[Federal Register Volume 71, Number 200 (Tuesday, October 17, 2006)]
[Rules and Regulations]
[Pages 60805-60807]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-17191]



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  Federal Register / Vol. 71, No. 200 / Tuesday, October 17, 2006 / 
Rules and Regulations  

[[Page 60805]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 58

[Docket Number DA-05-04]
RIN 0581-AC55


Increase in Fees for Federal Dairy Grading and Inspection 
Services

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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

SUMMARY: The Agricultural Marketing Service (AMS) will increase, by 
approximately 10 percent, the hourly fees charged for Federal dairy 
grading and inspection services. Dairy grading and inspection services 
are voluntary and are financed through user-fees assessed to 
participants in the program. These revisions are necessary in order to 
recover, as nearly as practicable, the increase in salaries of Federal 
employees and increases in Agency costs, and to ensure that the Dairy 
Grading Branch operates on a financially self-supporting basis.

DATES: Effective October 18, 2006.

FOR FURTHER INFORMATION CONTACT: Dana H. Coale, Deputy Administrator, 
Dairy Programs, Agricultural Marketing Service, U.S. Department of 
Agriculture, Stop 0225, room 2968-South, 1400 Independence Avenue, SW., 
Washington, DC 20250-0225, or call (202) 720-4392.

SUPPLEMENTARY INFORMATION:

Executive Orders 12866 and 12988

    This rule has been determined to be ``not significant'' for 
purposes of Executive Order 12866, and therefore, has not been reviewed 
by the Office of Management and Budget (OMB).
    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. This action is not retroactive. This rule will not 
preempt any State or local laws, regulations, or policies unless they 
present an irreconcilable conflict with this rule. There are no 
administrative procedures which must be exhausted prior to any judicial 
challenge to the provisions of this rule.

Regulatory Flexibility Act and Paperwork Reduction Act

    Pursuant to the requirement set forth in the Regulatory Flexibility 
Act, AMS has considered the economic impact of this action on small 
entities. It has been determined that its provisions would not have a 
significant economic effect on a substantial number of small entities. 
For the purpose of the Regulatory Flexibility Act, a dairy products 
manufacturer is a ``small business'' if it has fewer than 500 
employees. If a plant is part of a larger company operating multiple 
plants that collectively exceed the 500 employee limit, the plant will 
be considered a large business even if the local plant has fewer than 
500 employees.
    Under the Agricultural Marketing Act of 1946, the Dairy Grading 
Branch, AMS, provides voluntary Federal inspection and dairy product 
grading services to about 350 plants. About 210 of these users are 
small businesses under the criteria established by the Small Business 
Administration (13 CFR 121.201). Manufacturing plants participating in 
the voluntary plant inspection program have their facility inspected 
against established USDA ``General Specifications for Dairy Plants 
Approved for USDA Inspection and Grading Service'' construction and 
sanitation requirements. Dairy products manufactured in facilities 
complying with the USDA inspection requirements are eligible to have 
their output graded against official quality standards and 
specifications established by AMS and certain contract provisions 
between buyer and seller. Products tested and graded by the Dairy 
Grading Branch have certificates issued describing the product's 
quality and condition.
    AMS continually reviews its cost structure to assure it is 
operating efficiently while maintaining the resources necessary to meet 
industry's demand for services. Periodically, fees must be adjusted to 
ensure that the program remains financially self-supporting. To reduce 
costs, the Dairy Grading Branch has continued to automate its business 
practices. Progress to date has been significant and has resulted in 
savings equal to two staff years to the program. Further enhancements 
in automated business practices will continue to improve the efficiency 
and timeliness of providing inspection and grading services and 
information to users of these services.
    Employee salaries and benefits now account for nearly 73 percent of 
the operating costs of the Dairy Grading Branch. Grading fees were 
adjusted last in 2004 (69 FR 8797). Salary increases and locality 
adjustments, effective January 2005 and January 2006, have resulted in 
an increase in employee cost of 6.1 percent. As a result, annual salary 
and benefit costs to the program for Fiscal Year (FY) 2006 are 
approximately $240,000 more than for the same number of employees in FY 
2004. Inflation raised non-salary costs approximately 6.8 percent for 
the two-year period ending December 2005. It is expected that non-
salary operating expenses will continue to increase at a rate of 3.0 
percent per year. Current revenue projections using Dairy Grading 
Branch's current fee schedule will not provide income sufficient to 
cover these escalating program operation costs and maintain reserves (4 
months of costs) according to AMS policy (AMS Directive 408.1).
    Since projected revenues will not cover program costs while 
maintaining an adequate reserve, the Dairy Grading Branch will be put 
in an unstable financial position that will adversely affect the 
ability to provide dairy inspection and grading services. Without a fee 
increase, total revenue projections for FY 2006 are $4.980 million. 
Total costs for the same period of time are projected to be $5.778 
million. The shortfall will reduce the trust fund balance to $1.578 
million or 3.3 months of operating reserve at the end of FY 2006 which 
is below Agency policy.
    AMS estimates these fee increases will provide the Dairy Grading 
Branch an additional $504,000 annually to recover program costs and to 
provide for continued automation of business practices.
    This rule will raise the fees charged to businesses for voluntary 
plant inspections, grading services for dairy and related products, and 
the evaluation of food processing equipment. However,

[[Page 60806]]

the impact on all businesses, including small entities is very similar. 
Even though fees will be increased approximately 9.7% for non-resident 
services and 10.5% for continuous resident services, these fee 
increases should not significantly affect these entities. Adjusted for 
inflation, the new fee schedule is actually less than in 1998. These 
businesses are under no obligation to use these voluntary user-fee 
based services and any decision on their part to discontinue the use of 
the services would not prevent them from marketing their products.
    A review of reporting requirements was completed under the 
Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). It was 
determined that this rule would have no impact on reporting, 
recordkeeping, or other compliance requirements for entities currently 
using voluntary Federal dairy inspection and grading services because 
they would remain identical to the current requirements.
    This action does not require additional information collection that 
requires clearance by OMB. The primary sources of data used to complete 
the forms are routinely used in most business transactions. Forms 
require only a minimal amount of information which can be supplied 
without data processing equipment or a trained statistical staff. Thus, 
the information collection and reporting burden is relatively small. 
Requiring the same information from all participating dairy plants does 
not significantly disadvantage any plant that is smaller than the 
industry average.

Action

    The Secretary of Agriculture is authorized by the Agricultural 
Marketing Act of 1946 (AMA), as amended (7 U.S.C. 1621, et seq.), to 
provide voluntary Federal dairy inspection and grading services to 
facilitate the orderly marketing of dairy products and to enable 
consumers to obtain the quality of dairy products they desire. The AMA 
also provides for the collection of reasonable fees from users of the 
Federal dairy inspection and grading services to cover the cost of 
providing these services. The hourly fees are established by 
distributing the program's projected operating costs over the estimated 
service-revenue hours provided to users. AMS continually reviews its 
cost structure to assure it is operating efficiently while maintaining 
the resources necessary to meet industry's demand for services. 
Periodically, fees must be adjusted to ensure that the program remains 
financially self-supporting.
    To reduce costs, the Dairy Grading Branch has continued to automate 
its business practices. Progress to date has been significant and has 
resulted in savings equal to two staff years to the program. Further 
enhancements in automated business practices will continue to improve 
the efficiency and timeliness of providing inspection and grading 
services and information to users of these services.
    Employee salaries and benefits now account for nearly 73 percent of 
the operating costs of the Dairy Grading Branch. Grading fees were last 
adjusted in 2004 (69 FR 8797). Salary increases and locality 
adjustments, effective January 2005 and January 2006, have resulted in 
an increase in employee cost of 6.1 percent. As a result, annual salary 
and benefit costs to the program for FY 2006 are approximately $240,000 
more than for the same number of employees in FY 2004. Inflation raised 
non-salary costs approximately 6.8 percent for the two-year period 
ending December 2005. It is expected that non-salary operating expenses 
will continue to increase at an annual rate of 3.0 percent and that 
salary and benefits will increase by 2.1 percent in January 2007. 
Current revenue projections using Dairy Grading Branch's current fee 
schedule will not provide income sufficient to cover these escalating 
program operation costs and maintain reserves (4 months of costs) 
according to AMS policy (AMS Directive 408.1).
    Since projected revenues will not cover program costs while 
maintaining an adequate reserve, the Dairy Grading Branch will be put 
in an unstable financial position that will adversely affect the 
ability to provide dairy inspection and grading services. Without a fee 
increase, total revenue projections for FY 2006 are $4.980 million. 
Total costs for the same period of time are projected to be $5.778 
million. The shortfall, if allowed to continue, would have reduced the 
trust fund balance to $1.578 million or 3.3 months of operating reserve 
at the end of FY 2006 which is below Agency policy.
    In view of the above considerations, AMS proposed to increase the 
hourly fees associated with Federal dairy grading and inspection 
services. Currently the fees are $57.00 per hour for continuous 
resident services and $62.00 per hour for non-resident services. The 
proposed increases result in fees of $63.00 per hour for continuous 
resident services and $68.00 per hour for non-resident services between 
the hours of 6 a.m. and 6 p.m. The proposed fees represent increases of 
$6.00 per hour (10.5 percent) for continuous resident and $6.00 per 
hour (9.7 percent) for non-resident services. The fee for non-resident 
services between the hours of 6 p.m. and 6 a.m. would be $74.80 per 
hour. For services performed in excess of 8 hours per day and for 
services performed on Saturday, Sunday, and legal holidays, 1\1/2\ 
times the base fees would apply and result in increases to $94.50 per 
hour for resident grading and to $102.00 per hour for non-resident 
grading services.
    AMS estimates these fee increases will provide the Dairy Grading 
Branch an additional $504,000 annually to recover program costs 
including providing for continued automation of business practices.
    A notice of proposed rulemaking was published in the Federal 
Register on April 20, 2006 (70 FR 20351). Dairy Programs received two 
comments during this period.
    The first comment received was a public submission in opposition to 
the fee increase. The commenter expressed concern that these fee 
increases would increase dairy product prices, and suggested that other 
methods of increasing revenue, such as increased use of appropriated 
funds, be explored. Dairy inspection and grading services are 
voluntary, and while they are used extensively by manufacturers of 
certain dairy products, they are not used by all segments of the dairy 
industry. This modest increase in fees is not likely to generate 
substantial price increases. Further, dairy inspection and grading 
programs are supported entirely by these user fees, not through 
appropriated funds. This fee increase is necessary for the program to 
remain self-sufficient and maintain reasonable operating reserves.
    The second comment was received from the American Butter Institute 
(ABI). ABI expressed concern that the rate of increase in grading and 
inspection fees exceeds the rate of inflation since 2004, and that when 
combined with the 2004 fee increase, constitutes fees that are 25 
percent higher than they were 30 months ago. ABI also encourages that 
further automation of business practices be explored to offset a larger 
portion of the projected revenue shortfall, rather than a large 
increase in fees. By our calculation, this increase will result in 
grading fees that are about 21 (resident grader) to 24 percent (non-
resident grader) higher than that in March 2004. Prior to the April 
2004 increase, grading fees had remained unchanged for 75 months. Thus 
on average, grading fees will have increased only about 2.4 to 2.7 
percent annually since 1998, when this increase becomes effective. This 
longer

[[Page 60807]]

term rate of increase is lower than average rate of inflation since 
1998. Adjusted for inflation, grading fees after this increase will be 
lower in real dollars than they were in 1998. Dairy Programs continues 
to evaluate the business practices of its grading and inspection 
programs, and will implement, as they are identified, measures that 
should result in increased program efficiency.
    Each of the comments received was carefully considered. 
Nevertheless, Dairy Programs' current grading and inspection fees are 
not adequate, and this increase in fees is necessary. Dairy Programs 
has and continues to seek cost savings by reducing overhead and travel 
costs, and increasing program efficiency through enhanced automation of 
business practices.
    Pursuant to the Administrative Procedures Act (5 U.S.C. 553), good 
cause is found to make this effective less than 30 days after 
publication in the Federal Register. This rule will take effect the 
next day following publication to minimize financial losses for dairy 
grading and inspection services. Revenues are not sufficient to cover 
program costs or allow the Dairy Grading Branch to maintain adequate 
operating reserves. The Branch is currently operating with a monthly 
revenue loss of $42,000, which will adversely affect its ability to 
provide inspection and grading services.

List of Subjects in 7 CFR Part 58

    Dairy products, Food grades and standards, Food labeling, Reporting 
and recordkeeping requirements.

0
For the reason set forth in the preamble, 7 CFR part 58 is amended as 
follows:

PART 58--GRADING AND INSPECTION, GENERAL SPECIFICATIONS FOR 
APPROVED PLANTS AND STANDARDS FOR GRADES OF DAIRY PRODUCTS

0
1. The authority citation for 7 CFR part 58 continues to read as 
follows:

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

Subpart A--[Amended]


Sec.  58.43  [Amended]

0
2. In Sec.  58.43, ``$62.00'' is removed and ``$68.00'' is added in its 
place, and ``$68.20'' is removed and ``$74.80'' is added in its place.


Sec.  58.45  [Amended]

0
3. In Sec.  58.45, ``$57.00'' is removed and ``$63.00'' is added in its 
place.

    Dated: October 10, 2006.
Lloyd C. Day,
Administrator, Agricultural Marketing Service.
 [FR Doc. E6-17191 Filed 10-16-06; 8:45 am]
BILLING CODE 3410-02-P