The Regulatory Flexibility Act of 1980

Original Text

Effective Dates
9/18/1980 - Present

Reform Goals
Reduce the federal regulatory burden on small businesses.

Requirements (What of Whom?)
Both executive and independent federal regulatory agencies must submit a regulatory flexibility analysis for any rule that will have “a significant economic effect on a substantial number of small entities [e.g. small businesses, nonprofit organizations, or government jurisdictions]”. ‘Significant economic effect’ and ‘substantial number of small entities’ are terms open to agency interpretation. A regulatory flexibility analysis must describe the impact on small entities, consider less burdensome alternatives, and identify any overlapping federal rules. The report must be published in the Federal Register for public comment, and a summary submitted to the Office of Advocacy at the Small Business Administration. [1] In addition, section 610 of the RFA requires agencies to review the outcomes of pre-existing rules with “significant economic impact upon a substantial number of small entities” within 10 years of their adoption. 

Oversight for rule compliance
The Office of Advocacy at the Small Business Administration is entitled to receive regulatory flexibility analysis report summaries for new ‘significant’ rules. The Office of Management and Budget (OMB) - specifically their Office of Information and Regulatory Affairs (OIRA) - send back rules for agency review if the Office of Advocacy advises that the analysis of small business impacts was of poor quality. [2]

Reform “Teeth”
The Office of Advocacy cannot approve or block rules based on the outcomes of the regulatory flexibility analysis, and has no power to interpret ‘significant economic impact’ and ‘substantial number of small entities.” [3] OIRA may delay a rule's implementation by sending it back for review, but agencies can still create extremely onerous rules for small businesses as long as they complete a regulatory flexibility analysis. [4] In the original RFA, there was no way to challenge agencies in federal court for failing to conduct a required regulatory flexibility analysis. [5]

Some agencies implemented the RFA (ex: EPA), and others complete ignored it (ex: IRS, Department of Interior, Department of Agriculture). [6,7] Independent regulatory agencies’ analysis for the RFA tends to include qualitative rather than quantitative metrics, and often fails to consider relevant counterfactuals. In some cases, independent agencies have completely ignored public comments on proposed rules (ex: The FCC). [8,9] 

Since the act was passed, the overall per employee per year burden for small businesses continues to grow:

  • 1992 - $9,463 per employee [10]
  • 2000 - $9,722 per employee [11]
  • 2008 - $11,800 per employee [12]
  • 2012 - $ 11,886 per employee [13]

*Costs represented 2016 dollars

The Office of Advocacy estimates that the identification of lower cost rule alternatives has saved between $1.53-$14.9 billion per year since 2009 in compliance costs for small businesses, meaning the act may have modestly slowed the increase in federal regulatory burden.

Regarding retrospective review, a GAO report examining mandatory reviews under Section 610 from 2001-2006 found that very few resulted in rule changes. [22]

Multiple loopholes limit the impact of the RFA, and demonstrate how agencies often come up with creative solutions to avoid more paperwork: 

  1. The Section 605(b) definition “significant economic effect on a substantial number of small entities” is open to agency interpretation. If agencies don’t think a rule falls into this category, all they are required to do is notify the Office of Advocacy that they are skipping the regulatory flexibility analysis. [14-17] This open-ended interpretation has also led to inconsistent agency review of  existing rules as required by Section 610. [18-20]
  2. Regulators can skirt reporting requirements by dividing larger rules into smaller pieces with lower individual economic impact on small businesses.
  3. Regulators can skirt reporting requirements if they don’t directly administer a rule. For example, the EPA claimed it did not have to conduct an analysis on ozone and particulate standards because they are implemented by the states, even though the cumulative impact on small entities is huge. [21]
  4. The RFA only applies to official rules that involve a public notice and comment periods. Many agencies are now issuing informal rules like “guidance documents”. These are not legally enforceable, but are often treated as de facto standards for business compliance and are not subject to public scrutiny.
  5. Regulatory flexibility analysis only looks at rules on a one by one basis, and doesn’t consider the cumulative cost of all regulations, or the “death by a thousand cuts” caused by multiple layers of rules.


  1. Regulatory Flexibility Act of 1980, Title 5 of the United States Code, Sections 601–612. Link
  2.  This relationship between OIRA and Office of Advocacy was formalized in an MOU that expired in 2005, but in 2002 Executive Order 13272 , which is still active, also established a formal feedback mechanism between the two organizations.  “Now what we have pledged to do in the memorandum of understanding is, if Mr. Sullivan’s office indicates that there has not been an adequate regulatory flexibility analysis and if we believe that judgment is a reasonable one, then basically we do not need to get to a lot of other issues. My boss, Mitch Daniels, has told me that, at that point, the rule goes right back to the agency. “ See Page 10. Government Publishing Office. "The Cost of Regulation to Small Business." June 6, 2002. Link , PDF . See Page 9. Jim Tozzi. "Detailed Recommendations for Regulatory Review Executive Order." Center for Regulatory Effectiveness. Link , PDF 
  3. See GAO, Regulatory Flexibility Act: Status of Agencies’ Compliance, GAO/GGD-94-105. Washington, D.C. Apr. 27, 1994. Link , PDF 
  4. See Page 1436. Jeffrey J. Polich. Judicial Review and the Small Business Regulatory
    Enforcement Fairness Act: An Early Examination of When and Where Judges Are Using Their Newly Granted Power over Federal Regulatory Agencies." William & Mary Law Review. Volume 41 | Issue 4 Article 6. 2000. Link , PDF
  5. The SBREFA later allowed small entities to challenge agencies in court for not following RFA requirements. However, this still did not prohibit agencies from passing rules that impact small entities.
  6. United States Government Accounting Office. "Regulatory Flexibility Act: Congress Should Revisit and Clarify Elements of the Act to Improve Its Effectiveness." GAO-06-998T. Washington, D.C. July 20, 2006. Link , PDF ; United States Government Accounting Office. "Regulatory Flexibility Act: Status of Agencies’ Compliance." GAO/GGD-94-105 Washington, D.C.: Apr. 27, 1994. Link , PDF 
  7. See page 1438 - Reference [4].
  8. Office of Advocacy. "Independent Regulatory Agencies’ Compliance with the Regulatory Flexibility Act." May 2013. Link , PDF
  9. Arthur Fraas and Randall Lutter. "On the Economic Analysis of Regulations at Independent Regulatory Commissions." Administrative Law Review. Volume 63. Special Edition 2011.  Link
  10. Thomas D. Hopkins. "Profile of Regulatory Costs. Report to the U.S. Small Business Administration." November 1995. Link , PDF
  11. Cited for firms with less than 20 employees. W. Mark Crain and Thomas D. Hopkins. "The Impact of Regulatory Costs on Small Firms. a report for The Office of Advocacy, U. S. Small Business Administration." RFP No. SBAHQ-00-R-0027. Link , PDF 
  12. Cited for firms with less than 20 employees. Nicole V. Crain and W. Mark Crain. The Impact of Regulatory Costs on Small Firms." Contract number SBAHQ-08-M-0466. Small Business Administration. Office of Advocacy. September 2010. Link , PDF
  13. Cited for firms with less than 50 employees. W. Mark Crain and Nicole V. Crain. "The cost of federal regulations to the U.S. economy, manufacturing, and small business." National Association of Manufacturers. September 10, 2014. Link , PDF
  14. Government Publishing Office. "The Cost of Regulation to Small Business." June 6, 2002. Link , PDF .
  15. “An analysis of the legislation's effects shows that the RFA had little effect on the federal rule making process, in part, because it allowed agencies to certify with very little supporting data that their regulation would not have a disparate impact on small entities and, therefore, that a cost-benefit analysis was not required.": See page 1427. Reference [4] 
  16. A 1994 summary of 12 years of compliance reports issued by the Office of Advocacy concluded, “the full promise of RFA may never be realized until Congress clarifies key terms and definitions in the Act, such as “a substantial number of small entities,” or provides an agency or office with the clear authority and responsibility to do so. See Reference [6]. 
  17. United States Government Accounting Office. "Regulatory Reform: Implementation of Selected Agencies’ Civil Penalty Relief Policies for Small Entities." GAO-01-280. Washington, D.C. February 20, 2001. Link , PDF ; United States Government Accounting Office. "Regulatory Reform: Compliance Guide Requirement Has Had Little Effect on Agency Practices." GAO-02-172. Washington, D.C. December 28, 2001. Link
  18. United States Government Accounting Office. "Reexamining Regulations: Opportunities Exist to Improve Effectiveness and Transparency of Retrospective Reviews." GAO-07-791. Washington, DC: GPO, July 2007. 35, 43–44. Link , PDF
  19. See Reference [6].
  20. United States Government Accounting Office. "Regulatory Flexibility Act: Agencies’ Interpretations of Review Requirements Vary." GAO/GGD-99-55. Washington, D.C. April 2, 1999. Link
  21. See Page 7. Reference [2].
  22. United States Government Accountability Office. Report to Congressional Requesters. "Re-examining Regulations, Opportunities Exist to Improve Effectiveness and Transparency of Retrospective Reviews." July 2007. Link , PDF