Honorable J. Davitt McAteer
Assistant Secretary for
Mine Safety and Health
Department of Labor
4015 Wilson Boulevard
Arlington, VA 22203-1984
Re: Proposed Rule for Occupational Noise Exposure
30 CFR Part 62, RIN 1219-AA53
Dear Mr. McAteer:
We have received your letter dated August 19, 1996, regarding the proposed rule for occupational noise exposure in mines and the accompanying economic analysis.1
The Office of Advocacy of the Small Business Administration (SBA) was established by Congress under Public Law No. 94-305 to advocate the views of small business before Federal agencies and Congress. Advocacy is also required by §612 of the Regulatory Flexibility Act (RFA)2 to monitor agencies' compliance with the RFA. These are preliminary comments for the public docket. They address the Mine Safety and Health Administration's (MSHA) compliance with RFA in this rulemaking.
Small Business Definition
First, MSHA must use the proper procedure as specified in RFA to offer an alternative definition of small business for an analysis for a rulemaking.3 The definition of small business for specific industry classifications is provided in SBA regulations.4 However, because the agency is proposing to use an alternative definitions, MSHA must:
1) consult with the Office of Advocacy; and
2) solicit public comment on the definition.
In this rulemaking, MSHA defines "small mines" as those having fewer than 20 employees, and this definition is contrary to SBA's definitions.
Our office was contacted by Patricia W. Silvey, director of MSHA's Office of Standards, for a clarification of the small business definition in early August. Anita Drummond of the Office of Advocacy explained the definition and provided data from the 1993 U.S. Bureau of the Census on the mining industry. During that conversation, we emphasized that an agency needs to evaluate the economic factors of the industries that it is regulating to identify a need for proposing any alternative definition. This specific rulemaking was not discussed.
In the preamble, MSHA defends the alternative definition on the basis of tradition. Specifically, the agency contends, "Over the past 20 years, for rulemaking purposes, MSHA has consistently used this small mine definition."5 The customary practice of an agency does not create an exception for compliance with the statutory requirements of the Regulatory Flexibility Act. Specific justification for an alternative definition should be forwarded to the Office of Advocacy.
While MSHA presents the alternative definition in the rule's preamble, there is no indication to the public that the agency may not establish this definition until there has been consultation with the Office of Advocacy and there is opportunity for public comment.6 MSHA must correct the record.
Disproportionate Impact
One commonly cited excuse for not performing a regulatory flexibility analysis is that a regulation will not have a disproportionate impact on small business. MSHA asserts, "[T]he lack of a substantial cost increase for small mines, in conjunction with the fact that similar hazards exist in both large and small mining operations, indicates that special relief is not warranted."7 This explanation cannot shield an agency from doing an analysis of the impact of a regulation on small businesses.
Evidence of regulatory burdens was documented in a 1994 survey commissioned by the U.S. Small Business Administration.8 The report revealed that small firms are disproportionately burdened by the cost of regulatory compliance. In fact, firms with 20-49 employees reported spending nearly 20 cents of every revenue dollar to pay for the paperwork and operating costs attributable to regulations. The very smallest firms, those with one to four employees, seem to spend annually as much as $32,000 per employee on regulatory compliance. These burdens do not include the cost of capital investments required for compliance. In fact, the burden of compliance is as much as 50 percent more for small businesses than their larger counterparts.9
Economic Analysis
At this point, we are reviewing the economic analysis prepared by MSHA for this rulemaking. The Office of Advocacy will provide more comments on the analysis at a later date. However, for the short term we offer some general guidance.
Determining a rule's impact on small businesses and other small entities is an important part of the rulemaking process, and the integrity of the analysis for the Regulatory Flexibility Act will be a critical factor when determining an agency's compliance.
The process of analyzing the impact of regulations should be transparent. Assumptions should be fully revealed and terms clearly defined. Useful data on industry characteristics becomes very important when agencies are assessing the varying effects of regulations on different industry sectors.
A common mistake in economic analysis is using the aggregate or mathematical average to determine the impact of a regulation on small business. The objectives of the Regulatory Flexibility Act will only be achieved if agencies complete detailed analyses that break down sectors of the affected small businesses. Variables should include different size and industry classifications. For instance, a rule may have a very small impact on one sector, but a significant impact on a another. If these impacts are evaluated together, an average would not accurately characterize the impact. An effective economic analysis will delineate the burdens placed on specific sectors of the small business community.
Any conclusions about the impact of regulations should be couched in a thorough assessment of economies of scale when appropriate. Small businesses have fewer customers to pass along the cost of compliance. As a result, a small business with the same economic costs becomes uncompetitive because of higher prices or the company is less profitable with fewer options to react to market changes.
Obviously, the definitions used in an economic analysis also must withstand critical review. For instance, agencies are compelled to use definitions for small business established by SBA in most instances. This critical definition question is one of several lynch pins in an agency's demonstration of compliance with the Regulatory Flexibility Act.
Finally, agencies should not be tempted to certify a rule because they believe the benefits of a regulation will pay for the costs. Small businesses face immediate costs, and benefits are often long coming or evasive. Any significant costs (or benefits) must trigger a full analysis under RFA.
Conclusion
Because several agencies historically dismissed the importance of evaluating the regulatory impact on small business and ignored the requirements of the RFA, Congress and the President were compelled to enact the Small Business Regulatory Enforcement Fairness Act of 1996. If the status quo were achieving the objectives of the Regulatory Flexibility Act, there would have been little need for a new law. The 1996 legislation renews a public policy commitment to small business, reminds agencies of their obligations under RFA, and allows small businesses through judicial review to challenge agencies that fail to comply with the law.
To assist MSHA in its compliance with RFA, we offer these comments. The agency should assure it uses the proper definition of small business or follows the proper procedures for using an alternative definition of small business. In addition, the agency should execute an economic analysis that can be defended upon critical review under the Regulatory Flexibility Act.
If you have any questions about our comments, please contact me or Anita Drummond of my staff at (202) 205-6532.
Sincerely,
Jere W. Glover
Chief Counsel for Advocacy
cc: Honorable Sally Katzen
ENDNOTES
1 "Preliminary Regulatory Impact Analysis and Preliminary Regulatory Flexibility Analysis," Proposed Rule: 20 CFR Part 62, RIN 1219-AA53, Health Standards for Occupational Noise Exposure at Metal, Nonmetal and Coal Mines, Office of Standards, Regulations, and Variances, Mine Safety and Health Administration, U.S. Department of Labor (August 8, 1996).
2 5 U.S.C. §§601-612.
3 5 U.S.C. §601(3) "The term 'small business' has the same meaning as the term 'small business concern' under section 3 of the Small Business Act, unless an agency, after consultation with the Office of Advocacy of the Small Business Administration and after opportunity for public comment, establishes one or more definitions of such term which are appropriate to the activities of the agency and publishes such definition(s) in the Federal Register."
4 13 CFR Part 121.
5 Draft Preamble, Part 62, Noise (August 19, 1996), Department of Labor, Mine Safety and Health Administration, 30 CFR Part 62, RIN 1219 AA53, p.18.
6 Id.
7 Id. p.20.
8 "A Survey of Regulatory Burdens, Report to the U.S. Small Business Administration," Thomas D. Hopkins and Diversified Research, Inc. (June 1995).
9 "The Changing Burden of Regulation, Paperwork, and Tax Compliance on Small Business: A Report to Congress," U.S. SBA Office of Advocacy (October 1995).