Academic journal article Fordham Urban Law Journal

The Regulatory Flexibility Act at 25: Is the Law Achieving Its Goal?

Academic journal article Fordham Urban Law Journal

The Regulatory Flexibility Act at 25: Is the Law Achieving Its Goal?

Article excerpt

I. INTRODUCTION

The Regulatory Flexibility Act (RFA), (1) which marked its twenty-fifth anniversary in September 2005, was designed to "level the playing field" for small businesses competing against larger, more sophisticated, and more politically powerful businesses. Recognizing the importance of small businesses in the U.S. economy, Congress enacted the RFA in 1980 to ensure that federal agencies consider the needs of small business and other small entities (2) when new regulations are written. At a basic level, the RFA requires federal regulatory agencies to satisfy certain procedural requirements when they plan new regulations, including: (1) identifying the small entities that will be affected, (2) analyzing and understanding the economic impacts that will be imposed on those entities, and (3) considering alternative ways to achieve their regulatory goal while reducing the economic burden on those entities. Although the RFA does not require federal agencies to choose the regulatory approach that is the least burdensome to small entities, the overarching goal of the RFA has always been to shift the culture within federal regulatory agencies towards an appreciation of the value of small entities and to instill within them a desire to act accordingly. As viewed today, after twenty-five years of implementing the RFA, is the law succeeding in this goal?

Section II of this Article explains why small businesses need the RFA. Section III provides a brief overview of the 1980 RFA, the 1996 amendments to the RFA, and Executive Order 13,272, signed in 2002, which was designed to further internalize the RFA's procedures within federal agencies. Section IV discusses recent successes of the RFA. Section V considers remaining weaknesses in the current RFA. Section VI suggests further targeted legislative improvements to the RFA. The Article concludes that in the wake of Executive Order 13,272, the RFA is succeeding in spurring most federal regulatory agencies to improve their treatment of small entities. While some agencies have not yet fully embraced the RFA and made it part of their agency culture, small entities and the American public have greatly benefited from the law.

II. WHY SMALL BUSINESS NEEDS THE REGULATORY FLEXIBILITY ACT

A. Small Businesses Are an Important Part of the U.S. Economy

Small businesses have long been a critical part of the U.S. economy. Using data from preceding years, the U.S. Small Business Administration reported in 1982 that small businesses employed about half of the American labor force, produced almost half of the nation's goods and services, and, according to one study, generated over eighty percent of new jobs. (3) Small businesses also tended to innovate at a higher rate than medium or large businesses. (4) Twenty-five years later, small businesses are still an important driving force in the American economy. Small businesses comprise 99.7 percent of all employer firms in the U.S., they employ half of all the private sector workers, and have generated sixty percent to eighty percent of the net new jobs annually over the last decade. (5) These small firms pay forty-five percent of the total U.S. private payroll, and create more than half of the non-farm private gross domestic product (GDP). (6) Small firms continue to innovate more than large firms, producing thirteen to fourteen times more patents per employee than larger firms. (7) These small firm patents are more likely to be driven by leading-edge technology than large firm patents are. (8) Moreover, during economic downturns, small businesses often fare better than large businesses; increases in small business employment and self-employment often serve to lead the economy out of recession. (9)

B. Small Businesses Have Been Inundated By Federal Regulations

The 1970s witnessed a flood of new federal agencies and ambitious new regulatory programs. …

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