Many regulatory laws provide for civil – and sometimes even criminal – penalties for noncompliance. Statutes set penalty levels (“XXX dollars per day of violation” for example), at levels intended to provide meaningful deterrence and punishment for noncompliance. But over time, these penalties' stings decline with inflation. To counteract the possibility that less painful penalties reduce incentives for compliance, U.S. law directs most federal agencies to make annual “cost of living” adjustments to the maximum statutory civil penalty levels (there are no provisions for standing periodic adjustments to criminal penalties).
How do penalty escalation requirements work?
Agencies’ authority to make inflation adjustments has expanded over the past 35 years. Initially, the Federal Civil Penalties Inflation Adjustment Act of 1990 directed the President to report annually on any adjustments made using statutory authority , and to calculate what inflation adjustments failed to keep up with inflation.
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.
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 (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 in April 2024 that 48 of 49 subject agencies had made required adjustments. This GAO report also summarizes information for past years.
What are examples of 2024-2025 adjustments?
Agencies report their adjustments for 2024 inflation, based on inflation CPI inflation of 1.02598 %. 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 $59,114 per day of violation. Clean Water Act penalties (most were $25,000 per day when adopted in 1972) are now $59,114.
- Occupational Safety and Health Administration (OSHA) penalties (most were $7,000 per day when adopted in 1970) are now $16,550 per day of violation.
What happens now?
Enforcement agencies can apply the latest inflation-adjusted maximum penalties 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, so effective compliance should eliminate the risk, and reduced enforcement (such as promised by incoming President Trump) can reduce the likelihood.
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 2023 Annual Inflation Adjustment Requirements” (4/18/24)
- EPA adjustment (1/8/25 Federal Register)
- Department of Labor (including OSHA) adjustment (1/10/25)
- Department of Transportation (Pipeline and Hazardous Materials Safety Administration (PHMSA)) adjustment (12/30/24)
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