TITLE:  ï¿½Federal Civil Penalties Inflation Adjustment Act, B-290021, July 15, 2002
BNUMBER:  B-290021
DATE:  July 15, 2002
**********************************************************************
 Federal Civil Penalties Inflation Adjustment Act, B-290021, July 15, 2002

    
B-290021
    
July 15, 2002
    

Mr. Robert E. Fabricant

General Counsel

   U.S. Environmental Protection Agency

   Subject:  Federal Civil Penalties Inflation Adjustment Act
    
Dear Mr. Fabricant:
    
Earlier this year, GAO initiated a review of the implementation of the
Federal Civil Penalties Inflation Adjustment Act of 1990, as amended
(*Inflation Adjustment Act*).[1]   This act generally requires federal
agencies to issue regulations adjusting their covered civil monetary
penalties for changes in the cost of living by October 23, 1996, and to
make necessary adjustments at least once every 4 years thereafter. 
Section 4, 28 U.S.C. S: 2461 note.  The statute defines a *cost-of-living
adjustment* as the percentage change in the Consumer Price Index (CPI)
between June of the calendar year in which the penalty was last set or
adjusted and June of the calendar year preceding the adjustment.  Section
5, 28 U.S.C. S: 2461 note.  The statute limited the first adjustment to 10
percent and includes a mechanism for rounding penalty increases.  Sections
5 and 6, 28 U.S.C. S: 2461 note.  With regard to rounding, the statute
sets out penalty ranges, from amounts less than or equal to $100 to
amounts greater than $200,000, and provides different dollar multiples for
rounding the increase in each penalty range.  Section 5, 28 U.S.C. S: 2461
note.  The statute provides, for example, that *[a]ny increase . . . shall
be rounded to the nearest . . . multiple of $10 in the case of penalties
less than or equal to $100.*  Id.  (Emphasis added.) 
    
The Environmental Protection Agency (EPA) made its first round of civil
penalty adjustments under the Inflation Adjustment Act on December 31,
1996.  61 Fed. Reg. 69,360.  Because all of EPA's covered penalties had
been in place for at least 5 years, and the amount of inflation occurring
during that period was more than 10 percent, the agency adjusted all of
its penalties by the statutory maximum of 10 percent, and the rounding
mechanism did not apply.
    
On June 18, 2002, EPA published a direct final rule implementing a second
round of penalty adjustments to account for the 13.6 percent change in the
CPI between 1996 and June 2001.  67 Fed. Reg. 41,343 (June 18, 2002).[2] 
EPA calculated the penalty increase by multiplying the existing penalty
amounts by 13.6 percent.  EPA then used the size of the penalty increase
to determine the category of rounding.  However, the statute provides that
the category of rounding should be determined by the size of the penalty,
not the size of the increase.
    
In the preamble to the June 2002 direct final rule, EPA noted that the
agency's approach of rounding based on the amount of the increase achieves
the intent of the Inflation Adjustment Act because it *will result in
increase amounts that more closely track the changes in the CPI.*  67 Fed.
Reg. 41,344.  EPA also indicated that calculations based on other rounding
approaches *could result in penalty adjustments that are several times the
CPI percentage or in no increase at all even with increases in the CPI.* 
Id.
    
As noted in our informal discussions with your staff, the method of
rounding that the EPA proposes in its June 2002 NPRM and direct final rule
is inconsistent with the requirements of the statute.  The so-called
*plain meaning* rule of statutory construction dictates that *if the
Congress has clearly expressed its intent in the plain language of the
statute,* then the courts and the agency must give effect to that intent. 
Mississippi Poultry Ass'n, Inc. v. Madigan, 31 F.3d 293 (5th Cir. 1994). 
The language in the Inflation Adjustment Act makes clear that rounding is
based on the dollar amount of the penalty.  In this regard, the statute
specifically requires the rounding of *the increase,* rather than the
penalty, and uses the term *penalty* for determining which rounding range
should be used to round the increase.  Thus, when the statute states that
any increase *shall be rounded to the nearest . . . multiple of $100 in
the case of penalties greater than $100 but less than or equal to $1,000,*
you must first determine the percent increase, apply it to the current
penalty, and then, if the penalty falls in the range of greater than $100
but less than or equal to $1,000, round the increase to the nearest
multiple of $100.  Nothing in the plain language of the statute, nor in
the legislative history, permits an agency to use the size of the increase
to determine the appropriate category of rounding.
    
Other agencies have used the same analysis of the statute to reach the
same result as we do.[3]  In addition, the Department of the Treasury
guidelines issued in 1996, after the Inflation Adjustment Act was enacted,
state that rounding is based on the amount of the penalty, not the amount
of the increase.  We also note that Congress used identical language for
rounding when it enacted the Consumer Product Safety Improvement Act
(Improvement Act), Pub. L. No. 101-608, 104 Stat. 3110 (1990). 
The Improvement Act authorized the Consumer Product Safety Commission to
adjust civil penalties for inflation every 5 years.  15 U.S.C. S: 2069
(2000).  From a reading of the Commission's adjustment regulations, it is
clear that the Commission also rounds on the basis of the penalty, and not
on the increase.[4]
    
While we recognize some advantages to rounding on the basis of the size of
the increase rather than the size of the penalty, such a determination
does not comport with the language of the statute.  Consequently, if EPA
wishes to pursue the approach outlined in the Federal Register notices, we
respectfully suggest that EPA seek appropriate legislation.   If you have
any questions regarding this matter, please contact me on 202-512-5400 or
Ms. Susan Poling, Managing Associate General Counsel, on 202-512-2667.
    
Sincerely yours,

   /signed/

   Anthony H. Gamboa
General Counsel
    

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

   [1] The Inflation Adjustment Act is codified at 28 U.S.C. S: 2461 note. 
The 1990 act was amended in 1996 by the Debt Collection Improvement Act,
which added the requirement for agencies to adjust their civil penalties
by regulation.  Pub. L. No. 104‑134, S: 31001, 110 Stat. 1321-373
(1996).
[2] On that same date, EPA published a notice of proposed rulemaking
(NPRM), 67 Fed. Reg. 41,363, that proposed to similarly adjust the civil
monetary penalties for inflation, because, if *EPA receives adverse
comment by July 18, 2002,* the direct final rule *will not take effect.* 
EPA would then address all public comments in a subsequent final rule
based on this proposed rule.
[3] See, e.g., the National Credit Union Administration's inflation
adjustment regulation, 65 Fed. Reg. 57,277, n. 5 (2000).
[4] 59 Fed. Reg. 66,523 (1994) and 64 Fed. Reg. 51,963 (1999).