The Small Business Administration's Office of Advocacy Exaggerates Its Influence

Main Street

The Office of Advocacy, an independent office within the Small Business Administration (SBA), recently released its annual report to Congress on agency compliance with the Regulatory Flexibility Act (RFA) during fiscal year (FY) 2012. In the report, the office makes dubious claims that its efforts to delay or stop six agency rules saved billions for small businesses in the last fiscal year.

The Center for Effective Government published a report earlier this year demonstrating that the Office of Advocacy often echoes the arguments of big business rather than small businesses, so we were skeptical of the office's claims. Our analysis calls the Office of Advocacy's assertions into question for the following reasons:

  • The office's calculations are often unverifiable or exaggerated;
  • The sources the office cites do not support the cost savings claimed; and
  • The Office of Advocacy often took credit for agency actions over which it had little influence.

Listed below are the six rules that form the basis for the office's claims and our analysis of the flaws in the Office of Advocacy's savings estimates.

Department of Labor's Revisions to Wage Calculations for the Worker Visa Program

In October 2010, the Department of Labor (DOL) proposed a rule that would revise the formula used to calculate wages paid to seasonal, non-agricultural workers under the H-2B visa program. The rule was a response to a court order requiring the agency to correct multiple problems with its 2008 wage rule. In comments, employers and the Office of Advocacy argued that employers needed time to plan for increased labor costs, so DOL allowed for a full year before the rule took effect on Jan. 1, 2012. Labor groups challenged the one-year delay; a court agreed and ordered DOL to make the rule effective sooner. The Office of Advocacy submitted comments urging DOL to disregard the court's order and delay the effective date because small businesses would have to bear added costs if higher wages were required sooner than expected.

In DOL’s official notice making the higher wage rates effective on Sept. 30, 2011, the agency rejected the Office of Advocacy's critique, noting that only a small percentage of small businesses participate in the H-2B program, few of which would be significantly impacted by the changes to the wage rule. DOL further explained that the cost of the new rule was spread over a 10-year period and that regardless of its effective date, the total cost of the rule would remain the same. In fact, DOL calculates that the rule would cost all businesses that participate in the H-2B worker program $847 million per year and small businesses $146 million annually. Neither number corresponds to the Office of Advocacy's apparently exaggerated claims that delay of this rule saved small businesses over a billion dollars in FY 2012 alone.

Separate from the Office of Advocacy's efforts, Congress stepped in and twice delayed the effective date of the higher wage rates. Initially, the Consolidated Appropriations Act for FY 2012 prohibited DOL from using its funds to implement the new rule and delayed the rule's effective date until Oct. 1, 2012. Next, the continuing resolution that funded agencies through Mar. 27, 2013, prevented DOL from enforcing the rule. The Office of Advocacy claims credit for these two delays in implementing this rule and attributes to them half the total "cost savings" that the office says it produced in FY 2012. We could not find any numbers to replicate the Office of Advocacy's figures.

Department of Transportation's 2010-2011 Trucking Rule

A second rule that the Office of Advocacy included in its report was a Department of Transportation (DOT) proposal to reduce the number of hours truck drivers could spend behind the wheel. The purpose of the rule was to reduce risks of fatigue-related crashes and long-term health problems for drivers, such as obesity, high blood pressure, and diabetes. DOT proposed four options for revising the rule and solicited comments from the public. The Office of Advocacy sent a letter to DOT, urging that it not change the number of hours truck drivers could work because doing so would impose significant costs from adjusting schedules and other operational changes. DOT responded by noting that "[t]he claims of serious operational disruptions are unsupported by any data and contradicted by the industry's own statement that the provisions are not used by most drivers."

The Office of Advocacy's comments boosted all transportation-related businesses, not just small businesses, and echoed comments already submitted to DOT.

DOT modified the proposed rule after the comment period and calculated the total annual cost of the final rule for all businesses at $470 million. But the Office of Advocacy claims it was responsible for changes to this rule and estimates the resultant savings to small businesses at $815 million – $345 million more than the entire cost DOT estimated for the rule. The office cites an exhibit in DOT's Regulatory Impact Analysis as the basis for its savings estimate, but we could find no numbers in that source to support the Office of Advocacy's claim.

Environmental Protection Agency's 2012 General Permit for Stormwater Discharges from Construction Sites

In April 2011, the U.S. Environmental Protection Agency (EPA) proposed updates to its General Permit for stormwater discharges from construction activities. The Office of Advocacy claims that before the permit was finalized, it worked with EPA to make changes that resulted in a cost savings for small businesses.

EPA finalized the updated permit in February 2012, incorporating technology-based permitting requirements for the construction industry. The updates made two significant additions to the earlier permit. First, it allowed construction operators applying for coverage under the general permit to electronically certify that they have satisfied the permit's requirements. EPA's analysis of this change concludes e-filing will save businesses money.

Second, the permit increased the frequency and specificity of site inspections; EPA estimates this will increase total annual costs for all permitted businesses by $146,000. EPA attributes all other costs associated with the 2012 permit to the original permitting requirements adopted in 2009.

Even though EPA's analysis shows only a slight cost increase from the added inspection requirements, the Office of Advocacy claims its efforts saved small business $150 million. The office cites EPA's Federal Register Notice as the source of its estimates, but the notice provides no support for the Office of Advocacy's claims.

Small Business Administration's Small Business Size Standards

In 2011, the Small Business Administration (SBA) proposed to expand the Small Business Size Standards for certain industries. This would allow more businesses to qualify as "small" and receive the benefits of SBA programs. The Office of Advocacy claims to have saved existing small businesses money by convincing SBA to adopt a narrower definition of small business than the agency had originally proposed.

The Office of Advocacy cites "industry analysis" as the source of its $134.5 million savings estimate related to the definition of "small business," so it is impossible to verify, but the figure seems to represent the amount of loans, grants, and contracts that would have been awarded to additional businesses under an expanded definition. SBA, on the other hand, concluded that some current small businesses may accrue costs, but it could not "estimate the potential distributional impacts of these transfers with any degree of precision."

Department of Justice's Americans with Disabilities Act Rules

Under the public accommodation provisions of the Americans with Disabilities Act, the Department of Justice (DOJ) proposed rules requiring that wading pools, swimming pools, and spas be accessible to persons with disabilities by March 15, 2012. The Office of Advocacy objected to the cost of this requirement, urging DOJ to extend the compliance deadline by six months (in the end, DOJ extended the deadline by one year). The office claims its comments resulted in one-time savings to small business of $99.6 million.

The Office of Advocacy cites DOJ's impact analysis to support its calculations, but this 450-page document does not support the office’s claims. The delay itself does not change the accessibility requirements, so it is difficult to understand why postponing investment in equipment to provide disabled people access to swimming facilities would result in such large savings. Even former Office of Information and Regulatory Affairs Administrator Cass Sunstein – a proponent of cost-benefit tests for regulations – cites the dignity public accommodation rules provide to disabled citizens as a public value that "should be quantified" and set against the costs of the ADA.

EPA's Emissions Standards for Combustion Engines

In March 2009, EPA proposed to extend limits on hazardous air pollutants emitted from large diesel compression ignition (CI) engines to include emissions from gas-fired spark ignition (SI) engines. EPA spent almost four years working with stakeholders developing the SI engine rules. During this time, the Office of Advocacy urged EPA to delay the rules until it studied the effects of SI engines in urban versus rural environments.

EPA's final rule exempted SI engines in specific rural environments from some provisions. According to EPA's analysis, these changes reduced the annual costs of regulating SI engines by $138 million. Although the Office of Advocacy's comments did not ask for this exemption, the office takes credit for this "savings to small business."

This is the only rule where the Office of Advocacy's claimed savings numbers seem to match the agency's cost estimates. However, EPA's analysis also indicates that 42 percent of the companies affected by the rule are big businesses, and they may have garnered a significant portion of the savings. So once again, the Office of Advocacy claimed savings for small businesses that in fact represented savings to big businesses, too.

Conclusion

The numbers in the Office of Advocacy's annual report for FY 2012 do not add up. The savings the office estimates its efforts generated for small businesses do not match the estimates that it cites for six different agency rules. In five of the six cases, we can find no basis for its numbers. In one case, the office bases its estimated cost savings on an industry analysis that it does not identify.

The Office of Advocacy often complains agencies underestimate the costs of rules, but our findings suggest that the Office of Advocacy exaggerates the potential costs and savings to small businesses of rules that will protect the overall health and welfare of the American public.

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