[House Report 112-288]
[From the U.S. Government Publishing Office]
112th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 112-288
======================================================================
SMALL BUSINESS SIZE STANDARD FLEXIBILITY ACT
OF 2011
_______
November 16, 2011.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Graves of Missouri, from the Committee on Small Business, submitted
the following,
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 585]
[Including cost estimate of the Congressional Budget Office]
The Committee on Small Business, to whom was referred the
bill (H.R. 585) to amend the Small Business Act to provide for
the establishment and approval of small business concern size
standards by the Chief Counsel for Advocacy of the Small
Business Administration, having considered the same, report
favorably thereon without amendment and recommend that the bill
do pass.
CONTENTS
Page
I. Purpose of the Bill and Summary.................................2
II. Background and the Need for Legislation.........................2
III. Hearings........................................................2
IV. Committee Consideration.........................................3
V. Committee Votes.................................................3
VI. Section-by-Section Analysis of H.R. 585.........................6
VII. Congressional Budget Cost Estimate..............................8
VIII. Unfunded Mandates..............................................11
IX. New Budget Authority, Entitlement Authority, and Tax Expenditur11
X. Oversight Findings.............................................11
XI. Statement of Constitutional Authority..........................11
XII. Congressional Accountability Act...............................12
XIII. Federal Advisory Committee Statement...........................12
XIV. Statement of No Earmarks.......................................12
XV. Performance Goals and Objectives...............................12
XVI. Changes in Existing Law Made by the Bill, as Reported..........12
XVII. Dissenting Views...............................................14
I. Purpose and Bill Summary
The purpose of H.R. 585, the ``Small Business Size Standard
Flexibility Act of 2011,'' is to amend the Small Business Act
by transferring certain size standard determination functions
from the Administrator of the Small Business Administration
(SBA) to the Office of the Chief Counsel for Advocacy.
Currently, the Administrator, pursuant to Sec. 3(a)(2) of the
Small Business Act (15 U.S.C. Sec. 632(a)(2), has the authority
to determine what constitutes a small business for the purposes
of the Small Business or any other Act. Should an agency wish
to draft a regulation that adopts a size standard different
from the one already adopted by the Administrator in
regulations implementing the Small Business Act, the agency
must obtain approval of the Administrator. However, that
requires the Administrator to have a complete understanding of
the regulatory regime of that other act--knowledge usually
outside the expertise of the SBA. However, the Office of the
Chief Counsel for Advocacy, an independent office within the
SBA, represents the interests of small businesses in rulemaking
proceedings (as part of its responsibility to monitor agency
compliance with the Regulatory Flexibility Act, 5 U.S.C.
Sec. Sec. 601-12, (RFA)) does have such expertise. Therefore,
it is logical to transfer the limited function on determining
size standards of small businesses for purposes other than the
Small Business Act and Small Business Investment Act of 1958 to
the Office of the Chief Counsel for Advocacy.
II. Need for Legislation
The RFA allows a federal agency to consult with the Office
of the Chief Counsel for Advocacy if it wishes to use a
different size standard than the one adopted by the SBA in
carrying out the agency's analytical responsibilities under the
RFA. However, if an agency then uses that alternative size
standard for developing a final rule, it must obtain the
approval of the SBA as set forth in Sec. 3(a)(2) of the Small
Business Act. H.R. 585, by transferring the authority in
Sec. 3(a)(2) to the Office of the Chief Counsel for Advocacy
avoids the potential for inconsistent decisions in the federal
government concerning size standards. Finally, the Office of
the Chief Counsel for Advocacy has expertise, through its work
in reviewing agency compliance with the RFA, to understand the
context in which an agency is seeking to utilize a size
standard different than that promulgated by the SBA.
III. Hearings
The Committee met on June 15, 2011 to receive testimony
from outside experts on H.R. 585 at a hearing entitled
``Lifting the Weight of Regulations: Growing Jobs by Reducing
Regulatory Burdens.'' The witnesses noted their support for
H.R. 585 in an effort to avoid possibly inconsistent decisions
about small business size standard.
H.R. 585 had been incorporated into previous versions of a
broader bill dealing with amendments to the RFA. In committee
hearings on those bills, full support was provided for the
provision that is now H.R. 585.
IV. Committee Consideration
The Committee on Small Business met in open session, with a
quorum being present, on July 13, 2011 and ordered H.R. 585
reported without amendment to the House by a recorded vote of
13 yeas to 8 noes at 4:07 p.m. During the markup, one amendment
was offered by Ms. Velazquez (D-NY). The amendment would have
prohibited the transfer of authority to the Chief Counsel
unless the Chief Counsel certified the Office of Advocacy had
the personnel and absorb the cost of such transfer. The
amendment was not agreed to by a recorded vote of 11 yeas to 12
noes at 4:03 p.m.
V. Committee Votes
Amendment to H.R. 585 Offered by Ms. Velazquez of
New York
Add, at the end of the bill, the following:
SEC. 3. EFFECTIVE DATE; STUDY AND CERTIFICATION REQUIRED REGARDING
COST, RESOURCE DUPLICATION AND AGENCY WASTE.
This Act and the amendments made by this Act shall not take
effect until the date that the Chief Counsel for Advocacy of
the Small Business Administration--
(1) reports to the Committee on Small Business of the
House of Representatives and the Committee on Small
Business and Entrepreneurship of the Senate on the
feasibility, personnel resources required, and overall
cost to the Chief Counsel of carrying out the
responsibilities of the Chief Counsel under the
amendments made in section 2, including an analysis of
whether carrying out such responsibilities will result
in a duplication of functions in the Small Business
Administration, including those of the Office of Size
Standards; and
(2) certifies to the Committee on Small Business of
the House of Representatives and the Committee on Small
Business and Entrepreneurship of the Senate that the
Chief Counsel may carry out the responsibilities of the
Chief Counsel under the amendments made in section 2
without incurring any additional costs.
VI. Section-by-Section Analysis of H.R. 585
Section 1. Short title
Provides a short title for H.R. 585.
Section 2. Establishment and approval of small business concern size
standards by the Chief Counsel for Advocacy
In 1992, Senators Dale Bumpers (D-AR) and Malcolm Wallop
(R-WY) were incensed at actions taken by the Nuclear Regulatory
Commission (NRC) to increase fees for byproduct users of
fissile material under the Atomic Energy Act. The NRC did not
perform an adequate assessment of these fee increases on small
entities as required by the RFA. In establishing these fees,
the NRC utilized a different set of definitions than had been
set by the SBA under Sec. 3 of the Small Business Act. Senators
Bumpers and Wallop sponsored an amendment to the Small Business
Act requiring that federal agencies wishing to adopt a
definition of small business that varied from those promulgated
by the Small Business Administration (SBA) pursuant to its
Sec. 3 authority must issue the new size standard for notice
and comment and then obtain approval of the Administrator of
the SBA.
While the Administrator has significant acumen in setting
size standards, that expertise is limited to the use of size
standards for purposes of the Small Business Act and Small
Business Investment Act of 1958. As a result, the Administrator
is not the proper official to determine size standards for
purposes of other agencies' regulatory activities. The
Administrator is not fluent with the vast array of federal
regulatory programs, is not in constant communication with
small entities that might be affected by another federal
agency's regulatory regime, and does not have the analytical
expertise to assess the regulatory impact of a particular size
standard on small entities. Furthermore, the Administrator's
standards are: very inclusive, not developed to comport with
other agencies' regulatory regimes, and lack sufficient
granularity to examine the impact of a proposed rule on a
spectrum of small businesses. When other agencies have sought
the approval of the Administrator under the amendments made to
Sec. 3 of the Small Business Act by Senators Bumpers and
Wallop, the Office of Size Standards consulted with personnel
in the Office of Advocacy on the rectitude of an agency's
definition of small business that varied from those set forth
in the SBA's regulations interpreting the Small Business Act.
Given this rationale, it is appropriate to split the size
standard functions in the Small Business Act. Section 2 of H.R.
585 provides that the Administrator shall establish size
standards to carry out the purposes of the Small Business Act
or Small Business Investment Act of 1958. Section 2 then
delegates the authority to approve a size standard for purposes
of all other statutes to the Chief Counsel. The Chief Counsel
is only entitled to rule on size standards for definitions of
small business concerns if the agency issuing the regulation
does not adopt a size standard approved by the Administrator
for carrying out the purposes of the Small Business Act or
Small Business Investment Act. This will constrain the number
of size standard decisions by the Chief Counsel and allow
agencies to utilize already established standards rather than
have to go through the Chief Counsel for approval of each
standard. If a federal agency adopts, as a definition of small
business, a size standard approved by the Administrator, the
federal agency need not seek approval of the Chief Counsel
pursuant to Sec. 3 of the Small Business Act as amended by H.R.
585. The determination of a size standard for other regulatory
purposes has no effect on the requirements of an agency that
wishes to develop a definition of small business as set forth
in Sec. 601(3) of the RFA. Thus, there are two different size
standard approvals that the Chief Counsel may be forced to
make: (1) the size determination for analyzing the proposed and
final rule pursuant to the RFA; and (2) the definition of a
small business that may be included in the text of the final
rule.
Nothing in the legislation requires that the agency
promulgating a regulation must utilize the size standards in
its rules for purposes of complying with the RFA. However, it
would be logical for the agency to explain the rationale for
adopting different definitions in the statement of basis and
purpose as well as any FRFA or certification. To be sure, an
agency may use a different definition of small business for
purposes of compliance with the RFA if the agency adopts the
Administrator's definition of small business in the rule at
issue.
An alternative to the approach taken in H.R. 585 would be
for the Administrator to make all size standard determinations
with the concurrence of the Chief Counsel on those size
standards developed to implement statutes other than the Small
Business Act or Small Business Investment Act. Adoption of that
regulatory regime could lead to the anomalous result of the
Chief Counsel and Administrator making different determinations
on the same size standard. Under Sec. 601 of the RFA, the
default size standard for agency compliance with the RFA are
the ones adopted by the Administrator and set forth in Part 121
of Title 13, Code of Federal Regulations. However, the RFA
permits the agency to utilize a different standard in complying
with the RFA after consultation with the Chief Counsel for
Advocacy. The agency then uses that standard for its initial
and final regulatory flexibility analyses which results in the
agency adopting a small business exemption identical to the
definition of a small business in its regulatory flexibility
analyses. Since that definition is different than the one
adopted by the Administrator, the agency must seek the approval
of the Administrator. If the Administrator disapproves that
standard, then a small business exemption that the Chief
Counsel and the agency thought was appropriate would not be put
into effect.\1\ H.R. 585 avoids these potentially anomalous
results by vesting the Chief Counsel with the sole authority to
make size decisions for the purposes of other regulatory
programs.
---------------------------------------------------------------------------
\1\This could be particularly problematic if the size standard
adopted by the agency with the concurrence of the Chief Counsel is
larger than the size standard promulgated by the Administrator. The
Administrator might feel such an expansion of the term ``small
business'' inappropriate.
---------------------------------------------------------------------------
Section 2(c) makes conforming changes in Sec. 3(a)(3). The
Chief Counsel is added to ensure that size standards vary from
industry to industry as is appropriate given the context of the
rulemaking for which the Chief Counsel has been asked to
approve a definition of small business.
The Chief Counsel's decision on size standards should be
rational and subject to judicial review. Section 2(d)
authorizing judicial review eliminates litigation over whether
Congress intended a private right of action under Cort v. Ash,
422 U.S. 66 (1975), or whether the decision was left to the
discretion of the agency pursuant to Heckler v. Chaney, 470
U.S. 821 (1985).
To be sure, the Office of Advocacy could be placed in the
odd circumstance of being a respondent in an action in which it
is defended by the Department of Justice while at the same time
filing an amicus brief against the Department of Justice on
whether the agency complied with the RFA. Given the fact, the
Chief Counsel's ``intervention'' in the RFA compliance aspect
of the case is as an amicus rather than as a party, the
Committee does not believe the odd litigation stance will prove
problematic to the court reviewing the case or the Department
of Justice's defense of the Chief Counsel. The odd alignment of
defendants and friends of the court should not complicate
judicial review because courts often face challenges in which
one party challenging an agency action may agree with the
agency in opposition to a stance taken by another party
challenging the same rules. Despite the potential alignment of
interests, the Department of Justice should be able to fulfill
its obligations to defend the Chief Counsel on the size
standard decision\2\ even though the Chief Counsel may be
filing an amicus brief in opposition to the Justice
Department's other agency defendant. Finally, given the nature
of the claims and the record on review, the Department of
Justice's defense of the action will reveal client confidences
concerning the development of the rule to a ``party'' opposed
to the rule.
---------------------------------------------------------------------------
\2\It is very unlikely that the Chief Counsel will condemn an
agency's compliance with the RFA because of a size standard used in the
regulation was approved by the Chief Counsel. That actually would be
the height of irrational decisionmaking.
---------------------------------------------------------------------------
Nothing in these changes made by H.R. 585 are designed to
authorize a specific challenge to the size determination made
by the agency and the Office of Advocacy pursuant to
Sec. 601(3). To the extent that a party believes that the size
standard utilized in complying with the RFA was unreasonable,
the adversely affected small entity may challenge the agency's
compliance with the RFA as set forth in Sec. 611.
The changes made in H.R. 585 will not represent a
significant strain on the resources of the Office of the Chief
Counsel for Advocacy. According to data from the SBA, there
have been approximately 25 requests by other agencies under the
authority of amended section 3 of the Small Business Act since
the date of amendment in 1992. That works out to between one to
two requests per year. Even that may be an overestimate since
the vast majority of requests were made by the Federal
Communications Commission to implement its authority to auction
spectrum under Sec. 309(j) of the Communications Act of 1934,
47 U.S.C. Sec. 309(j). Given that the number of such auctions
will continue to diminish as the government runs out of
spectrum to auction, the Office of the Chief Counsel for
Advocacy should have sufficient resources to handle the
authority transferred to it under this legislation.
VII. Congressional Budget Office Cost Estimate
H.R. 585 would amend the Small Business Act to require
federal agencies obtain the approval of the Chief Counsel for
Advocacy rather than the Administrator if they wish to use a
definition of small business for the purposes of acts others
than the Small Business Act or Small Business Investment Act of
1958. No additional authorities or transfers are made between
the Administrator and the Chief Counsel for Advocacy under the
bill.
Based on information from the Office of the Chief Counsel
for Advocacy and other agencies, the Congressional Budget
Office estimates that implementing H.R. 585 would cost $6
million over the 2012-2016 period subject to appropriation of
the necessary amounts. Pay-as-you go procedures do not apply to
this legislation because it would not affect direct spending or
revenues.
U.S. Congress,
Congressional Budget Office,
Washington, DC, September 27, 2011.
Hon. Sam Graves,
Chairman, Committee on Small Business,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 585, the Small
Business Size Standard Flexibility Act of 2011.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Susan Willie.
Sincerely,
Douglas W. Elmendorf.
Enclosure.
H.R. 585--Small Business Size Standard Flexibility Act of 2011
Summary: H.R. 585 would authorize the Chief Counsel for
Advocacy within the Small Business Administration (SBA) to
specify standards to be used by federal agencies to determine
whether a business should be considered a small business under
certain statutes. Currently, the Administrator of SBA sets size
standards for purposes of implementing the Small Business Act
and the Small Business Investment Act; the Administrator
consults with the agency's Chief Counsel for Advocacy in
determining size standards to be used by federal agencies in
implementing other statutory provisions. H.R. 585 would split
the duties, authorizing the Chief Counsel for Advocacy to
determine and approve size standards for other federal
regulatory agencies while retaining the Administrator's
authority to set size standards for purposes of the Small
Business Act and the Small Business Investment Act.
Based on information from the SBA, CBO estimates that
implementing H.R. 585 would cost $6 million over the 2012-2016
period, assuming appropriation of the necessary amounts.
Enacting H.R. 585 would not affect direct spending or revenues;
therefore, pay-as-you-go procedures do not apply.
H.R. 585 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA)
and would not affect the budgets of state, local, or tribal
governments.
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 585 is shown in the following table.
The costs of this legislation fall within budget function 370
(commerce and housing credit).
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------------
2012 2013 2014 2015 2016 2012-2016
----------------------------------------------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Estimated Authorization Level........................... * 1 2 2 2 7
Estimated Outlays....................................... * 1 1 2 2 6
----------------------------------------------------------------------------------------------------------------
Note: * = less than $500,000.
Basis of estimate: For this estimate, CBO assumes that the
bill will be enacted near the end of 2011, the necessary
amounts will be appropriated each year, and spending will
follow historical patterns for similar activities.
Under current law, many statutes provide special
considerations for small businesses. For example, small
businesses enjoy set-asides in federal contracting policy and
pay lower fees to apply for patents and trademarks. In order
for the SBA and other agencies to determine eligibility for
such special consideration, the SBA has established size
standards that businesses must meet to be considered a small
business.
In some cases, the underlying statute clearly defines the
required characteristics of a small business; in other cases,
however, statutes authorize the implementing agency to make
those determinations. In the latter instance, an agency may use
the SBA's established size standards or may set a standard of
its own, developed in consultation with SBA and the Chief
Counsel for Advocacy at the SBA (an independent department
within the agency) and approved by the SBA Administrator.
Under H.R. 585, the SBA would retain its authority to
develop size standards for programs under the Small Business
Act and the Small Business Investment Act, while the Chief
Counsel for Advocacy would be authorized to specify size
standards for agencies developing regulations under any other
statute. Further, the Chief Counsel for Advocacy would approve
the size standard selected by an agency if it deviated from
SBA's prescribed standards.
Based on information from the Chief Counsel for Advocacy
and the SBA, CBO expects that the Office of Advocacy would
ultimately need 10 additional staff positions to implement its
new authority. Because the Office of Advocacy is an independent
department within SBA, the office does not have access to SBA's
legal and administrative support services; therefore, the
Office would need to develop that capacity separately. CBO
assumes that most of the new positions would fill that need;
the remaining positions would provide additional expertise in
developing size standards. CBO estimates that implementing the
provisions of H.R. 585 would cost $6 million over the 2012-2016
period, assuming appropriation of the necessary amounts, mostly
for salaries and expenses. Those costs are net of any savings
in the SBA's Office of Size Standards that would result from
narrowing its authority.
Pay-As-You-Go considerations: None.
Intergovernmental and private-sector impact: H.R. 585
contains no intergovernmental or private-sector mandates as
defined in UMRA and would not affect the budgets of state,
local, or tribal governments.
Estimate prepared by: Federal costs: Susan Willie; Impact
on state, local, and tribal governments: Elizabeth Cove
Delisle; Impact on the private sector: Amy Petz and Samuel
Wice.
Estimate approved by: Theresa Gullo, Deputy Assistant
Director for Budget Analysis.
VIII. Unfunded Mandates
H.R. 585 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act, Pub.
L. No. 104-4, and would impose no costs on state, local or
tribal governments.
IX. New Budget Authority, Entitlement Authority and
Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House, the Committee provides the following opinion and
estimate with respect to new budget authority, entitlement
authority and tax expenditures.
The Committee does not adopt as its own the estimate of new
budget authority contained in the cost estimate prepared by the
Director of the Congressional Budget Office pursuant to
Sec. 402 of the Congressional Budget Act of 1974.
The Committee believes that the Congressional Budget Office
failed to comprehend the scope of the authority being
transferred in this legislation from the Administrator to the
Office of the Chief Counsel for Advocacy. Currently, an agency
must obtain the approval of the Administrator if the agency
wishes to use a definition of small business different than one
developed by the Administrator. This authority has been used a
total of 32 times by federal agencies (22 times by the Federal
Communications Commission for the auctioning of spectrum
pursuant to Sec. 309(j) of the Federal Communication Act of
1934) since 1992. That is less than 2 approvals per year.
Under H.R. 585, it is only the authority that has been used
32 times in history that will be transferred to the Office of
the Chief Counsel for Advocacy. The Committee does not believe
that it will cost between $1 and $2 million per year for the
Office of the Chief Counsel for Advocacy to make a
determination on the one to two requests for size standards
that it might receive in a given year. As a result, the
Committee believes that the Office of the Chief Counsel for
Advocacy can perform the transferred function within its
current budget and requires no additional budgetary outlays.
The bill does not contain any new entitlement authority, tax
expenditures, or tax revenue.
X. Oversight Findings
In accordance with clause 2(b)(1) of rule X of the Rules of
the House, the oversight findings and recommendations of the
Committee on Small Business with respect to the subject matter
contained in H.R. 585 are incorporated into the descriptive
portions of this report.
XI. Statement of Constitutional Authority
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds that the
authority for this legislation in Art. I, Sec. 8, cls. 1, 3,
and 18.
XII. Congressional Accountability Act
H.R. 585 does not relate to the terms and conditions of
employment or access to public services or accommodations
within the meaning of Sec. 102(b)(3) of Pub. L. No. 104-1.
XIII. Federal Advisory Committee Act Statement
H.R. 585 does not establish or authorize the establishment
of any new advisory committees as that term is defined in the
Federal Advisory Committee Act, 5 U.S.C. App. 2.
XIV. Statement of No Earmarks
Pursuant to clause 9 of rule XXI, H.R. 585 does not contain
any congressional earmarks, limited tax benefits or limited
tariff benefits as defined in subsections (e), (f) or (g) of
clause 9 of rule XXI of the Rules of the House.
XV. Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House, the Committee establishes the following performance
related goals and objectives for this legislation:
H.R. 585 includes provisions designed to streamline the
process of obtaining approval of size standards for the
purposes of acts other than the Small Business Act and Small
Business Investment Act of 1958.
XVI. Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
SMALL BUSINESS ACT
* * * * * * *
Sec. 3. (a)(1) * * *
(2) Establishment of size standards.--
[(A) In general.--In addition to the criteria
specified in paragraph (1), the Administrator
may specify detailed definitions or standards
by which a business concern may be determined
to be a small business concern for the purposes
of this Act or any other Act.]
(A) In general.--In addition to the criteria
specified in paragraph (1)--
(i) the Administrator may specify
detailed definitions or standards by
which a business concern may be
determined to be a small business
concern for purposes of this Act or the
Small Business Investment Act of 1958;
and
(ii) the Chief Counsel for Advocacy
may specify such definitions or
standards for purposes of any other
Act.
* * * * * * *
(C) Requirements.--Unless specifically
authorized by statute, no Federal department or
agency may prescribe a size standard for
categorizing a business concern as a small
business concern, unless such proposed size
standard--
(i) * * *
* * * * * * *
[(iii) is approved by the
Administrator.]
(iii) except in the case of a size
standard prescribed by the
Administrator, is approved by the Chief
Counsel for Advocacy.
(3) When establishing or approving any size standard
pursuant to paragraph (2), the Administrator or Chief
Counsel for Advocacy, as appropriate shall ensure that
the size standard varies from industry to industry to
the extent necessary to reflect the differing
characteristics of the various industries and consider
other factors deemed to be relevant by the
Administrator or Chief Counsel for Advocacy.
* * * * * * *
(6) Judicial review of standards approved by chief
counsel.--In the case of an action for judicial review
of a rule which includes a definition or standard
approved by the Chief Counsel for Advocacy under this
subsection, the party seeking such review shall be
entitled to join the Chief Counsel as a party in such
action.
* * * * * * *
XVII. DISSENTING VIEWS
----------
H.R. 585--THE SMALL BUSINESS SIZE STANDARD FLEXIBILITY ACT
OF 2011
Background
Under current law, the Small Business Administration (SBA)
unambiguously approves size standards for all laws, including
the Small Business Act and any other statute. With regard to
the SBA, these standards are most notably used to determine
eligibility for the agency's lending and contracting programs.
For statutes unrelated to the SBA, size standards are used to
determine eligibility for certain federal programs or in the
application of certain other laws. To this point, the Small
Business Act states that ``. . . the Administrator may specify
detailed definitions or standards by which a business concern
may be determined to be a small business concern for the
purposes of this Act or any other Act.''\1\
---------------------------------------------------------------------------
\1\15 U.S.C. Sec. 632(a)(2)(A).
---------------------------------------------------------------------------
This responsibility is not legally altered although the
Regulatory Flexibility Act contains language that permits
agencies to consult with the Office of Advocacy regarding an
alternative definition for ``small business concern.'' The RFA
states ``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.''\2\ By requiring that the Office of
Advocacy only be consulted, and not approve an alternative
definition for ``small business concern,'' it is clear that the
SBA retains full legal authority over size standard
determinations.
---------------------------------------------------------------------------
\2\5 U.S.C. Sec. 601(3).
---------------------------------------------------------------------------
As a result, the SBA's Office of Size Standards has served
as the sole approval authority for determining size standards--
for both the Small Business Act and all other statutes. When an
agency is seeking to use a size standard other than those
approved by the SBA, the agency may consult with the Office of
Advocacy. Such consultation is sensible, as the Office of
Advocacy has significant knowledge of the regulatory
environment outside of the canon of SBA law. However, the SBA's
Office of Size Standards, with its historical involvement,
expertise, and staff resources in this area, remains the
appropriate entity to approve such size standards.
Impact of Legislation
H.R. 585 rewrites 15 U.S.C. Sec. 632(a)(2)(A) and
effectively splits the approval of size standards between the
SBA and the Office of Size Standards. Under the legislation,
the SBA would establish size standards related to the Small
Business Act and the Small Business Investment Act of 1958. It
then delegates the authority to approve a size standard for
purposes of all other statutes to the Office of Advocacy.
Creates bureaucratic duplication and confusion
While the legislation permits the SBA to continue to
approve size standards for its enabling statutes, it removes
SBA's authority to do so for other statutes. The result would
be to create a duplicate size standard authority in both the
SBA and the Office of Advocacy. Both the SBA and the Office of
Advocacy would have personnel who would analyze and evaluate
size standards. Through the bifurcation of these
responsibilities, taxpayers would effectively be forgoing the
economies of scale that are currently enjoyed by the operation
of a single Office of Size Standards in the SBA.
Having two such entities that have the same mission is not
a transfer of function, but an inefficient and duplicative
reorganization. It was for these reasons that in 2004, Thomas
Sullivan, the Chief Counsel of the Office of Advocacy under
President George W. Bush testified before this committee saying
that ``[t]he SBA's Office of Size Standards has the necessary
expertise and resources to make appropriate decisions regarding
industry size determinations, so I do not believe that that
[this legislative change] will benefit small entities.''\3\
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\3\Hearing before the Committee on Small Business, U.S. House of
Representatives, entitled ``Improving the Regulatory Flexibility Act--
H.R. 2345,'' May 5, 2004, Washington, D.C.
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Having two entities duplicate size standards approvals will
create bureaucratic confusion. In this regard Mr. Sullivan
further testified ``that vesting the authority to determine
size standards to . . . Advocacy may cause confusion over which
SBA office determines size standards.''\4\ He followed by
saying that he did ``not believe that the proposed [language]
will benefit small entities.''\5\ Such concerns remain relevant
today, as the duplication of size standard responsibilities
will cause agencies and small firms to understand not only the
minutiae of size standards but also the inner-working of SBA's
bureaucracy. Instead of having one central office, there will
now be two--further muddling small businesses' relationship
with the federal government.
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\4\Ibid.
\5\Ibid.
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Such duplication also runs counter to the committee's Views
and Estimates on the SBA's FY 2012 Budget Submission, which was
approved by voice vote on March 15, 2011.\6\ In its Views and
Estimates letter, the committee cites several instances of
duplication in the agency's programs and, as a result, requests
that funds be terminated for such programs. Similarly, the
enactment of H.R. 585 would create clear duplication within the
SBA and the Office of Advocacy as both entities would be able
to approve size standards.
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\6\See ``Entrepreneurial Development Programs'' heading,
specifically the subheading concerning the Women's Business Center,
Veterans Business Outreach Centers, and PRIME, and the Office of Native
American Affairs in letter to Committee on the Budget regarding the
Committee on Small Business' Views and Estimates on the SBA's FY 2012
Budget Submission. Letter can be found at http://smbiz.house.gov/
UploadedFiles/March_17 _Views_and_Estimates_Letter.pdf.
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Maintaining the current consultative relationship between
the Office of Advocacy is more sensible. On this matter, Frank
Swain, the Chief Counsel of the Office of Advocacy under
President Ronald Reagan stated during the June 15, 2011 hearing
on H.R. 585 with regard to the Office of Advocacy's role in
size standard determinations ``that . . . they ought to be
consultative with the SBA Size Standards office. . . .''\7\
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\7\Hearing before the Committee on Small Business, U.S. House of
Representatives, entitled ``Lifting the Weight of Regulations: Growing
Jobs by Reducing Regulatory Burdens,'' June 15, 2011, Washington, D.C.
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An amendment was offered by Ranking Member Velazquez to
ensure that such duplication would not impose any new costs on
taxpayers. Unfortunately, this amendment was defeated by a vote
of 11 to 12.
Imposes unnecessary costs
The Office of Advocacy has a current budget of $9 million
and 46 employees. The approval of H.R. 585 would add new
responsibilities and costs to this office as size standard
approval and determination requires in-depth industry research
and analysis. Such examination may include sector specific
surveys, statistical analysis, and regulatory requirements. On
this last point, when SBA issues revised size standards, it
does so through notice and comment rulemaking. This entails not
only writing the rule, but also soliciting and summarizing
comments. This process is costly and the Office of Advocacy
will be required to take on these rulemaking responsibilities.
These new responsibilities would require additional
statistical and legal staff resources, adding as much as 20
percent or more per year to the office's annual budget. As CBO
notes in its cost estimate, ``. . . the Office of Advocacy
would ultimately need 10 additional staff positions to
implement its new authority. Because the Office of Advocacy is
an independent department within SBA, the office does not have
access to SBA's legal and administrative support services;
therefore, the office would need to develop that capacity
separately. CBO assumes that most of the new positions would
fill that need; the remaining positions would provide
additional expertise in developing size standard.''\8\
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\8\Congressional Budget Office, Cost Estimate for H.R. 585,
September 27, 2011.
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Given the limited budget and staff resources of the Office
of Advocacy, this change will add to the mission of the office
and may create challenges for it to carryout its existing
duties. To this point, Frank Swain, the Chief Counsel of the
Office of Advocacy under President Ronald Reagan stated during
the June 15, 2011 hearing that ``I think the chief counsel has
plenty to do without being in the size standard business.''\9\
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\9\Ibid.
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Detracts from primary mission of advocating for small
businesses
The Office of Advocacy's mission is to provide an
independent voice for small business within the federal
government. In carrying out this mission, it advances the
views, concerns, and interests of small business before
Congress, the White House, federal agencies, federal courts,
and state policymakers. H.R. 585 will undermine this specific
mission by adding the administrative responsibility of size
standard determination to its responsibilities.
Requiring the Office of Advocacy to take on size standard
determinations will require them to deviate from their current
mission of advocating for small businesses in the regulatory
process. Approval of a size standard will require the office to
deploy staff resources to these tasks, removing them from their
core responsibilities tied to advocating for small businesses.
Instead, the Office of Advocacy should remain as the
primary voice of small businesses and the SBA Office of Size
Standards should maintain its role as the primary authority on
size standards. Doing so not only benefits small businesses,
but also the taxpayer.
Conclusion
Despite alleging to solve bureaucratic inefficiencies, H.R.
585 ironically creates such a problem. While proponents may
suggest that the legislation simply ``transfers'' a function
from one department to another, what it is really doing is
creating a duplicative function within another department. Such
``duplication'' is regularly cited by proponents of the
legislation as a rationale to eliminate many of the SBA's
entrepreneurial development programs, including those that
serve women, Veterans, and Native Americans. Perhaps these
programs could be saved from elimination if they were simply
labeled as a ``transfer'' of training functions for women,
Veterans, and Native Americans. Such irony is not lost on the
committee's Democrats.
In closing, it is important to remember one simple fact--
the SBA already operates an Office of Size Standards. And given
its eponymous mission, the SBA's Office of Size Standards is
better positioned to maintain all size standard tasks as it can
take advantage of the obvious economies of scale and scope
associated with these functions.
Nydia M. Velazquez.