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United
States
General
Accounting
Office
Washington,
DC
20548
B­
290021
I­
Received
I
flus
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g
,2002
Enfmement
&
Compliance
oockt
#
'

u
8
Information
Center
July
15,2002
Mr.
Robert
E.
Fabricant
General
Counsel
US.
Environmental
Protection
Agency
Subject
Federal
Civil
Penalties
Inflation
Adiustment
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").'
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
&
years
thereafter.
Section
4,
28
U.
S.
C.
$
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
indhich
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
fistadjustment
to
10
percent
and
includes
a
mechanism
for
rounding
penalty
increases.
Sections
5
and
6,28
U.
S.
C.
$
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.
$
2461
note.
The
statute
provides,
for
example,
that
"[
ajny
increase
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
@
PA)
made
its
fist
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
1996
by
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).
,
.1
.
.­,

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
acljustments
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.
MississiDDi
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
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
iirst
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
"
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.

Page
2
E290021
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
Mation
Aaustment
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
acijust
civil
penalties
for
inflation
every
5
years.
15
U.
S.
C.
$
2069
(
2000).
From
a
reading
of
the
Commission's
acijustment
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,
u,
the
National
Credit
Union
Administration's
inflation
adjustment
regulation,
65
Fed.
Reg.
57,277,
n.
5
(
2000).

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

Page
3
E290021
