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September 27, 1996

Compliance Programs for Small Business

New York Law Journal
Small businesses have complained for years about problems understanding and complying with complex federal and state environmental regulations. A typical small business may be subject to as many as 10 major environmental statutes that impose dozens of reporting requirements.1 And small businesses rarely have the time, money, personnel or expertise needed to identify, interpret and implement all pertinent regulatory mandates.
In response to the outcry from small businesses and in the hope of encouraging their greater regulatory compliance, Congress has enacted legislation and both federal and state environmental agencies have initiated programs tailored to their special needs. This column describes the key features of these initiatives for small businesses, especially in New York.
The concerns of small businesses about the burdens of regulatory compliance were reflected in several recommendations of the 1995 White House Conference on Small Business. The conference delegates sought reforms to the way regulations are developed and enforced as well as reductions in government paperwork requirements.2 By December 1995, the U.S. Small Business Administration (SBA) published a progress report on implementation of the recommendations, which focused in part on environmental policy.3
The SBA reported that the U.S. Environmental Protection Agency (EPA) was "reinventing environmental regulations with particular attention to small business."4 New policies and programs announced at that time included:
  • the "common sense initiative," an industry-by-industry approach to environmental protection;
  • line-by-line review of regulations to eliminate nearly 1,500 pages of the Code of Federal Regulations;
  • a commitment to reduce reporting and record-keeping by 25 percent;
  • the establishment of four one-stop compliance assistance centers for print shops, auto service stations, metal finishers and small farms;
  • the creation of the Environmental Finance Program to provide assistance with respect to financing of pollution-prevention technology; and
  • Superfund administrative reforms and new policies for de minimis and de micromis settlements.5
  • Three months after issuance of the SBA report, Congress enacted legislation addressing the regulatory burdens on small businesses.
    Federal Legislation
    As part of the Contract With America, Congress enacted the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA).6 President Clinton signed it on March 29. Effective at the end of June, the statute seeks:
    (1) to implement certain recommendations of the 1995 White House Conference on Small Business regarding the development and enforcement of federal regulations;
    (2) to provide for judicial review of Chapter 6 of Title 5, United States Code (the Regulatory Flexibility Act);
    (3) to encourage the effective participation of small businesses in the federal regulatory process;
    (4) to simplify the language of federal regulations affecting small businesses;
    (5) to develop more accessible sources of information on regulatory and reporting requirements for small businesses;
    (6) to create a more cooperative regulatory environment among agencies and small businesses that is less punitive and more solution-oriented; and
    (7) to make federal regulators more accountable for their enforcement actions by providing small entities with a meaningful opportunity for redress of excessive enforcement activities.7
    To effectuate these purposes, SBREFA requires a variety of agency actions to simplify regulatory compliance. Agencies must publish one or more "small entity compliance guides," explaining in plain English how to comply with agency rules. Where possible and "appropriate," the agencies may cooperate with the States to develop guides integrating both federal and state requirements.
    Sources of Information
    Federal agencies are also to cooperate in creating comprehensive sources of information (including the guides) on statutory and regulatory requirements affecting small entities. And each federal agency has one year to establish a program for responding to inquiries from small businesses about the interpretation of the law and its application to the businesses' particular circumstances.8
    Other key provisions of SBREFA address regulatory enforcement and judicial review. Agencies have one year in which to establish a policy or program for the reduction or waiver of civil penalties imposed on small businesses for violation of legal requirements.9 SBREFA also amends the Equal Access to Justice Act10 to provide to small businesses attorneys fees and costs of defending administrative or judicial enforcement proceedings, when an agency's demand "is substantially in excess of the decision of the adjudicative office and is unreasonable when compared with such decision." The fees and expenses are available only if the violation was not willful or in bad faith and is contingent upon congressional appropriation of funds in advance.11
    In addition, SBREFA specifically targets EPA for an additional layer of rule-making scrutiny.12 Before formally proposing any rule, EPA must submit a draft to a newly created Small Business Advocacy Review Panel, composed of EPA, Office of Management and Budget and SBA employees.
    Led by an EPA Small Business Advocacy chairperson, the panel must solicit advice and recommendations from representatives of affected businesses. It must then prepare a report on those comments and its own findings. EPA is then to consider the report in deciding whether to modify the proposed rule or take other action.13 SBREFA also permits judicial review of certain final rules to ensure that their impact on small entities has been properly considered.14
    EPA Policies
    Following the enactment of SBREFA, EPA strengthened its existing Office of Small Business Ombudsman (OSBO). OSBO will continue to operate a hotline for small businesses, which may be reached 8:30 a.m.- 4:30 p.m. at (800) 368-5888. Regional Small Business Liaison, Otto Salamon (212) 637-3417, provides information and help in the New York area.
    OSBO also publishes a newsletter with a current update of environmental regulatory developments and OSBO activities designed to assist the small business community. A 21-page list of EPA publications, compiled by OSBO to assist small businesses in understanding environmental trends and requirement, is available for no cost by calling the Hotline.
    EPA's Final Policy on Compliance Incentives for Small Business, which became effective on June 10, implements §223 of SBREFA. It is intended "to promote environmental compliance among small businesses by providing them with incentives to participate in compliance assistance programs or to conduct environmental audits and to then promptly correct violations."15 The policy applies to all civil judicial and administrative enforcement actions under all environmental statutes administered by EPA (except the Public Water System Supervision Program under the Safe Drinking Water Act, for which programs tailored to small communities are already in place).
    Under the policy, a small business is defined as an entity that employs 100 or fewer direct or contract employees, or the "full-time equivalents," across all facilities and operations owned by the entity. "Full-time" is deemed to mean 2,000 hours annually, so to compute the number of employees, the entity should take the total number of hours worked by all employees annually and divide by 2,000.16
    The policy allows EPA to eliminate or reduce its settlement penalty demands against a small business that makes good faith efforts to identify and cure violations of environmental requirements. The entity can show good faith by either obtaining on-site compliance assistance from a government-sponsored program or conducting a self-audit and, in either case, promptly disclosing and correcting the violations. The provision for self-audit ensures that entities in states that do not sponsor compliance programs, or that have programs that cannot assist all interested small businesses, may nevertheless avail themselves of the benefit of the policy.
    For the policy to apply, the disclosure must be made before it is discovered by or reported to EPA by other means, and the entity may not have been subject to other enforcement proceedings for the same requirement for at least three years.17 In addition, the Policy will not apply if the violation is criminal or it has caused or threatens to cause serious harm.
    If all of the above criteria are satisfied, but the entity needs more than 180 days to implement a non-pollution prevention remedy or more than 360 days to implement a pollution prevention remedy, EPA may waive the gravity component of the penalty but may seek the full environmental benefit associated with the violation. EPA may also seek the economic benefit reaped from the violation, if the entity has obtained an economic advantage over its competitors as a result.18
    The policy also permits EPA to waive or mitigate penalties, if the entity does not satisfy the criteria noted above but otherwise shows a good faith effort to comply with environmental requirements. Mitigation is permitted if there is a documented inability to pay all or a portion of the penalty. The attorneys' fees provision of SBREFA would appear to place some pressure on EPA to mitigate penalties under that circumstance.
    In response to SBREFA, EPA has also issued an "Interim Guidance on Administrative and Civil Enforcement Following Recent Amendments to the Equal Access to Justice Act." The guidance is designed to help EPA minimize the risk of paying attorneys' fees to small businesses contesting civil penalties as excessive and unreasonable. EPA litigators are encouraged to assess as much information as possible concerning penalty factors, ability to pay and other defenses before filing a complaint. Where the facts are uncertain, personnel may consider adopting procedures before or at the time of filing that demonstrate agency flexibility in defining the penalty.
    New York Programs
    Long before SBREFA and the EPA response to it, the Clean Air Act Amendments of 1990 (CAAA) required that states establish Small Business Assistance Programs (SBAPs) to provide technical and compliance assistance to small businesses that are stationary sources of air pollutants. Pursuant to this mandate, New York established the Small Business Stationary Source Technical and Environmental Compliance Assistance Program. The Program is a collaboration of the Empire State Development Corporation (ESDC), Division for Small Business, the Environmental Facilities Corp. (EFC), and the New York State Department of Environmental Conservation (DEC). The Program offers free and confidential air emission compliance assistance to New York's small businesses.
    The program includes the Environmental Ombudsman Unit, at (800) 782-8369. The Unit, run by ESDC, provides general information, handles complaints, evaluates proposed environmental regulations for their impact on small businesses, and arranges workshops on topics of special interest. In addition, the EFC administers New York's SBAP, a technical assistance unit that helps small businesses understand federal and state air quality requirements, provides technical advice on pollution control and prevention, assists with permit applications, and offers free, limited on-site environmental audits. The SBAP hotline is (800) 780-7227. DEC provides support to the Program, by supplying information on regulatory requirements, guidelines, and policies.
    The Program also issues a variety of publications, including "Clean Air News for Small Business," a periodic update of changes, actions, and events concerning the implications of the CAAA. Special guides for particular industries, including chromium electroplating and anodizing operations and wood furniture manufacturers are also available.
    Small businesses seeking to evaluate their environmental compliance for the first time may wish to obtain DEC's beginner's guide to environmental compliance entitled, "The Environmental Self-Audit for Small Businesses." It provides a list of more than 40 types of small businesses that may need environmental permits and serves as a multi-media diagnostic tool -- with self-audit checklists not only for air, but also water, land use, solid waste, and hazardous materials. The guide also provides an introduction to the State Environmental Quality Review Act and basic information about responses to emergency spills.
    New York State Pollution Prevention Information Clearinghouse, located in DEC's Pollution Prevention Unit (518) 457-2480), may also be of interest to small businesses. The Clearinghouse provides, at no cost, a list of references about technical, policy, program, and legislative aspects of pollution prevention. The Clearinghouse includes a library of written and audiovisual materials; a database of abstracted references on waste reduction, recycling, and pollution prevention; and a computerized directory of manufacturing and consulting firms offering products and services in the field. The Clearinghouse also encourages businesses to contribute information needed to keep its resources up to date.
    Effect of the Programs
    It is unlikely that all of these programs and publications will silence complaints about environmental regulatory burdens. Indeed, even before SBREFA became effective, industry spokespersons asserted that EPA was not operating in the spirit of the new law. Still, small businesses have more resources available to them than ever before and can expect to receive more sympathetic attention to their needs from both federal and state agencies.
    (1) U.S. Environmental Protection Agency, The Common Sense Initiative 1 (June 1995).
    (2) See Contract With America Advancement Act of 1996. Tit. II, Pub. L. No. 104-121 §202(4), 110 Stat. 857 (1996).
    (3) U.S. Small Business Administration, Building the Foundation for a New Century 11-12 (Dec. 1995).
    (4) Id. at 11.
    (5) Id. at 11-12.
    (6) Pub. L. No. 104-121, §§201 et seq., 110 Stat. 857 (1996).
    (7) Id. §203.
    (8) Id. §§213-15.
    (9) Id. §223(a).
    (10) 5 USC §504(a).
    (11) Pub. L. No. 104-121, §231.
    (12) The Occupational Safety and Health Administration is also subject to this additional rule-making requirement. See id. §244(d).
    (13) Id. §244(b).
    (14) Id. §242. The statute also sets forth a procedure for congressional review of agency rules. Id. §§801-08.
    (15) 61 Fed. Reg. 27984.
    (16) 61 Fed. Reg. 27985.
    (17) In addition, the policy will not apply if the entity has been the subject of two enforcement proceedings for any requirements within five years.
    (18) 61 Fed. Reg. 27986.