Regulatory Flexibility Act

The Office of Prevention, Pesticides and Toxic Substances (OPPTS) implements the current Regulatory Flexibility Act (RFA) guidance document with what appears to be a high threshold for what constitutes a significant economic impact on a substantial number of small entities (SEISNSE). This report: (1) reviews guidance that OPPTS and the Environmental Protection Agency's (EPA) three other major program offices have used during the past 10 years to determine whether their proposed rules could be certified as not having a SEISNSE, (2) compares the rate at which OPPTS certified that its substantive proposed rules published during 1994 through 1999 would not have a SEISNSE with the rates in EPA's other major program offices, and (3) discusses the methodology that OPPTS used in the economic analysis for the proposed lead rule. GAO found that OPPTS and EPA's other major program offices have adopted three very different sets of guidance documents during the past 10 years to determine if their proposed rules could be certified as not having a SEISNSE. The RFA certification rate in OPPTS and in each of the three other major program offices increased after the implementation of the Small Business Regulatory Enforcement Fairness Act in 1996. According to the summary of the draft revised economic analysis, OPPTS expected that the proposed lead rule would affect more than 8,600 small companies and that as many as 464 of them would experience first-year compliance costs of at least one percent of their annual revenues. Therefore, if OPPTS had used this analytic approach and the discretion permitted in EPA's RFA guidance, it could have chosen not to certify the rule. The Office's initial and draft revised analyses and the conclusions that it based on those analyses were within the discretion permitted under the RFA and the EPA guidance.

GAO noted that: (1) OPPTS and EPA's other major program offices have adopted three very different sets of guidance documents during the past 10 years to determine if their proposed rules could be certified as not having a SEISNSE; (2) the current guidance was implemented because of the enactment of the Small Business Regulatory Enforcement Fairness Act (SBREFA) in 1996; (3) the guidance includes specific numerical guidelines to assist EPA program offices in determining whether a rule should be certified as not having a SEISNSE; (4) those guidelines focus on the magnitude of a rule's impact and the number and percent of affected small entities that are expected to experience that impact; (5) OPPTS certified 86 percent of the substantive proposed rules that it published during calendar years 1994 through 1999--about the same rate of rule certification as EPA's three other major program offices; (6) the RFA certification rate in OPPTS and in each of the three other major program offices increased after the implementation of SBREFA in 1996; (7) by the end of 1999, OPPTS and one other program office had certified all of their post-SBREFA proposed rules as not having a SEISNSE; (8) two other EPA program offices used the discretion afforded them in the guidance and did not certify at least four proposed rules; (9) OPPTS estimated that the smallest manufacturers affected by the proposed lead rule had annual revenues of $4 million; (10) OPPTS concluded that the rule would affect about 5,600 small businesses, but none of them would experience first-year compliance costs of 1 percent or more of their annual revenues; (11) therefore, OPPTS certified that the proposed lead rule would not have a SEISNSE; (12) according to the summary of the draft revised economic analysis, OPPTS expected that the proposed lead rule would affect more than 8,600 small companies, and as many as 464 of them would experience first-year compliance costs of at least 1 percent of their annual revenues; (13) nevertheless, OPPTS again concluded that the rule would not have a SEISNSE; (14) GAO estimated that as many as 1,098 additional small manufacturing companies could experience compliance costs of at least 1 percent of their annual revenues, and as many as 78 small companies could experience a 3 percent economic impact; (15) therefore, if OPPTS had used this analytic approach and the discretion permitted in EPA's RFA guidance, it could have chosen not to certify the rule; and (16) the Office's initial and draft revised analyses and the conclusions that it based on those analyses were within the discretion permitted under the RFA and the EPA guidance.