One of the nation’s most influential courts on federal
regulatory matters has sent a clear message to government agencies: seriously
weigh the effects on small businesses before churning out new rules and
The U.S. Court of Appeals for the
in a little noticed ruling in July. The court faulted the Federal Aviation
Administration for failing to follow the federal Regulatory Flexibility Act
(RFA) when it considered revisions to drug and alcohol testing programs for
companies that maintain commercial aircraft. The 27-year-old law requires
federal agencies to consider the impact on small businesses before adopting new
Small business advocates say federal bureaucrats often give
the law short shrift and hailed the ruling. “I think it is huge for small
business,” said Giovanni Coratolo, executive director
of the U.S. Chamber of Commerce’s Council on Small Business. “It sends a
signal to agencies that they have to abide by the law. They can not just ignore
their small business duties in forming regulations.”
Coratolo said the case is significant because they history
of judicial review has been spotty. “We’ve had a few cases go our way. One or
two didn’t. This is one that has clearly forged new ground in the sense that it
said, ‘Yes, they are going to have to take seriously their duties under the RFA,'”
Indeed, the law has been treated like and unwanted
step-child in the regulatory review process since its inception. Congress toughened
the Act once in 1996 by authorizing judicial review of agency actions. Even President
Bush signed an executive order two years ago to help improve compliance. But a
Government Accountability Office (GAO) report still concluded last year that the
Act was failing to live up to its potential.
Under the RFA, an agency must
prepare a “regulatory flexibility analysis” at the time a proposed rule is
issued, if it determines that the proposed rule would have a “significant economic impact upon a substantial number of small entities.” Agencies are also required to consider
alternatives that minimize impacts and ensure that small firms participate in
the rulemaking process.
In practice, however,
Coratolo and others say the outcome is often far different. “In many cases,
[agencies] are just wholeheartedly ignoring portions of the law that say
straight out they have to reach out to small businesses,” he said.
The federal rule in question is a case in point. In 2002,
the FAA announced that it was conducting a routine review of its drug and
alcohol testing regulation. The controversy arose when the agency determined
that subcontractors, no matter how far removed from the main contractor, also
had to have federally certified testing programs.
The Aeronautical Repair Station Association (ARSA), which
represents independent maintenance companies, claimed the proposal was too
sweeping and would have broad impact on the industry’s myriad small businesses.
The ARSA and the Small Business Administration’s Office of Advocacy both called
for an RFA analysis.