United States GeneralAccounting Office 

Washington, DC 20548 

B-290021 

July 15,2002 

Mr. Robert E. Fabricant 

General Counsel 

U.S. Environmental Protection Agency 

Subject: Federal Civil Penalties Inflation Adiustment Act 

Dear Mr. Fabricank 

Earlier this year, GAO initiated a review of the implementation of the Federal Civil 

Penalties Inflation AdjustmentAct of 1990, as amended (“Inflation Adjustment Act”).’

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. $ 2461 note. The statute defines a “cost-of-livingadjustment”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. $ 2461 note. The statute limited the 

first adjustment to 10percent and includes a mechanism for rounding penalty 

increases. Sections 5 and 6,28U.S.C. 9 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. $2461note. The statute 

provides, for example, that “[alnyincrease. . .shall be rounded to the nearest. . . multiple of $10 in the case of Denalties 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 

The Inflation Adjustmpt Act is codified at 28 U.S.C. $ 2461 note. The 1990 act was 

amended in 1996by the Debt Collection Improvement Act, which added the 

requirement for agencies to adjust their civil penalties by regulation. Pub. L. 

No. 104134,$31001,110 Stat. 1321-373(1996). 

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10percent, the agency adjusted all of its penalties by the statutory maximum of 

10percent, 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 13.6percent change in the CPI between 1996 

and June 2001. 67 Fed. Reg. 41,343 (June 18,2002).’ 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 “couldresult 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 “plainmeaning’’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. Mississitmi Poultrv Ass’n,Inc. v. Madigan, 31 F.3d 293 (5” 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 specificallyrequires the 

rounding of “theincrease,” 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 “shallbe 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. 

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 “EPAreceives adverse comment by July 18,2002,’’the direct 

hal rule “will not take effect.” EPA would then address all public comments in a 

subsequent finalrule based on this proposed rule. 

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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 guidelinesissued 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 

ImprovementAct (Improvement Act), Pub. L. No. 101-608,104Stat. 3110 (1990). 

The ImprovementAct authorized the Consumer Product Safety Commission to adjust 

civil penalties for inflation every 5 years. 15U.S.C. 0 2069 (2000). From a reading of 

the Commission’sadjustment regulations, it is clear that the Commission also rounds 

on the basis of the penalty, and not on the in~rease.~ 

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, 

See, e.&, the National Credit Union Administration’sinflation adjustment regulation, 

65 Fed. Reg. 57,277, n. 5 (2000). 

59 Fed. Reg. 66,523 (1994) and 64Fed. Reg. 51,963 (1999). 

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