	RFA and Related Requirements Are Intended to Promote Attention to Regulations’ Effects on Small Entities

Federal regulation is one of the basic tools of government. In September 1980, RFA was enacted in response to concerns about the  effect that federal regulations can have on “small entities,” defined by the  Act as including small businesses, small governmental jurisdictions, and  certain small not-for-profit organizations. RFA established the principle that agencies should  endeavor, consistent with the objectives of applicable statutes, to fit  regulatory and informational requirements to the scale of these small  entities. RFA requires regulatory agencies—including the independent regulatory  agencies—to assess the potential impact of their rules on small entities. Under RFA, an agency must prepare an initial regulatory flexibility  analysis at the time a proposed rule is issued unless the head of the agency  determines that the proposed rule would not have a “significant economic  impact upon a substantial number of small entities.” Further, agencies  must consider alternatives to their proposed rules that will accomplish the  agencies’ objectives while minimizing the impacts on small entities. The  Act also requires agencies to ensure that small entities have an  opportunity to participate in the rulemaking process and requires the  Chief Counsel for Advocacy of the Small Business Administration (Office  of Advocacy) to monitor agencies’ compliance. Among other things, RFA  also requires regulatory agencies to review, within 10 years of  promulgation, existing rules that have or will have a significant impact on  small entities to determine whether they should be continued without  change or amended or rescinded to minimize their impact on small  entities. GAO Reviews Found that Varying Interpretations of RFA Requirements Hampered Effective Implementation of the Act

In response to congressional requests, we have reviewed agencies’  implementation of RFA and related requirements on many occasions over  the years, with topics ranging from specific statutory provisions to the  overall implementation of RFA. Generally, we found that the Act’s overall  results and effectiveness have been mixed. Our past reports  illustrated both the promise and the problems associated with RFA. RFA  and related requirements have clearly affected how federal agencies  regulate, and we identified important benefits of these initiatives, such as  increasing attention on the potential impacts of rules and raising  expectations regarding the analytical support for proposed rules. However, a recurring theme in our findings was that uncertainties about  RFA’s requirements and varying interpretations of those requirements by  federal agencies limited the Act’s application and effectiveness. Some of the topics we reviewed, and our main findings regarding  impediments to RFA’s implementation, are illustrated in the following  examples:    We examined 12 years of annual reports from the Office of Advocacy  and concluded that the reports indicated variable compliance with RFA  across agencies, within agencies, and over time—a conclusion that the  Office of Advocacy also reached in subsequent reports on  implementation of RFA (on the 20th and 25th anniversaries of RFA’s  enactment). Key Terms and Provisions of RFA Should Be Revisited and Clarified

While RFA has helped to influence how agencies regulate small entities,  we believe that the full promise of the Act has not been realized. The  results from our past work suggest that the Subcommittee might wish to  review the procedures, definitions, exemptions, and other provisions of  RFA, and related statutory requirements, to determine whether changes  are needed to better achieve the purposes Congress intended. Although more recent developments, such as the Office of Advocacy’s  detailed guidance to agencies on RFA compliance, may help address some  of these long-standing issues, current legislative proposals, such as H.R. We also believe it is important for Congress to reexamine, not just RFA,  but how all of the various regulatory reform initiatives fit together and  influence agencies’ regulatory actions. Regulatory Flexibility Act: Key Terms Still Need to Be Clarified.
Why GAO Did This Study

Federal regulation is one of the basic tools of government used to implement public policy. In 1980, the Regulatory Flexibility Act (RFA) was enacted in response to concerns about the effect that regulations can have on small entities, including small businesses, small governmental jurisdictions, and certain small not-for-profit organizations. Congress amended RFA in 1996, and the President issued Executive Order 13272 in 2002, to strengthen requirements for agencies to consider the impact of their proposed rules on small entities. However, concerns about the regulatory burden on small entities persist, prompting legislative proposals such as H.R. 682, the Regulatory Flexibility Improvements Act, which would amend RFA. At the request of Congress, GAO has prepared many reports and testimonies reviewing the implementation of RFA and related policies. On the basis of that body of work, this testimony (1) provides an overview of the basic purpose and requirements of RFA, (2) highlights the main impediments to the Act's implementation that GAO's reports identified, and (3) suggests elements of RFA that Congress might consider amending to improve the effectiveness of the Act. GAO's prior reports and testimonies contain recommendations to improve the implementation of RFA and related regulatory process requirements.

What GAO Found

RFA established a principle that agencies should endeavor to fit their regulatory requirements to the scale of small entities. Among other things, RFA requires regulatory agencies to assess the impact of proposed rules on small entities, consider regulatory alternatives that will accomplish the agencies' objectives while minimizing the impacts on small entities, and ensure that small entities have an opportunity to participate in the rulemaking process. Further, RFA requires agencies to review existing rules within 10 years of promulgation that have or will have a significant impact on small entities to determine whether they should be continued without change or amended or rescinded to minimize their impact on small entities. RFA also requires the Chief Counsel for Advocacy of the Small Business Administration (Office of Advocacy) to monitor agencies' compliance. In response to Executive Order 13272, the Office of Advocacy published guidance in 2003 on how to comply with RFA. In response to congressional requests, GAO reviewed agencies' implementation of RFA and related requirements on many occasions, with topics ranging from specific statutory provisions to the overall implementation of RFA. Generally, GAO found that the Act's results and effectiveness have been mixed; its reports illustrated both the promise and the problems associated with RFA. On one hand, RFA and related requirements clearly affected how federal agencies regulate and produced benefits, such as raising expectations regarding the analytical support for proposed rules. However, GAO also found that compliance with RFA varied across agencies, within agencies, and over time. A recurring finding was that uncertainties about RFA's requirements and key terms, and varying interpretations by federal agencies, limited the Act's application and effectiveness. GAO's past work suggests that Congress might wish to review the procedures, definitions, exemptions, and other provisions of RFA to determine whether changes are needed to better achieve the purposes Congress intended. In particular, GAO's reports indicate that the full promise of RFA may never be realized until Congress revisits and clarifies elements of the Act, especially its key terms, or provides an agency or office with the clear authority and responsibility to do so. Attention should also be paid to the domino effect that an agency's initial determination of whether RFA is applicable to a rulemaking has on other statutory requirements, such as preparing compliance guides for small entities and periodically reviewing existing regulations. GAO also believes that Congress should reexamine not just RFA but how all of the various regulatory reform initiatives fit together and influence agencies' regulatory actions. Recent developments, such as the Office of Advocacy's RFA guidance, may help address some of these long-standing issues and merit continued monitoring by Congress