H.R. 7198, Prove It Act of 2024

Bill Summary

H.R. 7198 would allow small businesses, nonprofit organizations, and small local governments to request that the Small Business Administration (SBA) review federal agencies’ certifications that proposed rules would not significantly affect a substantial number of small entities. The bill would require the SBA to establish a process for reviewing those requests and determining whether certifications merit further review. (Federal agencies currently evaluate proposed rules’ economic effects on small entities and either certify that a rule would not significantly affect them or they prepare a detailed regulatory flexibility analysis for the rule. A regulatory flexibility analysis is an assessment of a proposed regulation on small entities.)

If further review is required, the SBA would consult the rulemaking agency, representatives of the small entities, and the Office of Management and Budget to determine whether, in place of a certification, the rulemaking agency must prepare a regulatory flexibility analysis. If the agency does not complete that process, the final rule would not apply to small entities.

Additionally, under the bill, if an agency fails to update its analysis of a rule’s effect on small entities within 10 years of the rule taking effect, as they are required to do under current law, the rule would no longer be in effect. That provision would apply to rules for which agencies should have provided updated analysis within the 5-year period prior to the bill’s enactment. Under the bill, a rulemaking agency could seek to reinstate a rule by carrying out a new rulemaking process.

Estimated Federal Cost

The costs of the legislation, detailed in Table 1, fall within multiple budget functions.

Basis of Estimate

For this estimate, CBO assumes that H.R. 7198 will be enacted near the end of calendar year 2024, that the estimated amounts will be appropriated in each year, and that outlays will follow historical spending patterns.

If an agency fails to comply with the bill’s requirements, the SBA would determine that the existing or proposed rule is no longer in effect or would not apply to small entities. Because CBO expects that federal agencies would generally comply with the bill’s requirements, we estimate that any budgetary effects stemming from that change would be insignificant.

In addition, CBO estimates that implementing the bill would increase administrative costs for most agencies because they would need additional staff to carry out the bill’s provisions.

Direct Spending

The administrative costs of the Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, National Credit Union Administration (NCUA), and Office of the Comptroller of the Currency (OCC), are classified in the budget as direct spending. Two of those agencies, the NCUA and the OCC, collect fees from financial institutions to offset their costs; those fees are treated as reductions in direct spending.

Using information about the rulemaking activities of those agencies, CBO estimates that the increased administrative workload under H.R. 7198 would increase net direct spending for those independent agencies by $10 million over the 2025-2034 period.

Revenues

H.R. 7198 also would affect revenues by increasing operating costs for the Federal Reserve System, which remits its net earnings to the Treasury; those remittances are classified as revenues in the federal budget. Based on the costs of similar activities, CBO estimates that the increased costs under the bill would reduce revenues by $7 million over the 2025-2034 period.

Spending Subject to Appropriation

CBO estimates that implementing H.R. 7198 also would increase spending for agencies that are funded by annual appropriations. CBO estimates that agencies that produce large numbers of rules affecting small entities would need more staff to meet the bill’s requirements.

CBO expects that the agencies most affected by the bill include the Departments of Agriculture, Education, Health and Human Services, Homeland Security, Labor, and Transportation, and the Environmental Protection Agency and Securities and Exchange Commission (SEC). Using information about similar activities, CBO estimates that the administrative costs for federal agencies to implement H.R. 7198 would total $35 million over the 2025-2029 period; any related spending would be subject to the availability of appropriated funds.

Under current law, the SEC is authorized to collect fees sufficient to offset its annual appropriations. Therefore, CBO estimates that the net budgetary effect of that commission’s activities to implement H.R. 7198 would be less than $500,000 over the 2025-2029 period, assuming appropriation actions consistent with the commission’s authorities.

Finally, the requirement for the SBA to establish and carry out a process for small entities to request certification review would pose additional costs to that agency. Using information from the SBA, CBO estimates that those administrative costs would total $5 million over the 2025-2029 period; any related spending would be subject to the availability of appropriated funds.

Pay-As-You-Go Considerations

The Statutory Pay-As-You-Go Act of 2010 establishes budget-reporting and enforcement procedures for legislation affecting direct spending or revenues. The net changes in outlays and revenues that are subject to those pay-as-you-go procedures are shown in Table 1.

Increase in Long-Term Net Direct Spending and Deficits

CBO estimates that enacting H.R. 7198 would not increase net direct spending by more than $2.5 billion in any of the four consecutive 10-year periods beginning in 2035.

CBO estimates that enacting H.R. 7198 would not increase on‑budget deficits by more than $5 billion in any of the four consecutive 10-year periods beginning in 2035.

Mandates

If federal financial regulators increase annual fees to offset the costs of implementing the bill, H.R. 7198 would increase the costs of an existing private-sector mandate on entities required to pay those fees. CBO estimates that the incremental cost of the mandate would be small and would fall well below the annual threshold established in the Unfunded Mandates Reform Act (UMRA) for private-sector mandates ($200 million in 2024, adjusted annually for inflation).

The bill contains no intergovernmental mandates as defined in UMRA.

Previous CBO Estimate

On December x, 2024, CBO transmitted a cost estimate for H.R. 7198, the Prove It Act of 2024, as ordered reported by the House Committee on Small Business on September 10, 2024. The two pieces of legislation are similar, and CBO’s estimates of their budgetary effects are the same.

Estimate Prepared By

Federal Costs:

Julia Aman (for the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency)

David Hughes (for the Consumer Financial Protection Bureau)

Aurora Swanson (for the Small Business Administration and for federal agencies funded by annual appropriations)

Revenues: Nathaniel Frentz

Mandates: Rachel Austin

Estimate Reviewed By

Justin Humphrey
Chief, Finance, Housing, and Education Cost Estimates Unit

Kathleen FitzGerald
Chief, Public and Private Mandates Unit

Christina Hawley Anthony
Deputy Director of Budget Analysis

Estimate Approved By

Phillip L. Swagel

Director, Congressional Budget Office