�Federal Civil Penalties Inflation Adjustment Act, B-290021, July 15, 2002

B-290021 Jul 15, 2002 Jump To VIEW DECISION RELATED PAGES GAO CONTACTS Highlights 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. The amount of inflation occurring during that period was more than 10 percent. 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. 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.". View Decision Federal Civil Penalties Inflation Adjustment Act, B-290021, July 15, 2002 Mr. Robert E. Fabricant General Counsel U.S. Environmental Protection Agency 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. Sec. 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. Sec. 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. Sec. 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. Sec. 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 . . .