United States GeneralAccounting Office Washington,DC 20548

B-29002 1

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 

### thisyear, 

### GAO initiated 

### a review of the implementation of the Federal Civil Penalties Inflation Adjustment

### Act of 1990, 

### as amended (“InflationAdjustment 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. Section4, 

### 28 U.S.C. $ 2461 note. The statute defines a “cost-of-livingadjustment” as the percentage change in the ConsumerPrice 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 5,28U.S.C. $ 2461 note. The statute limited the first adjustment 

### to 10percent and includes a mechanismfor 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 lessthan or equal 

### to $100 

### to amounts greater than $200,000, and provides different dollar multiples for rounding the increase 

### in each penalty range. Section 5,28U.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 EnvironmentalProtection 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 coveredpenalties had been in place for at least 

### 5 years, and the amount of inflation occurring during that period was more than

The InflationAdjustmpt 

### 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,$31001,110Stat. 1321-373 (1996).



## I10percent, the agency adjusted all of itspenaltiesby the statutorymaximum 

### 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 existingpenalty 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 ofrounding 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 InflationAdjustment Act because it “willresult in increase amounts that more closely track the changesin the CPI.” 67 Fed. Reg. 41,344. EPA 

### also indicated that calculations based on other rounding approaches “couldresult in penalty adjustmentsthat are several times the CPI percentage 

### or in no increase at alleven with increases in the CPI.” 

## Id.

As noted in 

### our informal discussions with your 

### staff, the method of rounding that the EPA proposes 

### in itsJune 2002 

### NPRM and direct final 

### rule isinconsistent with the requirements of the statute. The so-called “plainmeaning’’ rule of statutory construction 

### dictates that “ifthe 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 languagein the Inflation AdjustmentAct 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 “willnot take effect.” EPA would then address all public comments in a subsequent 

### final rule based on this proposed rule.

Page 2 I3-290021Other agencieshave 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 roundingwhen it enacted the ConsumerProduct Safety ImprovementAct (ImprovementAct), Pub. 

### L. No. 101-608,104Stat. 3110 (1990). The Improvement

### Act 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 Registernotices, we respectfully suggestthat EPA seek appropriatelegislation. 

### If you have any questions regardingthis 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 

### 64 Fed. Reg. 51,963 (1999).

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