81 FR 42566 - Small Entity Size Standards Under the Regulatory Flexibility Act

SURFACE TRANSPORTATION BOARD

Federal Register Volume 81, Issue 126 (June 30, 2016)

On July 11, 2013, the Board issued a notice of proposed size standards for purposes of the Regulatory Flexibility Act, along with a request for public comment. This decision discusses the comment received in response to the proposed size standards and adopts the proposed standard as the final statement of agency policy concerning the definition of ``small business.''

[Federal Register Volume 81, Number 126 (Thursday, June 30, 2016)]
[Rules and Regulations]
[Pages 42566-42568]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-15437]


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SURFACE TRANSPORTATION BOARD

49 CFR Chapter X

[Docket No. EP 719]


Small Entity Size Standards Under the Regulatory Flexibility Act

AGENCY: Surface Transportation Board (Board or STB).

ACTION: Final statement of agency policy.

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SUMMARY: On July 11, 2013, the Board issued a notice of proposed size 
standards for purposes of the Regulatory Flexibility Act, along with a 
request for public comment. This decision discusses the comment 
received in response to the proposed size standards

[[Page 42567]]

and adopts the proposed standard as the final statement of agency 
policy concerning the definition of ``small business.''

DATES: This policy statement is effective June 30, 2016.

FOR FURTHER INFORMATION CONTACT: Amy Ziehm at (202) 245-0391. 
Assistance for the hearing impaired is available through the Federal 
Information Relay Service (FIRS) at (800) 877-8339.

SUPPLEMENTARY INFORMATION: The Regulatory Flexibility Act (RFA) 
requires agencies to consider the impact of their regulations on small 
entities,\1\ analyze effective alternatives that minimize the impact to 
small entities, and make their analyses available for public comment. 
The Small Business Administration (SBA) developed ``size standards'' to 
clarify the term small business and to carry out the purposes of the 
Small Business Act. Agencies can then use the SBA's size standards for 
purposes of defining ``small entities'' to comply with the RFA. 
However, an agency may establish other definitions for small business 
that are appropriate to the agency's activities after consultation with 
the SBA's Office of Advocacy and after opportunity for public comment. 
5 U.S.C. 601(3). The SBA has promulgated regulations that classify 
``Line-Haul Railroads'' with 1,500 or fewer employees and ``Short Line 
Railroads'' with 500 or fewer employees as small businesses. 13 CFR 
121.201 (industry subsector 482).
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    \1\ The RFA defines ``small entity'' as having the same meaning 
as the terms ``small business,'' ``small organization,'' and ``small 
governmental jurisdiction.'' 5 U.S.C. 601(6).
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    On July 16, 2013, the Board served a notice proposing its own small 
entity size standards for purposes of the RFA, along with a request for 
comment. 78 FR 42,484 (July 16, 2013). After consulting with the SBA's 
Office of Advocacy, the Board proposed to establish a small entity size 
standard based on its longstanding classification system, which 
classifies freight railroads as Class I, Class II, or Class III based 
on annual operating revenues.\2\ Specifically, the Board proposed to 
define ``small business'' as only those rail carriers that would be 
classified as Class III carriers. The Board stated that it believed 
that this definition is more realistic and useful than the general 
definitions previously established by the SBA. The Board also noted 
that this would create consistency with the Federal Railroad 
Administration (FRA), which in 2003 adopted the Class III standard as 
its definition of a small business.
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    \2\ Class III carriers have annual operating revenues of $20 
million or less in 1991 dollars, or $38,060,383 or less when 
adjusted for inflation using 2014 data. Class II rail carriers have 
annual operating revenues of up to $250 million in 1991 dollars or 
up to $475,754,802 when adjusted for inflation using 2014 data. The 
Board calculates the revenue deflator factor annually and publishes 
the railroad revenue thresholds on its Web site. 49 CFR 1201.1-1.
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    The American Short Line and Regional Railroad Association (ASLRRA) 
submitted a comment on August 5, 2013, opposing the Board's proposal. 
ASLRRA agrees with the SBA's current definition of small business, 
which uses the number of employees, rather than revenue, as the 
relevant metric. It maintains that revenue is an unreliable metric for 
determining whether a railroad is a small business because railroads 
are ``so capital intensive their revenues must provide a return on that 
huge investment or they cannot stay in business'' and because ``small 
railroad revenues are driven largely by the types of commodities they 
happen to carry.'' (ASLRRA Comment 3) ASLRRA argues that changing the 
definition would exclude many Class II railroads from the small 
business designation, and would thus ``strip them from the financial 
impact review that is the right of small entities during the rulemaking 
process pursuant to the Regulatory Flexibility Act.'' (Id.) Finally, 
ASLRRA claims that Class II railroads have little in common with Class 
I railroads and share more characteristics with the smaller Class III 
railroads. (Id. at 4.)
    Despite ASLRRA's objection to the use of our revenue 
classifications over employee counts to define a small business, we 
find that it is the more appropriate basis for doing so. Even if, as 
ASLRRA argues, there is some variation between carriers of similar 
employment levels due, in part, to the types of commodities being 
shipped, that alone does not mean that employment level represents the 
better approach to defining a small business. As the Board explained in 
the notice, the system of classifying railroads based on revenue is 
used pervasively by the Board and the railroad industry. The agency has 
used revenue to classify rail carriers since as early as 1911, and the 
agency's governing statute, precedent, and regulations often impose 
different requirements depending on the class of carrier involved. The 
validity of using revenues to define carrier size has thus been 
sufficiently demonstrated over time. ASLRRA has not demonstrated that 
using a size standard based on employment levels is superior to the 
revenue basis the agency and railroad industry have used for decades.
    We now address whether the definition of small business should or 
should not include Class II carriers. The Board acknowledges ASLRRA's 
concerns regarding Class II rail carriers and recognizes the 
differences between Class I, Class II, and Class III railroads. 
However, the Board does not believe that Class II carriers should be 
classified as small businesses. Under the Board's governing statutes 
and regulations, special exceptions are made for Class III carriers, 
but not Class II carriers.\3\ The Board's decision to limit the 
definition of small business solely to Class III carriers is therefore 
consistent with the broader regulatory scheme and merely formalizes 
what is already a common understanding of a small business in the 
railroad industry.
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    \3\ For example, the Board created a class exemption for 
acquisitions of rail lines by Class III carriers (49 CFR Subpart E--
Exempt Transactions Under 49 U.S.C. 10902 for Class III Rail 
Carriers); Class III carriers are exempt from labor protective 
conditions for line acquisitions and mergers (49 U.S.C. 11326(c)); 
and Class III carriers are the only carriers allowed to file Feeder 
Line applications (49 U.S.C. 10907(a)).
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    In addition, the Board also believes there is significant utility 
in maintaining consistency with the practices of the Federal Railroad 
Administration, which adopted the same definition of small entity for 
RFA purposes. Final Policy Statement Concerning Small Entities Subject 
to the Railroad Safety Laws, 68 FR 24,891 (May 9, 2003); see also 
Interim Policy Statement Concerning Small Entities Subject to the 
Railroad Safety Laws, 62 FR 43,024 (Aug. 11, 1997). Having two agencies 
that play complementary roles in railroad industry regulation use 
different definitions of small business could result in lack of 
uniformity in the adoption of Federal regulations. In particular, an 
entity could be considered a small entity for purposes of FRA rules but 
not a small entity for purposes of STB rules. Not altering the Board's 
definition of a small business would also perpetuate the incongruous 
situation of the FRA relying on the Board's classification system as a 
basis for defining a small business, but the Board not doing so itself.
    For the reasons set forth above, the Board will define small 
business for the purpose of Regulatory Flexibility Act analyses to mean 
those rail carriers classified as Class III rail carriers under 49 CFR 
1201.1-1.
    It is ordered:
    1. For the purpose of Regulatory Flexibility Act analyses, the 
Board adopts the definition of ``small business'' to mean those rail 
carriers

[[Page 42568]]

classified as Class III rail carriers under 49 CFR 1201.1-1.
    2. A copy of this decision will be served upon the Chief Counsel 
for Advocacy, Office of Advocacy, U.S. Small Business Administration.
    3. Notice of this decision will be published in the Federal 
Register.
    4. This decision is effective on June 30, 2016.
    Decided: June 22, 2016.

    By the Board, Chairman Elliott, Vice Chairman Miller, and 
Commissioner Begeman. Commissioner Begeman dissented with a separate 
expression.
Tia Delano,
Clearance Clerk.

    COMMISSIONER BEGEMAN, dissenting:
    I am a strong proponent of the notice and comment process and find 
it especially important given the Board's extreme ex parte 
communication restrictions. So when the only comments received are from 
the stakeholders most affected, and those stakeholders express strong 
opposition to a Board proposal, I think we are obligated to carefully 
consider the concerns expressed and reassess the wisdom of our 
approach. Upon doing so here, I have concluded this proposal should be 
withdrawn.
    The American Short Line and Regional Railroad Association (ASLRRA), 
which represents 550 Class II and Class III rail carriers across the 
country, filed in strong opposition to the Board's July 2013 proposal 
to alter its small entity definition for Regulatory Flexibility Act 
(RFA) purposes. ASLRRA argued that the Board's proposal to use revenue 
rather than number of employees (the measure developed by the Small 
Business Administration that agencies can use to comply with the RFA) 
would effectively lump all Class II carriers with Class I carriers for 
RFA purposes, an unreasonable outcome given the significant differences 
between those carrier types. ASLRRA further argued that the Board's 
proposal would be ``detrimental to Class II carriers.'' I find ASLRRA's 
concerns alarming.
    I am not convinced that the action the Board is taking today is 
necessary or somehow worth the potential harms described by ASLRRA. 
After all, the majority's decision does not dispute ASLRRA's claims. It 
appears the driving factor in this decision is the majority's desire to 
create ``consistency'' with the Federal Railroad Administration. While 
consistency may be fine, it certainly is not a very compelling reason 
since the two agencies have used different small business definitions 
for 13 years without issue.
    There are a host of stale proceedings piled up at the Board and I 
am all for the Chairman moving the docket. But if (after three years) 
the majority was merely going to dismiss the only comment received from 
representatives of the parties affected, there was no real point in the 
Board inviting comment in the first place. I dissent.

[FR Doc. 2016-15437 Filed 6-29-16; 8:45 am]
 BILLING CODE 4915-01-P