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6.2 Regulatory Flexibility Act (RFA) and Small Business Regulatory Enforcement Fairness Act (SBREFA)

The RFA, as amended by SBREFA of 1996, requires Federal regulatory agencies to determine whether a proposed or final regulation will have a significant impact on a substantial number of small entities. In particular, the RFA requires that an agency prepare an IRFA for any proposed rule and an FRFA for any final rule that is subject to notice-and-comment rulemaking under the Administrative Procedures Act (APA) unless the agency head certifies that the rule will not have a significant impact on a substantial number of small entities. According to EPA Interim Guidance for Implementing the Small Business Regulatory Enforcement Fairness Act and Related Provisions of the Regulatory Flexibility Act ( EPA, 1997f), current Agency policy is to implement the RFA as written; that is, “regulatory flexibility analyses as specified by the RFA will not be required if the Agency certifies that the rule will not have significant economic impact on a substantial number of small entities.” However, it remains Agency policy that, even when the Agency makes a certification of “no significant impact,” program offices should assess the impact of every rule on small entities and minimize any impact to the extent feasible, regardless of the size of the impact or the number of small entities affected.
Because ISEG has always considered the effects of OAQPS rules on small entities, the enactment of SBREFA has not precipitated any major changes in ISEG’s analysis of the small entity impacts of a regulatory action. However, as a result of SBREFA, the Agency must take additional actions when a certification decision is made. For example, if it is determined that the rule cannot be certified as having “no significant impact,” the Agency must convene a Small Business Advocacy Review Panel.
In accordance with ISEG practice, analysts must conduct a screening analysis to determine if the rule is likely to have a significant impact on a substantial number of small entities. Pursuant to SBREFA, the SBA may vary its definition of “small business” by regulation. These definitions are codified at 13 CF 121.201. ISEG analysts are not required to use the SBA definitions; however, alternative definitions of “small business” must be developed in consultation with SBA and are subject to public comment.
 

6 Impact Analyses

 6.0 Intro

 6.1 The Unfunded
   Mandates Reform
   Act (UMRA)

 6.2 Regulatory
   Flexibility Act
   (RFA) and Small
   Business Regul-
   atory Enforce-
   ment Fairness
   Act (SBREFA)

 6.3 The Paperwork
   Reduction Act
   (PRA)

 6.4 Distributional
   Impacts

 6.5 Structural
   Impacts
In addition, EPA has developed guidelines for what constitutes a significant impact and the number of firms that constitutes a substantial number of small entities. First, the analyst must estimate the impact of the regulatory option on businesses, government entities, and nonprofit entities of different sizes. The recommended criteria for evaluating the economic impact of a rule on small entities are presented in Table 6-1.
The preferred criteria for estimating this impact vary across entity types. For small businesses, the preferred impact measure is annualized costs of the rule as a percentage of sales (“sales test”). For small government entities, the preferred impact measure is annualized costs as a percentage of government revenues (“revenue test”). And for small nonprofit organizations, the preferred impact measure is annualized compliance costs as a percentage of operating expenditures (“expenditures test”). Other impact measures can be used if appropriate; however, analysts should consult with ISEG management before doing so.
  
Table 6-1
These impact measures are then combined with estimates of the absolute number of small entities that will experience the impact and the percentage of all the small entities subject to the rule that will experience the impact. Based on estimates of these variables, the rule is put in one of three categories:
  • Category 1: The rule is presumed to have no significant impact and is certified as such.
  • Category 2: No determination of the significance of the impact is assigned to the rule, and the screening analysis described above, along with a recommendation of the need for a regulatory flexibility analysis, is presented to the EPA Small Business Advocacy Chairperson.
  • Category 3: The rule is presumed to be ineligible for certification, so an IRFA or FRFA should be prepared.
Table 6-2 presents the matrix used to determine the category into which a particular rule will fall. This table is based on interim Agency guidance. Analysts should keep abreast of changes in subsequent versions of the RFA guidance document. In addition, analysts should be aware that the criteria presented in Table 6-2 are only guidance, and analyses based on this guidance may still be contested by OMB.

The data used to perform the screening analysis should be collected during the development of the industry profile. See Section 4 for more detail on sources for company data that can be used in the screening analysis.
If the results of the screening analysis indicate that the rule cannot be certified as having “no significant impact,” then the workgroup must prepare an IRFA. An IFRA must contain the following information:
  • an explanation of the need for the rule;
  • a statement of the objectives and legal basis for the rule;
  • a description (estimate) of the number of small entities to which the rule will apply;
  
  • a description of the recordkeeping, reporting, and compliance requirements contained in the rule, including an estimate of the classes of small entities subject to the requirement and the level of professional skill needed to prepare required reports or maintain required records;
  • an identification of other Federal rules that may duplicate, overlap, or conflict with the rule; and
  • a description of alternatives that accomplish the same stated objectives and may minimize the impact of the rule on small entities.
The IRFA or a summary of the IRFA must be published in the FR along with the proposed rule for which it was prepared. If the information required in the IRFA is included elsewhere in the preamble to the Notice of Proposed Rulemaking (NPRM) or other rulemaking documents, as is often the case, then the IRFA need not repeat this information but may simply cross-reference the preamble or other documents.

As a result of recommendations made by the Small Business Advocacy Review Panel and public comments on the IRFA, rules having significant small business impacts are often modified between the proposed and final rulemaking stages. These changes may require modifying the analyses presented in the IRFA or conducting new analyses all together. If new information or further analysis reveals changes in any of the three screening variables, the screening process is repeated at the final rule stage. If the screening process again indicates that the rule cannot be certified as having “no significant impact,” then the analyst must conduct a FRFA. There are four major differences between the requirements for an IFRA and those for a FRFA:
  • The FRFA does not require an identification of other related Federal rules.
  • The FRFA does not require an analysis of alternatives to the rule.
  • The FRFA must include a summary of the issues raised by public comments and the agency’s response to those issues.
  • The FRFA must contain a description of the steps the agency has taken to minimize the impact of the rule on small entities consistent with the stated objectives of the rule.
For further guidance on assessing small entity impacts under the RFA and SBREFA, analysts are referred to EPA Interim Guidance on Implementing the Small Business Regulatory Enforcement Fairness Act and Related Provisions of the Regulatory Flexibility Act ( EPA, 1997f).

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3 According to the RFA, small entities include small businesses, as defined by the SBA; small government jurisdictions; and small nonprofit organizations. For more details on the definitions of small entities, see EPA Interim Guidance on Implementing the Small Business Regulatory Enforcement Fairness Act and Related Provisions of the Regulatory Flexibility Act ( EPA, 1997f).
4 A certification of “no significant impact” in the proposed rule stage does not preclude an FRFA at the final rule stage, and an IRFA at the proposed rule stage does not preclude a certification of “no significant impact” at the final rule stage, because information provided through notice-and-comment rulemaking and changes to the substance of the rule can change the expected impact of the rule between the proposed and final stages.
5 Although not specifically required by RFA or SBREFA, analysts also may want to analyze the effects of a rule on minority-owned businesses to support the analysis of environmental justice impacts (see below).
6 If the agency makes a “no significant impact” certification, it must support that certification with a factual explanation. The results of the screening analysis can be used to support such an explanation.

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