Inflating the Penalties for Commercial Space Transportation

To account for inflation, the Federal Aviation Administration issued a final rule that adjusts the fines—“civil penalties” in FAA lingo—that the agency may impose for violations of its regulations and statutes. The agency has to do this because several laws require inflation adjustments to ensure that the threatened fines of regulatory agencies continue to have a deterrent effect.   The laws include the Federal Civil Penalties Inflation Adjustment Act of 1990, the Debt Collection Improvement Act of 1996, and, most recently, the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. The 2015 Act amended the formula for and frequency of agency inflation adjustments, requiring an initial “catch-up” adjustment, followed by annual adjustments of civil penalty amounts using a statutorily mandated formula. The FAA implemented the initial adjustment in July 2016. This new rule provides the first of the annual adjustments. The FAA notes that the new law:

provides a formula for annual inflationary adjustments that increase civil penalty maximums and minimums by a cost-of- living adjustment (COLA). Under the FCPIAA, as amended by the 2015 Act, the COLA for each civil penalty is the percent change between the U.S. Department of Labor’s Consumer Price Index for all-urban consumers (CPI–U) for the month of October of the calendar year preceding the adjustment and the CPI–U for the month of October of the previous calendar year. Any resulting increase must be rounded to the nearest $1.

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To derive the 2017 adjustment, the FAA must multiply the maximum or minimum penalty amount by the percent change between the October 2016 CPI–U and the October 2015 CPI– U. In this case, October 2016 CPI–U (241.729)/October 2015 CPI–U (237.838) = Multiplier (1.01636).5 Accordingly, the agency multiplied the civil penalty maximums and minimums provided in current 14 CFR 13.301 and 406.9 by 1.01636 to derive the updated maximums and minimums provided in this final rule.

Relying on an interpretation of the 2015 law from the Office of Management and Budget, the FAA did not issue a notice of proposed rulemaking for public comment. This final rule changes the minimum and maximum penalties effective April 10, 2017, the day the rule was published in the Federal Register.

The FAA’s space transportation regulations do not contain minimum or maximum penalties like the FAA’s aviation regulations do. Instead, the commercial space regulation, 14 C.F.R. § 406.9, implements the single penalty listed in 51 U.S.C. ch. 509 (aka the Commercial Space Launch Act). When Congress initially granted the FAA the authority to impose civil penalties, it capped the amount at $100,000.00 per violation per day. 51 U.S.C. § 50917. The United States Code still says that. With the passage of its various inflation adjustment laws, Congress mandated a global search and replace on civil penalties, including those imposed for violations of space regulations. Thus, the FAA’s own new requirement now says:

14 C.F.R. § 406.9 Civil Penalties.

(a) Civil penalty liability. Under 51 U.S.C. 50917(c), a person found by the FAA to have violated a requirement of the Act, a regulation issued under the Act, or any term or condition of a license or permit issued or transferred under the Act, is liable to the United States for a civil penalty of not more than $229,562 for each violation. A separate violation occurs for each day the violation continues.

The FAA will not necessarily claim a civil penalty as high as that, and, to my knowledge, has yet to do so.  Agencies are allowed discretion in deciding the size of a penalty, and will typically attempt to impose smaller fines for first-time violations.