Formulas for Calculating Hourly and Unit Fees for FGIS Services

DEPARTMENT OF AGRICULTURE <SUBAGY>Agricultural Marketing Service</SUBAGY> <CFR>7 CFR Part 800</CFR> <DEPDOC>[Doc. No. AMS-FGIS-24-0027]</DEPDOC> <RIN>RIN 0581-AE28</RIN> <SUBJECT>Formulas for Calculating Hourly and Unit Fees for FGIS Services</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Agricultural Marketing Service, Department of Agriculture (USDA). <HD SOURCE="HED">ACTION:</HD> Notice of proposed rulemaking. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Agricultural Marketing Service (AMS), Federal Grain Inspection Service (FGIS or Service) proposes to amend its user fee regulations to establish standardized formulas the agency would use to calculate hourly and unit fees. The proposed changes would allow FGIS to charge reasonable fees sufficient to cover the costs of providing official services and re-establish a 3-to 6-month operating reserve, as required by the United States Grain Standards Act (USGSA). This proposed rulemaking would also make specified conforming changes and minor technical changes to the regulations to correct two typographical errors. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Comments are due on or before November 22, 2024. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> Interested persons are invited to submit written comments on this proposed rulemaking. AMS encourages comments to be submitted through the Federal eRulemaking Portal at <E T="03">https://www.regulations.gov.</E> Please go to <E T="03">https://www.regulations.gov</E> and follow the online instructions at that site for submitting comments for AMS-FGIS-24-0027. All comments submitted in response to this proposal are part of the public record and will be posted for public viewing without change at <E T="03">https://www.regulations.gov.</E> All personal identifying information ( <E T="03">e.g.,</E> name, address), confidential business information, or otherwise sensitive information submitted voluntarily by the commenter will be publicly accessible. AMS will accept anonymous comments (enter “N/A” in the required fields if you wish to remain anonymous). <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Denise Ruggles, Executive Program Analyst, USDA, AMS, FGIS, Telephone: 816-702-3897, Email: <E T="03">Denise.M.Ruggles@usda.gov;</E> or Anthony Goodeman, Senior Policy Advisor, USDA, AMS, FGIS, Telephone: 202-720-2091, Email: <E T="03">Anthony.T.Goodeman@usda.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> This proposed rulemaking would amend FGIS's user fee regulations to establish standardized formulas the agency would use to calculate hourly and unit fees. The proposed new formulas, which are similar to the standardized formulas used in other AMS user-fee funded grading programs, would amend the regulations at 7 CFR 800.71. The formulas proposed here would enable the agency to sustain operations and comply with the USGSA, which requires FGIS to charge fees sufficient to cover the costs of the official services it provides and to adjust fees annually in order to maintain an operating reserve of not less than 3 and not more than 6 months. Prospective customers can find the fee schedules posted on AMS's public website at: <E T="03">https://www.ams.usda.gov/about-ams/fgis-program-directives.</E> <HD SOURCE="HD1">Background</HD> The USGSA authorizes and requires the Secretary of Agriculture to charge and collect reasonable fees to cover the estimated costs for performing official grain inspection and weighing services (which are mandatory under the Act for U.S. grain exports). In 2015, Congress amended the USGSA to provide that “[i]n order to maintain an operating reserve of not less than 3 and not more than 6 months, the Secretary shall adjust the fees . . . not less frequently than annually.” (7 U.S.C. 79(j)(4) and 79a(l)(3)). To comply with these provisions, FGIS, then the Grain Inspection, Packers, and Stockyards Administration (GIPSA), issued regulations requiring the agency to review and adjust fees annually in order to maintain a 3- to 6-month reserve of operating expenses. (81 FR 49855). Through those regulations, the Service determined that maintaining the operating reserve at 4.5-months of operating expenses would comply with the statutory requirement that FGIS maintain an operating reserve of 3 to 6 months. Under the current regulation, in years when the operating reserve has been sufficient, for each $1 million that the reserve's balance exceeded 4.5 months, the Service reduced fees by 2 percent, and no greater than 5 percent. Conversely, in years when the operating reserve was projected to be insufficient, for each $1 million that the balance fell short of the 4.5-month target, the Service increased fees by 2 percent, while also capping such increases at 5 percent. The current regulations limit annual fee increases or decreases to no greater than 5 percent. The current regulations provide for FGIS review and revision of fees annually (800.71(b)) to establish the tonnage fees (national and local) and supervision fees. The annual adjustment of fees is based on the operating reserve total at the end of the prior fiscal year. Fees are increased or decreased to maintain an operating reserve of 4.5 months of operating expenses. Historically, the operating reserve balance remained higher than the 4.5-month target, so FGIS annually reduced fees by the maximum amount, 5 percent, in 2017 (81 FR 96339), 2018 (83 FR 6451), and 2019 (84 FR 11926); and by 2 percent in 2020 (85 FR 8536). However, at the close of FY 2020, FGIS was operating at a loss of $5 million and had an operating reserve balance below 4.5 months of operating expenses. In accordance with current regulations, FGIS increased fees by 5 percent in 2021 (86 FR 1475), 2022 (87 FR 920), and 2023 (88 FR 18512). These annual fee increases were not sufficient to both cover operating costs and maintain a sufficient operating reserve. Because of the cap on how much the annual increase could be, 2023 fees were lower than those charged in 2016 ( <E T="03">e.g.,</E> the contract regular hourly rate in 2016 was $40.20 and, in 2023, the rate was $39.20). A drop in export tonnage (and its associated revenue) further increased the FGIS deficit. Table 1 below illustrates the interplay between FGIS revenues, reserve balances, and fee adjustments over the previous 5 years. <GPOTABLE COLS="6" OPTS="L2,i1" CDEF="s50,12,12,12,15,r50"> <TTITLE>Table 1—FGIS Grain Inspection and Weighing Net Income and Operating Reserve for the Last 5 Fiscal Years</TTITLE> <CHED H="1">Fiscal year</CHED> <CHED H="1">Operating</CHED> <CHED H="2"> Net (millions) </CHED> <CHED H="2">Reserve balance</CHED> <CHED H="3">(millions)</CHED> <CHED H="3">(months)</CHED> <ENT>$15.5</ENT> <ENT>5</ENT> <ENT>108</ENT> <ENT>Reduced 5.</ENT> </ROW> <ROW> <ENT I="01">2020</ENT> <ENT>(5.5)</ENT> <ENT>10</ENT> <ENT>3</ENT> <ENT>110</ENT> <ENT>Reduced 2.</ENT> </ROW> <ROW> <ENT I="01">2021</ENT> <ENT>(3)</ENT> <ENT>7</ENT> <ENT>2.5</ENT> <ENT>137</ENT> <ENT>Increased 5.</ENT> </ROW> <ROW> <ENT I="01">2022</ENT> <ENT>Increased 5.</ENT> </ROW> <ROW> <ENT I="01">2023</ENT> <ENT>(3.5)</ENT> <ENT>(0.5)</ENT> <ENT>(0.3)</ENT> <ENT>97</ENT> <ENT>Increased 5.</ENT> </ROW> <TNOTE> <SU>1</SU>  The data in this column represent export grain officially inspected and/or weighed (excluding land carrier shipments to Canada and Mexico inspected or weighed by delegated States and designated agencies), and outbound grain officially inspected and/or weighed by FGIS. </TNOTE> </GPOTABLE> Since 2021, the expected revenue from user fees has been lower than FGIS anticipated. During this time, the export volume (on which FGIS assesses tonnage fees) has declined year-over-year: by 10 percent in 2022, and 22 percent in 2023. Through June 20, 2024, export volumes are 5 percent higher than the same period in 2023, but still 6 percent lower than the five-year average. Reduced export volume has also impacted FGIS's ability to reestablish a sufficient operating reserve. This decline has been, in part, impacted by natural disasters. Though export volumes vary depending on weather, prices, and global demand, export volumes had risen in consecutive years since 2018. This significant decline was not expected, and the hurricane and severe drought were major unexpected events that contributed to the sudden decline in export volume. In August 2021, Hurricane Ida struck the coast of Louisiana just prior to the high-volume harvest season. The lower Mississippi River handles over half of U.S. grain exports, and many of the major grain exporters sustained damage and could not return to normal operations for months. Grain export inspection volume declined by 10 percent in 2022, and corresponding FGIS user fee revenue dropped by $3 million in FY 2022. Then, in 2022, a severe drought struck the midwestern U.S., and parts of the Mississippi River, which handles the barge traffic that feeds the nation's largest export market, sunk to the lowest levels in recorded history, dating back 143 years. Those record-low river levels hindered barge and vessel loading operations, and export volumes declined by another 22 percent year-over-year from 2022 to 2023. FGIS experienced another $3.5 million reduction in revenue for the same period. In the two years following the hurricane and drought, FGIS revenue was down a combined $6.5 million. Agency operating costs were also significantly impacted by the COVID-19 Pandemic, as well as information technology and cost-of-living expenses increases. While the above discussed conditions individually presented significant challenges, their unprecedented, cumulative effect over a short time span limited FGIS's ability to recover its costs and contributed to the depletion of FGIS's reserves, jeopardizing its current ability to sustain and provide inspection and we ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 52k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━