Fee Increase for Inspection Services

DEPARTMENT OF AGRICULTURE

Food Safety and Inspection Service

9 CFR Part 391

[Docket No. 98-052F]

RIN 0583-AC54

Fee Increase for Inspection Services

AGENCY: Food Safety and Inspection Service, USDA.

ACTION: Final rule.

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SUMMARY: The Food Safety and Inspection Service (FSIS) is increasing

the fees charged to meat and poultry establishments, plants, importers,

and exporters for providing voluntary inspection, identification, and

certification services; laboratory services; and overtime and holiday

services. These fees are being increased in order to generate the

additional revenue that FSIS is required to recover. Despite increased

costs each year, these rates have not been adjusted since 1996.

FSIS is reducing the fee it charges for the Accredited Laboratory

program. The Agency's analysis has identified decreased operational

costs for this program. Accordingly, the Agency is reducing its fee.

DATES: Effective April 25, 1999.

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FOR FURTHER INFORMATION CONTACT: Michael B. Zimmerer, Director,

Financial Management Division, Office of Management, Food Safety and

Inspection Service, U.S. Department of Agriculture, Washington, DC

20250-3700, (202) 720-3552.

SUPPLEMENTARY INFORMATION:

Background

The Federal Meat Inspection Act (FMIA) and the Poultry Products

Inspection Act (PPIA) provide for mandatory Federal inspection of the

slaughter of certain livestock and poultry and of the processing of

certain livestock and poultry products. The cost of this inspection

(excluding such inspection performed on holidays or on an overtime

basis) is borne by FSIS.

In addition to mandatory inspection, FSIS provides a range of

voluntary inspection, certification, and identification services. Under

the Agricultural Marketing Act of 1946, as amended (7 U.S.C. 1621 et

seq.), FSIS provides these services to assist in the orderly marketing

of various animal products and byproducts. These services include the

certification of technical animal fats and the inspection of exotic

animal products. FSIS is required to recover the costs of voluntary

inspection, certification, and identification services.

FSIS also provides certain voluntary laboratory services which

establishments or others may request FSIS to perform. The cost of these

services, which are provided under the Agricultural Marketing Act of

1946, as amended (7 U.S.C. 1621 et seq.), must be recovered by FSIS.

Laboratory services are provided for four types of analytic testing.

These are: microbiological testing, residue chemistry tests, food

composition tests, and some pathology testing.

In 1998, FSIS reviewed the fees that it charged for providing

voluntary inspection, identification, and certification services;

laboratory services; and overtime and holiday services and performed a

cost analysis to determine whether the fees it established were

adequate to recover the costs that FSIS would incur in providing the

services. As reflected in the proposed rule published on March 4, 1999,

(64 FR 10402), FSIS has determined that the fees it currently charges

are not adequate to recover the costs of providing the services.

Comments submitted in response to the proposed rule questioned why

the base time fee for voluntary inspection, certification, and

identification services and the fee for overtime and holiday services

were being increased more than FSIS' projected increased FY 1999 costs

of 3.1% for Federal employees pay raises and 1.9% for inflation.

Comments submitted also questioned why the base time fee, the overtime

and holiday fee, and the laboratory service fee were not being raised

the same percentage.

FSIS has not raised the fees that it charges for providing

voluntary inspection, identification, and certification services,

overtime and holiday services, and laboratory services since December

1996 (61 FR 65459; 62 FR 6111). The cost of providing these services

has risen since that time. FSIS has been absorbing these increased

costs in various ways. FSIS cannot continue to absorb these increased

costs.

As discussed below in the Agency's response to comments, since the

1996 rate change, FSIS has experienced increased costs in providing

voluntary inspection, identification, and certification services;

laboratory services; and overtime and holiday services. These increased

costs are attributable to the national and locality pay raises given to

Federal employees each year, the increased travel and overhead costs

each year, and other factors such as higher-salaried personnel

certifying product during base time. These increased costs necessitate

a 12.53% increase in base time costs, a 9.12% increase in overtime and

holiday costs, and a 4.78% increase in laboratory services costs. The

differing fee increase for each type of service is the result of the

different amount it costs FSIS to provide these three types of

services. As reflected in the response to comments, these differences

in costs stem from various factors including the differing salary

levels of the personnel who provide the services.

In its analysis of projected costs for FY 1999, FSIS has identified

a decrease in the cost of operating the Accredited Laboratory Program

(ALP). This projected decreased cost of $1,000 per accreditation is

based upon the difference in actual costs since the 1996 increase and

projected costs. The decreased cost of accreditation is the result of a

number of factors, including a projected decrease in accreditations

sought and maintained, as well as more efficient operating practices by

FSIS.

A full analysis of the economic impact of this rule was presented

in the proposed rule (64 FR 10402).

Proposed Rule and Comments

On March 4, 1999, FSIS published a proposed rule at 64 FR 10402 to

increase the fees that FSIS charges meat and poultry establishments,

plants, importers, and exporters for providing voluntary inspection,

identification, and certification services; laboratory services; and

overtime and holiday services. FSIS received 19 comments from the meat

and poultry industries. All commenters were opposed to the proposal,

objecting to the proposed fee increases for the affected inspection

services. The commenters' specific concerns and the Agency's responses

follow.

Comment: All commenters stated that the proposed raise of 12.53%

and 9.12% in fees, respectively for base time and overtime/holiday time

services, which appeared to be based upon an actual cost increase of

5.0% (3.1% for wages and 1.9% for overhead adjustments), was excessive.

Most of the commenters stated that they were opposed to any rate

increase in excess of 5.0%.

Response: The fee increases that FSIS proposed were not solely

based upon FSIS' projected increased FY 1999 costs of 3.1% for wages

and 1.9% for overhead. The last time FSIS increased reimbursable rates

was in December of 1996 (61 FR 65459). FSIS is required to recover all

of the costs associated with providing services in its voluntary

inspection programs (i.e. voluntary inspection, identification, and

certification services and overtime and holiday services). New rates

were not proposed in 1997 and 1998 because of major reorganizations

within the Agency and other factors, even though all Federal employees

received pay raises, and travel and overhead costs increased in each of

those years. This resulted in the industry being underbilled in each of

these years and the Agency not recovering the full costs it incurred in

operating its voluntary programs.

Since FY 1996, all Federal employees have received across the board

average salary increases as follows: January, 1997--3.0%; January,

1998--2.8%; and January, 1999--3.6%. The compounded annual effect of

all 3 years of salary increases total 9.7%. The compounded effect

calculates the increase in a given year on top of the previous years'

increases. That is, for every dollar earned by a Federal employee in

1996, he now is earning almost 10 cent more in 1999. Specifically, each

dollar earned by a Federal employee in 1996, because of salary raises,

increased to $1.03 in 1997 (a 3% increase), $1.06 in 1998 (a 2.8%

increase) and $1.10 in 1999 (a 3.6% increase).

Additionally, there were other factors that were taken into account

in determining the increased rate of 12.53% and 9.12% for base and

overtime/holiday time services, respectively, beyond the calculated

[[Page 19867]]

9.7% increased salary amount for Federal employees. For base time, an

additional 3.37% increase was added to the 9.16% compounded salary cost

increase (estimated in mid-1998) to provide for the fact that base time

services are performed by higher salaried employees doing certification

of product for exports, instead of lower salaried employees in previous

years, plus the projected inflated travel and overhead costs. The

proposed increase of 9.12% for overtime/holiday services is less than

the compounded effect of the 3 years of Federal pay raises (9.7%) by

the amount of .58% due to the fact that when the proposed rate

increases were originally calculated in mid-1998, the projected pay

increase for January 1999 was calculated at the anticipated 3.1%,

instead of the later approved actual raise of 3.6% that occurred.

Commenters were not opposed to the proposed increase cost for

laboratory services. The increase of 4.78% for laboratory service fees

is due to increased efficiencies in the laboratories, which in turn

keep down operating costs. Operating costs constitute a significant

portion of the fee for laboratory services. Operating costs have been

kept in check over the last three years.

The fees being finalized reflect the difference between the last

fee change in 1996 and projected costs incurred by FSIS for FY 1999. If

those fees were recalculated to reflect all actual costs through FY

1999, they would probably increase. However, the Agency has decided to

finalize the fee rates it proposed. It will make appropriate

adjustments in a new proposal it expects to publish in late 1999

regarding the fees that need to be charged for the inspection programs

it operates. This new proposal will reflect the Federal pay raise and

inflation rate for travel and overhead costs anticipated for January

2000, and any other relevant factors.

Comment: Two commenters stated that in the proposed rule, there is

an attempt to rationalize that small establishments would not be

affected adversely. Some commenters stated that the rule will have a

detrimental effect on small establishments trying to develop a growing

market. Additionally, some commenters stated that some small

establishments are not selling directly to consumers, but instead are

selling to food service or retail establishments. Therefore, these

commenters indicated that it was highly unlikely that the excessive

cost increases being proposed could be passed through, especially in

today's low inflation or even deflationary environment.

Response: FSIS does not have data on specific small establishments

that sell their products directly to food service or retail

establishments. Therefore, FSIS could not estimate the economic impact

of the proposed fee increase on small establishments who engaged in

this type of business, i.e., the potential impact of the increase in

prices on their sales or the price elasticity. Price elasticity is the

percentage change in demand for a product associated with a one percent

change in its price. FSIS relied on the overall elasticity of demand

for the product, i.e., responsiveness or sensitivity of demand to

changes in prices of the product sold by all establishments. FSIS would

welcome specific data on this issue for considering future adjustments.

However, it must be understood that FSIS is required to recover the

full costs of operating its voluntary programs.

Comment: Four commenters said that the increase in fees does not

take into consideration the cooperative certification programs of the

Agricultural Marketing Service, USDA, such as the Certified Angus Beef

or the Certified American Lamb program.

Response: The certification services provided by other agencies and

the rates that other agencies charge for the services that they provide

has no impact upon the fees charged by FSIS.

Comment: Some commenters raised issues about FSIS inspection

structure and the possible operation of HACCP plants outside normal

inspection hours without the requirement for overtime inspection.

Response: These issues are not within the scope of this rulemaking

and, thus, are not being addressed in this docket.

Accordingly, FSIS is amending Sec. 391.2 to increase the base time

rate for providing voluntary inspection, identification, and

certification services from $32.88 per hour, per program employee, to

$37.00 per hour, per program employee. FSIS is amending Sec. 391.3 to

increase the rate for providing overtime and holiday services from

$33.76 per hour, per program employee, to $36.84 per hour, per program

employee. FSIS is also amending Sec. 391.4 to increase the rate for

laboratory services from $48.56 per hour, per program employee to

$50.88 per hour, per program employee. Further, FSIS is amending

Sec. 391.5 to reduce the fee charged for accreditations and renewals

from $2,500 per accreditation, to $1,500 per accreditation per year.

To recover the increased costs in an expeditious manner, the

Administrator has determined that these amendments should be effective

on the first day of the pay period (Sunday) after publication of this

rule. Therefore, the effective date for this rule is April 25, 1999.

Executive Order 12866 and Regulatory Flexibility Act

This rule has been determined to be not significant and was not

reviewed by the Office of Management and Budget (OMB) under Executive

Order 12866. The fee increases for voluntary inspection,

identification, and certification services, laboratory services, and

overtime and holiday inspection services are the result of increases in

the salaries of Federal employees established by Congress under the

Federal Employees Pay Comparability Act of 1990. The increase also

includes projected increased travel costs and overhead costs due to

inflation, higher-salaried employees working more base time than

overtime, and various other factors.

The Administrator, Food Safety and Inspection Services, has

determined that this action will not have a significant economic impact

on a substantial number of small entities as defined by the Regulatory

Flexibility Act (5 U.S.C. 601).

Executive Order 12988

This rule has been reviewed under Executive Order 12988, Civil

Justice Reform. This rule is not intended to have a retroactive effect.

States and local jurisdictions are preempted by the Federal Meat

Inspection Act (FMIA) and the Poultry Products Inspection Act (PPIA)

from imposing any marking, labeling, packaging, or ingredient

requirements on federally inspected livestock and poultry products that

are in addition to, or different than, those imposed under the FMIA and

PPIA. States and local jurisdictions may, however, exercise concurrent

jurisdiction over livestock and poultry products that are outside

official establishments for the purpose of preventing the distribution

of livestock and poultry products that are misbranded or adulterated

under the FMIA and PPIA, or, in the case of imported articles, that are

not at such an establishment, after their entry into the United States.

State or local laws, regulations, or policies are preempted by the

Agricultural Marketing Act of 1946, as amended, if they present

irreconcilable conflict with the provisions of this rule under the

Agricultural Marketing Act of 1946, as amended.

Administrative proceedings will not be required before parties may

file suit

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in court challenging this rule. However, the administrative procedures

specified in 9 CFR 306.5 and 381.35 of the FMIA and PPIA regulations,

respectively, must be exhausted prior to any judicial challenge of the

application of the provisions of this proposed rule, if the challenge

involves any decision of an FSIS employee relating to inspection

services provided under the FMIA or PPIA.

List of Subjects in 9 CFR Part 391

Fees and charges, Government employees, Meat inspection, Poultry

products.

For the reasons set out in the preamble, part 391 of title 9 of the

Code of Federal Regulations is amended as follows:

PART 391--FEES AND CHARGES FOR INSPECTION SERVICES AND LABORATORY

ACCREDITATION

1. The authority citation for Part 391 continues to read as

follows:

Authority: 7 U.S.C. 138f; 7 U.S.C. 394, 1622 and 1624; 21 U.S.C.

451 et seq.; 21 U.S.C. 601-695; 7 CFR 2.18 and 2.53.

2. Sections 391.2, 391.3, 391.4 and paragraph (a) in Sec. 391.5 are

revised to read as follows:

Sec. 391.2 Base time rate.

The base time rate for inspection services provided pursuant to

Secs. 350.7, 351.8, 351.9, 352.5, 354.101, 355.12, and 362.5 shall be

$37.00 per hour, per program employee.

Sec. 391.3 Overtime and holiday rate.

The overtime and holiday rate for inspection services provided

pursuant to Secs. 307.5, 350.7, 351.8, 351.9, 352.5, 354.101, 355.12,

362.5 and 381.38 shall be $36.84 per hour, per program employee.

Sec. 391.4 Laboratory services rate.

The rate for laboratory services provided pursuant to Secs. 350.7,

351.9, 352.5, 354.101, 355.12 and 362.5 shall be $50.88 per hour, per

program employee.

Sec. 391.5 Laboratory accreditation fees.

(a) The annual fee for the initial accreditation and maintenance of

accreditation provided pursuant to Secs. 318.21 and 381.153 shall be

$1,500 per accreditation.

* * * * *

Done in Washington, DC on: April 20, 1999.

Thomas J. Billy,

Administrator.

[FR Doc. 99-10239 Filed 4-20-99; 3:49 pm]

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