SBA Procedures For Compliance With

SBA Procedures For Compliance With
The Regulatory Flexibility Act and Executive Order 13272

General

The purpose of the procedures is to provide SBA staff with guidance for meeting the requirements of the Regulatory Flexibility Act (RFA)¹ and E.O. 13272, Proper Consideration of Small Entities in Agency Rulemaking.

Both the RFA and E.O. 13272 require agencies to consider the potential impact of rules on small businesses, small governmental jurisdictions, and small organizations during the development of their rules. Executive Order 13272 reinforces the intent of the RFA by requiring agencies to establish policies and procedures (this document) to promote compliance with the RFA.

Major steps to comply with RFA and E.O. 13272

The following lists the major steps that SBA intends to follow to comply with the RFA and E.O. 13272. Note that not all steps are required for each rule; some are required only for rules likely to have a significant economic impact on a substantial number of small entities, and others are required only for rules that do not have such an impact. A more detailed description of the requirements follows the list.

Step 1.	Determine whether the rule is subject to the RFA.

Step 2.	Conduct an informal "screening" analysis to determine whether or not the proposed rule will have a significant economic impact on a substantial number of small entities. If the proposed rule will not have a significant economic impact on a substantial number of small entities, go to step 3. Otherwise go to step 4.

Step 3.	Prepare a certification and a statement of the factual basis supporting the certification (as part of the proposed rule) that the proposed rule will not have a significant economic impact on a substantial number of small entities. Go to step 6.

Step 4.	Prepare an Initial Regulatory Flexibility Analysis (IRFA).

Step 5.	Notify the Chief Counsel for Advocacy of the Small Business Administration (Advocacy) of any draft rules that may have a significant economic impact on a substantial number of small entities (i) when the SBA submits the draft rule to OMB under Executive Order 12866, or (ii) if submission to OMB is not required, at a reasonable time prior to publication of the rule.

Step 6.	Include with the proposed rule published in the Federal Register either (a) the certification and statement of factual basis, or (b) the IRFA or a summary of the IRFA. Transmit a copy of the proposed rule, and the certification/statement or IRFA, to Advocacy.

Step 7.	In preparing the final rule, consider and respond to comments by Advocacy. If you have determined that the proposed rule will not have a significant economic impact on a substantial number of small entities, go to step 8. Otherwise go to step 9.

Step 8.	Prepare a certification statement and a statement of the factual basis supporting the certification that the final rule will not have a significant economic impact on a substantial number of small entities. Go to Step 10.

Step 9.	Prepare a Final Regulatory Flexibility Analysis (FRFA)

Step 10.	Include with the final rule published in the Federal Register either (a) the certification and statement of factual basis, or (b) the FRFA or a summary of the FRFA. Make a copy of the FRFA available to the public.

The following discussion elaborates on what SBA intends to do under each of the above steps.

STEP 1.

DETERMINE WHETHER THE RULE IS SUBJECT TO THE RFA

The RFA generally covers all rulemakings where SBA is required to publish a notice of proposed rulemaking (NPRM).

STEP 2.

CONDUCT AN INFORMAL "SCREENING" ANALYSIS TO DETERMINE WHETHER OR NOT THE PROPOSED RULE WILL HAVE A SIGNIFICANT ECONOMIC IMPACT ON A SUBSTANTIAL NUMBER OF SMALL ENTITIES

In order to determine whether a rule is likely to have a significant economic impact on a substantial number of small entities, it is necessary to coordinate and conduct an informal screening analysis.

The first step in the analysis is to identify what types of small entities would be subject to the rule's requirements – businesses, nonprofit organizations, pension plans, etc.

To determine whether there is likely to be a significant economic impact on a substantial number of those small entities, identify the actions a small entity will have to take to comply with the requirements of the rule. This will help clarify the nature of the impacts (e.g., installation of new technology, revised recordkeeping system), and may help in deducing whether the potential impacts are of sufficient magnitude and scope to warrant preparation of an IRFA.

If the proposed rule will not have a significant economic impact on a substantial number of small entities, go to step 3. Otherwise go to step 4.

STEP 3.

PREPARE A CERTIFICATION STATEMENT AND A STATEMENT OF THE FACTUAL BASIS SUPPORTING THE CERTIFICATION THAT THE PROPOSED RULE WILL NOT HAVE A SIGNIFICANT ECONOMIC IMPACT ON A SUBSTANTIAL NUMBER OF SMALL ENTITIES

If the rule will not have a significant economic impact on a substantial number of small entities, prepare a certification statement to that effect, along with the factual basis for the certification. The certification, which is subject to judicial review, should clearly explain how SBA reached its decision and, where appropriate, describe or provide the information relied on to make the decision. In its 2002 implementation guidance for agencies, Advocacy cautioned agencies that "Congress intended that agencies should do more than provide boilerplate and unsubstantiated assertions to support their RFA certifications." ²

Go to step 6.

STEP 4.

PREPARE AN INITIAL REGULATORY FLEXIBILITY ANALYSIS

If the rule may have a significant economic impact on a substantial number of small entities, prepare an IRFA for the rule. In accordance with the RFA, the IRFA must:

· describe the reasons why action by SBA is being considered;

· succinctly state the objectives of, and legal basis for, the proposed rule;

· describe and, where feasible, estimate the number of small entities to which the proposed rule will apply;

· describe the projected reporting, recordkeeping and other compliance requirements of the proposed rule, including an estimate of the classes of small entities that will be subject to the requirements and the type of professional skills necessary for preparation of the report or record;

· identify, to the extent practicable, all relevant Federal rules that may duplicate, overlap or conflict with the proposed rule;

· describe any significant alternatives to the proposed rule that accomplish the stated objectives of applicable statutes and that minimize any significant economic impact of the proposed rule on small entities. Consistent with the stated objectives of applicable statutes, the analysis must discuss significant alternatives such as –

(1) establishing differing compliance or reporting requirements or timetables that take into account the resources available to small entities;
(2) clarifying, consolidating, or simplifying compliance and reporting requirements under the rule for such small entities;
(3) using performance rather than design standards; and
(4) exempting small entities from coverage of the rule, or any part thereof.

STEP 5.

NOTIFY ADVOCACY OF ANY DRAFT RULES THAT MAY HAVE A SIGNIFICANT ECONOMIC IMPACT ON A SUBSTANTIAL NUMBER OF SMALL ENTITIES (I) WHEN YOU SUBMIT THE DRAFT RULE TO OMB UNDER EXECUTIVE ORDER 12866, OR (II) IF SUBMISSION TO OMB IS NOT REQUIRED, AT A REASONABLE TIME PRIOR TO PUBLICATION OF THE RULE

If a draft rule may have a significant economic impact on a substantial number of small entities, E.O. 13272 requires notice to Advocacy of the draft rule. If the rule will be a "significant regulatory action" under E.O. 12866, it must be submitted to OMB for review. In these cases, notify both Advocacy and OMB of the draft rule at the same time (you may submit the draft rule to the Chief Counsel, but this is not required by the RFA or E.O. 13272).

If notice to OMB is not required, notify Advocacy of the draft rule at a reasonable time prior to publication of the rule.

STEP 6.

INCLUDE WITH THE PROPOSED RULE PUBLISHED IN THE FEDERAL REGISTER, THE CERTIFICATION AND STATEMENT OF FACTUAL BASIS, OR THE IRFA. TRANSMIT A COPY OF THE CERTIFICATION AND STATEMENT OF FACTUAL BASIS OR THE IRFA TO ADVOCACY

When preparing the NPRM for publication in the Federal Register, include in the document either the certification and statement of factual basis, or the IRFA. If the IRFA is lengthy and incorporated into the Regulatory Impact Analysis, summarize it in the Federal Register document. Make the IRFA available for public review on the web site (and in hard copy if requested). Provide a copy of either the certification and statement of factual basis or the IRFA to Advocacy.

STEP 7.

IN PREPARING THE FINAL RULE, CONSIDER AND RESPOND TO COMMENTS BY ADVOCACY

During preparation of the final rule, in accordance with E.O. 13272, "give every appropriate consideration" to comments provided by Advocacy, and respond in the final rule preamble to any written comments submitted by Advocacy on the proposed rule. (A response to Advocacy's comments is not needed in the final rule if SBA certifies that inclusion of a response does not serve the public interest.)

If SBA has determined that final rule will not have a significant economic impact on a substantial number of small entities, go to step 8. Otherwise go to step 9.

STEP 8.

PREPARE A CERTIFICATION STATEMENT AND A STATEMENT OF THE FACTUAL BASIS SUPPORTING THE CERTIFICATION THAT THE FINAL RULE WILL NOT HAVE A SIGNIFICANT ECONOMIC IMPACT ON A SUBSTANTIAL NUMBER OF SMALL ENTITIES ³

If SBA has determined that the final rule will not have a significant economic impact on a substantial number of small entities, prepare a certification statement to that effect, along with the factual basis for the certification. The certification is subject to judicial review, so explain clearly how the decision was reached and, where appropriate, describe or provide the information relied on to make the decision. In its 2002 implementation guidance for agencies, Advocacy cautioned agencies that "Congress intended that agencies should do more than provide boilerplate and unsubstantiated assertions to support their RFA certifications." ⁴

Go to step 10.

STEP 9.

PREPARE A FINAL REGULATORY FLEXIBILITY ANALYSIS (FRFA)

If the final rule may have a significant economic impact on a substantial number of small entities, prepare a FRFA for the rule. In accordance with the RFA, the FRFA must:

(1) succinctly state the need for, and objectives of, the rule;
(2) summarize the significant issues raised by the public comments in response to the initial regulatory flexibility analysis, the assessment of the agency of such issues, and describe any changes made in the proposed rule as a result of such comments;
(3) describe and estimate the number of small entities to which the rule will apply or explain why no such estimate is available;
(4) describe the projected reporting, recordkeeping and other compliance requirements of the rule, including an estimate of the classes of small entities which will be subject to the requirement and the type of professional skills necessary for preparation of the report or record; and
(5) describe the steps the agency has taken to minimize the significant economic impact on small entities consistent with the stated objectives of applicable statutes, including a statement of the factual, policy, and legal reasons for selecting the alternative adopted in the final rule and why each one of the other significant alternatives to the rule considered by the agency which affect the impact on small entities was rejected.

STEP 10.

INCLUDE IN THE FINAL RULE PUBLISHED IN THE FEDERAL REGISTER, THE CERTIFICATION AND STATEMENT OF FACTUAL BASIS, OR THE FRFA

When preparing the final rule for publication in the Federal Register, include in the document either the certification and statement of factual basis (but see footnote 3), or the FRFA. If the FRFA is lengthy and incorporated into the Regulatory Impact Analysis as discussed above, summarize it in the Federal Register document. Make a copy of the FRFA available for public review on the web site (and in hard copy, if requested).

Participation of small entities in rulemaking

If a rule will have a significant economic impact on a substantial number of small entities, assure that small entities have an opportunity to participate in the rulemaking through techniques such as the following:

· stating in an advance notice of proposed rulemaking, if issued, that the proposed rule may have a significant economic effect on a substantial number of small entities

· publishing the NPRM in publications likely to be obtained by small entities

· directly notifying interested small entities

· conducting open conferences or public hearings concerning the rule for small entities

· using computer networks to solicit and receive comments

· adopting or modifying agency procedural rules to reduce the cost and complexity of participation in the rulemaking for small entities.

Attempt to interact with small entities early in the rulemaking process to help ensure that the eventual final rule will meet its objectives while minimizing adverse effects on small entities. Early and continued interaction with small entities will help identify and resolve important issues and obtain information useful to the development of the rule. The Chief Counsel for Advocacy can serve as a resource for agencies in this regard.

Reservation of Authority

The statements in this document are intended solely as guidance. This document is not intended, nor can it be relied upon, to create any rights enforceable by any party in litigation with the United States. SBA may decide to follow the guidance provided in this document, or to act at variance with the guidance, based on its analysis of the specific facts presented. This guidance may be revised without public notice to reflect changes in SBA's approach to implementing the Regulatory Flexibility Act or to clarify and update text.

Notes:

1. All references to the Regulatory Flexibility Act refer to the RFA as amended by the Small Business Regulatory Enforcement Fairness Act, 5 U.S.C. §§ 601 B 612.

2. U.S. Small Business Administration, Office of Advocacy, The Regulatory Flexibility Act: An Implementation Guide for Federal Agencies, 2002, p. 11.

3. The RFA is not clear regarding certifying the final rule if the proposed rule had been certified. However, SBA recommends that agencies certify twice to demonstrate that the certification remains valid after public comments.

4. U.S. Small Business Administration, Office of Advocacy, 2002, p. 11.