Most regulatory laws provide for civil – and sometimes even criminal – penalties for noncompliance. New legislation typically sets penalty levels (“XXX dollars per day of violation” for example), at levels intended to provide meaningful deterrence and punishment for noncompliance. But over time, the relative sting of these penalties declines with inflation. To counteract the possibility that less painful penalties provide less effective incentives for compliance, U.S. law directs most federal agencies to make annual “cost of living” adjustments to maximum available civil penalty levels (there are no provisions for standing periodic adjustments to criminal penalties).
How Did These Requirements Work?
This approach began tentatively pursuant to the Federal Civil Penalties Inflation Adjustment Act of 1990, which directed the President to report annually on any adjustments made under existing statutory authority, and to calculate what such adjustments would have been if more agencies had the authority to make them.
Congress amended the Act in 1996 to require most agencies to make inflation adjustments every four years, but precluding adjustments to penalties under the Internal Revenue Code, the Occupational Safety and Health Act, the Social Security Act, and the Tariff Act. These limitations, and the failures of some agencies to meet their quadrennial deadlines, means that most penalties remained lower than they would have been if timely adjustments had been made all along.
Then, the federal budget for Fiscal Year 2015 revised these provisions to:
- Require annual adjustments, beginning July 1, 2016 and no later than each January 15 thereafter, based on Consumer Price Index (CPI) levels as of the preceding October, compared with the level when the penalty provision was enacted (remember that was the 1970s for many environmental health and safety provisions, the 1930s for securities laws, etc).
- Remove the previous “rounding” requirement (multiple of $10 for penalties less than or equal to $100, etc) and direct adjustments to the nearest whole dollar.
- Remove the exclusion for the Occupational Safety and Health Act and the Social Security Act.
- Capped the 2016 adjustment to no more than 150% of the rate in effect when the 2015 amendments were enacted
Since 2016, most targeted agencies have made their required adjustments in most years. Most recently, the US Government Accountability Office (GAO) reported on April 27, 2023 that all 48 subject agencies had made required adjustments (except that the Treasury Department failed to adjust 4 specific penalties). This GAO report also summarizes information for past years.
What are examples of 2022-2023 adjustments?
Agencies reported their adjustments for 2022 inflation early in 2023, based on 2022 inflation in the CPI inflation of 7.745%. For example, the two most important federal environmental health and safety (EH&S) agencies have done so:
- Environmental Protection Agency (EPA) adjustments – for example, for Clean Air Act penalties (most were $25,000 per day when adopted in 1977) are now $51,796 per day of violation. Clean Water Act penalties (most were $25,000 per day when adopted in 1972) are now $64,618.
- Occupational Safety and Health Administration (OSHA) penalties (most were $7,000 per day when adopted in 1970) are now $14,502 per day of violation.
What happens now?
The latest inflation-adjusted maximum penalties are able to apply when an agency charges an offense after the effective date of the latest adjustment. Practitioners should know that maximum amounts are frequently asserted at the beginning of an enforcement action, but that actual penalties assessed at the end of enforcement are typically well below these maxima. And, of course, these penalties only apply to an organization or individual who becomes subject to a civil penalty….
Self Assessment Checklist
Is the organization subject to federal regulatory requirements and prohibitions?
If so, has the organization established programs to ensure compliance?
If so, do these programs consider the potential impact of civil penalties for violations?
Where Can I Go For More Information?
- GAO, “Civil Monetary Penalties: Federal Agencies’ Compliance with the 2022 Annual Inflation Adjustment Requirements” (4/27/23)
- EPA adjustment (1/6/23 Federal Register)
- Department of Labor (including OSHA) adjustment (1/13/23)
- Public Law 114-74 (Bipartisan Budget Act of 2015 (Nov. 2, 2015)), section 701
About the Author
Jon Elliott is President of Touchstone Environmental and has been a major contributor to STP’s product range for over 30 years.
Mr. Elliott has a diverse educational background. In addition to his Juris Doctor (University of California, Boalt Hall School of Law, 1981), he holds a Master of Public Policy (Goldman School of Public Policy [GSPP], UC Berkeley, 1980), and a Bachelor of Science in Mechanical Engineering (Princeton University, 1977).
Mr. Elliott is active in professional and community organizations. In addition, he is a past chairman of the Board of Directors of the GSPP Alumni Association, and past member of the Executive Committee of the State Bar of California's Environmental Law Section (including past chair of its Legislative Committee).
You may contact Mr. Elliott directly at: tei@ix.netcom.com