AGENCY:

U.S. Small Business Administration.

ACTION:

Interim final rule with request for comments.

SUMMARY:

The U.S. Small Business Administration (SBA or Agency) is adjusting the monetary-based industry size standards (i.e., receipts- and assets-based) for inflation that has occurred since the last adjustment in 2014. These size standards will be reviewed again as part of the ongoing second 5-year review of size standards, as mandated by the Small Business Jobs Act of 2010 (Jobs Act). Also adjusted for inflation are receipts-based size standards that apply to sales or leases of Government property and stockpile purchases.

DATES:

Effective Date: This rule is effective August 19, 2019.

Comment Date: Comments must be received on or before September 16, 2019.

ADDRESSES:

You may submit comments, identified by RIN 3245-AH17, by any of the following methods: (1) Federal eRulemaking Portal: https://www.regulations.gov, following the specific instructions for submitting comments; or (2) Mail/Hand Delivery/Courier: U.S. Small Business Administration, Khem R. Sharma, Ph.D., Chief, Office of Size Standards, 409 Third Street SW, Mail Code 6530, Washington, DC 20416.

SBA will post all comments to this interim final rule on https://www.regulations.gov. If you wish to submit confidential business information (CBI) as defined in the User Notice at https://www.regulations.gov, you must submit such information to the U.S. Small Business Administration, Khem R. Sharma, Ph.D., Chief, Office of Size Standards, 409 Third Street SW, Mail Code 6530, Washington, DC 20416, or send an email to sizestandards@sba.gov. Highlight the information that you consider to be CBI and explain why you believe SBA should hold this information as confidential. SBA will review your information and determine whether it will make the information public.

FOR FURTHER INFORMATION CONTACT:

Jorge Laboy-Bruno, Ph.D., Office of Size Standards, (202) 205-6618 or sizestandards@sba.gov.

SUPPLEMENTARY INFORMATION:

As explained in the SBA's “Size Standards Methodology” white paper available at https://www.sba.gov/​size and at https://www.regulations.gov (Docket ID: SBA-2018-0004), SBA reviews small business size standards and makes necessary adjustments to them for two reasons: (i) Changes in industry structure and Federal market conditions and (ii) inflation. Prior to the 2014 inflation adjustment, SBA reviewed all monetary-based industry size standards with respect to industry structure and Federal market conditions as part of the first 5-year review of size standards required by section 1344 of the Small Business Jobs Act of 2010 (Jobs Act) (Pub. L. 111-240, 124 Stat. 2504 (September 27, 2010)). In this rule, SBA is adjusting its monetary-based industry size standards for inflation that has occurred since the last inflation adjustment, which was published in June 2014 (79 FR 33647 (June 12, 2014)). These include receipts-based size standards for 518 industries and 9 subindustries (i.e., “exceptions” in the SBA Table of Size Standards), as well as assets-based size standards for 5 industries. As part of the ongoing second 5-year review of size standards required by the Jobs Act, SBA will review these size standards again in the near future to determine whether further adjustments are needed based on industry and Federal market conditions. Additionally, SBA is adjusting 2 program-specific receipts-based size standards, namely, (1) sales or leases of Government property and (2) stockpile purchases. However, as explained elsewhere in this rule, SBA is not adjusting either (1) the tangible net worth and net income-based alternative size standard established under the Jobs Act for its 7(a) and 504 Loan Programs; or (2) the tangible net worth and net income-based alternative size standard established for the Small Business Investment Company (SBIC) Program.

SBA is required to assess the impact of inflation on its monetary-based size standards at least once every 5 years (see SBA Interim Final Rule: Small Business Size Standards: Inflation Adjustment to Monetary Based Size Standards (67 FR 3041 (January 23, 2002)) and 13 CFR 121.102(c)). Although the provision does not mandate that SBA actually adjust size standards for inflation every 5 years, it does provide assurances to the public that the Agency is monitoring inflation to determine whether or not to adjust size standards within a reasonable period of time since its last inflation adjustment.

Previous inflation adjustments to size standards were in SBA's Interim Final Rule: Small Business Size Standards: Inflation Adjustment to Monetary Based Size Standards ((79 FR 33647 (June 12, 2014)) (SBA Final Rule at 81 FR 3949 (January 25, 2016) finalized the 2014 IFR without change); in SBA Final Rule: Small Business Size Standards: Inflation Adjustment to Size Standards, Business Loan Program, and Disaster Assistance Loan Program (73 FR 41237 (July 18, 2008)); SBA Interim Final Rule: Small Business Size Standards, Inflation Adjustment to Size Standards; Business Loan Program; Disaster Assistance Loan Program (70 FR 72577 (December 6, 2005)); SBA Final Rule: Small Business Size Standards: Inflation Adjustment to Size Standards (67 FR 65285 (October 24, 2002)); SBA Interim Final Rule: Small Business Size Standards; Inflation Adjustment to Size Standards (67 FR 3041 (January 23, 2002)); SBA Final Rule: Small Business Size Standards; Inflation Adjustment to Size Standards (59 FR 16513 (April 7, 1994)); SBA Final Rule: Small Business Size Standards; Revision (49 FR 5024 (February 9, 1984)); and SBA Final Rule: Small Business Size Standards Regulation (40 FR 32824 (August 5, 1975)).

A number of businesses may have lost small business eligibility for Federal assistance under SBA's monetary-based industry size standards simply because of inflation-led revenue growth that has occurred since the 2014 adjustment. This rule aims to reinstate those firms' small business eligibility for Federal assistance.

As mentioned above, the adjustment for inflation in this rule applies to all monetary-based industry size standards, including the $750,000 receipts-based size standard for agricultural industries, which was previously set by statute. However, section 1831 of the National Defense Authorization Act for Fiscal Year 2017 (NDAA 2017) (Pub. L. 114-328, 130 Stat. 2000, December 23, 2016) directed SBA to establish size standards for all agricultural enterprises in the same manner as for other industries and to include them in the 5-year rolling review procedures established under section 1344(a) of the Jobs Act.

The inflation adjustments in this rule are separate from revisions to size standards made during the 5-year rolling reviews of size standards, as mandated by the Jobs Act. SBA's 5-year size standards rolling reviews primarily focus on industry structure (i.e., average firm size, startup costs and entry barriers, industry concentration, and distribution of firms by business size) and Federal contracting trends (i.e., small business share of Federal contract dollars relative to small business share of total industry's receipts) for industries with significant contracting activities.

Rather than reviewing all size standards at one time, for the 5-year rolling reviews, SBA reviews size standards on a Sector-by-Sector basis over a period. The objective of the rolling review is to review all size standards and make necessary adjustments to reflect current industry structure and Federal market conditions. By including inflation as an additional factor in the analysis, it would mean applying different inflation rates to different sectors at different times. For example, the applicable inflation would be lower for sectors reviewed earlier in the cycle and higher for those reviewed later in the cycle, resulting in inconsistent size standards across sectors and industries. To avoid this, SBA has decided to evaluate all monetary industry-based size standards for inflation separate from the 5-year rolling review.

Updating size standards based on inflation—in addition to updating size standards based on the latest industry and Federal contracting data under the 5-year rolling review—not only satisfies the Jobs Act's mandate that SBA review all size standards, but also is consistent with Executive Order 13563 on improving regulation and regulatory review. This also fulfills the SBA's regulatory requirement to review size standards for inflation every 5 years.

SBA's Inflation Adjustment Methodology

For this interim final rule, SBA has used the inflation adjustment methodology it described in its “Size Standards Methodology” white paper, which is available at https://www.sba.gov/​size. SBA applied the same methodology in its previous inflation adjustments, including the latest adjustment in 2014. This methodology can be described in terms of the following steps:

1. Selecting an inflation measure.

2. Selecting the base and end periods.

3. Calculating the inflation rate.

4. Adjusting the monetary based size standards.

1. Selecting an Inflation Measure

SBA establishes small business size standards to determine the eligibility of businesses for a wide variety of SBA's and other Federal programs. Many businesses participating in those programs are engaged in multiple industries and are producing a wide range of goods and services. Therefore, it is important that the Agency use a broad measure of inflation to adjust its size standards. SBA's preferred measure of inflation has consistently been the chain-type price index for the U.S. Gross Domestic Product (GDP price index), published by the U.S. Department of Commerce, Bureau of Economic Analysis (BEA) on a quarterly basis as part of its National Income and Product Accounts (NIPA) and available at https://www.bea.gov/​iTable.

In its 2014 interim final rule (79 FR 33647 (June 12, 2014)), besides the GDP price index, SBA reviewed several alternative inflation measures published by the Federal Government (including the consumer price index, the personal consumption expenditures price index, the producer price index, and the employment cost index) for their appropriateness to use for adjusting SBA's size standards. Among all these indexes, SBA determined that the GDP price index is the most comprehensive measure of movements in the general price level in the economy and thus the most appropriate measure of inflation for adjusting SBA's size standards. Thus, as in the previous inflation adjustments, SBA has decided to use the GDP price index to adjust monetary-based size standards for the current inflation adjustment.

2. Selecting the Base and End Periods

For this inflation adjustment (excluding the $750,000 agricultural size standard adjustment), SBA selected the first quarter of 2014 as the base period because it was the end period for the 2014 adjustment. SBA selected the fourth quarter of 2018 as the end period because it was the latest quarter for which GDP price indexes were available when that rule was developed.

The current $750,000 size standard for agricultural industries was established by Congress in December of 2000 (Pub. L. 106-554, 114 Stat. 2763, Dec. 21, 2000) and was not included in previous inflation adjustments. However, section 1831 of the NDAA 2017 directed SBA to review and adjust size standards for all agricultural enterprises in the same manner as for other industries. Thus, in this rule, SBA is also adjusting the $750,000 size standard for agricultural industries by using the first quarter of 2001 as the base period and the fourth quarter of 2018 as the end period.

3. Calculating the Rate of Inflation

The GDP price index for the base period (excluding the $750,000 agricultural size standard) was 102.551 and the GDP price index for the end period was 111.134. Accordingly, inflation increased 8.37 percent from the first quarter of 2014 to the fourth quarter of 2018 (((111.134 ÷ 102.551) − 1) × 100 percent = 8.37 percent).

The GDP price index for the agricultural base period was 79.232 and the GDP price index for the agricultural end period was 111.134. Accordingly, inflation increased 40.26 percent from the first quarter of 2001 to the fourth quarter of 2018 (((111.134 ÷ 79.232) − 1) × 100 percent = 40.26 percent).

4. Making Adjustments to Size Standards

Adjustment to receipts-based industry size standards: All receipts-based size standards (excluding the $750,000 agricultural size standard) were adjusted by multiplying their current levels by 1.0837 and rounding the results to the nearest $500,000.

Adjustment to the agricultural size standard: SBA multiplied the current size standard of $750,000 for 46 agricultural industries by 1.4026 to obtain a non-rounded size standard of $1.05 million. Rounding to the nearest $500,000 results in an adjusted size standard of $1.0 million for all 46 agricultural industries.

Adjustment to the assets-based size standard: Currently, 5 industries in North American Industry Classification System (NAICS) Sector 52, Finance and Insurance, have the size standard of $550 million in average assets. Following the inflation adjustment methodology described above, the assets-based size standard was adjusted by multiplying the current value of $550 million by 1.0837. The result was $596 million, which SBA rounded to $600 million.

Table 1, “Inflation Adjustment to Monetary-based Size Standards,” summarizes the results of the inflation adjustment for 16 different receipts-based size standards levels, ranging from $0.75 million to $38.5 million, as well as one assets-based size standard of $550 million. The first column of Table 1 shows the current monetary-based industry size standards; the second column shows their inflation-adjusted values before rounding; the third column shows their inflation-adjusted values after rounding; and the fourth column shows the count of industries and subindustries (or “exceptions”) that are associated with each of the receipts- and assets-based size standards levels. The results lead to adjustment to 532 size standards, including 523 industries and 9 subindustries or “exceptions.”

Adjustment to program-based size standards: Most SBA and other Federal programs apply SBA's industry-based size standards. SBA has also established a few size standards on a program basis rather than on an industry basis. Some of these size standards are also adjusted for inflation in the same manner as the receipts-based and assets-based industry size standards. Table 2, “Inflation Adjustment to Program-based Receipts Size Standards,” shows the program-based size standards and their corresponding inflation-adjusted values. The size standard for “smaller enterprises” under the Small Business Investment Company (SBIC) program is set by regulation (see 13 CFR 107.710(a)) and, therefore, not adjusted. SBA is also electing not to adjust the SBIC program's tangible net worth and net income-based alternate size standard in 13 CFR 121.301(c). SBA adjusted the tangible net worth and net income alternate size standard for the SBIC program for inflation in 2014 (79 FR 33647 (June 12, 2014)). SBA has determined that the current SBIC alternative size standard levels are enough to accomplish its program objectives and that no further increase is necessary at this time.

Special Considerations

Size Standard for Leasing of Building Space to the Federal Government by Owners—Footnote 9: The size standard found in Footnote 9 to 13 CFR 121.201 (Leasing of Building Space to the Federal Government by Owners) was also adjusted for inflation. The current size standard of $38.5 million was multiplied by 1.0837 to obtain an adjusted size standard of $41.5 million after rounding. As explained more fully in the prior Inflation Adjustment (79 FR 33647), this size standard exception applies to all 4 industries in NAICS Group 5311, Lessors of Real Estate.

Alternative Size Standard for 7(a) and 504 Loan Programs: Effective September 27, 2010, Congress established through the Jobs Act a new temporary alternative size standard of tangible net worth of not more than $15 million and net income of not more than $5 million for SBA's 7(a) and 504 Loan Programs. On September 29, 2010, SBA issued Information Notice 5000-1175 (available at https://www.sba.gov/​sites/​default/​files/​files/​bank_​5000-1175_​0.pdf) advising lenders and the public that, effective September 27, 2010, the new statutory alternative size standard will apply for its 7(a) and 504 Loan Programs, thereby replacing the existing alternative size standard of $8.5 million in tangible net worth and $3 million in net income, then set forth in 13 CFR 121.301(b)(2). The Jobs Act also provided that the new temporary alternative size standard would remain in effect for the 7(a) and 504 Loan Programs until the SBA's Administrator establishes a different size standard through rulemaking. For this reason, in this rule, SBA is not adjusting the new alternative size standard for its 7(a) and 504 Loan programs for inflation. SBA will issue a different rule to establish a permanent alternative size standard for those programs.

Justification for Updating Size Standards for Inflation as an Interim Final Rule

In general, to revise or update size standards, SBA publishes a proposed rule for public comment before issuing a final rule, in accordance with the Administrative Procedure Act (APA), 5 U.S.C. 553, and SBA regulations, 13 CFR 101.108. The APA provides an exception to this standard rulemaking process, however, in situations where an agency finds good cause to adopt a rule without prior public participation. (See 5 U.S.C. 553(b)(3)(B)). The good cause requirement is satisfied when prior public participation is impracticable, unnecessary, or contrary to the public interest. Under those conditions, an agency may publish an interim final rule without first soliciting public comment. In applying the good cause exception to the standard rulemaking process, Congress recognized that special circumstances might arise justifying issuance of a rule without prior public participation.

As stated above, the last time SBA made inflation adjustments to size standards was 2014. A number of businesses may have lost small business eligibility for Federal assistance under SBA's monetary-based size standards simply as a result of the inflation that has occurred since that time. This rule is necessary to make those businesses eligible for Federal assistance. Any delay in the adoption of inflation-adjusted size standards could cause significant harm to those businesses and others that are about to exceed current size standards simply due to inflation-driven revenue growth. Immediate implementation of this rule would enable more businesses to qualify under SBA's monetary-based size standards, which would enable them to apply for Federal small business assistance and thereby create jobs.

The standard notice and comment rulemaking could delay the implementation of this rule by at least 8 to 12 months. Such a delay would be contrary to the public interest as it would delay the eligibility of those businesses for Federal small business assistance, perhaps forcing some of them to cease operations before a final rule could be promulgated under the standard rulemaking process. Furthermore, the inflation adjustment will become outdated by the time the final rule is published under notice and comment rulemaking.

For the above reasons, SBA finds that good cause exists to publish this rule as an interim final rule. SBA's rationale for preparing this action as an interim final rule and giving it immediate effect is consistent with the Agency's statutory obligation to protect the interests of small businesses, thereby enabling them to maintain competitiveness and strengthen the overall economy. Small Business Act, 15 U.S.C. 631(a). SBA had also implemented inflation adjustments to size standards through an interim final rule in 2002, 2005, and 2014 without any controversies.

By publishing this rule as an interim final rule, SBA is not excluding public participation in the rulemaking process. SBA is soliciting comments from interested parties on this interim final rule on a number of issues, including SBA's methodology for inflation adjustment and alternative measures of inflation. SBA will evaluate all comments and revise, if necessary, this rule, and publish a final rule at a later date.

Request for Comments

SBA seeks comments on this rule, specifically on the following issues:

1. SBA welcomes comments from interested parties on SBA's size standards methodology for inflation adjustment to its size standards. Specifically, SBA seeks comment on whether the GDP price index is an appropriate measure of inflation for adjusting size standards. The Agency invites suggestions, along with supporting data and analysis, if a different measure of inflation would be more appropriate.

2. SBA also invites comments on whether it should adjust employee-based industry size standards for labor productivity growth and technological advancements, similar to adjusting monetary-based industry size standards for inflation.

3. SBA also invites comments on any other aspects of this rulemaking, including the changes to program-based and assets-based size standards.

Compliance With Executive Orders 12866, 13563, 12988, 13132, and 13771, the Paperwork Reduction Act (44 U.S.C., Ch. 35), and the Regulatory Flexibility Act (5 U.S.C. 601-612) Executive Order 12866

The Office of Management and Budget (OMB) has determined that this interim final rule is not a “significant regulatory action” for purposes of Executive Order (E.O.) 12866. However, in order to help explain the need for this rule and its potential benefits and costs, SBA is providing below a Cost/Benefit Analysis of the rule. This is also not a “major rule” under the Congressional Review Act (5 U.S.C. 800).

Cost/Benefit Analysis

1. Is there a need for the regulatory action?

SBA's statutory mission is to aid and assist small businesses through a variety of financial, procurement, business development, and advocacy programs. To assist the intended beneficiaries of these programs effectively, SBA must establish distinct definitions of which businesses are deemed small businesses. The Small Business Act (15 U.S.C. 632(a)) (Act) delegates to the SBA Administrator the responsibility for establishing small business definitions. The Act also requires that small business definitions vary from industry to industry to reflect industry differences. The supplementary information to this interim final rule explains how SBA adjusts size standards for inflation. SBA is required to assess the impact of inflation on its monetary-based size standards at least once every 5 years (67 FR 3041 (January 23, 2002) and 13 CFR 121.102(c)). Many businesses may have lost small business eligibility for Federal assistance under SBA's monetary-based size standards simply because of inflation that has occurred since the last inflation adjustment to size standards in 2014. This interim final rule aims to make those businesses eligible again for Federal assistance.

2. What are the potential benefits and costs of this regulatory action?

The most significant benefit of this interim final rule is to enable businesses that have exceeded size standards simply due to inflation-driven revenue growth to regain eligibility for Federal small business assistance programs. This will also help businesses about to exceed their size standards to retain small business eligibility for Federal programs for a longer period. These programs include SBA's financial assistance programs, economic injury disaster loans, and Federal procurement programs intended for small businesses. Federal procurement programs provide targeted opportunities for small businesses under SBA's business development programs, such as 8(a), Small Disadvantaged Businesses (SDB), small businesses located in Historically Underutilized Business Zones (HUBZone), women-owned small businesses (WOSB), economically disadvantaged women-owned small businesses (EDWOSB), and service-disabled veteran-owned small businesses (SDVOSB). Federal agencies may also use SBA's size standards for a variety of other regulatory and program purposes. These programs assist small businesses to become more knowledgeable, stable, and competitive.

Besides small business contracting opportunities and financial assistance, small businesses also benefit from reduced fees, less paperwork, and fewer compliance requirements that are available to small businesses through Federal agencies that use SBA's monetary-based size standards.

The Baseline

OMB directs agencies to establish an appropriate baseline to evaluate the benefits, costs, and/or transfer impacts of regulatory actions, as well as discuss the alternative approaches considered, if any. The baseline should represent the agency's best assessment of what the world would look like absent the regulatory action. For a new regulatory action modifying an existing regulation (such as adjusting the existing size standards for inflation), a baseline assuming no change to the regulation (i.e., maintaining the status quo) generally provides an appropriate benchmark for evaluating benefits, costs, or transfer impacts of proposed regulatory changes and their alternatives.

Based on the 2012 Economic Census (https://www2.census.gov/​econ2012/​EC/​) special tabulations (the latest available and compiled from a special tabulation provided by the U.S. Census Bureau), 2012 County Business Patterns Reports (https://www.census.gov/​programs-surveys/​cbp.html) (for industries not covered by the Economic Census), and 2012 Agricultural Census (https://www.nass.usda.gov/​) tabulations (for agricultural industries), of a total of about 7.2 million firms in all industries with receipts-based size standards, 96.2 percent are considered small and 3.8 percent are considered other than small under the current size standards. Similarly, based on the fourth quarter of 2018 data from the Federal Deposit Insurance Corporation (FDIC), available at https://www5.fdic.gov/​sdi/​download_​large_​list_​outside.asp, and the National Credit Union Administration (NCUA), available at https://www.ncua.gov/​analysis/​credit-union-corporate-call-report-data/​quarterly-data, of about 13,600 total firms subject to the assets-based size standards, 83 percent were considered small.

Based on the data from the Federal Procurement Data System—Next Generation (FPDS-NG) for fiscal years 2015-2017, available at https://www.fpds.gov, on average, about 88,700 unique firms in industries subject to monetary-based size standards received at least one Federal contract during that period. Of those 88,700 firms, 83 percent were small. Businesses subject to monetary-based standards received $182 billion in annual average Federal contract dollars during that period, of which $63.7 billion or about 35 percent went to small businesses. Of total dollars awarded to small businesses subject to monetary-based size standards, $45 billion, or 71 percent, was awarded through various small business set-aside programs and the other 29 percent was awarded through non-set aside contracts.

Based on the SBA's internal data on its loan programs, small businesses subject to monetary-based size standards received, on an annual basis, a total of nearly 58,600 7(a) and 504 loans for fiscal years 2016-2018, totaling $24.5 billion, of which 85 percent was issued through the 7(a) program and 15 percent was issued through the 504/CDC program. During fiscal year 2018, small businesses in those industries also received about 11,350 loans through the SBA's Economic Injury Disaster Loan (EIDL) program, totaling about $1.0 billion on an annual basis. Table 3, “Impact Analysis Inflation Adjustment to Monetary-based Size Standards,” provides these baseline results.

Benefits

The most significant benefits to businesses from the adjustment of size standards for include: (1) Some businesses that are above the current size standards may gain small business status under the higher, inflation-adjusted size standards, thereby enabling them to participate in Federal small business assistance programs; (2) growing small businesses that are close to exceeding the current size standards will be able to retain their small business status under the higher size standards, thereby enabling them to continue their participation in the programs; and (3) Federal agencies will have a larger pool of small businesses from which to draw for their small business procurement programs.

SBA estimates that this inflation adjustment will enable approximately 89,730 firms in industries and subindustries with receipts-based size standards and about 161 firms in industries with assets-based size standards that are currently above SBA's size standards to gain small business status and become eligible for these programs. This represents a total of 89,891 additional firms that would qualify as small business under the inflation-adjusted size standards. This will increase the small business share of total receipts in industries and subindustries with receipts-based size standards from 29.0 percent to 29.7 percent, and the small business share of total assets in industries with assets-based size standards from 5.7 percent to 6.0 percent.

Based on FPDS-NG data from fiscal years 2015-2017, SBA estimates that firms gaining small business status under the inflation-adjusted size standards could receive between $700 million and $750 million in additional small business Federal contract dollars. This represents an increase of about 1.2 percent over the baseline. The added competition for many of these procurements could also result in lower prices to the Government for procurements reserved for small businesses, but SBA cannot quantify this benefit. Additionally, by allowing businesses above the size threshold to regain small business status and advanced small businesses close to size standards to prolong their small status for a longer period, this interim final rule could also expand the pool of qualified small firms for agencies to draw upon to meet their small business procurement requirements.

Based on the fiscal years 2016-2018 SBA loan data, SBA estimates about 115-120 additional loans totaling between $60 million and $65 million could be made to these newly defined small businesses under SBA's 7(a) and 504 Loan Programs under the adjusted size standards. Higher inflation-adjusted size standards will likely result in more small business guaranteed loans to businesses in these industries, but it is impractical to try to estimate the exact number and total amount of loans. There are two reasons for this: (1) Under the Jobs Act, SBA can now guarantee substantially larger loans than in the past; and (2) as described above, the Jobs Act established an alternative size standard ($15 million in tangible net worth and $5 million in net income after income taxes) for business concerns that do not meet the size standards for their industry. Therefore, SBA finds it difficult to quantify the actual impact of these inflation-adjusted size standards on its 7(a) and 504 Loan Programs.

Newly defined small businesses will also benefit from SBA's Economic Injury Disaster Loan (EIDL) Program. Since this program is contingent on the occurrence and severity of a disaster in the future, SBA cannot make a meaningful estimate of this impact. However, based on historical trends, SBA estimates that the EIDL Program could issue about 30 loans per year (a total of about $3 million dollars) to businesses qualifying as small under the inflation-adjusted size standards.

Additionally, the newly defined small businesses would also benefit through reduced fees, less paperwork, and fewer compliance requirements that are available to small businesses through the Federal Government, but SBA has no data to quantify this impact.

Costs

To the extent that those 89,891 additional small firms could become active in Federal procurement programs, the adjusted size standards in this final interim rule may entail some additional administrative costs to the government as a result of the increase in the number of businesses eligible for Federal small business programs. For example, there will be more firms seeking SBA's guaranteed loans; more firms eligible for enrollment in the Dynamic Small Business Search (DSBS) database or at https://certify.sba.gov;​ more firms seeking certification as 8(a) or HUBZone firms; more firms qualifying for small business, WOSB, EDWOSB, SDVOSB, and SDB status; and more firms applying for SBA's 8(a)/BD and All Small Mentor-Protégé programs.

With an expanded pool of businesses eligible for small business assistance under higher size standards due to this inflation adjustment, it is likely that Federal agencies would set aside more contracts for small businesses. One may surmise that this might result in a higher number of small business size protests and additional processing costs to agencies. However, SBA's historical data on size protests shows that the number of size protests actually decreased after an increase in the number businesses qualifying as small as a result of size standards revisions as part of the first 5-year review of size standards completed in early 2016. Specifically, on an annual basis, the number of size protests dropped from about 600 during fiscal years 2011-2013 (review of most receipts-based size standards was completed by the end of FY 2013) to about 500 during fiscal years 2014-2016. Similarly, among those newly defined small businesses seeking SBA's loans, there could be some additional costs associated with compliance and verification of their small business status. However, small business lenders have an option of using the tangible net worth and net income-based alternative size standard instead of using the industry-based size standards to establish eligibility for SBA's loans. For all these reasons, SBA believes that these added administrative costs will be minor because necessary mechanisms are already in place to handle these added requirements.

Among those newly defined small businesses seeking SBA's assistance, there could be some additional costs associated with compliance and verification of small business status and protests of small business status. However, SBA believes that these added administrative costs will be minimal because mechanisms are already in place to handle these requirements.

In some cases, Federal Government contracts may have higher costs. With a greater number of businesses defined as small, Federal agencies may choose to set aside more contracts for competition among small businesses only rather than using full and open competition. The movement from unrestricted to small business set-aside contracting might result in competition among fewer total bidders, although there will be more small businesses eligible to submit offers. However, the additional costs associated with fewer bidders are expected to be minor since, by law, procurements may be set aside for small businesses or reserved for the 8(a), HUBZone, WOSB, EDWOSB, or SDVOSB Programs only if awards are expected to be made at fair and reasonable prices.

In addition, there may be higher costs when more full and open contracts are awarded to HUBZone businesses that receive price evaluation preferences. However, with agencies likely setting aside more contracts for small businesses in response to a larger pool of small businesses under inflation-adjusted higher size standards, HUBZone firms may receive more set-aside contracts and fewer full and open contracts, thereby resulting in some cost savings to agencies. SBA cannot estimate such costs savings because it is impossible to determine the number and value of unrestricted contracts to be otherwise awarded to HUBZone firms that will be awarded as set-asides. However, such cost savings are likely to be relatively small, as only a small fraction of full and open contracts are awarded to HUBZone businesses.

Transfer Impacts

The size standards adjustments in this interim final rule may have some distributional effects among large and small businesses. Although SBA cannot estimate with certainty the actual outcome of the gains and losses among small and large businesses, it can identify several probable impacts. With an expanded pool of small businesses available under the higher inflation-adjusted size standards, there may be a transfer of some Federal contracts to small businesses from large businesses. Large businesses may have fewer Federal contract opportunities as Federal agencies decide to set aside more contracts for small businesses.

Similarly, some businesses defined as small under the current size standards may obtain fewer Federal contracts due to the increased competition from more businesses defined as small under the higher inflation-adjusted size standards. This transfer may be offset by a greater number of Federal procurements set aside for all small businesses. The number of newly defined and expanding small businesses that are willing and able to sell to the Federal Government will limit the potential transfer of contracts from large and currently defined small businesses. SBA cannot estimate the potential distributional impacts of these transfers with any degree of precision.

The adjustment for inflation to monetary-based industry and program-specific size standards is consistent with SBA's statutory mandate to assist small business. This regulatory action promotes the Administration's objectives. One of SBA's goals in support of the Administration's objectives is to help individual small businesses succeed through fair and equitable access to capital and credit, Government contracts, and management and technical assistance. Reviewing and modifying size standards when appropriate, including periodic inflation adjustments, ensures that intended beneficiaries have access to small business programs designed to assist them.

Executive Order 13563

Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. A description of the need for this regulatory action and benefits and costs associated with this action, including possible distributional impacts that relate to Executive Order 13563, is included above in the Cost/Benefit Analysis under Executive Order 12866. Additionally, by reviewing and adjusting size standards for inflation, SBA is complying with section 6 of Executive Order 13563, which calls for retrospective analyses of existing rules.

During its March 26, 2019 and April 23, 2019 meetings, SBA updated the Small Business Procurement Advisory Council (SBPAC) on its upcoming size standards rules, including this inflation adjustment rule. On April 18, 2019, SBA also presented a similar update to the small business audience at the 2019 Annual Government Procurement Conference.

Additionally, SBA issued a revised “Size Standards Methodology” white paper and published a notification in the April 27, 2018 issue of the Federal Register (83 FR 18468) to advise the public that the document was available for public review and comments. The “Size Standards Methodology” white paper explains how SBA establishes, reviews, and modifies its receipts-based and employee-based small business size standards. The white paper also describes how SBA adjusts size standards for inflation and updates its table of size standards when OMB revises the NAICS codes every 5 years. On April 11, 2019, SBA published a Federal Register notification (84 FR 14587) advising the public that the Agency had issued a revised final “Size Standards Methodology” white paper.

Executive Order 12988

This action meets applicable standards set forth in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. This rule does not have retroactive or preemptive effect.

Executive Order 13132

For purposes of Executive Order 13132, SBA has determined that this interim final rule will not have substantial, direct effects on the States, on the relationship between the National government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, SBA has determined that this interim final rule has no federalism implications warranting preparation of a federalism assessment.

Executive Order 13771

This rule is not expected to be an Executive Order 13771 regulatory action because this rule is not significant under Executive Order 12866.

Paperwork Reduction Act

For the purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA has determined that this interim final rule will not impose any new reporting or recordkeeping requirements.

Regulatory Flexibility Act

According to the Regulatory Flexibility Act (RFA), 5 U.S.C. 601-612, when an agency issues a rulemaking, it must prepare a regulatory flexibility analysis to address the impact of the rule on small entities.

Initial Regulatory Flexibility Analysis

Under the Regulatory Flexibility Act (RFA), this interim final rule may have a significant impact on a substantial number of small businesses in the industries and subindustries with monetary-based size standards. As described above, this rule may affect small businesses in those industries seeking Federal contracts, loans under SBA's 7(a), 504, and Economic Injury Disaster Loan Programs, and assistance under other Federal small business programs.

Immediately below, SBA sets forth an initial regulatory flexibility analysis (IRFA) for this interim final rule to address the following questions: (1) What is the need for and objective of the rule?; (2) What are SBA's description and estimate for the number of small businesses to which the rule will apply?; (3) What are the projected reporting, recordkeeping, and other compliance requirements of the rule?; (4) What are the relevant Federal rules that may duplicate, overlap, or conflict with the rule?; and (5) What alternatives will allow the Agency to accomplish its regulatory objectives while minimizing the impact on small businesses?

1. What is the need for and objective of the rule?

As discussed above, this revision to monetary-based size standards to account for inflation will more appropriately define small businesses. This interim final rule merely restores small business eligibility in real terms to businesses that have grown above the existing size standard due to inflation-led revenue growth rather than due to increased business activity.

Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) gives SBA the authority to establish and change size standards. Within its administrative discretion, SBA implemented a policy in its regulations to review the effect of inflation on size standards at least once every 5 years (13 CFR 121.102(c)) and make any changes as appropriate. A review of the latest data indicates that inflation has increased a sufficient amount since the 2014 adjustment, enough to warrant another inflation adjustment to the current monetary-based size standards. As discussed above, adjusting size standards for inflation is also consistent with SBA's statutory requirement to review all size standards and make necessary adjustments to reflect current market conditions every 5 years.

2. What are SBA's description and estimate for the number of small businesses to which the rule will apply?

As discussed above, based on the 2012 Economic Census tabulations, SBA estimates that about 89,730 additional firms will become small because of this adjustment to the receipts-based size standards of 518 industries and 8 subindustries. That represents 1.3 percent of the total number of firms that are small under current monetary-based size standards. This will result in an increase in the small business share of total industry receipts in those industries and subindustries from 29.0 percent under the current size standards to 29.7 percent under the inflation-adjusted size standards. Due to the adjustment of assets-based size standards in 5 industries, about 160 additional firms will gain small business status in those industries. This will increase the small business share of total assets in those industries from 5.7 percent to 6.0 percent. The size standards adopted in this interim final rule will enable businesses that have exceeded the size standards for their industries to regain small business status. It will also help currently small businesses retain their small business status for a longer period. Many firms may have lost their eligibility and find it difficult to compete at current size standards with companies that are significantly larger than they are. SBA believes the competitive impact will be positive for existing small businesses and for those that exceed the size standards but are on the very low end of those that are not small. They might otherwise be called or referred to as mid-sized businesses, although SBA only defines what is small; entities that are not small are “other than small.”

3. What are the projected reporting, recordkeeping, and other compliance requirements of the rule?

The inflation adjustment to size standards imposes no additional reporting or recordkeeping requirements on small businesses. However, qualifying for Federal procurement and several other programs requires that businesses register in the System for Award Management (SAM) database and certify in SAM that they are small annually. Therefore, newly eligible small businesses opting to participate in those programs must comply with SAM requirements. Businesses whose status changes in SAM from other than small to small must update their SAM profiles and complete the “representations and certifications” section of SAM. However, there are no costs associated with SAM registration or certification. Changing size standards alters access to SBA's programs but it does not impose a regulatory burden because it neither regulates nor controls business behavior.

4. What are the relevant Federal rules which may duplicate, overlap, or conflict with the rule?

Under section 3(a)(2)(C) of the Small Business Act, 15 U.S.C. 632(a)(2)(c), Federal agencies must use SBA's size standards to define a small business, unless specifically authorized by statute to do otherwise. In 1995, SBA published in the Federal Register a list of statutory and regulatory size standards that identified the application of SBA's size standards as well as other size standards used by Federal agencies (60 FR 57988 (November 24, 1995)). SBA is not aware of any Federal rule that would duplicate or conflict with establishing size standards.

However, the Small Business Act and SBA's regulations allow Federal agencies to develop different size standards with the approval of SBA's Administrator if they believe that SBA's size standards are not appropriate for their programs (13 CFR 121.903). The Regulatory Flexibility Act authorizes an Agency to establish an alternative small business definition for Regulatory Flexibility Analysis purposes, after consultation with the Office of Advocacy of the U.S. Small Business Administration (5 U.S.C. 601(3)).

5. What alternatives will allow the Agency to accomplish its regulatory objectives while minimizing the impact on small entities?

By law, SBA is required to develop numerical size standards for establishing eligibility for Federal small business assistance programs. Other than varying size standards by industry and changing the measures SBA uses to calculate business size (i.e., number of employees vs. annual receipts), no practical alternative exists to the system of numerical size standards.

SBA's only other consideration was whether not to adjust current size standards for the inflation. However, SBA believes that the 8.37 percent inflation increase that has occurred since the previous inflation adjustment in June 2014 (and the 40.26 percent inflation increase that has occurred since 2000, when the current $750,000 agricultural size standard was established by statute) sufficiently affects the real value of size standards to warrant applying an increase at this time.

List of Subjects in 13 CFR Part 121

• Administrative practice and procedure
• Government procurement
• Government property
• Grant programs—business
• Individuals with disabilities
• Loan programs—business
• Reporting

For the reasons set forth in the preamble, SBA amends 13 CFR part 121 as follows:

PART 121—SMALL BUSINESS SIZE REGULATIONS

1. The authority citation for part 121 continues to read as follows:

Authority: 15 U.S.C. 632, 634(b)(6), 662, and 694a(9).

2. In § 121.201, amend the table “Small Business Size Standards by NAICS Industry” as follows:

a. Revise Subsectors 111 and 112, entries “113110” and “113210”, Subsectors 114 and 115, entries “213112” through “213115”, “221310”, “221320”, and “221330”, Subsectors 236 through 238, entries “441120”, “441210”, “441222”, “441228”, “441310”, and “441320”, Subsectors 442 through 448 and 451 through 453, entries “454110”, “454210”, “454390”, and “481219”, Subsectors 484 and 485, entries “486210” and “486990”, Subsectors 487, 488, and 491, entry “492210”, Subsector 493, entries “511210”, “512110”, “512120”, “512131”, “512132”, “512191”, “512199”, “512240”, and “512290”, Subsector 515, entries “517410” and “517919”, Subsector 518, entries “519110”, “519120”, and “519190”, Subsectors 522 and 523, entries “524113”, “524114”, “524127”, “524128”, “524130”, “524210”, “524291”, “524292”, and “524298”, Subsectors 525 and 531 through 533, entries “541110”, “541191”, “541199”, “541211”, “541213”, “541214”, “541219”, “541310”, “541320”, “541330”, “541330 first, second and third sub-entry”, “541340”, “541350”, “541360”, “541370”, “541380”, “541410”, “541420”, “541430”, “541490”, “541511” through “541513”, “541519”, “541519 sub-entry”, “541611”, “541612” through “541614”, “541618”, “541620”, “541690”, “541720”, “541810”, “541820”, “541830”, “541840”, “541850”, “541860”, “541870”, “541890”, “541910”, “541921”, “541922”, “541930”, “541940”, and “541990”, Subsectors 551, 561, 562, 611, 621 through 624, 711 through 713, 721, 722, and 811 through 813.

b. Revise footnote 9.

The revisions read as follows:

3. Amend § 121.502 by revising paragraph (a)(2) to read as follows:

4. Amend § 121.512 by revising paragraph (b) to read as follows: