Air and Radiation Docket and Information Center (6102)
Docket No. A-92-53
U.S. Environmental Protection Agency
401 M Street, S.W.
Washington, DC 20460
The Office of Advocacy is submitting these comments on the Regulatory Flexibility Act (RFA)(1) certification on the above mentioned rulemaking. The Environmental Protection Agency, pursuant to the RFA, certified that the rule would not have "a significant impact on a substantial number of small entities." (2)The Office of Advocacy believes that this rulemaking has been incorrectly certified, since no factual basis has been provided for the agency's certification of no significant impact on a substantial number of small entities, and thus, is not in compliance with provisions of the RFA.
In Section VI(F) of the rule's preamble, the agency notes that "for the purposes of the Agency's implementation of the [Regulatory Flexibility]Act, the EPA's guidelines define the term 'substantial number' as 100 or more firms."(3) The agency also declares that there are only a total of 44 firms in the industry, 7 of which are identified as small firms, according to Small Business Administration size standards,(4) and therefore, the requirements of the RFA are not applicable to the rule.
The agency's EPA Interim Guidance for Implementing the Small Business Regulatory Enforcement Fairness Act and Related Provisions of the Regulatory Flexibility Act, cited as the justification for the erroneous certification, taken as face value, classifies rules that do not affect more than 100 small entities in an industry as rules "presumed not to have a significant economic impact on a substantial number of small entities."(5)
If there are less than 100 firms in the industry to which a rule will apply, then the number of firms affected by a particular rulemaking identifies the size of the entire industry. The fact that there are less than 100 firms subject to the rulemaking does not mean the agency can automatically certify that the rule will not have a significant impact on a substantial number of small firms.
A literal interpretation of the agency's guidance would allow rulewriters to bypass RFA requirements for rules affecting industries with less than 100 firms, or simply dividing rulemaking actions so that no one particular rule affected more than 100 small firms. The agency's guidance is flawed, and must be revised to avoid an arbitrary definition, reliance upon which would lead to erroneous certifications, as in this instance.
In this proposed rule, about 16 percent of the potentially regulated industry are classified as small firms, according to SBA size standards(6) (750 employees). These firms could constitute a "substantial number" depending on the impact of the rule on these firms.(7)
Agency certifications such as this one are subject to judicial review, pursuant to the Small Business Regulatory Enforcement Fairness Act of 1996.(8) If the agency certifies a particular rule, the certification must include a factual basis for its decision. It is clear that Congress intended that this "factual basis" should provide sufficient information to elicit public comment and develop an adequate record for a court to review on appeal. (9)
The Office of Advocacy believes the agency's certification is flawed. The agency needs to review its certification and provide a factual basis for it, or complete an initial regulatory flexibility analysis, as required by the RFA.
Additionally, EPA certifies that the rule will not have a significant economic impact on a substantial number of small entities because the rule has a "control cost share of revenue of less than one percent for all of the seven cement plants which are considered small entities." Advocacy's Office of Economic Research is unfamiliar with this term, or what it means. Advocacy believes that regulated entities will have a difficult time interpreting this phrase as well. Use of unfamiliar phrases is bothersome and confusing, especially to small entities which could be affected by this rule.
The preamble also instructs the reader to refer to Section IV(H) of the preamble for more details on the cost of the rule and estimated price increases. However, Section IV(H) does not provide more detail. It merely provides a few sentences on regional price impacts, national average price increases, and losses in domestic production. It fails to include an assessment of cost impacts relative to sales across the whole industry and it also lacks any data specific to small business impacts.
EPA's explanation that small entities will be subject to less than "one percent of control cost share of revenue," even if understood by the reader, does not provide any specifics relative to significant economic impacts, and can be appropriately characterized as an unsubstantiated conclusion..
If the term "control cost share of revenue" is intended to mean that these small firms will be affected at less than one percent cost/sales, then there indeed could be a significant economic impact depending on what profit margins are in the industry, and if the profit margins of these firms decrease. Without an economic assessment that highlights the impacts on small business, the certification is inadequate, and must be revised and amended.
The Office of Advocacy recognizes that EPA has worked with portland cement small entities throughout the rulemaking process, and, in an effort to minimize adverse impacts, adopted in the proposed rule, the ideas of testing surrogates, "user friendly" rule language and allowing affected firms up to three years (and potentially four years) to comply with the requirements of the rule. However, the certification for this proposed rule is woefully inadequate, and must be changed for the reasons outlined above, to comply with the provisions of the RFA.
If there are any questions regarding these comments, please do not hesitate to call Damon Dozier, the Assistant Advocate for Environmental Policy. He can be reached at (202) 205-6936.
Sincerely,
Jere W. Glover
Chief Counsel for Advocacy
ENDNOTES
1. Pub. L. No. 96-354, 94 Stat. 1164 (codified at 5 USC § 601)
2. 5 USC § 605(b)
3. 63 FR 14209
4. 13 CFR § 121.201
5. Defined as Category 1 rules in EPA Interim Guidance for Implementing the Small Business Regulatory Enforcement Fairness Act and Related Provisions of the Regulatory Flexibility Act, pp.1--14, 1--18.
6. 63 FR 14209
7. EPA, in Section IV(H) of the preamble to the proposed rule, indicates that "decreases in domestic production may lead to the loss of approximately 230 jobs. No plants are expected to close; two kilns are expected to cease operating." If the impacts described here are impacts on either a specific number of, or even spread almost evenly among the 7 small firms, this could be defined as "substantial number", especially if those small firms bearing these impacts represent a significant portion of market share, or the affected will no longer be able to retain their status in the marketplace.
8. Small Business Regulatory Enforcement Fairness Act of 1996, Pub. L. No. 104-121, 110 Stat.857 (codified at 5 USC § 601 et seq. (1996)).
9. See CONG. REC. E574, April 19, 1996.
cc: Thomas Kelly, EPA
Joseph Wood, EPA
Art Fraas, OMB