Willful blindness: federal agencies' failure to comply with the Regulatory Flexibility Act's periodic review requirement - and current proposals to invigorate the act.

• Author: See, Michael R.

1. INTRODUCTION

   We live in the age of the bureaucracy. Whether we realize it or not, federal agencies regulate every aspect of our daily lives, including: the cloth in our beds; (1) the fuel for our cars; (2) the way we are paid; (3) and the ingredients in the food we eat. (4) The federal administrative system has the power to dictate to American business how things are done and officials have not hesitated to exercise their power. Recognizing that this wide-ranging power comes with responsibility, Congress passed the Regulatory Flexibility Act (RFA) in 1980 (5) to ensure that regulators take into account the individual rights of ordinary small businessmen and women while achieving the policy goals that the legislature has dictated. One of the ways the RFA did this was through section 610, which requires federal agencies to periodically review existing rules and consider reducing the regulatory burden on small business.

   Unfortunately, over the past twenty-five years, federal regulators have often ignored section 610 and have not conducted periodic reviews of their rules. Even those agencies which review some of their existing rules under section 610 rarely act in response to their reviews. Most of these agencies comply with the letter of the law for only a small percentage of their rules, and they rarely take action beyond publishing a brief notice in the Federal Register. Ironically, when regulators conduct periodic reviews under section 610, they are far more likely to increase the burden of regulation on small entities than to reduce it. (6)

   Essentially, since Congress's order to the federal bureaucracy twenty-five years ago to continuously assess the proper balance between regulatory goals and the economic burden on small business, the bureaucracy has responded by ignoring this mandate. Today, Congress is revisiting the history of agency non-compliance and defiance in the face of its order, and is considering legislation to ensure that agencies no longer feel secure regulating the public in perpetuity. (7)

   This Article first explains the basic requirements of the Regulatory Flexibility Act, and in particular focuses on the periodic review requirement contained in section 610. It then shares the results of research on agency implementation rates of section 610 of the Act and discusses the problems with agency implementation. Finally, it highlights potential solutions to agency noncompliance, and proposes the adoption of three amendments to the RFA: the proposed legislation in the House of Representatives and Senate, which would amend section 610 of the Regulatory Flexibility Act, and two additional amendments, which target problems that are not addressed in the currently pending legislation.

2. THE REGULATORY FLEXIBILITY ACT

   1. What is the Regulatory Flexibility Act?

      1. The RFA

      During the Carter Administration, public attention turned towards a number of actions by the federal agencies which inflicted widespread harm on an already fragile economy. (8) Congress responded in 1980 with the RFA, the express purpose of which was to make agencies:

      [E]ndeavor, consistent with the objectives of the rule and of applicable statutes, to fit regulatory and informational requirements to the scale of the businesses, organizations, and governmental jurisdictions subject to regulation. To achieve this principle, agencies are required to solicit and consider flexible regulatory proposals and to explain the rationale for their actions to assure that such proposals are given serious consideration. (9) The RFA is designed to ensure that agencies consider how their rules will affect small entities. (10) A federal agency must determine whether a rule will result in a "significant economic impact on a substantial number of small entities," and if so, must conduct regulatory flexibility analyses to accompany its proposed and final rules. (11) The agency's analysis must include estimates of the impact the rule could have and "a description of the steps the agency has taken to minimize the significant economic impact on small entities consistent with the stated objectives of applicable statutes," along with the factual, policy, and legal reasons behind the alternative selected. (12)

      While the RFA may seem to be a simple procedural hurdle, requiring only that the agency publish analyses, (13) this analysis is the only statutorily-required, judicially reviewable agency determination on how the agency will deal with small entities. Prior to the passage of the RFA, agencies were under no statutory obligation to even consider regulatory alternatives that could reduce the harm they did to the most vulnerable of regulated entities. Disproportionate regulatory impacts and agency refusal to acknowledge the concerns of small entities were the norm prior to the passage of the RFA. (14) The RFA operates, in conjunction with the APA and other procedural protections, to confer a procedural right that appears almost substantive--that is, the right to prevent agencies from harming small entities arbitrarily.

      2. Section 610 of the RFA

      Section 610 of the RFA requires agencies to review a rule within ten years of the date of its publication for small entity impacts. The RFA instructs agencies to the following effect:

      In reviewing rules to minimize any significant economic impact of the rule on a substantial number of small entities in a manner consistent with the stated objectives of applicable statutes, the agency shall consider the following factors--

      (1) the continued need for the rule;

      (2) the nature of complaints or comments received concerning the rule from the public;

      (3) the complexity of the rule;

      (4) the extent to which the rule overlaps, duplicates or conflicts with other Federal rules, and, to the extent feasible, with State and local governmental rules; and

      (5) the length of time since the rule has been evaluated or the degree to which technology, economic conditions, or other factors have changed in the area affected by the rule. (15)

      Agencies are also required to publish notice in the Federal Register of their intent to perform reviews:

      Each year, each agency shall publish in the Federal Register a list of the rules which have a significant economic impact on a substantial number of small entities, which are to be reviewed pursuant to this section during the succeeding twelve months. The list shall include a brief description of each rule and the need for and legal basis of such rule and shall invite public comment upon the rule. (16) Most agencies began publishing their section 610 lists and notices in the semi-annual Unified Agenda publications in the mid-1990s. (17)

      According to section 610 of the RFA, the express purpose of the periodic review requirement is "to determine whether such rules should be continued without change, or should be amended or rescinded, consistent with the stated objectives of applicable statutes, to minimize any significant economic impact of the rules upon a substantial number of such small entities." (18) Congress was explicit in its aims in passing section 610, not only placing that purpose within the section itself, but declaring that the purpose of the section 610 review is to "to determine whether the rules and regulations of the agency are efficiently and equitably achieving the legislative goals under which they are promulgated." (19)

      In 1998, Congress revisited the RFA with a bill that would have amended section 610, the Regulatory Improvement Act of 1997 (which was referred to in a Senate Report as the Regulatory Improvement Act of 1998). (20) The bill would have reduced the time period of periodic review from ten years to five, and would have required agencies to publish legal and factual determinations upon conclusion of section 610 review, establishing a judicially reviewable administrative record for an agency's decision to leave a rule in place. (21) The bill stemmed from a perceived failure on the part of federal agencies to implement section 610, congressional frustration with the lack of periodic review, and the intent to confer "the benefits intended by Congress in 1980." (22) This bill, however, was ultimately not passed. (23)

      Section 610 reflects Congress's explicit decision to act, even though then-President Carter had acted with his Executive authority to require the same periodic review from agencies. (24) Executive Order 12,044, signed by President Carter, required agencies to consider both the costs of new regulations to small business (as the RFA later would), and to "periodically review their existing regulations," considering:

      (a) the continued need for the regulation;

      (b) the type and number of complaints or suggestions received;

      (c) the burdens imposed on those directly or indirectly affected by the regulations;

      (d) the need to simplify or clarify language;

      (e) the need to eliminate overlapping and duplicative regulations; and

      (f) the length of time since the regulation has been evaluated or the degree to which technology, economic conditions or other factors have changed in the area affected by the regulation. (25)

      This Executive Order was in place and functioning for a full two years before Congress considered the RFA. The legislators who voted for the RFA were fully aware of Executive Order 12,044, addressing it in a Senate Report which stated that the order was insufficient to protect the rights of small entities because it was "not subject to judicial review and the order is not permanent law but may be rescinded by the President at any time," and because "[a]dherence to the order by the independent regulatory agencies ... is completely voluntary." (26)

      Despite sitting under a President who shared the goals of the RFA and ordered his agencies to perform the RFA's periodic review, Congress nonetheless decided that the periodic review provision was so important that it should be required by statute, with a provision for judicial review, and that it should be...