GAO-03-221R Coast Guard Penalty Adjustments

United States General Accounting Office

Washington, DC 20548

November 1, 2002

The Honorable Norman Y. Mineta

The Secretary of Transportation

Subject: United States Coast Guard: Implementation of the

 Inflation Adjustment Act

Dear Mr. Secretary:

Earlier this year, we initiated a governmentwide review of the implementation of the

Federal Civil Penalties Inflation Adjustment Act of 1990, as amended (Inflation

Adjustment Act).1

 The Inflation Adjustment Act required each federal agency to issue

a regulation adjusting its covered maximum and minimum civil monetary penalties

for inflation by October 23, 1996, and requires them to make necessary adjustments at

least once every 4 years thereafter. During our review, we determined that the

United States Coast Guard published its first round of penalty adjustments in 1997,

but has not published a second round of adjustments for 56 eligible penalties. This

report is intended to bring this matter to your attention and to recommend corrective

action.

The Coast Guard Has Not Published a Second Round

of Adjustments for Eligible Penalties

Under the Inflation Adjustment Act, the Coast Guard (like other covered federal

agencies) was required to publish a regulation by October 23, 1996, adjusting its

maximum civil penalties for inflation. The act requires those inflation adjustments to

be based on changes in the Consumer Price Index (CPI) from June of the calendar

year in which the penalties were last set or adjusted through June of the year prior to

the adjustment. The statute also includes precise rules for rounding penalty

increases. For example, the statute provides that penalty increases must be rounded

to the nearest “multiple of $1,000 in the case of penalties greater than $1,000 but less

than or equal to $10,000.” The statute limited the first adjustments of an agency’s

penalties to 10 percent of the penalty amounts. It also requires agencies to examine

their penalties at least once every 4 years and, if necessary, make additional inflation

adjustments.

 1

The Inflation Adjustment Act is codified at 28 U.S.C. 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. 104-134, Sec. 31001, 110 Stat. 1321-373).
Page 2 GAO-03-221R Coast Guard Penalty Adjustments

On April 8, 1997, the Coast Guard published a final rule making its first penalty

adjustments under the Inflation Adjustment Act.2 The agency subsequently published

two rule corrections to address “errors which may prove to be misleading and are in

need of correction or clarification,” with the final publication taking effect on July 1,

1997.3

 In the last rule, the agency identified 127 covered civil penalties and adjusted

122 of them for inflation.4

 As table 1 shows, the 122 penalties after the 1997

adjustments were at 16 different penalty amounts ranging from $22 to $137,500. The

table also shows that the amount of inflation needed to trigger another penalty

increase ranges from 3.6 percent to 45.5 percent, depending on the size of the penalty

and the applicable rule for rounding penalty increases.

Table 1: The Coast Guard Can Readjust Nearly Half of the Civil Penalties

That Were Initially Adjusted in 1997

Penalty

amount (in

dollars)

after 1997

adjustments

Number of

penalties at

this penalty

amount that

were

adjusted in

1997

Percentage

increase in

inflation

needed to

trigger

another

adjustment

Were

penalties at

this amount

eligible for

adjustment

in 2001?

Are

penalties at

this amount

eligible for

adjustment

in 2002?

$ 22 1 22.8 No No

55 2 9.1 No Yes

110 9 45.5 No No

185 1 27.1 No No

220 7 22.8 No No

550 15 9.1 No Yes

1,100 18 45.5 No No

2,200 2 22.8 No No

3,300 1 15.2 No No

5,500 22 9.1 No Yes

11,000 23 22.8 No No

22,000 4 11.4 No No

27,500 13 9.1 No Yes

55,000 1 4.6 Yes Yes

110,000 1 4.6 Yes Yes

137,500 2 3.7 Yes Yes

Total 122 4 eligible 56 eligible

Note: The penalty that the Coast Guard adjusted to $185 in 1997 was increased more than the

10 percent permitted by the Inflation Adjustment Act for first-round adjustments (from $150),

and therefore should have only increased to $165.

Source: GAO analysis of Coast Guard data.

 2

See 62 Fed. Reg. 16695.

3

See 62 Fed. Reg. 31339 (June 9, 1997) and 62 Fed. Reg. 35385 (July 1, 1997).

4

The Coast Guard did not adjust four penalties because, under the rounding rules, they did not qualify

for adjustment: (1) a $2,000 penalty (codified at 46 U.S.C. 3318(j)(1)) that was last set in 1990, (2) a

$3,000 penalty (codified at 14 U.S.C. 645(i)) that was last set in 1992, (3) a $25,000 penalty (codified at

46 U.S.C. 8906) that was last set in 1996, and (4) a $1,000 penalty that was set in 1996 (codified at 46

U.S.C. 2115) and that was adjusted in 1998 to $5,000 by Public Law 105-383. The Coast Guard also did

not adjust a $2,500 penalty (codified at 33 U.S.C. 1236(d)) that should have been adjusted to $2,750.

Therefore, it is currently eligible for a 10-percent increase.
Page 3 GAO-03-221R Coast Guard Penalty Adjustments

By July 2001 (4 years after the first round of adjustments took effect), the Coast

Guard should have examined its civil penalties and adjusted those eligible under the

statute. For those penalties initially adjusted in 1997, the Coast Guard should have

used the percentage change in the CPI that occurred from June 1997 through June

2000 (about 7.5 percent) to calculate the size of the unrounded increase. As table 1

shows, 4 of the 122 Coast Guard penalties that were adjusted in 1997 were eligible for

a second adjustment by July 2001. However, as of the date of this letter, the Coast

Guard has not readjusted these penalties.

By January 2002, the Coast Guard could have used the amount of inflation that

occurred from June 1997 through June 2001 (about 11 percent) to determine which of

its penalties adjusted in 1997 were eligible for adjustment under the Inflation

Adjustment Act. As table 1 shows, 56 of the 122 penalties adjusted in 1997 were

eligible (and are currently eligible) for a second adjustment. Coast Guard officials

told us during our review that the agency had not yet made a second round of penalty

adjustments because of personnel turnover, staffing reductions, and reorganizations.

Recommendation for Executive Action

We recommend that the Secretary of Transportation direct the Commandant of the

Coast Guard to initiate a regulatory action as soon as possible to adjust eligible civil

penalties in a manner consistent with the requirements of the Inflation Adjustment

Act.

Agency Comments and Our Evaluation

On October 22, 2002, we provided a draft of this report to the Secretary of

Transportation for his review and comment. We did not receive any formal

comments on the draft report from either the Department of Transportation or the

Coast Guard. However, Coast Guard officials told us that the agency would begin

developing new civil penalty regulations in January 2003.

- - - - -

We are sending copies of this report to the Commandant of the Coast Guard and to

appropriate congressional committees. It will also be available at no charge on

GAO’s Web site at http://www.gao.gov. If you or your staff have any questions on the

matters discussed in this letter, you may contact Curtis Copeland or me at (202) 512-

6806. John Tavares was a major contributor to this report.

Sincerely,

Victor S. Rezendes

Managing Director

Strategic Issues

(450163)