Small business agency taking aim at waterways rule has outsized impact on federal regulations

A little-known federal office that has long been a thorn in the side of regulatory reform advocates is taking center stage in the battle over a controversial water regulation.

The fireworks began in earnest last week when the Small Business Administration's Office of Advocacy filed comments to the proposed water regulation that echoed talking points from industry and congressional opponents. The regulation would have a significant, direct impact on small entities, and U.S. EPA and the Army Corps of Engineers erred by not doing an analysis of those impacts, the office wrote, calling for the rule to be withdrawn (E&ENews PM, Oct 1).

The letter was confirmation to opponents that the rule to increase the number of streams and creeks that currently receive automatic Clean Water Act protection would have sweeping economic consequences. They quickly made hay of it, promoting the letter through social media and news releases. A letter from American Farm Bureau Federation President Bob Stallman this week went to every member of the Senate arguing that the SBA Office of Advocacy's conclusions "validated our concerns."

But to regulatory reform advocates and environmental interests, the only thing validated was their long-running criticisms of the office.

The advocacy office is a tiny, independent entity within the Small Business Administration overseen by a presidentially appointed chief counsel with the mission of raising small businesses' interests with the federal government. Winslow Sargeant, a former venture capitalist and manager in the National Science Foundation's Small Business Innovation Research program, has held the top post since his recess appointment in August 2010, although he announced plans to resign this summer.


The office has a staff of roughly 50 and a budget of under $9 million. But it can pack an outsized punch, according to people who follow it closely.

James Goodwin, a senior policy analyst with the Center for Progressive Reform, places the Office of Advocacy right alongside the White House Office of Information and Regulatory Affairs when it comes to quiet but powerful influence.

"In a lot of ways, what the Office of Advocacy does and what effect they have on the rulemaking process is very similar to that of OIRA, the difference being that they're not as well known so they sort of fly under the radar in a way, and their impact isn't quite as well recognized," Goodwin said.

The office has two main areas of work: producing research on issues related to small business and conveying the views of small entities on federal regulation. Both have been the source of controversy.

One of its studies, produced in 2008, found that the annual cost of federal rules rings in at $1.75 trillion -- a number that still haunts federal regulators even though they say the study has been widely discredited. A Government Accountability Office report this summer raised serious questions about the quality of the office's research.

But its comments on federal rules can have a more tangible impact, lawyers say. While it is not uncommon for federal agencies to comment on each other's regulatory proposals, the SBA advocacy office's comments carry a special weight.

"Those used to be insignificant for the most part because agencies were free to ignore them, but fast-forward to the 1996 Small Business Regulatory Enforcement Fairness Act -- that places on the agencies a specific responsibility to respond to any issues that are raised in the Office of Advocacy comment letters," Goodwin said. "Failure to do that is potential grounds for having a rule returned."

Goodwin pointed to a National Marine Fisheries Service rule on fishing quotas that a federal judge sent back to the agency for failure to do an analysis of impacts on small businesses. In his opinion, the judge pointed to comments from the SBA advocacy office, Goodwin said.

Enviros see business-SBA nexus

Among environmentalists, the office is seen as notoriously close to powerful business interests. Many are still livid over the advocacy office's entry into the debate over the Health and Human Services Department's list of carcinogenic chemicals in 2012. Then, the office attacked the scientific validity of listing styrene as "reasonably anticipated" to cause cancer and questioned public engagement on the document, even though it was not a regulatory issue (E&E Daily, April 26, 2012).

"In our research, we can't find any rule that they didn't come out against," said Scott Slesinger, legislative director for the Natural Resources Defense Council. The office "is sort of an offshoot of the Chamber of Commerce."

While the office's opposition to the water rule came as little surprise to its critics, it did catch one group by surprise: the American Sustainable Business Council (ASBC).

The council's president, David Levine, said that when his staffer met with a representative of the advocacy office, she was told the office would not be commenting on the regulatory proposal.

Levine's group, which says it promotes a sustainable economy and represents more than 200,000 businesses, is seething over the office's comments, saying they don't represent the full small businesses perspective on the rule.

ASBC argues that any cost the rule would pose to small businesses is far outweighed by the benefits they would receive from cleaner water. It commissioned a poll of independent small businesses that found 91 percent of Democrats and 78 percent of Republicans backed the proposed rule.

"They back this rule to help level the playing field in the marketplace and bring clarity to the regulatory process -- and help prevent disasters like the chemical spill we saw this year in West Virginia," Levine said. "Where was the inclusion of these kinds of numbers and views in favor of clean water?"

Levine and other supporters of the rule are skeptical that the Office of Advocacy engaged directly with small businesses on the rule -- an issue raised in the June GAO report -- and contend that the office relied heavily on comments from industry groups that represent both big and small entities.

The sustainable business council was denied a request to present at a July round table on the rule, although a representative spoke during the participant question portion of the event. The panel included two formal presentations: one from EPA and the Army Corps, another from a lawyer for the main industry coalition opposing the rule.

"We selected the panelists to ensure that both sides of the issue were covered," Office of Advocacy spokeswoman Liz Thompson Horowitz said by email. "The number of presenters was limited due to time constraints."

Supporters also point to the fact that only one small business owner was named in the office's comments on the rule -- Jack Field of the Lazy JF Cattle Co. in Yakima, Wash. -- and his concerns do not appear to have been voiced directly to the office. The office's letter instead refers to his testimony during a May hearing before the House Small Business Committee, where Field served as a witness for the National Cattlemen's Beef Association.

GAO found that 57 percent of the advocacy office's comment letters referenced small business concerns, but when investigators picked 11 specific letters and asked for documentation of small businesses' input on them, staffers were "unable to provide specific emails or notes of conversations," its report states.

GAO also found that many of the office's letters referred to input made during round-table discussions, but staff said they did not keep records identifying speakers because it would inhibit the discussion. GAO faulted this approach, arguing that the need for privacy could be balanced with "a commitment to maintain a basic level of documentation of these events."

Horowitz of the SBA advocacy office said attendance was not taken at the round table on the water rule.

Ultimately, the legal questions raised by the advocacy office in the letter are likely to fall to a judge. If the water rule is finalized, it is widely expected to be challenged in court.

But right now the game is one of public opinion. The Obama administration this week extended the public comment period for the rule until after the midterm elections. Both supporters and opponents are active in the field, attempting to show the agencies and lawmakers that the public is on their side.

To that end, the SBA Office of Advocacy's letter is a powerful tool.

"Small business is sort of like the third rail in Washington, D.C.," said Goodwin of the Center for Progressive Reform. "Even when I talk to the most pro-regulation members of Congress and their staff, they are very, very reluctant to speak out directly against the Office of Advocacy for fear of being painted as against small business."

Twitter: @AnnElizabeth18 | Email: asnider@eenews.net

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