from 1976-1984. In addition to the Regulatory Flexibility Act, these laws included the Paperwork Reduction Act, the Small Business Development Center Act [2], the Equal Access to Justice Act (EAJA) [[3]] [[4]], the Small Business Innovation Research Act (SBIR), and the Competition in Contracting Act (CICA) [[5]].
The first in this line of laws was enacted in June, 1976, when President Gerald Ford signed Public Law 94-305 creating an Office of Advocacy [6] within the U.S. Small Business Administration (SBA), and giving that Office responsibility for assessing the impact of federal regulations on small firms. The law called on the Office of Advocacy to “measure the
direct costs and other effects of government regulation
on small businesses; and make legislative and
nonlegislative proposals for eliminating excessive
or unnecessary regulations of small businesses.”
This was a significant recognition of the issue of scale in federal regulations, but its remedies -- measuring effects and offering proposals -- were incomplete.
On August 1, 1977, Senators Gaylord Nelson (D, WI) and John Culver (D, IA) introduced the earliest version of the Regulatory Flexibility Act in Congress. Their bill directed federal agencies to actually ''seek'' less burdensome regulations for small businesses, and assigned responsibility to the new Office of Advocacy to monitor compliance.
Following several hearings, the bill was revised in a number of ways, notably by including small nonprofit organizations and small governmental bodies within its jurisdiction. The legislation attracted more than 70 of the Senate's 100 members as co-sponsors, and passed the U.S. Senate unanimously in October 1978, although it was not acted upon by the U.S. House of Representatives until a new Congress convened in 1979.
Like later versions of the RFA, the 1977-8 legislation zeroed in on the basic law governing the conduct of all federal agencies, called the Administrative Procedure Act. The RFA amended this statute by designating a new responsibility for federal agencies. Henceforth agencies would be required to assess the impact of their regulations on small entities (small businesses, small nonprofit organizations and small governmental jurisdictions) ''as a key part of'' the process for issuing regulations, and to use less burdensome alternatives whenever possible.
One of the creative aspects of the RFA was the method that it required the agencies to use.
Both Senators Nelson and Culver were noted environmentalists, so they adapted an approach used earlier in the National Environmental Policy Act. Agencies were to develop an "initial" analysis of the effects of a proposed regulation on small entities (similar to a preliminary environmental impact analysis), seek comments, and then refine these inputs into a "final" small entity impact analysis (similar to a final environmental impact analysis).
In the fall of 1979, as the Regulatory Flexibility Act moved forward in Congress, President Jimmy Carter
took steps to advance some of the goals of the legislation administratively. He added the Small Business Administration to his
Regulatory Council and issued a memorandum to
the heads of executive departments and agencies, directing them “...to make sure that federal regulations
will not place unnecessary burdens on small
businesses and organizations,” and to apply regulations “in a flexible manner, taking
into account the size and nature of the regulated
businesses.” Agencies were to report on their efforts
to the Office of Advocacy.
Meanwhile, the House and Senate Small Business
and Judiciary Committees continued to hold
hearings on the effects of regulation. Small business
representatives cited evidence that uniform application of
regulatory requirements made it difficult for smaller
businesses to enter into various lines of business and to compete.
In January 1980, small business leaders elected by their peers assembled as delegates to the first
modern White House Conference on Small Business. The final conference report noted that “during the
past decade, the growth of government regulation has been explosive, particularly in such areas as
affirmative-action hiring, energy conservation, and
protection for consumers, workers, and the environment.
Small business people recognize that some
government regulation is essential for maintaining
an orderly society. But there are now 90 agencies
issuing thousands of new rules each year.”
Moreover, the report said, the new Office of
Advocacy had estimated that small firms spent
$12.7 billion annually on government paperwork.
Among the conference recommendations, a top vote-getter was a recommendation calling
for “sunset review” and economic impact analysis
of regulations, as well as a regulatory review board
with small business representation. The conference
delegates recommended putting the onus of measuring
regulatory costs on the regulatory agencies—to
“require all federal agencies to analyze the cost and
relevance of regulations to small businesses.”

Requirements of the Regulatory Flexibility Act

The White House Conference recommendations
lent significant impetus for the passage, in September 1980,
of the Regulatory Flexibility Act (RFA) [7]. The intent
of the act was clearly stated:
“It is the purpose of this act to establish as a
principle of regulatory issuance that agencies shall
endeavor, consistent with the objectives…of applicable
statutes, to fit regulatory and informational
requirements to the scale of businesses…To achieve
this principle, agencies are required to solicit and
consider flexible regulatory proposals and to explain
the rationale for their actions to assure that
such proposals are given serious consideration."
The key requirement of the law is that federal agencies must analyze the impact
of their regulatory actions on small entities (small businesses, small non-profit organizations and small jurisdictions of government) and, where the regulatory impact is likely to be "significant", affecting a "substantial number" of these small entities, seek less burdensome alternatives for them. Both current and proposed federal regulations are subject to the RFA.
The process for seeking these less burdensome alternatives is three-fold: agencies must reach out to the affected small entities and solicit their views, the views of the SBA Office of Advocacy must be considered, and agencies must publish both an initial regulatory flexibility analysis (IRFA), and/or a final regulatory flexibility analysis
(FRFA) in the Federal Register, or provide a certification that the regulation will have no such "significant impact."
The RFA has added important elements of management oversight, predictability and transparency to the federal regulatory process. This is particularly evident in the government-wide semi-annual regulatory agendas [8] that the RFA requires.
These documents, now known as "unified agendas," [9] note all planned federal regulations. Those regulations expected to "significantly" impact small entities, thereby triggering special analyses under the RFA, are separately indexed [10], as are those that may affect small entities, but not "significantly." [11] The unified agendas also single out anticipated regulations covered by other statutes [12] and executive orders [13].
One of the more ambitious aspects of the RFA is its requirement that federal agencies review all of their existing regulations over a period of ten years and revise those which are duplicative, excessively burdensome, or no longer necessary. Although this RFA provision (Section 610 of the Act) is often ignored by agencies, a plan for this review of existing regulations is likewise published with the unified agendas [14].
It is important to note that the RFA does not compel specific regulatory outcomes. Agencies are required to assess the impacts of their proposed and final rules on small entities, and to select less burdensome alternatives -- or explain why they cannot do so. But they are not required to alter their agency missions or their legal mandates. Like the Administrative Procedure Act that it amends, the RFA primarily defines the required procedural steps in a process. While agency non-compliance with these required steps can (and has) led to suspensions of various regulations by the courts, it is the failure to faithfully observe the process, not the subject matter of the regulations, that has led to these outcomes.
The RFA comprises Chapter 6 of Title 5 of the United States Code.

Implementing the RFA

The RFA tasked SBA's Office of Advocacy with monitoring
agency compliance with the new law. Over the
next decade and a half, the Office carried out its mandate,
reporting annually on agency compliance to
the President and the Congress.
Those reports soon made it clear that the law wasn’t strong enough. A briefing paper
prepared for the 1986 White House Conference on
Small Business noted: “The effectiveness of the
Regulatory Flexibility Act largely depends on small
business’ awareness of proposed regulations and
[their] ability to effectively voice [their] concerns to
regulatory agencies. In addition, the courts’ ability to
review agency compliance with the law is limited.”
The delegates to the 1986 conference recommended that the RFA be
strengthened by requiring agencies to comply and
by providing that agency action or inaction be subject
to judicial review. President Ronald Reagan’s
1987 report on small business noted: “Regulations
and excessive paperwork place small businesses
at a disadvantage in an increasingly competitive
world marketplace…This Administration supports
continued deregulation and other reforms to eliminate
regulatory obstacles to open competition.” But
it would take an act of Congress to make judicial
review law—and reaching that consensus needed
more time.
Regulations’ effects on the economic environment
for competition also concerned President George H.W. Bush, whose 1992 message in the annual
small business report noted: “My Administration
this year instituted a moratorium on new federal
regulations to give federal agencies a chance to
review and revise their rules. And we are looking at
ways to improve our regulatory process over the long
term so that regulations will accomplish their original
purpose without hindering economic growth.”
In early September 1993, Vice President Al Gore's National Partnership for Reinventing Government also urged that the Regulatory Flexibility Act be strengthened by permitting judicial review of agency compliance.
A few weeks later, President Bill Clinton issued
Executive Order 12866, “Regulatory Planning
and Review,” [15] designed, among other things, to ease the regulatory burden on small firms.
The order required federal agencies to analyze their major regulatory
undertakings and to take action to ensure that
these regulations achieved the desired results with
minimal burden on the U.S. economy.
An April 1994 report by the Government Accountability Office reviewed the Office of Advocacy’s annual
reports on agency compliance with the RFA and concluded:
“The SBA annual reports indicated agencies’
compliance with the RFA has varied widely from
one agency to another. …the RFA does not authorize
SBA or any other agency to compel rulemaking
agencies to comply with the act’s provisions.”

The 1995 White House Conference and SBREFA

In June 1995, a third White House Conference on
Small Business [16] examined the RFA’s weaknesses. Despite the Clinton Administration's support for strengthening the law, as exemplified in the Vice President's recommendation in the National Performance Review, the key element for doing so -- judicial review of agency compliance -- remained missing.
Once again, a White House Conference forcefully addressed the problem. One of its recommendations
fine-tuned the regulatory policy
recommendations of earlier conferences, asking for
specific provisions that would include small firms in
the rulemaking process.
In October, the Office of Advocacy issued a
report, based on research by Thomas Hopkins, that
estimated the total costs of process, environmental,
and other social and economic regulations to be
between $420 billion and $670 billion in 1995. The
report estimated that the average cost of regulation
was $2,979 per employee for large firms with 500
or more employees and $5,532 per employee for
small firms with fewer than 20 employees. [17] (A successor study by Mark Crain, in 2005, documented a similar pattern.) [[18]]
In March 1996, President Clinton acted on the
1995 White House Conference recommendation
that was taken up by Congress, by signing Public
Law 104-121, the Small Business Regulatory
Enforcement Fairness Act (SBREFA) [19]. The new
law finally strengthened the RFA in the way that previous reports and conferences had recommended. Perhaps most significantly, it gave the courts jurisdiction to review agency
compliance with the RFA.
SBREFA also mandated that the United States Environmental Protection Agency (EPA) and
the Occupational Safety and Health Administration
(OSHA) convene small business advocacy review
panels to consult with small entities on regulations
expected to have a significant impact on them, before
the regulations were published for public comment.[[20]][[21]]
And the law reaffirmed the authority of the chief
counsel for advocacy to file amicus curiae (friend of
the court) briefs in appeals brought by small entities
from agency final actions.
Since 1998, the Office of Advocacy's Annual Reports on RFA Implementation have calculated regulatory cost savings attributable to the RFA. Through 2006, these savings have totaled just over $200 billion, of which $156 billion are recurring savings each year. [[22]].)

Executive Order 13272

In August 2002, President George W. Bush issued Executive
Order 13272 [23], further implementing the RFA. The Executive Order requires federal agencies to
establish written procedures and policies explaining how
they measure the impact of their regulatory
proposals on small entities and to vet those policies
with the Office of Advocacy; to notify the Office of Advocacy before publishing
draft rules expected to have a significant small
business impact; and to consider the Office of Advocacy’s written
comments on proposed rules and publish a response
with the final rule. E.O. 13272 also requires the Office of Advocacy to
provide notification as well as training to all agencies
on how to comply with the RFA. These additional requirements permit the Office of Advocacy to work closely with federal agencies in considering the impacts of proposed regulations on small entities.

Implementing the Executive Order

To comply with E.O. 13272, the Office of Advocacy began providing reports to the Office of Management
and Budget in September 2003. The Office also instituted an email address (notify.advocacy@sba.gov) for agencies to rapidly transmit their notifications about regulations, and published an RFA compliance guide for agencies.
Subsequently, the Office of Advocacy prepared agency training materials, and began training agency personnel throughout the government.
Nearly all of the cabinet agencies complied with the E.O. by submitting
written plans for compliance to the Office of Advocacy and by making
their RFA procedures publicly available. Advocacy, in turn,
developed a Regulatory Alerts webpage at
http://www.sba.gov/advo/laws/law_regalerts.html to
call attention to important pending regulations that
may affect small entities.
The final chapter on how much small businesses and other small entities are
benefiting from the RFA as amended by SBREFA
and supplemented by E.O. 13272 has yet to be
written. Legislation has been introduced to further
enhance the RFA. As agencies
adjust their regulatory development processes
to accommodate the RFA and E.O. 13272’s requirements,
the benefits will accrue to small entities. Agencies
are making strides in that direction.
Since the RFA became law, more than forty state governments have enacted similar statutes. [[24]] Both the SBA Office of Advocacy and the American Legislative Exchange Council, an association of state legislators, have drafted "model" state laws paralleling the RFA. [[25]].

Law Review Articles

Keith W. Holman, ''The Regulatory Flexibility Act at 25: Is the Law Achieving its Goal?,'' Fordham Urb. L.J., Vol XXXIII (2006), pp. 1119-1137. [26]
Jennifer A. Smith, '' Squeezing Back: Making Federal Agencies Measure Their Economic Impact on Small Entities,'' Mineral Law Institute, 2007 [27]

Federal Case Law Citations

American Trucking Associations, Inc. v. U.S. Environmental Protection Agency, 175 F.3d 1027, 336 U.S.App.D.C.16 (D.C.Cir., May 14, 1999)
Southern Offshore Fishing Association v. Daley, 55 F.Supp. 2d 1336 (M.D. Fla. 1999)
Northwest Mining Association v. Babbitt, 5 F.Supp. 2d 9, (D.D.C. 1998).
Mid-Tex Electric Co-op Inc. v. Federal Energy Regulatory Commission, 249 U.S. App. D.C. 64, 773 F.2d 327(1985)
United States Telcom Association v. Federal Communications Commission, 400 F.3d 29 (D.C. Cir. 2005)
and see generally "Regulatory Flexibility Act Shepardizing: Case Law" [28]