H.R. 527, Small Business Regulatory Flexibility Improvements Act of 2015

H.R. 527

Small Business Regulatory Flexibility Improvements Act of 2015

Committee
Judiciary

Date
February 5, 2015 (114th Congress, 1st Session)

Staff Contact
David Smentek

Floor Situation

On Thursday, February 5, 2015, the House will consider H.R. 527, the Small Business Regulatory Flexibility Improvements Act of 2015, under a rule.  H.R. 527 was introduced on January 26, 2015 by Rep. Steve Chabot (R-OH), Chairman of the House Small Business Committee, and referred to the House Committees on Small Business and the Judiciary.  The bill was marked up by the Judiciary Committee on January 27, 2015 and ordered to be reported by a vote of 19-8.[1]

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[1] Committee Report 114-12 at 12.

Bill Summary

H.R. 527 is substantively identical to multiple pieces of legislation that previously passed the House in the 112th and 113th Congresses.  In the 113th Congress, the Regulatory Flexibility Improvements Act of 2013 (H.R. 2542) was favorably reported by the Committees on Small Business and the Judiciary.  It was included in the Achieving Less Excess in Regulation and Requiring Transparency (ALERRT) Act of 2014 (H.R. 2804) which passed the House by a vote of 236-179 on February 27, 2014. (See Roll Call #78)  It was also part of the Jobs for America Act (H.R. 4) which passed the House by a vote of 253-163 on September 18, 2014. (See Roll Call #513)  In the 112th Congress, the Regulatory Flexibility Improvements Act of 2011 (H.R. 527) was favorably reported by the Committees on Small Business and the Judiciary in 2011 and passed the House by a bipartisan vote of 263-159 on December 1, 2011. (See Roll Call #880)

H.R. 527 amends the Regulatory Flexibility Act (RFA) and the Small Business Regulatory Enforcement Fairness Act (SBREFA) to ensure agencies adequately analyze proposed rules for their potential impacts on small businesses.  The bill “updates the RFA and SBREFA to close loopholes and more effectively reduce the disproportionate burden that over-regulation places on small entities.”[2]  Specifically, H.R. 527 requires agencies to perform a regulatory flexibility analysis when a proposed rule’s effects are significant but beneficial.  Under current law, agencies conduct a regulatory flexibility analysis only when a proposed rule has significant costs to small entities.[3]  This legislation expands those requirements in order to encourage agencies to pick the most beneficial alternative.[4]   The bill also requires agencies to look not only at direct effects of new rules, but also indirect effects, which frequently are substantial.

Under the SBREFA, the IRS is required to comply with the RFA when an interpretative rule imposes a collection-of-information requirement on a small entity.[5]  However, the IRS misinterprets this statute to apply only when the taxpayer is required to complete a brand new, never-used form.[6]  This legislation requires the IRS to comply fully with the RFA when issuing an interpretative rule outside of the notice-and-comment-process and conduct a full regulatory flexibility analysis.  Furthermore, H.R. 527 expands the terms of the biannual regulatory agenda report to include regulations that may have significant impacts on a substantial number of small entities.[7]  In turn, the bill requires the agendas to describe the North American Industrial Classification System sectors that would be affected by the rules.[8]

H.R. 527 also requires agencies, when issuing an initial regulatory flexibility analysis, to submit a detailed statement that includes an estimate of the cumulative economic impact of the proposed rule on small entities and a description of any disproportionate economic impact on small entities.  This legislation also requires agencies, when developing a final regulatory flexibility analysis, to provide a quantifiable or numerical description of the effects of a proposed or final rule (and alternatives to such rule); or a more general descriptive statement and a detailed statement explaining why quantification is not practicable or reliable.  Moreover, this legislation repeals provisions that previously allowed a waiver or delay of the completion of an initial regulatory flexibility analysis, and requires the Chief Counsel for Advocacy of the Small Business Administration (SBA) to issue rules governing federal agency compliance with the RFA.  This provision was redundant as agencies can use a “good cause” exemption under the Administrative Procedure Act to dispense with notice and comment rulemaking in an emergency situation, and hence waive RFA compliance.  In addition, H.R. 527 requires agencies, prior to the publication of any proposed rule, to: 1) provide the Chief Counsel for Advocacy of the SBA with all materials prepared or utilized in making the proposed rule; 2) provide information on the potential adverse and beneficial economic impacts of the proposed rule on small entities; and 3) gather information about potential rules for proposal from small entities representatives through the Small Business Advocacy Review panel process (currently, only the Environmental Protection Agency, the Occupational Safety and Health Administration, and the Consumer Financial Protection Bureau need convene such panels).

The bill also clarifies how agencies conduct their periodic regulatory reviews, including: 1) requiring agencies to develop new periodic review plans within 180 days and publish them online; 2) clarifying that agencies must review all rules with a significant economic impact on a substantial number of small entities; 3) requiring agencies to report the results of their reviews and publish them in the Federal Register; 4) requiring agencies to conduct significant outreach to small businesses owned by women, veterans, and socially and economically disadvantaged individuals; and 5) allowing small entities to provide input on the rules an agency plans to review.  In addition, H.R. 527 makes judicial review available when an agency publishes a final rule, ensuring that small entities have prompt access to judicial review without procedural delays from agency-imposed exhaustion requirements.  Moreover, it provides U.S. Courts of Appeals exclusive jurisdiction to review all final rules promulgated by the SBA Chief Counsel for Advocacy governing agency compliance with the RFA.

Furthermore, the bill authorizes the SBA Chief Counsel for Advocacy to approve alternative small business size standards for the purposes of any act other than the Small Business Act and the Small Business Investment Act of 1958.  Under current law, agencies must consult with the Chief Counsel on these types of alternative size standards.  This will simply formalize a process that has been utilized less than 30 times since 1993.  H.R. 527 also requires agencies, when developing compliance guides, to solicit input from affected small entities.  Finally, this legislation requires the GAO to conduct a study within 90 days of enactment to determine whether the Office of the Chief Counsel for Advocacy has the resources to carry out its duties outlined in the bill.

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[2] Id. at 2.
[3] Id. at 18.
[4] Id.
[5] Committee Report 114-12  at 18-19.
[6] Id.
[7] Id. at 19.
[8] Id. at 19.

Background

“During the 1970’s, Congress enacted numerous regulatory statutes that dramatically increased the regulatory burden on businesses—and especially on small businesses.”[9]  Between 1970 and 1980, the Federal Register more than quadrupled.[10]  After a number of Congressional hearings held in the late 1970s highlighted the impact of federal regulation on small business, Congress enacted the Regulatory Flexibility Act (RFA) as a means of better-controlling agency decision-making.[11]  The RFA requires federal agencies to prepare a regulatory flexibility analysis when submitting a rule, which describes the rule’s impact on small entities.[12]  These requirements are not triggered, however, 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.”[13]  This term, however, lacks a uniform definition across federal agencies.  Furthermore, courts have held that indirect impacts on small entities, which are often significant, are irrelevant under the RFA.[14]  Additionally, the RFA requires federal agencies to publish a “regulatory flexibility agenda” biannually in the Federal Register, overseen and monitored by the Small Business Administration’s (SBA) Chief Counsel for Advocacy; and requires agencies to conduct decennial rule reviews to identify whether the impacts of rules on small entities can be mitigated further.[15]

From the time of the RFA’s enactment until 1996, agency compliance was at best sporadic, “since judicial review of regulatory flexibility analyses was very limited, and an agency’s certification decision could not be challenged in court.”[16]  As a result, agencies only complied when it would benefit their rulemakings.  In response to agencies’ noncompliance with the RFA, Congress enacted the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA).[17]  The SBREFA added several features to the RFA, including: compliance guidelines, advocacy review panels; judicial review; publishing requirements for compliance guides; and input requirements for rules that have a significant economic impact on a substantial number of small entities.  However, compliance with RFA and SBREFA requirements remained unclear.  As a result, President Bush issued Executive Order 13272, which required agencies to: adopt standards for complying with the RFA; make those standards known to the public; and provide the SBA an opportunity to comment on proposed rules prior to publication in the Federal Register.[18]  The executive order, however, was not judicially enforceable and did not address the RFA’s loopholes, and subsequent judicial proceedings have not given agency compliance with the RFA the same scrutiny that they have given to compliance with the National Environmental Policy Act (NEPA).[19]

In January, 2011, President Obama issued a Presidential Memorandum stating that his “Administration is firmly committed to eliminating excessive and unjustified burdens on small businesses, and to ensuring that regulations are designed with careful consideration of their effects, including their cumulative effects, on small businesses.”[20]  The President also directed agency heads to publish explanations when not providing regulatory flexibility for small businesses (if the decision was not based upon legal limitations).[21]  However, the memorandum did not meaningfully change agency requirements or provide any legal rights to small entities.  “Meanwhile, the need for additional RFA reform has grown. In 2010, for example, federal agencies promulgated 3,312 final rules, while Congress passed and the President signed into law only 385 statutes.”[22]  Moreover, recent reports have found that federal rulemaking imposes a cumulative burden of at least $1.86 trillion, or about $15,000 per household, per year.[23]  Small firms (with fewer than 50 employees) incur costs that are approximately 17 percent greater than the average firm, or about $11,724 per employee, per year.[24]  H.R. 527 amends the RFA for the first time since the enactment of the SBREFA in order to close loopholes and more effectively reduce the disproportionate burden that regulation places on small businesses.

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[9] Committee Report 114-12  at 2.
[10] Id. at 3.
[11] Id. at 3.
[12] Id. at 3.
[13] Id. at 3.
[14] Id. at 3.
[15] Id. at 4.
[16] Id. at 4.
[17] Id. at 5.
[18] Id. at 6.
[19] Id. at 6.
[20] Id. at 7.
[21] Id. at 7.
[22] Id. at 7.
[23] https://cei.org/content/report-finds-regulation-compliance-costs-businesses-186-trillion
[24] Committee Report 114-12 at 7-8.

Cost

A CBO cost estimate for H.R. 527 projects that implementing this legislation would cost $55 million over a six-year window, assuming appropriation of the necessary funds.

Amendments

1)         Reps. Peters (D-CA) and Chabot (R-OH) Amendment #5Amendment adds to the bill’s Regulatory Flexibility Act an exemption for veterans rights-and-benefits rules and an exemption for rules pertaining to service members and predatory lending. The amendment also effectuates limited technical amendments to the bill.

2)         Rep. Nadler (D-NY) Amendment #1Amendment requires analysis of indirect benefits along with the analysis of indirect costs required under the bill.

3)         Rep. Conyers (D-MI) Amendment #3Amendment strikes section 5 of the bill, which repeals provisions that previously allowed a waiver or delay of the completion of an initial regulatory flexibility analysis; and requires the Chief Counsel for Advocacy of the Small Business Administration (SBA) to issue rules governing federal agency compliance with the RFA.

4)         Rep. Schrader (D-OR) Amendment #4Amendment strikes section 10 of the legislation, which, according to the amendment’s sponsor, creates a duplicative size standard office in the Office of Advocacy without a commensurate reduction in the existing SBA Office of Size Standards.

5)         Rep. Johnson (D-GA) Amendment #2Amendment exempts from the bill any rule that the Office of Management and Budget determines would result in net job creation.

6)         Rep. Jackson Lee (D-TX) Amendment #7Amendment exempts from the bill all regulations issued by the Food and Drug Administration relating to consumer safety, including those issued pursuant to the FDA Food Safety Modernization Act.

Additional Information

For questions or further information contact the GOP Conference at 5-5107.