Small Business Regulatory Review and Reform Initiative

Questions and Answers About the 2008 r3 Top 10 List

The r3 Top 10 Selection Process

Q. The Office of Advocacy received 82 nominations for review/reform of rules in 2007. How did Advocacy choose the 2008 Top 10 from the 82 nominations?

A. First, submissions that did not meet Advocacy’s nomination criteria were rejected, such as nominations that didn’t offer any viable alternative to the current rule, or ones that asked for a solution that requires Congressional action.

Q. How many of the 82 nominations were rejected because they didn’t meet the criteria?

A. 19 of the nominations were rejected because they did not fit Advocacy’s criteria for review and reform. Another 13 were rejected because the nominator did not provide sufficient information to Advocacy.

Q. What criteria did Advocacy use to evaluate the remaining 50 nominations?

A. The 2008 Top 10 were chosen on the basis of several factors: (1) whether the rule could reasonably be tailored to accomplish its intended objectives while reducing the impact on small business or small communities; (2) whether the rule being nominated has ever been reviewed for its impact on small entities; (3) whether technology, economic conditions, or other factors have changed since the rule was originally written; (4) whether the rule imposes duplicative requirement; and (5) the overall importance of the rule to small businesses and small communities.

Q. Did the Office of Advocacy seek approval from OMB’s Office of Information and Regulatory Affairs (OIRA) on the 2008 Top 10 list?

A. No. Advocacy consulted with OIRA on its Top 10 list, since several reform nominations were substantially similar to reforms submitted by the public to OIRA in 2001, 2002, and 2004. Advocacy sought input from OIRA based on OIRA’s experience in working with the agencies on those prior reform efforts. The Chief Counsel for Advocacy made the final decision concerning which nominations made Advocacy’s Top 10 list.

Q. The Top 10 list contains four nominations for review/reform of environmental rules. Making up 40% of the Top 10 list, aren’t environmental rules overrepresented?

A. Advocacy received 23 suggestions for review/reform of environmental rules, representing nearly 30% of all of the r3 nominations. Moreover, Advocacy’s research consistently shows that environmental regulations impose some of the heaviest burdens on small entities, especially small manufacturers. The 2005 Advocacy funded study, The Impact of Regulatory Costs on Small Firms by W. Mark Crain, for example, shows that environmental regulatory costs for small manufacturers is more than three times greater than for their large manufacturer counterparts. The rules nominated for review and reform include rules that carry particularly heavy costs for small business and small communities.

Q. Several regulations of the Small Business Administration (SBA) were nominated for review/reform. Why didn’t any of them make the Top 10 list?

A. Advocacy received several nominations involving SBA’s section 8(a) loan program and other SBA rules. The majority of these nominations weren’t chosen because they would require Congressional action to implement. Other suggestions for reform were not appropriate to be addressed through the r3 process (e.g., a nomination would require changing SBA’s size standards, or the recommended action would exceed SBA’s statutory authority).

Q. What happened to the 33 other nominations that weren’t rejected but didn’t make the Top 10 list?

A. Some of these rules were not selected for the Top 10 because Advocacy is already working with agencies to implement the suggested reform or the agency has indicated that the suggested reform is nearly complete. One such nomination involves the recommendation that the National Highway Traffic Safety Administration (NHTSA) revise its Tire Registration and Recordkeeping rule to allow tire dealers to register tire sales with an online form, rather than asking customers to complete and mail a paper form. After Advocacy received the reform nomination, and was considering the nomination as a possible Top 10 candidate, NHTSA proposed revisions to the Tire Registration rule that would accomplish the suggested reform.

Q. What about the remaining nominations?

A. Other nominations that were not chosen as 2008 Top 10 rules have given Advocacy valuable insight into the regulatory issues of concern to small business, which will help Advocacy prioritize its workload.

Q. How can stakeholders track the progress of rules being reviewed/reformed?

A. The Office of Advocacy will be working closely in 2008 with the agencies whose rules were selected for review/reform. In order to track agency progress, the recommended reforms will be tracked and posted on Advocacy’s website, www.sba.gov/advo/r3, and an update on the status of the rules will be published twice a year. Advocacy encourages small businesses and their representatives to follow the progress of the reviews/reforms and comment to the agencies on that progress.

The 2008 Top 10 Rules for Review and Reform (alphabetically by agency)

Environmental Protection Agency - Update Air Monitoring Rules for Dry Cleaners to Reflect Current Technology

Q. Why is this reform important to dry cleaners?

A. Many of the nation’s estimated 28,000 dry cleaners (almost entirely small businesses) are moving from perchloroethylene (perc) to non-perc alternatives such as petroleum-based solvents. The new dry cleaning equipment is far more efficient, using up to 70% less solvent, and is designed to operate with little or no emissions to the air. When dry cleaners operate their petroleum dry cleaning equipment for the first time, they are required by the Clean Air Act to test the equipment to ensure that it is working properly and not emitting air pollutants. The test method contained in the rule, developed in the 1980s, requires that the machine be opened and tested while it is operating. Modern machines are designed to be closed-loop, however, and will shut down if opened during operation. Until the test method is brought up to date, dry cleaners are faced with a test that they cannot pass, putting them at risk of enforcement and penalties.

Environmental Protection Agency - Flexibility for Community Drinking Water Systems

Q. What is the problem that this guidance change would solve?A. Under the current EPA guidance, small systems that face limited resources to install and operate water treatment facilities are unable to utilize more affordable techniques to treat water to appropriate drinking water standards. Under the current scheme, small systems were required to spend up to $500 per household per year to meet the national standards, which is quite a large sum, particularly for households in rural America. Instead, EPA can revise the guidance, so that more small rural communities and others can qualify to use other affordable techniques. Q. How will this reform benefit small communities?A. Congress intended, through the Safe Drinking Water Act Amendments of 1996, to give small community water systems a method to obtain an alternative, less costly standard when one is shown to be necessary. Although this authority has existed for over a decade, no small community has ever been able to benefit from the statutory provision. EPA can adopt a new standard for affordability that would allow small water systems to qualify for relief. If a system’s cost exceeds the ability of the community to pay, the standard would be deemed “unaffordable”, and the system would qualify for a variance to use more affordable technology – as long as the state approves the alternative standard as protective of public health. More affordable technologies would be approved only if the variance system can be demonstrated to be protective of human health. Q. If this reform were implemented, should residents of small communities need to be concerned about having elevated levels of harmful substances such as lead or even arsenic in their drinking water?A. No. A community could not receive a variance unless the state and EPA were satisfied that the alternative technology was fully protective of human health. Q. What is the status of this guidance change?

A. EPA solicited advice on this change in 2006, and is expected to act on the public comments later this year.

Environmental Protection Agency - Simplify the Rules for Recycling Solid Waste

Q. How many facilities are affected by this rule? A. EPA estimates that more than 4,000 facilities would benefit from EPA revisions to this rule. Q. How would simplifying the rules to encourage recycling benefit small businesses?A. EPA estimates savings of more than $100 million for all businesses from the adoption of a simplified recycling definition.Q. What is the recommended reform?A. The current rule treats recycling of hazardous wastes like all other hazardous wastes. This costly and complex set of requirements to address wastes that are treated or disposed of is not necessary for materials that will be used for a commercial purpose. These are less dangerous materials, and are managed carefully because these materials are to be reused. Thus, EPA can revise the current regulations to provide a tailored set of requirements governing the storage and transport of wastes that are destined for recycling.Q. What types of wastes will this affect?A. Approximately 80% of all recycled wastes are metals, such as aluminum, copper and zinc. A large portion of the remaining recycled wastes are solvents. Common examples of recycled materials are the precious metals such as gold and silver that are recycled from electronics and circuit boards.Q. What are the benefits of this approach?A. Besides the large cost savings, this approach would protect the environment while also promoting recycling, rather than requiring the use of virgin materials.Q. What is the schedule for EPA action on this reform?

A. EPA proposed revisions in 2003, and issued a supplemental notice for comment in 2007. EPA anticipates taking final action on this reform in summer 2008.

Environmental Protection Agency - EPA Should Clearly Define “Oil” in its Oil Spill Rules

Q. What is the recommended reform?A. Under the current Spill Prevention Control and Countermeasure program, facilities do not have a method for determining whether a given substance is “oil” or not. The recommended reform would involve adopting a procedure that would identify oils. Although the Coast Guard used such a procedure in the past to develop a specific list for identifying oils, EPA no longer uses this approach.Q. What are examples of substances that are not oil, but are treated as oil under the current program?A. One example is resins that are used in the manufacturing of paint. Storage tanks containing these resins do not pose the same risks for spills as oil.Q. What is the current status of this review/reform?

A. The Coast Guard had developed such a scheme in the past, and is now working with EPA to formulate a specific methodology that would help firms determine whether the oil spill rules apply to them. There is not a time frame for EPA action at this time.

Federal Aviation Administration - Update Flight Rules for the Washington, DC, Regional Area

Q. What is the recommended review/reform?A. The submitter would like the agency to rethink its approach to aviation security within the Washington, DC regional airspace. Specifically, the submitter does not believe the current approach, as manifested in FAA’s Interim rule or its proposed rule (to make the Interim rule permanent) actually enhances security within the region. The submitter believes that creating a credible deterrent (rather than imposing ineffectual procedural requirements on legitimate users of the airspace) should be the basis of a strategy to protect the region. Accordingly, the submitter would like a comprehensive approach that cuts across the jurisdictional lines of FAA, DHS, DoD, and the Secret Service.Q. Why is this review necessary?A. The current Interim rule was imposed with little or no analysis of the burdens on small entities. Advocacy is always concerned when an agency issues an emergency rule without any analysis of the impact on small business and small communities, followed by an effort to make the emergency rule a permanent rule without conducting adequate impact analysis. When an agency avoids going through these analyses, the greatest opportunity to tailor a rule to achieve its intended purpose while minimizing unnecessary adverse impacts to small entities is lost. Q. When was the last time the rule was revised or updated?A. The Interim rule has been in effect since 2001, and the proposed rule was published in the Federal Register on August 4, 2005. However, no further action has been taken since that time.Q. How would the rule benefit small businesses?A. Review and potential revision of the flight restriction rule could help small entities have a more predictable use of aviation space within the Washington, DC region. It would also enhance economic activity in the region.Q. Would review of the rule still meet the agency’s objectives?

A. Yes, the rule can be reviewed to ascertain whether a more tailored approach can be established without compromising security.

Federal Acquisition Regulation (FAR) Council - Eliminate Duplicative Financial Requirements for Architect-Engineering Services Firms in Government Contracting

Q. Why are small entities requesting a review of this regulation?A. Federal Acquisition Rule 31.10 provides for a 10% withholding or retainage of fees on firms providing fixed-priced architecture-engineering (A&E) services. To our knowledge, the rule has not been revised since it was first incorporated as part of the Federal Acquisition Regulations in 1984.Q. Has the Federal acquisition system been reviewed/reformed before?A. During the 1990s the government made massive changes to the federal acquisition process. The thrust of these changes was to remodel the government to be like that of the commercial marketplace. While the commercial marketplace continues to require retainage in some situations, there is flexibility in the decision making process concerning when to require retainage. In the federal marketplace, there has been flexibility for time and material A&E contracts, but not for fixed price contracts.Q. Could this rule be modernized?A. If the government wishes to institute more flexibility into its contracting process, this method of withholding funds from a contract should be revisited for potential modernization. The Brooks Act procedures require A&E-type work to be on a Qualifications-Based Selection (QBS). The QBS process creates six objective steps which a public client must follow: public notice, submittals, review of submittals, tanking of respondents, negotiations, and engagement. These steps are necessary because the client has not entirely defined the scope of the project. However, once these steps are taken, the client and the A&E firm are clear as to what is expected. This process is much more participatory between the client and the firm than other full and open competition bidding processes. It seems illogical therefore to withhold money after the client has agreed to the project. Moreover, this process has a negative impact on cash flow of some 230,000 small A&E firms. Q. How does this rule impact small firms?

A. First, these contracts are typically not very large; thus, 10 percent being withheld from a $50,000 contract is significant. Second, it is often unclear as to when the funds will be returned to the firm and whether the funds will be re-paid with interest. Third, it would seem that if the client had a legitimate concern about the A&E firm that it could use SBA’s Certificate of Competency program.

Internal Revenue Service - Simplify the Home Office Business Deduction

Q. What is the nominated rule change?A. The nominator suggests that the IRS should revise their rules to permit a standard deduction for home-based businesses. Similar to the Form 1040 standard deduction, the home office business deduction should be optional. Taxpayers who wish to claim the home office deduction could choose to continue to follow the current home office deduction rules, or they could choose the new standard deduction.Q. What is the anticipated benefit of this nominated rule change?A. Small business owners who have a home office would have a simplified, less burdensome method to take the home office business deduction.Q. Why was this tax-related r3 nomination chosen as a top-ten nominee over other tax-related r3 nominations?

A. There are several reasons why this r3 nomination was chosen as a top-ten nominee. First, 53% of all small businesses are home-based businesses. Thus, revising the rules related to the home office business deduction would benefit a great number of small businesses. Second, small businesses frequently identify the simplification of the home office business deduction as an area of great concern for them. This r3 nomination was formally submitted by several groups or individuals. Additionally, a number of small firms informally have been in contact with the Office of Advocacy to advise of the importance of this nomination. Third, other r3 tax-related nominations involved Federal laws that would require Congressional action to reform the laws. The r3 initiative is designed to identify and address existing Federal regulations that should be revised.

Mine Safety and Health Administration - Update MSHA Rules on the Use of Explosives in Mines to Reflect Modern Industry Standards

Q. What would the submitter like the agency to do?A. The submitter would like MSHA to update its explosives regulations to be consistent with current industry best practices.Q. Why is this review necessary?A. MSHA current rules on explosives have not kept pace with modern technology, safety standards, and references. Therefore, the submitter believes the rules do not adequately protect workers and wastes the limited resources of small businesses.Q. When was the last time the rule was revised or updated?A. MSHA’s Part 77 regulations (surface coal mines) have not been updated since 1977, while Part 56 (surface metal and nonmetal mines) and Part 57 (underground metal and nonmetal mines) regulations have not been updated since 1996. Therefore, all three sets of regulations are ripe for review.Q. How would the rule benefit small businesses?A. Updating the rules would allow small businesses to utilize the latest products, applications, technologies, and procedures to improve safety, security, and operational efficiency. For example, MSHA’s current regulations do not address “electronic” detonators, but rather treat them as older-technology “electric” detonators.Q. Would the suggested reform still meet the agency’s objectives?

A. Yes, updating the rules will improve mine safety and better protect workers.

Occupational Health and Safety Administration - Update OSHA’s Medical/ Laboratory Worker Rule

Q. What would the submitter like the agency to do?A. The submitter would like OSHA to review its rule on occupational exposure to bloodborne pathogens with respect to employees in small medical facilities and labs where there are low exposures to blood.Q. Why is this review necessary?A. The current rule is more appropriate for facilities that deal with larger amounts of blood and bodily fluids, such as trauma centers, but is too costly for small medical facilities and labs. The submitter would like the agency to review the rule and consider a “tiered” approach that is more flexible based on the amount of blood and bodily fluids present at the facility.Q. When was the last time the rule was revised or updated?A. The original rule was promulgated in 1991 and was amended in 2001 following passage of the Needlestick Safety and Prevention Act. The rule has not been reviewed since that time and appears ripe for review.Q. How would the rule benefit small business?A. The submitter believes the review and potential revisions would result in cost savings to small medical facilities and labs by allowing them to adopt more appropriate exposure plans that reflect the degree of risk their employers face. Further, the submitter believes a more targeted rule would result in lower health care costs overall.Q. Would the suggested reform still meet the agency’s objectives?

A. Yes, updating the rules would maintain an appropriate level of safety while reducing the regulatory burden on small medical facilities and labs with low risks of exposure. OSHA statutory mandate will not allow it to promulgate any regulation that does not adequately protect worker health and safety.

Office of Federal Procurement Policy - Update Reverse Auction Techniques for Online Procurement of Commercial Items

Q. Why are reverse auctions one of your top 10 r3 recommendations?A. Small businesses have expressed an interest in having this acquisition tool better defined in terms of how it is to be used in comparison to other acquisition programs. Q. Why should the reverse auction process be reviewed now?A. Federal contracting officers have been permitted to use reverse auctions since the acquisition reforms of the 1990s. With these years of experience this is a good time to evaluate the process, where it has been, the pros and cons and then set a course for how the process should go forward. Q. How can the reverse auction process be reviewed?A. Administrator Denett of the Office of Federal Procurement Policy has already initiated a review of the government’s use of commercially available online procurement services. According to Administrator Denett, “the working group will consider among other things, drafting FAR coverage to address online procurement services, including auctions and reverse auctions.” The Office of Advocacy has the statutory responsibility to represent the interest of small entities in the regulatory process. Accordingly, Advocacy will assist OFPP/FAR Council in this regulatory deliberation.

If you have any questions concerning recommendations for reform, please send your question to advocacy@sba.gov or contact the R3 Project Leader, Keith Holman, at (202) 205-6936 or keith.holman@sba.gov.