Congressional Research Service Report: 'SBA Office of Advocacy – Overview, History & Current Issues' (Part 1 of 2)
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Summary
Advocacy is a relatively small office with a relatively large mandate--to represent the interests of small business in the regulatory process, provide Regulatory Flexibility Act (RFA) compliance training to federal regulatory officials, produce and promote small business economic research to inform policymakers and other stakeholders concerning the impact of federal regulatory burdens on small businesses and the role of small businesses in the economy, and facilitate small business outreach across the federal government.
This report examines Advocacy's origins and the expansion of its responsibilities over time; describes its organizational structure, funding, functions, and current activities; and discusses recent legislative efforts to further enhance its authority. For example, during the 115th
The analysis suggests that Advocacy faces several challenges.
* Advocacy, generally recognized as being an independent office, is housed within the much larger SBA which, given their statutorily overlapping missions as advocates for small businesses, makes it more difficult for stakeholders to recognize Advocacy as the definitive voice for small businesses.
* Chief Counsels tend to have relatively short tenures, creating continuity problems for Advocacy.
* The RFA does not define significant economic impact or substantial number of small entities, two key terms for triggering Advocacy's role under the RFA. The lack of clarity concerning these key terms makes it difficult for Advocacy to objectively determine agency compliance with the RFA and to train federal regulatory officials in how to come into compliance with the act.
* Advocacy often finds itself involved in ideological and partisan disputes concerning the outcome of federal regulatory policies for which it does not have the final say.
* Advocacy's ability to produce and promote economic research on small businesses and to engage in outreach activities, particularly outreach activities not directly related to its RFA role, is constrained by its relatively limited budgetary resources.
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Contents
Introduction ... 1
Advocacy's Origins ... 2
An "Independent"
Advocacy's Regulatory Oversight Role Expanded ... 5
Advocacy's Independent Status Enhanced ... 6
Current Organizational Structure and Funding ... 7
Advocacy and Federal Regulations ... 7
The RFA ... 8
Executive Order 13272 ... 9
Advocacy's Regulatory Activities ... 10
Producing and Promoting Research on Small Businesses ... 11
Advocacy's Research Activities ... 12
Promoting Small Business Outreach ... 12
Advocacy's Outreach Activities ... 13
Current Congressional Issues ... 14
Arguments for Expanding Advocacy's Regulatory Authority ... 14
Arguments Against Expanding Advocacy's Regulatory Authority ... 15
Concluding Observations ... 16
Figures
Figure 1.
Contacts
Author Information ... 17
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Introduction
The Chief Counsel for Advocacy (Chief Counsel) directs the office and is appointed by the President from civilian life with the advice and consent of the
* "intervening early in federal agencies' regulatory development processes on proposals that affect small entities and providing Regulatory Flexibility Act compliance training to federal agency policymakers and regulatory development officials;
* producing research to inform policymakers and other stakeholders on the impact of federal regulatory burdens on small businesses, to document the vital role of small businesses in the economy, and to explore and explain the wide variety of issues of concern to the small business community; and
* fostering a two-way communication between federal agencies and the small business community."/2
Advocacy has 50 staff members and received an appropriation of
Advocacy's responsibilities have expanded over time, and legislation has been introduced in recent Congresses to increase its authority still further. For example, during the 115th
* revised and enhanced requirements for federal agency notification of the Chief Counsel prior to the publication of any proposed rule;
* expanded the required use of small business advocacy review panels from three federal agencies to all federal agencies, including independent regulatory agencies;
* empowered the Chief Counsel to issue rules governing federal agency compliance with the RFA;
* specifically authorized the Chief Counsel to file comments on any notice of proposed rulemaking, not just when the RFA is concerned; and
* transferred size standard determinations for purposes other than the Small Business Act and the Small Business Investment Act of 1958 from the SBA's Administrator to the Chief Counsel./4
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1
2 SBA, FY2022 Congressional Budget Justification and FY2020 Annual Report, p. 174.
3 SBA,
4 The size standard provision was in H.R. 585, the Small Business Size Standard Flexibility Act of 2011, which was introduced during the 112th
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During the 113th
More recently, S. 83, the Advocacy Empowerment Act of 2019, would have empowered the Chief Counsel to issue rules governing federal agency compliance with the RFA.
In addition, during the 114th
This report examines Advocacy's origins and the expansion of its responsibilities over time; describes its organizational structure, funding, functions, and current activities; and discusses recent legislative efforts to further enhance its authority.
Advocacy's Origins
The Small Business Act of 1953 (P.L. 83-163, as amended) authorized the SBA and directed the agency to "aid, counsel, assist, and protect, insofar as is possible, the interests of small-business concerns." The SBA provided this advocacy function primarily through its administration of small business loan guaranty programs, contracting assistance programs, and management and training programs. The SBA Administrator serves as the lead advocate for small businesses within the federal government.
During the early 1970s, several small business organizations indicated at congressional hearings that they were not wholly satisfied with the SBA's advocacy efforts, especially in achieving regulatory relief for small businesses.
P.L. 93-386 provided the Chief Counsel five duties:
1. serve as a focal point for the receipt of complaints, criticisms, and suggestions concerning the policies and activities of the Administration and any other federal agency that affects small businesses;
2. counsel small businesses on how to resolve questions and problems concerning the relationship of the small business to the federal government;
3. develop proposals for changes in the policies and activities of any agency of the federal government that will better fulfill the purposes of the Small Business Act and communicate such proposals to the appropriate federal agencies;
4. represent the views and interests of small businesses before other federal agencies whose policies and activities may affect small businesses; and
5. enlist the cooperation and assistance of public and private agencies, businesses, and other organizations in disseminating information about the programs and services provided by the federal government, which are of benefit to small businesses, and information on how small businesses can participate in or make use of such programs and services./6
The SBA created the
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5
6 P.L. 93-386, the Small Business Amendments of 1974.
7
8
9
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An "Independent"
As the
P.L. 94-305 also
* retained Advocacy's five duties as identified in P.L. 93-386;
* specified that one of Advocacy's primary functions was to examine the role of small business in the American economy and the problems faced by small businesses and to recommend specific measures to address those problems;
* empowered the Chief Counsel, after consultation with and subject to the approval of the SBA Administrator, to employ and fix the compensation of necessary staff, without going through the normal competitive procedures directed by federal law and the
* specified that the Chief Counsel could obtain expert advice and other services, and hold hearings;
* directed each federal department, agency, and instrumentality to furnish the Chief Counsel with reports and information deemed by the Chief Counsel as necessary to carry out his or her functions;
* ordered the Chief Counsel to provide
* authorized to be appropriated
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10
11 President
12
13
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It was at this time that the word independent began to be used to describe the Chief Counsel and the
Advocacy's Regulatory Oversight Role Expanded
Advocacy's duties were further expanded following enactment of P.L. 96-354, the Regulatory Flexibility Act of 1980 (RFA, as amended)./15
The RFA
"establishes in law the principle that government agencies must analyze the effects of their regulatory actions on small entities-small businesses, small nonprofits, and small governments-and consider alternatives that would be effective in achieving their regulatory objectives without unduly burdening these small entities. Advocacy has the responsibility of overseeing and facilitating federal agency compliance."/16
The RFA's sponsors argued that federal agencies should be required to examine the impact of regulations on small businesses because federal regulations tend to be "uniform in design, permit little discretion in their implementation, and place a disproportionate burden upon small businesses, small organizations and small governmental bodies."/17 As
"First, even if actual regulatory costs are equal between competing large and small firms, small firms have fewer units of output over which to spread such costs and must include in the price of each unit a larger component of regulatory cost. Second, where small firms have smaller actual regulatory costs than large firms (as is generally the case), small firms remain at a competitive disadvantage because they are unable to take advantage of the "economies of scale" of regulatory compliance. Large firms generally already have extensive "in-house" data compilation and reporting systems and specialized staff accountants, lawyers and managers whose primary function is regulatory compliance. Small firms, by comparison, must either hire additional personnel or purchase expensive consulting services in order to acquire the necessary regulatory expertise."/18
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14 P.L. 94-305; and
15 5 U.S.C. Sec.
16 SBA,
17
18
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Economist
"There seem to be clear economies of scale imposed by most regulatory endeavors. Uniform application of regulatory requirements thus seems to increase the size [of the] firm that can effectively compete. The cost curve of the firm is shifted upward ... [with] the small firms' cost curve shifting more than that of the dominant firms [thus] the share of the dominant firm will increase while that of small firms will decrease. As a result, industrial concentration will have increased. This ... suggests that the "small business" [regulatory] problem goes beyond mere sympathy for the small businessman, but strikes at the heart of the established national policy of maintaining competition and mitigating monopoly."/19
As discussed below, the RFA requires federal agencies to assess the impact of their forthcoming regulations on small entities, which the act defines as small businesses, small governmental jurisdictions, and certain small not-for-profit organizations./20
The Chief Counsel is responsible for monitoring and reporting agencies' compliance with the act's provisions. The Chief Counsel also reviews and comments on proposed regulations and may appear as amicus curiae (i.e., friend of the court) in any court action to review a rule.
Advocacy's Independent Status Enhanced
P.L. 111-240, the Small Business Jobs Act of 2010, further enhanced Advocacy's independence by ending the practice of including Advocacy's budget in the SBA's Salaries and Expenses' Executive Direction account. Instead, the President is required to provide a separate statement of the amount of appropriations requested for Advocacy, "which shall be designated in a separate account in the
In recognition of its enhanced independence and separate appropriations account, Advocacy, for the first time, issued its own congressional budget justification document and annual performance report as part of the
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19
20 The RFA specifies that ...(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
21
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Current Organizational Structure and Funding
As mentioned previously, Advocacy currently has 50 staff positions (typically with three to six vacancies at any given time): 4, including the Chief Counsel (currently vacant), in the
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[See link at end of text for Figure 1.
Source:
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As mentioned, Advocacy received an appropriation of
Advocacy and Federal Regulations
Advocacy is responsible for monitoring and reporting on federal agency compliance with the RFA (5 U.S.C. Sec.Sec.601-612) and Executive Order 13272, Proper Consideration of Small Entities in Agency Rulemaking (
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22 SBA, FY2022 Congressional Budget Justification and FY2020 Annual Report, p. 175.
23 SBA, FY2022 Congressional Budget Justification and FY2020 Annual Report, p. 175.
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The RFA
As mentioned previously, the RFA (as amended) requires federal agencies to assess the impact of their forthcoming regulations on small entities, which the act defines as including small businesses, small governmental jurisdictions, and certain small not-for-profit organizations.
According to Advocacy, the RFA
"does not seek preferential treatment for small entities, require agencies to adopt regulations that impose the least burden on small entities, or mandate exemptions for small entities. Rather, it requires agencies to examine public policy issues using an analytical process that identifies, among other things, barriers to small business competitiveness and seeks a level playing field for small entities, not an unfair advantage."/24
Under the RFA,
The analysis must describe, among other things, (1) the reasons why the regulatory action is being considered; (2) the small entities to which the proposed rule will apply and, where feasible, an estimate of their number; (3) the projected reporting, recordkeeping, and other compliance requirements of the proposed rule; and (4) any significant alternatives to the rule that would accomplish the statutory objectives while minimizing the impact on small entities./26
However, these analytical requirements are not triggered if the head of the issuing agency certifies that the proposed rule would not have a "significant economic impact on a substantial number of small entities." The RFA does not define significant economic impact or substantial number of small entities. As a result, federal agencies have substantial discretion regarding when the act's analytical requirements are initiated. In addition, the RFA's analytical requirements do not apply to final rules for which the agency does not publish a proposed rule./27
The RFA also requires federal agencies to
* publish a "regulatory flexibility agenda" each April and October in the
* provide their regulatory flexibility agenda to the Chief Counsel and to small businesses or their representatives;
* retrospectively review rules that have or will have a significant impact within 10 years of their promulgation to determine whether they should be continued without change or should be amended or rescinded to minimize their impact on small entities; and
* ensure that small entities have an opportunity to participate in the rulemaking process./28
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24 SBA,
25 The analysis for a proposed rule is referred to as an initial regulatory flexibility analysis (IRFA) and the analysis for a final rule is referred to as a final regulatory flexibility analysis (FRFA).
26 See CRS Report RL34355, The Regulatory Flexibility Act: Implementation Issues and Proposed Reforms, coordinated by
27 CRS Report RL34355, The Regulatory Flexibility Act: Implementation Issues and Proposed Reforms, coordinated by
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In addition, the
Finally, the RFA encourages the issuing agency to modify the proposed rule or initial regulatory flexibility analysis as appropriate, based on the information received from the panel.
The RFA also requires the Chief Counsel to monitor and report at least annually on agencies' compliance with the act. The Chief Counsel accomplishes this primarily by reviewing and commenting on proposed regulations and by participating in small business advocacy review panels. In addition, the Chief Counsel may appear as amicus curiae (i.e., friend of the court) in any court action to review a rule.
Executive Order 13272
Executive Order 13272, Proper Consideration of Small Entities in Agency Rulemaking (
It also requires federal agencies to send to Advocacy copies of any draft regulations that may have an impact on a substantial number of small entities. Agencies must send these draft regulations to Advocacy at the same time the draft rules are sent to OIRA for review, or at a reasonable time prior to their publication in the
Executive Order 13272 requires Advocacy to
* notify federal agencies concerning how to comply with the RFA, which is accomplished primarily through Advocacy's periodic publication of A Guide for Government Agencies: How to Comply with the Regulatory Flexibility Act and through Advocacy's compliance training program;
* report annually on federal agency compliance with the executive order, which is accomplished primarily through Advocacy's annual publication of Report on the Regulatory Flexibility Act; and
* train federal regulatory agencies in how to comply with the RFA, which is accomplished through Advocacy's compliance training program./33
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28 SBA,
29 Small business advocacy review panels were created by P.L. 104-121, the Contract with America Advancement Act of 1996; Title III, the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA). That act requires the
30 The agency proposing the rule normally fixes the convening date after consulting with Advocacy and
31 Executive Order 13272, "Proper Consideration of Small Entities in Agency Rulemaking," 67
32 SBA,
33 SBA, "Regulatory Flexibility Act Report, FY2016," p. 15.
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Advocacy's Regulatory Activities
Advocacy provided 19 official public comment letters to 12 federal agencies on a variety of proposed rules in FY2020./34
It also hosted 11 roundtable discussions on various topics, including proposed rules and regulatory issues./35
These roundtable discussions provided stakeholders an opportunity to share their views concerning the impact of proposed rules. Advocacy also provided training on RFA compliance to 124 federal officials./36
Each year, Advocacy provides an estimate of the regulatory cost savings its activities provide to small businesses in the form "of foregone capital or annual compliance costs that otherwise would have been required in the first year of a rule's implementation."/37
These estimates are based primarily on estimates from the federal agencies promulgating the rules, and, in some instances, from industry estimates.
Estimating the costs and benefits of federal regulations is methodologically challenging./38
For example, researchers must determine the baseline for measurement (i.e., what effects would have occurred in the absence of the regulation) and many regulatory cost estimates are based on aggregating the results of regulatory studies conducted years earlier. These studies often use different methods and vary in quality, making conclusions drawn from them problematic. Some observers, including OMB, doubt whether an accurate measure of total regulatory costs and benefits is possible. Moreover, in the case of Advocacy, estimating regulatory cost savings from its activities is even more challenging because it is nearly impossible to determine what changes to these regulations would have been made during the review and comment period if Advocacy did not exist.
Advocacy reported that its intervention in rules that were made final resulted in first-year regulatory cost savings on behalf of small businesses of
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34 SBA, FY2022 Congressional Budget Justification and FY2020 Annual Report, pp. 180, 181. Advocacy provided 28 official public comment letters to federal agencies on a variety of proposed rules in FY2013, 22 in FY2014, 20 in FY2015, 20 in FY2016, 24 in FY2017, 17 in FY2018, and 22 in FY2019.
35 SBA, FY2022 Congressional Budget Justification and FY2020 Annual Report, p. 181. Advocacy hosted 21 roundtable discussions in FY2013, 19 in FY2014, 21 in FY2015, 25 in FY2016 and FY2017, 23 in FY2018, and 17 in FY2019.
36 SBA, FY2022 Congressional Budget Justification and FY2020 Annual Report, p. 191. Advocacy provided training on RFA compliance to 157 federal officials at rule-writing agencies in FY2016, 195 in FY2017, 132 in FY2018, and 113 in FY2019.
37 SBA,
38 For further information and analysis concerning the methodological challenges in estimating the costs and benefits of federal regulation see out-of-print CRS Report R41763, Analysis of an Estimate of the Total Costs of Federal Regulations, available to congressional clients upon request.
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Producing and Promoting Research on Small Businesses
These products typically relate to the role that small businesses "play in the economy, including the availability of credit, the effects of regulations and taxation, the role of firms owned by women, minority and veteran entrepreneurs, innovation, and factors that encourage or inhibit small business start-up, development and growth."/41
In addition to sponsoring and conducting research on small business, Advocacy maintains web pages with links to
* state economic profiles, which are compiled annually by
* firm size economic data, which are compiled by Advocacy staff from the
* quarterly economic bulletins, which are authored by Advocacy staff to examine trends in small business employment and lending;/44
* research projects which have been authored by
* fact sheets, which are authored by
* issue briefs, which are authored by Advocacy staff, covering various topics, such as veteran business owners and access to capital for women- and minority-owned businesses;/47 and
* major sources of data collected by the federal government concerning small business./48
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39 SBA, FY2022 Congressional Budget Justification and FY2020 Annual Report, p. 180.
40 SBA, FY2022 Congressional Budget Justification and FY2020 Annual Report, p. 185.
41 SBA, FY2022 Congressional Budget Justification and FY2020 Annual Report, p. 192.
42 SBA,
43 SBA,
44 SBA,
45 SBA,
46 SBA,
47 SBA,
48 SBA,
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Advocacy also provides funding to the
Advocacy's Research Activities
Advocacy published 21 contract and internal research and data reports in FY2020./50
These reports covered a variety of issues, including small business lending, minority-owned credit market experiences, and updates of fact sheets and reports such as Small Business Profiles for the Congressional Districts./51
In addition, Advocacy's economic research staff sponsored four "Small Business Economic Research Forums." These forums provide economists and researchers an opportunity "to discuss a key economic topic" and help "to keep Advocacy's staff up-to-date on the latest data and research from other agencies and researchers."/52
Promoting Small Business Outreach
As mentioned, Advocacy engages in outreach activities related to its role with the RFA. For example, Advocacy participated in seven small business advocacy review panels in FY2016 (one with
In each case, Advocacy provided outreach to small business owners interested in sharing their views concerning the agency's proposed rule.
* * *
49 SBA, FY2022 Congressional Budget Justification and FY2020 Annual Report, p. 186; and SBA,
50 SBA, FY2022 Congressional Budget Justification and FY2020 Annual Report, p. 192.
51 SBA, FY2022 Congressional Budget Justification and FY2020 Annual Report, p. 187.
52 SBA, FY2022 Congressional Budget Justification and FY2020 Annual Report, p. 193.
53 SBA,
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Advocacy also regularly sponsors roundtable discussions, conferences, and symposia to provide small business owners an opportunity to share their views on issues of concerns to them. For example, Advocacy's regional advocates regularly "interact directly with small businesses, small business trade associations, governors and state legislatures to educate them about the benefits of regulatory flexibility and testify at state-level legislation hearings on small business issues when requested to do so."/54
Regional advocates also "work closely with the ten Regional Fairness Boards in their respective regions to develop information for the SBA's National Ombudsman, as provided for by the Small Business Regulatory Enforcement Fairness Act and alert businesses in their respective regions about regulatory proposals that could affect them."/55
The Chief Counsel also meets regularly with business organizations and trade associations, and participates in Advocacy roundtable discussions, conferences, and symposia. Advocacy's economists provide economic presentations at academic conferences, trade association meetings, think tank events, and other government-sponsored events./56
Advocacy's Outreach Activities
Advocacy's regional advocates participated in 552 outreach events in FY2020./57
Advocacy's economists also made 12 presentations to academic, media, or other small business policy-related audiences./58
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54 SBA,
55 SBA, FY2015 Congressional Budget Justification and FY2013Annual Report, p. 12.
56 SBA,
57 SBA, FY2022 Congressional Budget Justification and FY2020 Annual Report, p. 188.
58 SBA, FY2022 Congressional Budget Justification and FY2020 Annual Report, p. 188. Advocacy's economists made 34 presentations to academic, media, and other small business policy-related audiences in FY2015, 52 in FY2016, 28 in FY2017, 18 in FY2018, and 22 in FY2019.
* * *
Current Congressional Issues
As has been discussed, Advocacy's responsibilities have expanded over time. During the 115th
* revised and enhanced requirements for federal agency notification of the Chief Counsel prior to the publication of any proposed rule;
* expanded the required use of small business advocacy review panels from three federal agencies to all federal agencies, including independent regulatory agencies;
* empowered the Chief Counsel to issue rules governing federal agency compliance with the RFA;
* specifically authorized the Chief Counsel to file comments on any notice of proposed rulemaking, not just when the RFA is concerned; and
* transferred size standard determinations for purposes other than the Small Business Act and the Small Business Investment Act of 1958 from the SBA's Administrator to the Chief Counsel.
In the 116th
In addition, S. 83, the Advocacy Empowerment Act of 2019, would, among other provisions, have authorized Advocacy to issue, modify, or amend rules governing federal agency compliance with the RFA./59
Arguments for Expanding Advocacy's Regulatory Authority
Advocates of expanding Advocacy's authority and role under the RFA argue that legislation is necessary to "close loopholes [in the RFA] and more effectively reduce the disproportionate burden that over-regulation places on small entities, thereby enhancing job creation and hastening economic recovery."/60
They argue that
"recent regulatory expansions and the future threat of further excessive federal regulation-- such as under the waves of regulation occurring to implement the Patient Protection and Affordable Care Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act--have created immense regulatory burdens and uncertainty for the economy, chilling job creation, investment and economic growth and suppressing America's economic freedom and standing among the world's economies. These effects are particularly burdensome on small businesses--and since start-up firms are the source of net job creation in the
Advocates of expanding the
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59
60
61
62
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Arguments Against Expanding Advocacy's Regulatory Authority
Opponents of expanding Advocacy's authority and role under the RFA argue that the provisions being advocated are part of an "ongoing attack on federal regulation," presented under the guise of "pro-small business rhetoric, which will erect significant barriers to rulemaking that will hinder the promulgation of critical public health and safety protections."/63
They argue that these provisions are
(1) based on the false premise that regulatory costs stifle economic growth and job creation;
(2) threatens public health and safety by severely undermining federal agency rulemaking;
(3) imposes additional duties on agencies while failing to provide for any additional resources to meet such burdens, and
(4) allows more opportunities for industry to delay or defeat proposed rulemakings./64
Opponents also argue that these provisions
"do nothing to alleviate the purported burden on small entities of complying with federal regulations. In fact, it includes no provision that offers assistance to small entities, whether through subsidies, government guaranteed loans, preferential tax treatment for small firms, or fully funded compliance assistance offices. Instead, the bill merely aggrandizes the power of the
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63
64
Continues with Part 2 of 2
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View report at https://crsreports.congress.gov/product/pdf/R/R43625



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