November 12, 2014

Small businesses are heroic and iconic figures in the American story of opportunity. The vast majority of private enterprises in the U.S. today employ fewer than 100 workers, and many workers aspire to own their own business. So when small businesses argued that the federal rulemaking process should pay attention to their special needs, policymakers listened.

By law, three federal agencies – the U.S. Environmental Protection Agency, the Occupational Safety and Health Administration, and the Consumer Financial Protection Bureau – are required to convene a small business review panel any time they plan to issue a rule that could have a significant economic impact on small businesses.

Who participates in the review panel process? Are these panels representing and protecting the interests of small businesses in federal rulemaking? Does this process allow for the creation of needed public protections while mitigating any impacts on small businesses?

To answer these questions, staff at the Center for Effective Government examined 20 Small Business Advocacy Review panels convened between 1998 and 2012. Here is what we found:

The current Small Business Advocacy Review process is costly, resource intensive, and duplicative of other agency outreach efforts to the business community.



Of the 23 rules covered by the 20 review panels examined in this study, 17 rules have been finalized. Some of the public protection provisions in at least eight of the 17 final rules were, in our judgment, weakened as a result of the panel review process. In every case, the review process delayed the publication of the rule.



The Small Business Advocacy Review panel process is manipulated by trade associations. They help identify “small businesses” to advise the panels, participate in meetings with selected representatives, and even help write their comments. They may also submit their own comments.



EPA, OSHA, and CFPB lack formal procedures to verify that prospective small business advisors are in fact eligible small entity representatives.



Many individuals nominated by trade associations to be small business advisors to the panels were representatives, board members, lawyers, or consultants for trade associations and did not own or operate a small entity likely to be affected by the rule under development.



Office of Advocacy staff encouraged trade associations to participate in the small business review panel process in a variety of roles, including serving as informal “helpers” to the formally designated small business advisors.



Several public protections were, in our judgment, weakened as a result of the panel review process. In every case, the review process delayed the publication of the rules. The Office of Advocacy inappropriately collaborated with trade association representatives and “small business” advisors in developing the content of comments submitted to the review panel. Since the Office of Advocacy is a formal member of the small business review panel that examines comments and makes recommendations based on them, it appears to be a manipulation of the process for Advocacy to also shape the comments submitted to the panel.



On numerous occasions, the “small business” representatives advising the review panels recommended rule changes that went beyond the small business impacts that the panels were convened to review.



EPA and CFPB withheld the names of review panel participants from the public until after the publication of the rule under review – preventing questions about the qualifications of appointed small business advisors or potential conflicts of interest.

To expand and deepen input from actual small businesses, enhance public access to rulemaking information, minimize opportunities for large industry capture, and ensure the integrity of public protections, we recommend the following:

EPA, OSHA, and CFPB should screen the panel recommendations and the comments of small business advisors and only consider changes to a rule that specifically address the impacts on small businesses subject to the rule.



Each agency should develop written eligibility criteria that define who qualifies as a small entity representative, and each nominee should certify in writing that he or she meets the criteria.



Agencies should avoid the use of trade association representatives as designated small business advisors.



Unless meaningful improvements are made to the small business review panel process to ensure genuine small businesses participate and share their unique concerns, the process will continue to be a waste of public funds and agency resources. Agencies should establish policies that limit the role of “helpers” and other unofficial participants and make their role transparent.



The Office of Advocacy should help agencies identify qualified small business owners to advise the panels instead of recommending trade association representatives as advisors.



The small business representatives that the review panels consult should reflect the diversity and richness of the millions of small businesses currently operating in the U.S. Agencies should permit and encourage small business owners to self-nominate for review panels and widely publicize opportunities to participate in an easily accessible location on their websites, in relevant trade publications, and in the Federal Register .

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Agencies should publicly post the names and affiliations of small business advisors at least one month prior to the panel convening so the public and other small business associations have the opportunity to examine the list for potential conflicts of interest.



Since the Office of Advocacy serves as a panel member that reviews input and comments submitted by small business advisors, helpers, and other unofficial participants, it should be precluded from collaborating in the development of comments submitted to the panel to avoid the appearance of unduly influencing the review process.

Unless meaningful improvements are made to the small business review panel process to ensure genuine small businesses participate and share their unique concerns, the process will continue to be a waste of public funds and agency resources. Big businesses, their lobbyists, and trade associations have many opportunities to register their views during the already lengthy rulemaking process. This small business review process is intended to provide an opportunity for input from genuine small businesses. It should not serve as another avenue for trade associations and their lobbyists to weaken critical public health, environmental, worker safety, and consumer finance protections.