Regulatory Flexibility Act - History

History

The origins of the RFA can be traced back to expressions of discontent about federal regulations by businesses from the 1930s onward, but the urgency of these concerns grew sharply as new federal agencies were created, and older ones given fresh mandates to pursue, in the 1960s and 1970s.

A parallel development, beginning in the 1970s, was the publication of increasingly compelling research on the economic role of smaller enterprises. These studies showed a strong link between the vitality of small business in the U.S. (and other nations) and the growth of overall employment and technological innovation.

These factors, together with the increasing political assertiveness of U.S. small businesses, provided impetus for a remarkable series of laws enacted from 1976-1984. In addition to the Regulatory Flexibility Act, these laws included the Paperwork Reduction Act, the Small Business Development Center Act, the Equal Access to Justice Act (EAJA), the Small Business Innovation Research Act (SBIR), and the Competition in Contracting Act (CICA).

The first in this line of laws was enacted in June 1976, when President Gerald Ford signed Public Law 94-305 creating an Office of Advocacy within the U.S. Small Business Administration (SBA), and giving that Office responsibility for assessing the impact of federal regulations on small firms. The law called on the Office of Advocacy to "measure the direct costs and other effects of government regulation on small businesses; and make legislative and nonlegislative proposals for eliminating excessive or unnecessary regulations of small businesses."

This was a significant recognition of the issue of scale in federal regulations, but its remedies—measuring effects and offering proposals—were incomplete.

On August 1, 1977, Senators Gaylord Nelson (D, WI) and John Culver (D, IA) introduced the earliest version of the Regulatory Flexibility Act in Congress. Their bill directed federal agencies to actually seek less burdensome regulations for small businesses, and assigned responsibility to the new Office of Advocacy to monitor compliance.

Following several hearings, the bill was revised in a number of ways, notably by including small nonprofit organizations and small governmental bodies within its jurisdiction. The legislation attracted more than 70 of the Senate's 100 members as co-sponsors, and passed the U.S. Senate unanimously in October 1978, although it was not acted upon by the U.S. House of Representatives until a new Congress convened in 1979.

Like later versions of the RFA, the 1977-8 legislation targeted the basic law governing the conduct of all federal agencies, called the Administrative Procedure Act. The RFA amended this statute by designating a new responsibility for federal agencies. Henceforth agencies would be required to assess the impact of their regulations on small entities (small businesses, small nonprofit organizations and small governmental jurisdictions) as a key part of the process for issuing regulations, and to use less burdensome alternatives whenever possible.

One of the creative aspects of the RFA was the method that it required the agencies to use.

Both Senators Nelson and Culver were noted environmentalists, so they adapted an approach used earlier in the National Environmental Policy Act. Agencies were to develop an "initial" analysis of the effects of a proposed regulation on small entities (similar to a preliminary environmental impact analysis), seek comments, and then refine these inputs into a "final" small entity impact analysis (similar to a final environmental impact analysis).

In the fall of 1979, as the Regulatory Flexibility Act moved forward in Congress, President Jimmy Carter took steps to advance some of the goals of the legislation administratively. He added the Small Business Administration to his Regulatory Council and issued a memorandum to the heads of executive departments and agencies, directing them “...to make sure that federal regulations will not place unnecessary burdens on small businesses and organizations,” and to apply regulations “in a flexible manner, taking into account the size and nature of the regulated businesses.” Agencies were to report on their efforts to the Office of Advocacy.

Meanwhile, the House and Senate Small Business and Judiciary Committees continued to hold hearings on the effects of regulation. Small business representatives cited evidence that uniform application of regulatory requirements made it difficult for smaller businesses to enter into various lines of business and to compete.

In January 1980, small business leaders elected by their peers assembled as delegates to the first modern White House Conference on Small Business. The final conference report noted that “during the past decade, the growth of government regulation has been explosive, particularly in such areas as affirmative-action hiring, energy conservation, and protection for consumers, workers, and the environment. Small business people recognize that some government regulation is essential for maintaining an orderly society. But there are now 90 agencies issuing thousands of new rules each year.”

Moreover, the report said, the new Office of Advocacy had estimated that small firms spent $12.7 billion annually on government paperwork. Among the conference recommendations, a top vote-getter was a recommendation calling for “sunset review” and economic impact analysis of regulations, as well as a regulatory review board with small business representation. The conference delegates recommended putting the onus of measuring regulatory costs on the regulatory agencies—to “require all federal agencies to analyze the cost and relevance of regulations to small businesses.”