[Federal Register Volume 71, Number 9 (Friday, January 13, 2006)]
[Rules and Regulations]
[Pages 2135-2143]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-321]


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DEPARTMENT OF AGRICULTURE

Food Safety and Inspection Service

9 CFR Parts 391, 590, and 592

[Docket No. 03-027F; FDMS Docket Number FSIS-2005-0025]
RIN 0583-AD12


Changes in Fees for Meat, Poultry, and Egg Products Inspection 
Services--Fiscal Years 2006-2008

AGENCY: Food Safety and Inspection Service, USDA.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Food Safety and Inspection Service (FSIS) is changing the 
fees that it charges meat and poultry establishments, egg products 
plants, importers, and exporters for providing voluntary inspection, 
identification, and certification services; overtime and holiday 
inspection services; and laboratory services. The Agency is raising 
these fees to reflect, among other factors, national and locality pay 
increases for Federal employees and inflation. In the past, FSIS has 
amended its regulations on an annual basis. With this regulation, FSIS 
is providing for three annual fee increases. This will provide the 
meat, poultry, and egg industries with more timely cost information. 
The Agency is also increasing the annual fee for its Accredited 
Laboratory Program.

DATES: Effective February 13, 2006.

FOR FURTHER INFORMATION CONTACT: For further information contact 
Deborah Patrick, Director, Budget Division, Office of Management, FSIS, 
U.S. Department of Agriculture, 2154 South Building, 1400 Independence 
Avenue, SW., Washington, DC 20250-3700; telephone (202) 720-3368, fax 
(202) 690-4155.

SUPPLEMENTARY INFORMATION:

Background

    The Federal Meat Inspection Act (FMIA) (21 U.S.C. 601 et seq.) and 
the Poultry Products Inspection Act (PPIA) (21 U.S.C. 451 et seq.) 
provide for mandatory Federal inspection of livestock and poultry 
slaughtered at official establishments, and meat and poultry processed 
at official establishments. The Egg Products Inspection Act (EPIA) (21 
U.S.C. 1031 et seq.) provides for mandatory inspection of egg products 
processed at official plants. FSIS provides mandatory inspection 
services at official establishments and plants and bears the cost of 
mandatory inspection provided during non-overtime and non-holiday hours 
of operation. Establishments and plants pay for inspection services 
performed on holidays or on an overtime basis.
    The Agricultural Marketing Act of 1946 (AMA), as amended (7 U.S.C. 
1621 et seq.), authorizes the provision of a variety of voluntary 
services. FSIS provides a range of voluntary inspection, certification, 
and identification services under the AMA to assist in the orderly 
marketing of various animal products and

[[Page 2136]]

byproducts. These services include the certification of technical 
animal fats and the inspection of exotic animal products, such as 
antelope and elk. FSIS is required to recover the costs of the 
voluntary inspection, certification and identification services it 
provides.
    Under the AMA, FSIS also provides certain voluntary laboratory 
services that establishments and others may request the Agency to 
perform. Laboratory services are provided for four types of analytic 
testing: microbiological testing, residue chemistry tests, food 
composition tests, and pathology testing. FSIS must recover the costs 
of providing these services.
    FSIS also accredits non-Federal analytical laboratories under its 
Accredited Laboratory Program; such accreditation allows labs to 
conduct analyses of official meat and poultry samples. The Food, 
Agriculture, Conservation, and Trade Act of 1990, as amended, mandates 
that laboratory accreditation fees cover the costs of the Accredited 
Laboratory Program. This same Act mandates an annual payment of an 
accreditation fee on the anniversary date of each accreditation.
    Every year FSIS reviews the fees that it charges for providing 
overtime and holiday inspection services; voluntary inspection, 
identification and certification services; laboratory services; and 
laboratory accreditation. The Agency performs a cost analysis to 
determine whether the fees that it has established are adequate to 
recover the costs that it incurs in providing these services. In the 
past, FSIS has amended its regulations on an annual basis to change the 
fees it charges. Because of the length of the rulemaking process, the 
fiscal year has partially elapsed by the time the Agency publishes a 
final rule to amend its fees. As a result, the Agency is unable to 
recover the full cost of voluntary inspection, identification and 
certification services, overtime and holiday inspection services, 
laboratory services, and laboratory accreditation in a timely manner.
    With this rulemaking, the Agency will amend its regulations to 
provide for three annual fee increases in one action. These increases 
are based on criteria established by the Agency to determine the needed 
fee increases on a multi-year basis. The Agency will continue to 
perform a yearly cost analysis to determine whether the fees 
established are adequate to recover the costs of the provided services. 
The Agency will initiate another rulemaking to adjust any fee 
established if, as a result of the cost analysis, the Agency determines 
that a fee established either will exceed the Agency's costs to provide 
a service or does not adequately cover the Agency's costs of providing 
the services. In the Agency's analysis of projected costs set forth in 
Tables 2 through 4, the agency has identified the bases for the 
increases in the cost of voluntary base time inspection, certification 
and identification services, overtime and holiday inspection services, 
and laboratory services for fiscal year 2006 through fiscal year 2008. 
FSIS, in July 2005, had proposed fee increases for FYs 2005 through 
2008. Since FY 2005 has passed, this rule addresses fees only for FYs 
2006 through 2008.
    The Agency is increasing the annual fee for participants in the 
Accredited Laboratory Program from the current $1,500 to the figures 
listed in Table 5 for FY 2006 through FY 2008 because the program costs 
for this service has increased and will continue to increase, and 
because previously accumulated funds that have been used to pay for 
accredited laboratory program costs have decreased. The reasons for the 
increases in the laboratory accreditation fees are more fully discussed 
below in the section entitled ``Economic Effects of Accredited 
Laboratory Program.''
    FSIS calculated its actual costs for fiscal years 2004 and 2005 and 
its projected increases in salaries and inflation in fiscal years 2006 
through 2008. The following estimates are based on the Office of 
Management and Budget's Presidential Economic Assumptions for FY 2005 
and the out years that were available at the time the proposed rule was 
published. The average pay raise for Federal employees in 2004 and 
2005, which reflects both national cost of living increases and 
locality differentials, was 4.1 percent effective January 2004 and 3.5% 
effective January 2005. The average combined national and locality pay 
raise is estimated to be 2.3% for fiscal years 2006, 2007, and 2008. 
Inflation for fiscal year 2005 was 2.0%. Inflation for fiscal year 2006 
is estimated to be 2.0%. Inflation for fiscal year 2007 is estimated to 
be 2.1%. Inflation for fiscal year 2008 is estimated to be 2.1%. The 
Agency will initiate another rulemaking to adjust any fee established, 
if estimated increases for pay and inflation do not adequately cover 
the Agency's costs of providing the services.
    The cost of providing inspection services includes both direct and 
overhead costs. Overhead costs include the cost of support activities 
such as program and agency overhead costs. Overhead expenditures are 
allocated across the agency for each direct hour of inspection. Direct 
costs include the cost of salaries, employee benefits, and travel. 
Because of improvements in accessing data from the accounting system, 
the Agency has been able to estimate the employee benefits ascribable 
to overtime work and has included these in the fee calculations.
    Section 10703 of the 2002 Farm Bill authorized the Secretary of 
Agriculture to set the hourly rate of compensation for FSIS employees 
exempt from the Fair Labor Standards Act (i.e. veterinarians) that work 
in establishments subject to the FMIA and PPIA at one and one-half 
times the employee's hourly rate of base pay. FSIS has adjusted its 
overtime fees to reflect these costs. Previously, veterinarians were 
limited to the time and a half rate paid to employees at grade level 
GS-10, step 1.
    The current and future fees for holiday, overtime, and voluntary 
inspection services and for laboratory services are listed by type of 
service in Table 1. The first increase, from the current rate to the 
2006 rate, is larger than the subsequent increases because this is the 
first rate increase since June 29, 2003. Therefore, it includes the 
increases in salaries and inflation that have occurred since that date.

         Table 1.--Current and New Inspection Fees (Per Hour Per Employee) by Type of Inspection Service
----------------------------------------------------------------------------------------------------------------
                 Service                    Current rate        2006 rate         2007 rate         2008 rate
----------------------------------------------------------------------------------------------------------------
Base time...............................            $43.64            $47.79            $48.84            $49.93
Overtime & holiday......................             50.04             56.40             57.65             58.93
Laboratory..............................             61.80             67.83             69.31             70.82
----------------------------------------------------------------------------------------------------------------

    The differing proposed fee increases for each aforementioned type 
of service are the result of the different amounts that it costs FSIS 
to provide these three types of services. The differences in costs stem 
from various factors,

[[Page 2137]]

including the different salary levels of the program employees who 
perform the services. See Table 2 through Table 4.

 Table 2.--Calculations for the Different Types of Services for FY 2006
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                                Base Time
------------------------------------------------------------------------
Actual 2002 Salaries....................................          $23.02
2003 Pay Raise (4.1%) = Actual 2002 Salaries x 0.041....            0.94
Calendar 2004 Pay Raise (4.1%) paid in FY 2004 = (Actual            0.98
 2002 Salaries + 2003 Pay Raise) x 0.041................
FY 2005 Pay Adjustment = (Actual 2002 Salaries + 2003               0.65
 Pay Raise + Calendar 2004 Pay Raise) x 0.035 x .075....
FY 2006 Pay Adjustment = FY2005 salaries x 0.023........            0.59
Benefits................................................            6.58
Travel and Operating Costs..............................            2.12
Program Overhead........................................            4.49
Agency Overhead.........................................            7.06
Allowance for Bad Debt..................................            0.45
FY 2005 Inflation (2.0%) = [Current Rate ($43.64) +                 0.49
 Adjustment for FY 2004 Inflation and Pay Increases
 ($1.76)-Actual 2002 Salaries ($23.02) + 2003 Pay Raise
 ($0.94) + Calendar 2004 Pay Raise ($0.98)] x 0.02......
FY 2006 Inflation (2.0%) = [FY 2005 Base Time Rate                  0.42
 ($46.78)-FY 2005 Salaries ($25.60)] x 0.02.............
                                                         ---------------
    Total...............................................           47.79
---------------------------------------------------------
                Overtime and Holiday Inspection Services
------------------------------------------------------------------------
Actual 2002 Salaries....................................           30.72
2003 Pay Raise (4.1%) = Actual 2002 Salaries x 0.041....            1.26
Calendar 2004 Pay Raise (4.1%) paid in FY 2004 = (Actual            1.31
 2002 Salaries + 2003 Pay Raise) x 0.041................
FY 2005 Pay Adjustment = (Actual 2002 Salaries + 2003               0.87
 Pay Raise + Calendar 2004 Pay Raise) x 0.035 x 0.75....
FY 2006 Pay Adjustment = FY 2005 salaries x 0.023.......            0.79
Benefits................................................            2.05
Time and a Half.........................................            2.78
Travel and Operating Costs..............................            2.12
Program Overhead........................................            5.32
Agency Overhead.........................................            7.74
Allowance for Bad Debt..................................            0.51
FY 2005 Inflation (2.0%) = [Current Rate ($50.04) +                 0.51
 Adjustment for FY 2004 Inflation and Pay Increases
 ($3.44)-Actual 2002 Salaries ($30.72) + 2003 Pay Raise
 ($1.26) + Calendar 2004 Pay Raise ($1.31)] x 0.02......
FY 2006 Inflation (2.0%) = [FY 2005 Base Time Rate                  0.42
 ($55.19)-FY 2005 Salaries ($34.16)] x 0.02.............
                                                         ---------------
    Total...............................................           56.40
---------------------------------------------------------
                           Laboratory Services
------------------------------------------------------------------------
Actual 2002 Salaries....................................           24.71
2003 Pay Raise (4.1%) = Actual 2002 Salaries x 0.041....            1.01
Calendar 2004 Pay Raise (4.1%) paid in FY 2004 = (Actual            1.05
 2002 Salaries + 2003 Pay Raise) x 0.041................
FY 2005 Pay Adjustment = (Actual 2002 Salaries + 2003               0.70
 Pay Raise Calendar 2004 Pay Raise) x 0.035 x 0.75......
FY 2006 Pay Adjustment = FY 2005 salaries x 0.023.......            0.63
Benefits................................................            6.72
Travel and Operating Costs..............................            8.28
Program Overhead........................................           14.82
Agency Overhead.........................................            7.64
Allowance for Bad Debt..................................            0.65
FY 2005 Inflation (2.0%) = [Current Rate ($61.80) +                 0.84
 Adjustment for FY 2004 Inflation and Pay Increases
 ($2.82)-Actual 2002 Salaries ($24.71) + 2003 Pay Raise
 ($1.01) + Calendar 2004 Pay Raise ($1.05)] x 0.02......
FY 2006 Inflation (2.0%) = [FY 2005 Base Time Rate                  0.78
 ($66.42)-FY 2005 Salaries ($27.47)] x 0.02.............
                                                         ---------------
    Total...............................................           67.83
------------------------------------------------------------------------


[[Page 2138]]


 Table 3.--Calculations for the Different Types of Services for FY 2007
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                                Base Time
------------------------------------------------------------------------
FY 2006 Salaries = 2005 Salaries [Actual 2002 Salaries            $26.18
 ($23.02) + 2003 Pay Raise ($0.94) + Calendar 2004 Pay
 Raise ($0.98) + 2005 Pay Adjustment ($0.65)] + 2006 Pay
 Adjustment.............................................
FY 2007 Pay Adjustment = FY 2006 salaries x 0.023.......            0.60
Benefits................................................            6.58
Travel and Operating Costs..............................            2.12
Program Overhead........................................            4.49
Agency Overhead.........................................            7.06
Allowance for Bad Debt..................................            0.45
FY 2005 Inflation.......................................            0.49
FY 2006 Inflation.......................................            0.42
FY 2007 Inflation (2.1%) = [FY 2006 Base Time Rate                  0.45
 ($47.80)-FY 2006 Salaries ($26.18)] x 0.021............
                                                         ---------------
    Total...............................................           48.84
---------------------------------------------------------
                Overtime and Holiday Inspection Services
------------------------------------------------------------------------
FY 2006 Salaries = 2005 Salaries [Actual 2002 Salaries             34.95
 ($30.72) + 2003 Pay Raise ($1.26) + Calendar 2004 Pay
 Raise ($1.31) + 2005 Pay Adjustment ($0.87)] + 2006 Pay
 Adjustment.............................................
FY 2007 Pay Adjustment = FY 2006 salaries x 0.023.......            0.80
Benefits................................................            2.05
Time and a Half.........................................            2.78
Travel and Operating Costs..............................            2.12
Program Overhead........................................            5.32
Agency Overhead.........................................            7.74
Allowance for Bad Debt..................................            0.51
FY 2005 Inflation.......................................            0.51
FY 2006 Inflation.......................................            0.42
FY 2007 Inflation (2.1%) = [FY 2006 Base Time Rate                  0.45
 ($56.40) - FY 2006 Salaries ($34.95)] x 0.021..........
                                                         ---------------
    Total...............................................           57.65
---------------------------------------------------------
                           Laboratory Services
------------------------------------------------------------------------
FY 2006 Salaries = 2005 Salaries [Actual 2002 Salaries             28.10
 ($24.71) + 2003 Pay Raise ($1.01) + Calendar 2004 Pay
 Raise ($1.05) + 2005 Pay Adjustment ($0.70)] + 2006 Pay
 Adjustment.............................................
FY 2007 Pay Adjustment = FY 2006 salaries x 0.023.......            0.65
Benefits................................................            6.72
Travel and Operating Costs..............................            8.28
Program Overhead........................................           14.82
Agency Overhead.........................................            7.64
Allowance for Bad Debt..................................            0.65
FY 2005 Inflation.......................................            0.84
FY 2006 Inflation.......................................            0.78
FY 2007 Inflation (2.1%) = [FY 2006 Base Time Rate                  0.83
 ($67.84) - FY 2006 Salaries ($28.11)] x 0.021..........
                                                         ---------------
    Total...............................................           69.31
------------------------------------------------------------------------


 Table 4.--Calculations for the Different Types of Services for FY 2008
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                                Base Time
------------------------------------------------------------------------
FY 2007 Salaries = 2006 Salaries + 2007 Pay Adjustment..          $26.79
FY 2008 Pay Adjustment = FY 2007 salaries x 0.023.......            0.62
Benefits................................................            6.58
Travel and Operating Costs..............................            2.12
Program Overhead........................................            4.49
Agency Overhead.........................................            7.06
Allowance for Bad Debt..................................            0.45
FY 2005 Inflation.......................................            0.49
FY 2006 Inflation.......................................            0.42
FY 2007 Inflation.......................................            0.45
FY 2008 Inflation (2.1%) = [FY 2007 Base Time Rate                  0.46
 ($48.84) - FY 2007 Salaries ($26.79)] x 0.021..........
                                                         ---------------
    Total...............................................           49.93
---------------------------------------------------------
                Overtime and Holiday Inspection Services
------------------------------------------------------------------------
FY 2007 Salaries = 2006 Salaries + 2007 Pay Adjustment..           35.75
FY 2008 Pay Adjustment = FY 2007 salaries x 0.023.......            0.82
Benefits................................................            2.05
Time and a Half.........................................            2.78

[[Page 2139]]

 
Travel and Operating Costs..............................            2.12
Program Overhead........................................            5.32
Agency Overhead.........................................            7.74
Allowance for Bad Debt..................................            0.51
FY 2005 Inflation.......................................            0.51
FY 2006 Inflation.......................................            0.42
FY 2007 Inflation.......................................            0.45
FY 2008 Inflation (2.1%) = [FY 2007 Base Time Rate                  0.46
 ($57.65) - FY 2007 Salaries ($35.75)] x 0.021..........
                                                         ---------------
    Total...............................................           58.93
---------------------------------------------------------
                           Laboratory Services
------------------------------------------------------------------------
FY 2007 Salaries = 2006 Salaries + 2007 Pay Adjustment..           28.75
FY 2008 Pay Adjustment = FY 2007 salaries x 0.023.......            0.66
Benefits................................................            6.72
Travel and Operating Costs..............................            8.28
Program Overhead........................................           14.82
Agency Overhead.........................................            7.64
Allowance for Bad Debt..................................            0.65
FY 2005 Inflation.......................................            0.84
FY 2006 Inflation.......................................            0.78
FY 2007 Inflation.......................................            0.83
FY 2008 Inflation (2.1%) = [FY 2007 Base Time Rate                  0.85
 ($69.32) - FY 2007 Salaries ($28.76)] x 0.021..........
                                                         ---------------
    Total...............................................           70.82
------------------------------------------------------------------------


                       Table 5.--Calculations for Accredited Laboratory Fees FY 2006-2008
----------------------------------------------------------------------------------------------------------------
                                                                 FY 2006           FY 2007           FY 2008
----------------------------------------------------------------------------------------------------------------
Estimated Income..........................................          $442,389          $547,121          $593,521
Expense Estimates.........................................           545,268           579,100           609,188
New Accreditation Fee.....................................             4,000             4,500             4,500
----------------------------------------------------------------------------------------------------------------

    The Agency must recover the actual cost of services covered by this 
rule. These fee increases are essential for the continued sound 
financial management of the Agency's costs. FSIS announced in its July 
20, 2005 proposed rule [70 FR 41635] the same fee changes provided in 
this final rule, except for laboratory accreditation, for which the 
fees have been reduced in this final rule. Thus, adequate notice has 
been given to affected parties.
    These amendments will be effective 30 days after publication of 
this final rule in the Federal Register.

Proposed Rule and Comments

    FSIS published a proposed rule on July 20, 2005 (70 FR 41635), 
stating that it was proposing changing fees for inspection services and 
laboratory accreditation for FYs 2005 through 2008. The Office of the 
Federal Register published an editorial correction on August 16, 2005 
(70 FR 48238). The agency provided for a 30 day comment period, ending 
August 18, 2005. Since the proposed fees were not finalized during FY 
2005 we are now finalizing fees for only FYs 2006 through 2008.
    FSIS received 4 comments on the proposed accredited laboratory fee 
changes. FSIS also received 5 comments on the proposed inspection fee 
changes.

Accredited Lab Fee

    Comment: All five comments on the Accredited Laboratory Program fee 
noted that the accreditation fee increase is very large, and all stated 
that the increase is a financial hardship on small laboratories. 
Several commenters stated that this fee increase will cause some 
laboratories to close. Several commenters also stated that the 
Accredited Laboratory Program fee increase will cause some small labs 
to not maintain their accreditation.
    Response: FSIS stated in the proposed rule that the increase in the 
accredited laboratory fee was necessary because program costs have 
increased and will continue to increase, because previously accumulated 
funds that have been used to pay program costs have decreased and 
because of the costs of contracting out check samples, previously done 
in-house. FSIS recognized that the fee increase likely would cause some 
accredited laboratories to re-evaluate their participation in this 
voluntary program. FSIS stated that it anticipated that the accredited 
laboratory fee increase would result in some small laboratories not 
renewing their accreditation because it would no longer be cost 
effective for them to participate.
    FSIS has, however, re-evaluated its proposed laboratory 
accreditation fees and estimated costs and its income from the 
Accredited Laboratory Program in light of the time that has passed 
since the fees and estimates were first prepared and thereafter, 
published in the proposal and has reduced the fees from those proposed, 
as indicated in Table 5.
    Comment: One commenter suggested that FSIS and AMS combine their 
accreditation programs because the types of samples are identical.
    Response: The services provided by the various agencies address 
matters appropriate to their respective missions. The rates that each 
agency charges for the services it provides must conform to its 
particular statutory authority, regulations, and administrative 
structure and requirements. FSIS must assess accreditation fees in a 
manner that is consistent with its current regulations and statutory 
mandate.
    Comment: One commenter suggested that FSIS accept ISO 17025 
certification in lieu of FSIS accreditation.
    Response: International Standards Organization (ISO) accreditation 
is a third-party evaluation of laboratory

[[Page 2140]]

quality and capability. FSIS laboratories are themselves ISO 
accredited. FSIS does consider the applicable scope of a non-Federal 
laboratory's ISO accreditation when evaluating results supplied by such 
laboratories. The FSIS accredited laboratory program is a separate 
program established by regulation. ISO accreditation requires, but does 
not provide, proficiency testing. Such testing is a cornerstone of the 
FSIS program. Thus, there are differences between the two programs.
    Comment: One commenter suggested that FSIS allow the fee to be paid 
in installments over the year.
    Response: FSIS recognizes that a fee paid in installments might 
ease the burden on small laboratories. However, fees paid in 
installments could also increase administrative costs and further 
contribute to increases in fees. Permitting fees to be paid in 
installments, even as an option, would require a change in the current 
regulations for the program through a separate notice and comment rule-
making. Nonetheless, FSIS will consider this comment along with other 
comments when it develops a proposed rule, which the agency hopes to 
publish in the near future, to amend parts of the accredited laboratory 
regulations.
    Comment: One commenter requested that the fees not be increased for 
non-Federal Laboratories.
    Response: The accredited laboratory program is a program only for 
non-Federal laboratories. In the time since the fee was last set on 
June 29, 2003, for the Accredited Laboratory Program, the reserve that 
provided a portion of the program's funding has been depleted, and 
costs to administer the program have increased. FSIS is required by 
statute to recover the costs of administering the accredited laboratory 
program and is, therefore, obligated to set the fees at a level that 
will meet that statutory mandate.

Overtime, Holiday and Voluntary Inspection Fees

    Comment: Two commenters stated that the costs per pound of product 
for holiday and overtime inspection services to small and very small 
establishments are greater than the per pound costs to large 
establishments, and that small establishments cannot absorb these costs 
as easily as larger establishments.
    Response: FSIS recognizes that the production quantities at some 
small and very small establishments are less than those of large 
establishments. FSIS also understands that at some small or very small 
establishments the cost per pound of product as a result of overtime 
fees will be higher than at a large establishment. However, FSIS also 
believes that no establishment, regardless of size, will choose to 
operate during overtime periods or on a holiday unless that 
establishment believes that it is cost effective to do so.
    Comment: Two commenters opposed establishing fees for regular 
inspection.
    Response: FSIS does not have the authority under the FMIA, the 
PPIA, or the EPIA to charge fees to recover the costs of inspection 
done during non-overtime and non-holiday time periods. Therefore, FSIS 
does not have any plans to establish fees for regular inspection.
    Comment: Three commenters suggested that FSIS consider whether 
changes in the regulatory environment as a result of HACCP have 
resulted in improved productivity, and whether more efficient 
inspection would result in reduced inspection fees.
    Response: Any cost savings that might be realized through more 
effective use of inspection resources in HACCP does not translate into 
lower expenses for overtime, holiday, or voluntary inspection services.
    Comment: Two commenters expressed concern that establishing fees 
for several years at a time reduces public participation in FSIS' 
regulatory activities and creates the possibility that the agency will 
not readjust rates if costs are not in line with estimated future 
rates.
    Response: The changes to overtime, holiday, and voluntary 
inspection fees are based on changes in the annual average wage 
increase for Federal employees and the inflation rate estimated by the 
Office of Management and Budget in its Presidential Economic 
Assumptions for FY 2005 and the out years. The OMB estimates of changes 
to federal salaries are projected for only 1 year at a time; FSIS has 
based all out year rates on best estimates. The OMB estimated inflation 
rates for 3 years; FSIS used best estimates for rates beyond that 3-
year period.
    FSIS is prohibited from setting fees at a level above that needed 
to recover costs and is required to set fees at a level that will 
recover its costs. FSIS will reassess the established fee rates on an 
annual basis and initiate a rulemaking to revise the fees should the 
Agency determine that the established rates either will exceed the 
Agency's costs to provide overtime, holiday, and voluntary inspection 
services or will not be adequate to cover the estimated expenses for 
the year. FSIS encourages all interested parties to monitor the semi-
annual regulatory agenda to determine when FSIS initiates these 
actions. Petitions are also a vehicle available to members of the 
public who believe that FSIS is not abiding by its obligation to 
neither overcharge nor undercharge establishments for overtime, holiday 
and voluntary inspection services.
    Comment: One commenter asked FSIS to clarify whether the amended 
fees for fiscal year 2005 will be retroactive.
    Response: FSIS is not making the rates for fiscal year 2005 
retroactive. FSIS proposed a rate for 2005 anticipating that the rule 
would be promulgated during fiscal year 2005. This rule was not 
promulgated prior to the end of fiscal year 2005, and FSIS will not 
collect any additional holiday, overtime, or voluntary inspection fees 
retroactively.
    Comment: Two commenters raised questions about FSIS' inspection 
structure, such as the timing of tours of duty for FSIS inspectors, the 
use of overtime, and changes to inspection as a result of HACCP.
    Response: These issues are not within the scope of this rulemaking 
and thus are not being addressed in this document.
    Comment: One commenter suggested that by establishing fees on a 
multi-year basis, FSIS does not have any incentive to control costs.
    Response: The costs that determine the level at which overtime, 
holiday, and voluntary inspection fees are set are not within FSIS' 
ability to control. Federal salaries, salary increases, employee 
benefit packages, the rate at which travel expenses are reimbursed, and 
inflation rates are the factors that comprise much of the proposed 
inspection rates. These factors are all established on a government-
wide basis and are beyond FSIS' ability to control.
    Comment: One commenter stated that a proposal to provide for four 
changes at one time is a marked change from previous years when the 
agency only proposed program fees for the upcoming year.
    Response: FSIS as far back as July, 2000 (65 FR 45545) stated that 
it was exploring the possibility of proposing a three to five year plan 
of fee rate adjustment based on estimates of cost escalation. FSIS 
acknowledges that the proposing of fees for multiple years, rather than 
yearly, is a departure from its past practices. However, as FSIS stated 
in its proposal, its practice of amending fees on a yearly basis has in 
the past led to the Agency being unable to recover the full cost of the 
services it provides because the fiscal year has partially elapsed by 
the time the Agency publishes a final rule to amend its fees due to the 
length of the rulemaking process. To avoid this problem, FSIS

[[Page 2141]]

has now decided to amend its fees at one time for multiple years.
    Comment: One commenter expressed concern that the agency is 
proposing fees to cover program costs associated with inflation, wages, 
and overhead four years in advance of realization of the actual costs.
    Response: The fact that FSIS is establishing fees for multiple 
years in advance of the realization of actual costs should not be a 
concern. FSIS stated in the proposed rule that the proposed fees were 
based on estimates, that the Agency would review these fees on an 
annual basis and would adjust them, if necessary, to ensure that the 
fee ultimately set for a given year reflected the actual costs to the 
Agency to provide a service.

Executive Order 12866 and Regulatory Flexibility Act

    Because this rule has been determined to be not significant, the 
Office of Management and Budget (OMB) did not review it under EO 12866.
    The Administrator, FSIS, has determined that this rule would not 
have a significant economic impact, as defined by the Regulatory 
Flexibility Act (5 U.S.C. 601), on a substantial number of small 
entities. The inspection services provided under these fees are 
voluntary. Establishments and plants requesting these services are 
likely to have calculated that the revenues generated from additional 
production will exceed the incremental costs of the services. 
Similarly, laboratories will determine whether the additional revenue 
for services that require accreditation will exceed the costs of 
becoming accredited.

Economic Effects of Inspection and Laboratory Service Fees

    As a result of the new base time, holiday and overtime, and 
laboratory service fees, the Agency expects to collect an estimated 
$136 million, $144 million, and $153 million in years 2006, 2007, and 
2008 respectively, or a total of $433 million over the next three years 
to cover the cost of voluntary certification, identification, and 
inspection services; overtime and holiday inspection services; and 
laboratory services for meat, poultry, and egg products. By enacting a 
three year fee increase instead of a single year fee increase, the 
Agency is streamlining the rulemaking process to help ensure that the 
fee increases are effective at the beginning of each fiscal year. 
During the next three years, food safety will be maintained at the 
establishments affected by this rule as the Agency provides the 
services. The increased fees will cover inflation and national and 
locality pay raises but will not support any new budgetary initiative. 
The costs that industry would experience by the raise in fees are 
similar to other increases that the industry would experience because 
of inflation and wage increases.
    The total volume of meat and poultry slaughtered under Federal 
inspection in 2002 was about 85.7 billion pounds (Livestock, Dairy, 
Meat, and Poultry Outlook Report, Economic Research Service, USDA, July 
17, 2003). The increase in cost per pound of product associated with 
the proposed fee increases is, in general, $.0002. Even in competitive 
industries like meat, poultry, and egg products, this amount of 
increase in costs would have an insignificant impact on profits and 
prices.
    Even though this increase in fees is negligible, the industry is 
likely to pass along a significant portion of the fee increases to 
consumers because of the inelastic nature of the demand curve facing 
consumers. Research has shown that consumers are unlikely to reduce 
demand significantly for meat, poultry, and egg products, when prices 
increase. Huang estimates that demand would fall by .36 percent for a 
one percent increase in price (Huang, Kao S., A Complete System for 
Demand for Food. USDA/ERS Technical Bulletin No. 1821, 1993, p. 24). 
Because of the inelastic nature of demand and the competitive nature of 
the industry, individual firms are not likely to experience any change 
in market share in response to an increase in inspection fees.

Economic Effects of Accredited Laboratory Program

    As a result of the new Accredited Laboratory Program fees, the 
Agency expects to collect $442,389 in FY 2006, $547,121 in FY 2007, and 
$593,521 in FY 2008. The Accredited Laboratory Program is required to 
recover its operational costs through the fees required to be paid. The 
adjustments to the fees charged are designed to recover FSIS' costs for 
providing accreditation services, which include the maintenance of an 
adequate reserve. The amount of the accreditation fee established for 
each year is based on the number of expected new and renewal 
accreditations, the anticipated costs directly related to the 
accreditation process, and the estimated reserve from the previous 
year. The fees established are based on FSIS' best projections of what 
it will cost the Agency to provide accredited laboratory services in 
fiscal years 2006 through 2008.
    The fee increases are necessary because the level of the program's 
reserve surplus that has in the past been used to offset the cost of 
the program has decreased below a one-year operating-cost level. A 
large portion of the fee increases are attributable to the contracting 
out of check samples, a task previously done in-house. As a result, 
FSIS needs to raise the fees it charges to offset the amount it no 
longer has from the reserve to carry out the program. FSIS also needs 
to raise its fees to cover its increased direct overhead costs, 
including those for salary increases, employee benefits, inflation, and 
bad debt, and to maintain an adequate operating reserve.
    FSIS believes that it needs a yearly reserve of approximately 
$250,000 to maintain the program's continuity. This amount of reserve 
funds is needed to cover the contractual costs that the Accredited 
Laboratory Program must pay at the beginning of each fiscal year and to 
cover salaries and other operating expenses during the first two to 
three months of the fiscal year. Less than 5% of the program's income 
is received during the first two months of a fiscal year. Approximately 
75% of the program's income is received in late December and early 
January; the remainder of the program's income is received about evenly 
across the rest of the fiscal year.
    Maintaining an adequate reserve therefore is essential for the 
Accredited Laboratory Program to be fully functional during the first 
quarter of any fiscal year. The amount of FSIS' reserve funds is taken 
into account when FSIS determines what its expenses will be for each 
year and in determining what its projected income will be for the next 
year. The current reserve is lower than what is ideally needed to 
ensure the continuity of the program. Therefore, FSIS has incorporated 
an increase in the reserve amount into its fee structure with the aim 
of achieving the ideal reserve amount by FY09.
    FSIS anticipates that some laboratories will determine that it is 
not cost effective to maintain accreditation. As a result, revenue 
estimates assume a 10% reduction in the number of participants for each 
fiscal year. While lower participation reduces costs, the costs are 
spread over fewer laboratories. The fees, consequently, increase 
despite lower costs.
    FSIS has addressed the comments it received about the proposed 
Accredited Laboratory Program fee increases. Since the issuance of the 
proposal, FSIS has re-evaluated its proposed laboratory accreditation 
fees and its estimation of the costs of the Accredited Laboratory

[[Page 2142]]

Program and the income it will have to carry out the program. Time has 
passed since the fees and estimates were first prepared and published 
in the proposal, and the current fiscal status of the program has 
changed. FSIS has incorporated certain additional cost-cutting measures 
in its Accredited Laboratory Program and has realized other savings 
since the proposal was published. As a result, the agency has modified 
its fee structure as indicated in Table 5. While the initial increase 
for FY06 to $4000, from the current fee of $1500, is still substantial, 
it is substantially less than the fee of $5200 proposed for FY06. The 
fee being established for FY07 and FY08 of $4500 is also substantially 
lower than the proposed fee of $5400 for FY07 and the proposed fee of 
$5600 for FY08. FSIS anticipates, based on its revised cost and income 
estimates, that the new fees will move the Accredited Laboratory 
Program to a sound financial footing.

Paperwork Reduction Act

    This rule does not contain any new information collection or record 
keeping requirements that are subject to the Office of Management and 
Budget (OMB) approval under the Paperwork Reduction Act, 44 U.S.C. 3501 
et seq.

Unfunded Mandate Analysis

    Title II of the Unfunded Mandate Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of UMRA, the 
Department generally must prepare a written statement, including a cost 
benefit analysis, for proposed and final rules with ``Federal 
mandates'' that may result in expenditures to State, local, or tribal 
governments, in the aggregate, or to the private sector, of $100 
million or more in any one year. When such a statement is needed for a 
rule, section 205 of UMRA generally requires that the Department 
identify and consider a reasonable number of regulatory alternatives 
and adopt the least costly, more cost-effective or least burdensome 
alternative that achieves the objectives of the rule.
    This rule contains no Federal mandates (under the regulatory 
provisions of Title II of the UMRA) that impose costs on State, local, 
or tribal governments or to the private sector of $100 million or more 
in any one year. Thus, this rule is not subject to the requirements of 
section 202 and 205 of UMRA.

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. This rule: (1) Preempts State and local laws and 
regulations that are inconsistent with this rule; (2) has no 
retroactive effect; and (3) does not require administrative proceedings 
before parties may file suit in court challenging this rule except as 
discussed below. The administrative procedures specified in 9 CFR 
306.5, 381.35, and 590.300 through 590.370, respectively, must be 
exhausted before any judicial challenge may be made of the application 
of the provisions of the proposed rule, as set forth in the 
aforementioned sections.

Additional Public Notification

    Public awareness of all segments of rulemaking and policy 
development is important. Consequently, in an effort to ensure that 
minorities, women, and persons with disabilities are aware of this 
rule, FSIS will announce it online through the FSIS Web Page at http://www.fsis.usda.gov/regulations_&_policies/2006_Interim_&_Final_Rules_Index/index.asp.
    The Regulations.gov Web site is the central online rulemaking 
portal of the United States government. It is being offered as a public 
service to increase participation in the Federal government's 
regulatory activities. FSIS participates in Regulations.gov and will 
accept comments on documents published on the site. The site allows 
visitors to search by keyword or Department or Agency for rulemakings 
that allow for public comment. Each entry provides a quick link to a 
comment form so that visitors can type in their comments and submit 
them to FSIS. The Web site is located at http://www.regulations.gov.
    FSIS will also make copies of this Federal Register publication 
available through the FSIS Constituent Update, which is used to provide 
information regarding FSIS policies, procedures, regulations, Federal 
Register notices, FSIS public meetings, recalls, and other types of 
information that could affect or would be of interest to our 
constituents and stakeholders. The update is communicated via Listserv, 
a free e-mail subscription service consisting of industry, trade, and 
farm groups, consumer interest groups, allied health professionals, 
scientific professionals, and other individuals who have requested to 
be included. The update is also available on the FSIS Web page. Through 
the Listserv and Web page, FSIS is able to provide information to a 
much broader, more diverse audience.
    In addition, FSIS offers an electronic mail subscription service 
which provides an automatic and customized notification when popular 
pages are updated, including Federal Register publications and related 
documents. This service is available at http://www.fsis.usda.gov/news_and_events/email_subscription/ and allows FSIS customers to sign up 
for subscription options across eight categories. Options range from 
recalls to export information to regulations, directives, and notices. 
Customers can add or delete subscriptions themselves and have the 
option to protect their accounts with passwords.

List of Subjects

9 CFR Part 391

    Fees and charges, Government employees, Meat inspection, Poultry 
products.

9 CFR Part 590

    Eggs and egg products, Exports, Food labeling, Imports.

9 CFR Part 592

    Eggs and egg products, Exports, Food labeling, Imports.

0
For the reasons set forth in the preamble, FSIS amends 9 CFR Chapter 
III as follows:

PART 391--FEES AND CHARGES FOR INSPECTION AND LABORATORY 
ACCREDITATION

0
1. The authority citation for part 391 is revised to read as follows:

    Authority: 7 U.S.C. 138f; 7 U.S.C. 1622, 1627 and 2219a; 21 
U.S.C. 451 et seq.; 21 U.S.C. 601-695; 7 CFR 2.18 and 2.53.

0
2. Sections 391.2, 391.3 and 391.4 are revised to read as follows:


Sec.  391.2  Base time rate.

    The base time rate for inspection services provided pursuant to 
Sec. Sec.  350.7, 351.8, 351.9, 352.5, 354.101, 355.12, and 362.5 is 
$47.79 per hour per program employee in fiscal year 2006, $48.84 per 
hour per program employee in fiscal year 2007, and $49.93 per hour per 
program employee in fiscal year 2008.


Sec.  391.3  Overtime and holiday rate.

    The overtime and holiday rate for inspection services provided 
pursuant to Sec. Sec.  307.5, 350.7, 351.8, 351.9, 352.5, 354.101, 
355.12, 362.5 and 381.38 is $56.40 per hour per program employee in 
fiscal year 2006, $57.65 per hour per program employee in fiscal year 
2007, and $58.93 per hour per program employee in fiscal year 2008.

[[Page 2143]]

Sec.  391.4  Laboratory services rate.

    The rate for laboratory services provided pursuant to Sec. Sec.  
350.7, 351.9, 352.5, 354.101, 355.12, and 362.5 is $67.83 per hour per 
program employee in fiscal year 2006, $69.31 per hour per program 
employee in fiscal year 2007, and $70.82 per hour per program employee 
in fiscal year 2008.

0
3. In Sec.  391.5, paragraph (a) is revised to read as follows:


Sec.  391.5  Laboratory accreditation fee.

    (a) The annual fee for the initial accreditation and maintenance of 
accreditation provided pursuant to Sec. Sec.  318.21 and 381.153 shall 
be $4,000.00 for fiscal year 2006; $4,500.00 for fiscal year 2007; and 
$4,500.00 for fiscal year 2008.
* * * * *

PART 590--INSPECTION OF EGGS AND EGG PRODUCTS (EGG PRODUCTS 
INSPECTION ACT)

0
4. The authority citation for part 590 continues to read as follows:

    Authority: 21 U.S.C. 1031-1056.

0
5. Section 590.126 is revised to read as follows:


Sec.  590.126  Overtime inspection service.

    When operations in an official plant require the services of 
inspection personnel beyond their regularly assigned tour of duty on 
any day or on a day outside the established schedule, such services are 
considered as overtime work. The official plant must give reasonable 
advance notice to the inspector of any overtime service necessary and 
must pay the Agency for such overtime at an hourly rate of $56.40 per 
hour per program employee in fiscal year 2006, $57.65 per hour per 
program employee in fiscal year 2007, and $58.93 per hour per program 
employee in fiscal year 2008.

0
6. In Sec.  590.128, paragraph (a) is revised to read as follows:


Sec.  590.128  Holiday inspection service.

    (a) When an official plant requires inspection service on a holiday 
or a day designated in lieu of a holiday, such service is considered 
holiday work. The official plant must, in advance of such holiday work, 
request that the inspector in charge furnish inspection service during 
such period and must pay the Agency for such holiday work at an hourly 
rate of $56.40 per hour per program employee in fiscal year 2006, 
$57.65 per hour per program employee in fiscal year 2007, and $58.93 
per hour per program employee in fiscal year 2008.
* * * * *

PART 592--VOLUNTARY INSPECTION OF EGG PRODUCTS

0
7. The authority citation for part 592 continues to read as follows:

    Authority: 7 U.S.C. 1621-1627.

0
8. Sections 592.510, 592.520 and 592.530 are revised to read as 
follows:


Sec.  592.510  Base time rate.

    The base time rate for voluntary inspection services for egg 
products is $47.79 per hour per program employee in fiscal year 2006, 
$48.84 per hour per program employee in fiscal year 2007, and $49.93 
per hour per program employee in fiscal year 2008.


Sec.  592.520  Overtime rate.

    When operations in an official plant require the services of 
inspection personnel beyond their regularly assigned tour of duty on 
any day or on a day outside the established schedule, such services are 
considered as overtime work. The official plant must give reasonable 
advance notice to the inspection program personnel of any overtime 
service necessary and must pay the Agency for such overtime at an 
hourly rate of $56.40 per hour per program employee in fiscal year 
2006, $57.65 per hour per program employee in fiscal year 2007, and 
$58.93 per hour per program employee in fiscal year 2008.


Sec.  592.530  Holiday rate.

    When an official plant requires inspection service on a holiday or 
a day designated in lieu of a holiday, such service is considered 
holiday work. The official plant must, in advance of such holiday work, 
request that the inspector in charge furnish inspection service during 
such period and must pay the Agency for such holiday work at an hourly 
rate of $56.40 per hour per program employee in fiscal year 2006, 
$57.65 per hour per program employee in fiscal year 2007, and $58.93 
per hour per program employee in fiscal year 2008.

    Done in Washington, DC, on January 10, 2006.
Bryce Quick,
Deputy Administrator.
[FR Doc. 06-321 Filed 1-12-06; 8:45 am]
BILLING CODE 3410-DM-P