Small Business, Big Nuisance

Congress created the Small Business Administration’s Office of Advocacy in 1976, giving it the broad mission of representing the interests of small businesses within the federal government. Primarily that means commenting on proposed regulations and advising other agencies on how those rules might affect small businesses.

In recent years, however, the Office of Advocacy has devolved into the Office of “No.” No to workplace-safety initiatives. No to financial-transparency rules. No to food-labeling requirements. The office’s comments aren’t binding, so agencies can go ahead with proposed rules anyway. But they can have an impact: Being called anti–small business is bad PR, and judges pay attention to the office’s complaints when rules are challenged in court. The office is mostly bark, but it has some bite.

And that bite is bad for the planet, because the office’s favorite target by far is environmental regulation. According to a July report from the Government Accountability Office, between 2009 and 2013, the Office of Advocacy criticized proposed environmental regulations 43 times. No other field was targeted more than 26 times. The relentless attacks have raised the ire of many conservationists.

“The Office of Advocacy does nothing more than parrot the agenda of big polluters,” says John Walke, director of the climate and clean air program at NRDC, which publishes Earthwire. “That might be understandable if it was an industry trade association, but it’s outrageous when it's funded by taxpayers.”

The Office of Advocacy’s trusty weapon is the Regulatory Flexibility Act. The 1980 law subjects new regulations to costly, time-consuming analyses to determine their potential economic impacts on small businesses. There’s a way to get out of it, if the issuing agency certifies the small-business impacts would be insignificant. But agencies that make such certifications—even if they seem entirely obvious and fair—almost always get a nasty-gram from the Office of Advocacy.

Some examples:

The U.S. Environmental Protection Agency determined in 2009 that greenhouse gases were a danger to public health and moved to regulate emissions from vehicles made by large manufacturers. Since small entities were explicitly exempted, the agency certified that the rules would have no major financial impacts on small businesses. The Office of Advocacy objected anyway.

In 2012, the U.S. Fish and Wildlife Service sought to revise the land being managed to protect the threatened northern spotted owl. The “critical habitat” designation does not set aside the land as pristine wilderness or establish a new national park. It merely requires federal agencies to consider the species’ survival when making decisions about the land. The Office of Advocacy insisted that such a move—one of the least burdensome environmental regulations the government can impose—would have a significant economic impact on a substantial number of small businesses. Critics say that, in fact, the office was trying to protect timber interests.

Just last week, the Office of Advocacy wrote to the EPA about an effort to reduce hazardous air pollution from oil refineries. The office complained that monitoring standards and other rules would be too burdensome for “small refiners.” By the office’s estimation, any refiner with fewer than 1,500 employees is a mom-and-pop business that needs special protection.

Hey, here’s a coincidence: The American Petroleum Institute, one of Washington's most powerful lobbying groups, is also actively opposing the new refinery-pollution rules. It’s almost as if big business uses the Office of Advocacy as a Trojan horse for its own interests. In fact, that’s exactly what critics are worried about.

Make a mental list of small businesses: your neighborhood flower shop, a restaurant, the dry cleaner, an electrician, maybe a local grocery store. You probably wouldn’t include an oil refinery, no matter how “small.” But the Office of Advocacy does, sweeping up some rather large businesses and industries into its definition. Critics say the office is spending most of its time and resources working for companies that already have a substantial lobbying presence in Washington.

Here’s another example: On October 1, the Office of Advocacy sent a letter to the EPA opposing the proposed Waters of the United States rule, which would clarify that headwaters and streams are covered by the Clean Water Act. The very next day, the U.S. Chamber of Commerce website linked to the letter, calling the Office of Advocacy an “unexpected ally from within the administration.”

Wrong on both counts. The Chamber of Commerce surely knew the Office of Advocacy would take this position—it opposes nearly all environmental regulation—and the office is in no way “within the administration.” It is entirely independent. Although the president nominates its leader, the Office of Advocacy has a separate statutory mandate and an entirely independent budget from the rest of the Small Business Administration. Many members of its staff of a few dozen attorneys and economists have been with the office for decades, furthering the impression that it is a fiefdom with its own private interests.

Until recently there was virtually no one, including the president, checking the office’s work. “There have been no Inspector General reports, no congressional oversight hearings, nothing,” says James Goodwin of the Center for Progressive Reform, who cowrote a critical report about the office in 2013. “The SBA Office of Advocacy has flown completely under the radar for nearly 40 years.”

That changed in July, though, when the Government Accountability Office shone a harsh spotlight on arguably the least accountable office in Washington. The report was scathing. GAO found a persistent failure on the office’s part to document how and why its decisions were made and positions were taken. More than half of the Office of Advocacy’s comment letters to EPA and other agencies harp on the concerns of small businesses. But when GAO investigators asked for documentation showing the input the office had received from those businesses, it had nothing to show.

The office convenes roundtables to discuss the needs of small business owners and guide its decision-making. Yet the staff present at these meetings did not regularly take notes, the GAO found. They didn’t even keep track of who was in attendance.

Similarly, the office commissions economic studies to support its antiregulatory positions. GAO found that the procedures for quality control and peer review of these reports were utterly inadequate. The office did not require the researchers to submit the raw data on which the studies were based, making it impossible for outside groups to evaluate the quality of the work. Many of the studies have no documentation of peer review, and when peer review did occur, there is little evidence that the reviewers’ comments were addressed.

The peer reviewers themselves, who were identified through the “expertise and professional contacts” of office staff, often didn’t take their work seriously. In one case, a reviewer’s entire commentary consisted of the following: “I looked it over and it’s terrific, nothing to add. Congrats[.]”

Shortly after the GAO report was released, the office’s leader, Winslow Sargeant, announced his resignation. A spokesperson said the two events were unrelated.