Regulatory reform in the 118th Congress: Small Business Regulatory Flexibility Improvements Act

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The Regulatory Flexibility Act (RFA) of 1980 was an important transparency measure for vetting new regulations. But it falls short in some important areas, and needs an update. That is what Rep. Ben Cline’s (R-VA) Small Business Regulatory Flexibility Improvements Act (H.R. 358) seeks to do.

The original 1980 RFA directs federal agencies to assess their rules’ effects on small businesses and to “publish semiannual regulatory agendas in the Federal Register describing regulatory actions they are developing that may have a significant economic impact on a substantial number of small entities.” Under the RFA, rules determined to have a “significant economic impact” on a “substantial number of small entities” must be subject to what is called a “regulatory flexibility analysis.”

Unfortunately, the RFA did not clearly define “significant economic impact” or “substantial number of small entities.” Further, the RFA’s definition of “regulatory flexibility analysis” was ambiguous. Given these problems, the Small Business Regulatory Enforcement Fairness Act (SBREFA) was passed in 1996. It sought to improve the RFA, but federal agencies still work around the law.

Because of the wording of RFA and SBREFA, many rules that will have significant impacts on small businesses dodge regulatory flexibility analysis because the small businesses adversely impacted by these rules are not directly considered regulated entities under the letter of the law. And when agencies do conduct regulatory flexibility analyses, they often only consider the direct economic impacts of proposed rules and fail to account for indirect impacts like downstream effects or externalities.

These loopholes have enabled agencies to avoid showing the true cost of many of their regulations. As detailed in 2022 edition of Ten Thousand Commandments by CEI Regulatory Studies Fellow Clyde Wayne Crews, of the 3,777 rules in the Fall 2021 regulatory pipeline, 693 were expected to affect small businesses. Yet, of these 693 rules, only 354 were required to be subject to a regulatory flexibility analysis – leaving 339 without review.

Rep. Cline introduced the Small Business Regulatory Flexibility Improvements Act earlier this year to close these loopholes and force regulators to truly disclose the total impact of all their regulations.

Specifically, the bill would modify rulemaking procedures to:

  • Include within initial and final regulatory flexibility analyses a detailed statement of information relating to a proposed rule;
  • Require each initial regulatory flexibility analysis to contain detailed information about the proposed rule, including why agency action is being considered, the objectives and legal basis for the proposed rule, and an estimate of the number and types of small entities to which the proposed rule will apply;

  • Eliminate waivers or delays of an initial regulatory flexibility analysis;

  • Make it easier for affected small entities to voice their concerns before a rule is finalized; and

  • Publish a plan for periodically reviewing existing rules, as well as new rules that have a significant impact on a substantial number of small entities to determine whether such rules should be continued, changed, or rescinded.

Sens. James Lankford (R-OK) and James Risch (R-ID) and former Rep. Steve Chabot (R-OH) and Bob Goodlatte (R-VA) argued in a 2019 op-ed on the legislation in The Hill:

Unlike larger corporations, small businesses cannot afford teams of lawyers to decipher the latest regulation or how to comply with the latest rule. Small businesses disproportionately suffer the consequences of over-regulation. They must spend thousands of dollars—on average $12,000 per employee per year—to sift through thousands of pages of confusing regulations, wade through agency bureaucracy, fill out lengthy permitting applications, wait weeks and months for agency decisions, and fight agency overreach. In fact, before a small business can even open its door, it must pay around $83,000 in start-up costs directly related to regulations.

Cline’s bill would help mitigate these never-needed regulatory burdens and protect small businesses, their owners, their employees, and American consumers.

The legislation currently has three cosponsors, up from one when it was introduced in the 117th Congress. Lankford introduced companion legislation in the Senate in 2019. A Senate version of the bill passed the Homeland Security and Governmental Affairs Committee in May 2017.

This post is part of an occasional series looking at regulatory reform bills in Congress. Previous posts cover the REINS Act, the GOOD Act, the Less Is More Resolution, the Article I Regulatory Budget Act, ALERT Act, and the Separation of Powers Restoration Act.