	Regulatory Flexibility Act Requirements

The Regulatory Flexibility Act (RFA) of 1980 (5 U.S.C. §§601-612), requires federal agencies to assess the impact of their forthcoming rules on "small entities," which the act defines as including small businesses, small governmental jurisdictions, and certain small not-for-profit organizations. The act requires the analyses to describe, among other things, (1) why the regulatory action is being considered and its objectives; (2) the small entities to which the rule will apply and, where feasible, an estimate of their number; (3) the projected reporting, recordkeeping, and other compliance requirements of the rule; and, for final rules, (4) steps the agency has taken to minimize the impact of the rule on small entities, including the alternatives considered and why the selected alternative was chosen. However, these analytical requirements are not triggered if the head of the issuing agency certifies that the rule would not have a "significant economic impact on a substantial number of small entities" (hereafter referred to as a "SEISNSE"). The RFA does not define "significant economic impact" or "substantial number of small entities," thereby giving federal agencies substantial discretion regarding when the act's analytical requirements are initiated. In addition to the areas raised previously, GAO said that numerous other issues regarding the RFA remain unresolved, including
how Congress believes that the economic impact of a rule should be measured (e.g., in terms of compliance costs as a percentage of businesses' annual revenues, the percentage of work hours available to the firms, or some other metric); whether agencies should count the impact of the underlying statutes when determining whether their rules have a significant impact; what should be considered a "rule" for purposes of the requirement that agencies review their rules within 10 years of their promulgation; and whether agencies should review all rules that had a SEISNSE at the time they were originally published as final rules, or only those rules that currently have that effect. Although GAO has consistently called for greater clarity in the RFA's requirements, other observers have indicated that the definitions of key terms like "significant economic impact" and "substantial number of small entities" should remain flexible because of significant differences in each agency's operating environment. 527 , the Regulatory Flexibility Improvements Act of 2011, proposes to amend the RFA "to ensure complete analysis of potential impacts on small entities of rules, and for other purposes." 527 would require the SBA Chief Counsel for Advocacy to issue rules governing agency compliance with the RFA. By clarifying that the term "economic impact" includes indirect effects that are "reasonably foreseeable and result from the rule," H.R.
The Regulatory Flexibility Act (RFA) of 1980 (5 U.S.C. §§601-612) requires federal agencies to assess the impact of their forthcoming regulations on "small entities" (i.e., small businesses, small governments, and small not-for-profit organizations). For example, the act requires the analysis to describe why a regulatory action is being considered; the small entities to which the rule will apply and, where feasible, an estimate of their number; the projected reporting, recordkeeping, and other compliance requirements of the rule; and any significant alternatives to the rule that would accomplish the statutory objectives while minimizing the impact on small entities. This analysis is not required, however, if the head of the agency certifies that the rule 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 of small entities," thereby giving federal agencies substantial discretion regarding when the act's requirements are triggered. Other requirements in the RFA and elsewhere (e.g., that agencies reexamine their existing rules, develop compliance guides, and convene advocacy review panels) also depend on the whether the agencies determine that their rules have a "significant" impact on a "substantial" number of small entities.
GAO has examined the implementation of the RFA many times during the past 20 years, and has consistently concluded that the lack of clear definitions for key terms like "significant economic impact" and "substantial number of small entities" have hindered the act's effectiveness. Therefore, GAO has repeatedly recommended that Congress define those terms, or give the Small Business Administration or some other federal agency the authority and responsibility to do so.
In the 112th Congress, H.R. 527, the Regulatory Flexibility Improvements Act of 2011, proposes to (among other things) define "economic impact" as including indirect effects that are "reasonably foreseeable," and require the chief counsel for advocacy of the Small Business Administration to issue rules governing agency compliance with the RFA. The bill would also broaden the definition of a covered rule, and would expand the use of advocacy review panels before proposed rules are published.
This report will be updated as events warrant.