November 9, 1999 Marcia E. Mulkey, Director Office of Pesticide Programs (Mail Code 7501C) U.S. Environmental Protection Agency 401 M Street, SW Washington, DC 20460 RE: Docket #OPP-30115: Pesticides; Tolerance Processing Fees Dear Ms. Mulkey: The following report on Pesticides; Tolerance Processing Fees proposal at 64 Fed. Reg. 31040 (June 9, 1999) is being submitted for EPA review. Policy Planning and Evaluation prepared it. I believe this report poses a number of important, basic questions about this proposal and supporting analysis, which, taken together, raises more serious questions about the underlying approach. Many of the fees proposed in this rule appear to be overestimates and some have even been inappropriately assigned, not to those responsible for the tolerance but to their competitors instead. EPA should consider these comments accordingly. Based on this report's findings, I recommend that EPA issue a supplemental proposal, preferably an entirely new one, to address the many concerns shared by small businesses likely to be affected by this proposal. These concerns are serious enough to warrant a new proposal. Further, as part of a re-proposal, I recommend that EPA make the following changes: (1) Waive $7,500 Fee for Small Businesses Submitting Economic Hardship Request. Currently, fee waivers are granted on a case-by-case basis when petitioners can demonstrate economic hardship to EPA's satisfaction. If petitioner requests a waiver but cannot demonstrate hardship, that petitioner must forfeit a $7,500 submission fee (paid for EPA to consider the fee waiver) and any preparation expenses in addition to paying tolerance fees. Since small businesses must spread these costs over smaller production volumes, they are less able to do so relative to their large-business competitors and, therefore, are more likely to submit incomplete applications (a more complete application costs more than one less complete). Small businesses might even be discouraged from seeking such a waiver because they will not risk losing $7,500. Yet, small businesses should frequently, if not always, qualify for fee waivers. Therefore, EPA should at least waive the $7,500 submission fee. EPA might even decide to grant a hardship waiver automatically to any business that qualifies as small according to SBA's definition (less than 500 employees). (2) Develop Mechanism to Address "Free-Rider" Problem. If registrants are allowed to take advantage of, or "free ride" on, the one who pays the tolerance reassessment fee for a product, there will be significantly less willingness for any one registrant to pay. If no one registrant is willing to pay (because they cannot afford to) and no one business downstream (e.g., a farmer) is willing because they are not informed, products will be lost and the net effects to the environment and public health could be substantially negative. EPA should somehow address this free-rider problem. (3) Eliminate Retroactive Application of Fees. EPA proposes to apply the new fee schedule retroactively, requiring registrants who have already submitted a petition but are still waiting on a decision, to pay the increment-the difference between new and old fees. Not only is such action questionable from a public-policy perspective but to our knowledge, it is legally unprecedented. This is especially troublesome to industry, in part because these fee increases would have resulted from EPA's delay in processing applications. These are not the only changes I would make to the proposal. There are other significant legal, economic, and informational issues with this proposal, on which my staff would be happy to work with you. I suggest that EPA's staff work together with my own in addressing these and other changes in re-proposal. Also, I would strongly suggest that EPA work together with industry in developing this new proposal. Industry is not anti-fee, just anti-inequality. Finally, I am concerned about the basis for the Administrator's certification that this proposal will not have a significant economic impact on a substantial number of small entities. Based on data provided in the economic analysis (pp. 30-31), a substantial number appears likely to be significantly affected. If we assume that (a) 20 registrants requesting tolerances FY1995 to FY1997 (which have been identified by EPA as small), plus 50 percent of unidentified petitioners (50%*38=19), must re-request 3 inert tolerances (~$200,000/reassessment) and (b) there are no significant cost differences between these two groups, there would be nearly 40 small businesses incurring costs greater than 3 percent of average sales. There may be potentially many more of these, if EPA investigates further and uses SBA's definition for purposes of screening, in which case a regulatory flexibility analysis would be required pursuant to the Regulatory Flexibility Act (RFA), as amended by the Small Business Regulatory Enforcement Flexibility Act (SBREFA) of 1996. Just because it may be difficult to perform does not excuse an agency from performing sufficient analysis, pursuant to RFA and consistent with EPA's own guidance. I strongly recommend that EPA come into compliance with the RFA. If you have any questions regarding these comments or would like to follow up, please feel free to contact my staff person working on this proposal, Austin Perez. You may reach him either at (202) 205-6936 or by email at austin.perez@sba.gov. Sincerely, Jere W. Glover Chief Counsel JWG/arp Enclosure Cc: Art Fraas, OMB