TTN/Economics & Cost Analysis Support
OAQPS Economic Analysis Resource Document
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 ISEGs 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.
|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.
|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:
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.
- 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
- Category 3: The rule is presumed to be ineligible for certification,
so an IRFA or FRFA should be prepared.
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;
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.
- 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
- 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
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:
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).
- The FRFA does not require an identification of other related Federal
- The FRFA does not require an analysis of alternatives to the
- The FRFA must include a summary of the issues raised by public
comments and the agencys 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.
|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.