Regulatory Flexibility Act

Small businesses play a significant role in the nation's economy, accounting for about half of the gross domestic product and 53 percent of private industry's workforce. In addition, small government's comprise 97 percent of all the local governments in the United States. Although these two groups can be disproportionately affected by federal regulatory requirements, federal agencies may not adequately weigh the impact of those requirements on small entities when they are implemented. As a result, Congress passed the Regulatory Flexibility Act requiring federal agencies to analyze the effects of proposed rules on small entities. Last year, Congress passed legislation to strengthen the act's protections for small entities. The Small Business Regulatory Enforcement Fairness Act requires that, before publishing a notice of proposed rulemaking that may have a significant economic impact on many small entities, the Environmental Protection Agency (EPA) and the Occupational Safety and Health Administration (OSHA) convene a small business advocacy review panel for the draft rule. The related report (GAO/GGD-98-36): (1) discusses whether EPA and OSHA had applied the advocacy review panel requirements to all rules that they proposed between June 1996 and June 1997 that may have a significant economic impact on many small entities; (2) determines whether the EPA and OSHA panels, the regulatory agencies themselves, and the Small Business Administration's Chief Counsel for Advocacy followed the statutes' procedural requirements for panels convened between June 1996 and November 1997 and whether differences existed among the panels in how the statute's requirements were implemented; (3) identifies the changes that EPA and OSHA made to notices of proposed rulemaking because of the panels' recommendations; and (4) discusses suggestions by agency officials and small entity representatives on how to improve the advocacy review panel process.

GAO noted that: (1) as of November 1, 1997, EPA and OSHA had convened five review panels; (2) EPA and SBA's Chief Counsel for Advocacy disagree regarding the applicability of the panel requirements to two other rules that EPA proposed in December 1996--the national ambient air quality standards for ozone and for particulate matter; (3) specifically, EPA and the Chief Counsel disagree regarding whether the effects of states' implementation of these health standards can be separated from the standards themselves in determining whether EPA's rules may have a significant economic impact on a substantial number of small entities; (4) GAO suggested that Congress resolve this issue by taking steps to clarify the meaning of the term "significant impact"; (5) the agencies and the panels generally met SBREFA's procedural requirements, but there were several differences in how the panels operated; (6) the panels' recommendations regarding the two proposed rules that had been published as of November 1, 1997, focused on various issues, such as providing small entities with greater compliance flexibility and considering the effects of potentially overlapping regulations; (7) the agencies generally responded to those recommendations in the supplementary information sections of the proposed rules; and (8) the small entity representatives with whom GAO spoke and, to a lesser extent, the agency officials GAO interviewed, offered several suggestions to improve the advocacy review panel process.