INDIANA DEPARTMENT OF ENVIRONMENTAL MANAGEMENT

NONRULE POLICY DOCUMENT

Title: Civil Penalty Policy
Identification Number: ENFORCEMENT-0002-NPD
Date Originally Adopted: August 21, 1990
Dates Revised: None
Other Policies Repealed or Amended: None
Brief Description of Subject Matter: Determining a civil penalty for violations.
Citations Affected: IC 13-30-4

This nonrule policy document is intended solely as guidance as does not have the effect of law or represent formal Indiana Department of Environmental Management (IDEM) decisions or final actions. This nonrule policy document shall be used in conjunction with applicable laws. It does not replace applicable laws, and if it conflicts with these laws, the laws shall control. A revision to this nonrule policy document may be put into effect by IDEM once the revised nonrule policy document is made available for public inspection and copying. IDEM will submit revisions to the Indiana Register for publication.

I. Introduction
The Indiana Code, IC 13-30-4, provides authority for IDEM to assess civil penalties:

13-30-4-1. Civil Penalties. - Any person who violates any provision of this article, IC 13-17-1, IC 13-18-1, or IC 13-18-14, or any rule or standard adopted by one (1) of the boards or who violates any determination, permit, or order made or issued by the commissioner pursuant to this article, IC 13-17-1, or IC 13-18-14, is liable for a civil penalty not to exceed twenty-five thousand dollars ($25,000) per day of any violation, which may be recovered in a civil action commenced in any court of competent jurisdiction by the department, and a request may be made in any such action that the person be enjoined from continuing the violation.

These statutory provisions set out limits within which the IDEM may impose specific penalties for specific violations.

This document proposes to set out a Civil Penalty Policy which meets these requirements and purposes.

II. Application of Civil Penalty Policy

The Civil Penalty Policy described herein is intended to account for various factors in the assessment of an appropriate civil penalty for noncompliance with Board rules, permits or the statutes set forth in IC 13-30-4-1. The IDEM imposes civil penalties with the intent to encourage voluntary compliance, to deter future violations, and to recover state costs for enforcement.

The IDEM staff implementing this policy should complete the attached Civil Penalty Policy Worksheet for each violation. Each section of the worksheet corresponds to a section of the policy as summarized in Section III below.

In certain situations, several violations may have been committed. Separate rule violations may be grouped for the purpose of applying this policy based on guidance determined by managers within each program area. A separate worksheet should be completed for each violation (or group of violations). In general, each violation or group of violations should be considered as a separate violation for the purpose of calculating a civil penalty if they result from independent acts or compliance problems and are distinguishable from any other rule violation cited in the same complaint. The total civil penalty assessed in an enforcement case may include penalties for several violations or groups of violations, each calculated to be consistent with this policy and individual program area guidance.

III. Summary of the Civil Penalty Policy
The civil penalty calculation system consists of (1) determining a case civil penalty dependent on the severity of the violation, (2) adjusting the penalty for special factors and circumstances, and (3) considering the economic benefit of noncompliance.

A. Base Civil Penalty
Two factors are considered in determining the base civil penalty: (1) potential for harm, and (2) extent of deviation from a statutory or regulatory requirement. These two factors constitute the seriousness of a violation and have been incorporated into the penalty matrix from which the base penalty will be chosen. This matrix is set out in Section IV.

B. Adjustment Factors
After determining the appropriate penalty based on severity of the violations, the penalty may be adjusted upward or downward to reflect particular circumstances surrounding the violation. The following factors, among others, that may be considered are:

1. Actions before the violation;
2. Actions after the violation;
3. History of noncompliance;
4. Ability to pay;
5. Cost to IDEM of enforcement action; or
6. Other unique factors.

C. Economic Benefit
Where a company has derived significant savings and competitive advantage by its failure to comply with requirements, the amount of economic benefit from noncompliance gained by the violator will be calculated and added to the base and adjusted penalty.

D. Stipulated Penalties
In addition to the civil penalty, it is often times appropriate for an order to stipulate that the violator pay additional penalties if certain actions intended to remediate or correct the violation are not performed in a timely or satisfactory manner.

IV. Determination of Base Penalty

A. Potential for Harm to Human Health and the Environment
The potential for harm resulting from a violation may be determined by:

-The likelihood and degree of exposure of persons or the environment to pollution; or
-The degree of adverse effect of noncompliance on statutory or regulatory purposes or procedures for implementing the program.

The emphasis is placed on the potential harm posed by a violation rather than on whether harm actually occurred. The presence or absence of direct harm in a noncompliance situation is something over which the violator may have no control. This policy does not advocate assessing lower civil penalties when the violations do not result in actual harm.

Compliance/enforcement personnel should evaluate whether the potential for harm is major, moderate, or minor in a particular situation. Factors which should be considered in determining the potential for harm include:

• amount of pollutant,
• toxicity of pollutant,
• sensitivity of the environment,
• length of time of a violation,
• size of the violator.

The degree of potential harm represented by each category is defined as:
MAJOR

1. Violation poses a substantial likelihood of exposure or degree of exposure to pollution; and/or
2. The actions have or may have a substantial adverse effect on the statutory or regulatory purposes or procedures for implementing the program.

MODERATE
1. The violation poses a significant likelihood of exposure or degree of exposure to pollution; and/or
2. The actions have or may have a significant adverse effect on the statutory or regulatory purposes or procedures for implementing the program.

MINOR
1. The violation poses a relatively low likelihood of exposure or degree of exposure to pollution; and/or
2. The actions have or may have an adverse effect on the statutory or regulatory purposes or procedures for implementing the program.

B. Extent of Deviation from Requirements
The "extent of deviation" from the statutory or regulatory requirements relates to the degree to which the requirement is violated. For any violation, a range of potential noncompliance with the subject requirement exists. That is, a violator may be substantially in compliance with the provisions of the requirement or it may have totally disregarded the requirement (or any point in between). As with potential for harm, extent of deviation may be either major, moderate, or minor. In determining the extent of deviation, the following definitions should be used:
MAJOR
• The violator deviates from the requirements of the regulation or statute to such an extent that there is substantial noncompliance;

MODERATE
• The violator significantly deviates from the requirements of the regulation or statute or only some of the requirements are implemented;

MINOR
• The violator deviates somewhat from the regulatory or statutory requirements or most of the requirements are met.



C. Civil Penalty Assessment Matrix
Each of the above factors - potential for harm and extent of deviation from a requirement - forms one of the axes of the civil penalty assessment matrix. The matrix has nine cells, each containing a penalty range. The specific cell is chosen after determining which category (major, moderate, or minor) is appropriate for the potential for harm factor, and which category is appropriate for the extent of deviation factor. The complete matrix is illustrated below:

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Extent of Deviation from RequirementPotential for harm

	MAJOR	MODERATE	MINOR
MAJOR	$25,000	$20,000	$15,000
	to	to	to
	$20,000	$15,000	$12,500
MODEERATE	$12,500	$10,000	$7,500
	to	to	to
	$10,000	$7,500	$5,000
MINOR	$5,000	$3,500	$2,000
	to	to	to
	$3,500	$2,000	$1,000

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The highest cell (major potential for harm/major extent of deviation) is limited by the maximum statutory penalty allowance of $25,000 per day of violation.

The selection of the exact penalty amount within each cell is left to the judgement of the compliance/enforcement personnel based on the circumstances of any given case. Compliance/enforcement personnel should be careful to consider only the seriousness of the violation and extent of deviation in selection of the penalty amount within the range. The reasons the violation was committed, the intent of the violator, and other factors related to the violator are not considered at this point. Those factors will be considered at the adjustment stage.

V. Multi-Day Penalties

The Indiana Code provides IDEM with the authority to assess civil penalties of up to $25,000 per violation per day. Each day that noncompliance continues may be assessed as a separate violation. Multi-day penalties should generally be calculated in the case of continuing egregious violations.

In the case of continuing violations, the IDEM has the authority to calculate penalties based on the number of days of violation of non-compliance since the effective date of the requirement and up to the date of coming into compliance. The base civil penalty derived from the penalty matrix would then be multiplied by the number of days of violation.

VI. Penalty Adjustment Factors

A. Adjustment Factors
As mentioned in Section IV above, the seriousness of the violation is considered in determining the base civil penalty. The reasons the violation was committed, the intent of the violator, and other factors related to the violator are not considered in choosing the appropriate penalty from the matrix. However, any system for calculating penalties must have enough flexibility to make adjustments that reflect legitimate differences between similar violations. These include actions taken by the alleged violator before and after the violation, history of noncompliance, ability to pay, cost of IDEM enforcement and other unique factors.

The adjustment factors can increase, decrease, or have no effect on the penalty amount to be paid by the violator. An upward adjustment cannot result in a penalty greater than the statutory maximum of $25,000 per day per violation. Adjustment of a penalty may take place before issuing the proposed penalty in the complaint, or after assessment of the proposed penalty (as part of the settlement process). Most factors, in practice, will be considered at the settlement stage with the burden of proof for mitigation on the respondent. However, penalties may be adjusted before determining the proposed assessment if the necessary information is available. Compliance/enforcement personnel should use whatever information on the violator (and violation) is available at the time of initial assessment. Issuance of a complaint should not be delayed in order to collect additional adjustment information. The history of noncompliance factor should be used only to increase a penalty. Justification for adjustments must be included in the case file.

In general, these adjustment factors will apply only to the base civil penalty derived from the matrix, and not to the economic benefit component, if calculated. Application of the adjustment factors is cumulative, i.e., more than one factor may apply in a case.

Actions Before the Violation (Degree of or Absence of Willfulness and/or Negligence)
The degree of or absence of willfulness and/or negligence prior to and at the time of violation by the alleged violator should be considered in determining the appropriate civil penalty. The statute provides for criminal penalties for "knowing" violations. However, there are instances of culpability which do not meet the criteria for criminal action. In cases where administrative civil penalties are sought for actions of this type, the penalty may be adjusted upward for willfulness and/or negligence. Conversely, there may be instances where penalty mitigation may be justified on the lack of willfulness and/or negligence.

In assessing the degree of willfulness and/or negligence, the following factors should be considered, as well as any others deemed appropriate:

• How much control the violator had over the events constituting the violation;
• The foreseeability of the events constituting the violation;
• Whether the violator took reasonable precautions against the events constituting the violation;
• Whether the violator knew or should have known of the hazards associated with the conduct;
• Whether the violator knew of the legal requirement which was violated.

It should be noted that the last factor, lack of knowledge of the legal requirement, should never be used as a basis to reduce the penalty. To do so would encourage ignorance of the law. Rather, knowledge of the law should serve only to enhance the penalty.

Subject to the above guidance, compliance/enforcement personnel have discretion in all cases to make adjustments up or down by as much as 50% of the base civil penalty.

Actions After the Violation (Good Faith Efforts; Cooperation/Noncooperation)
Good faith can be manifested by the violator promptly reporting its noncompliance. Assuming such self-reporting is not required by law, this behavior can result in mitigation of the penalty. Prompt correction of environmental problems also can constitute good faith. Lack of good faith, on the other hand, can result in an increased penalty. The amount of the control which the violator had over how quickly the violation was remedied also is relevant in certain circumstances. Specifically, if correction of the environmental problem was delayed by factors which the violator can clearly show were not reasonably foreseeable and out of his control, the penalty may be reduced. The degree of cooperation exhibited by an alleged violator in resolving the enforcement case may also be considered as part of this adjustment.

Subject to the above guidance, compliance/enforcement personnel have discretion in all cases to make adjustments up or down as much at 50% of the base civil penalty. No downward adjustment should be made if the good faith efforts to comply primarily consist of coming into compliance.

History of Noncompliance (Upward Adjustment Only)
Where a party previously has violated the rule, statute, or order at the same time or a different site, this is usually clear evidence that the party was not deterred by the previous enforcement response.

Unless the previous violation was caused by factors entirely out of the control of the violator, this is an indication that the penalty should be adjusted upwards. Some of the factors the compliance/enforcement personnel should consider are the following:

• How similar was the previous violation?
• How recent was the previous violation?
• The number of previous violations.
• Violator's efforts to correct any previous violation(s).

A violation generally should be considered "similar" if the EPA's or State's previous enforcement response should have alerted the party to a particular type of compliance problem. A prior violation of the same or a comparable requirement would constitute a similar violation. For the purpose of this policy, a "prior violation" includes any act or omission for which a formal enforcement response has occurred, e.g., EPA or State notice of violation, warning letter, complaint, consent agreement, or final order. It also includes any act or omission for which the violator has previously been given written notification, however informal, that the agency believes a violation exists.

Subject to the above guidance, compliance/enforcement personnel have discretion to make upward adjustments in a range between 25% and 100% of the base civil penalty. The adjustment should be towards the lower end of the range if the prior violation(s) was handled in an informal manner (e.g., warning letter) and toward the upper end of the range if the prior violation(s) was handled in a formal manner (e.g., NOV, Agreed Order).

Ability to Pay (Downward Adjustment Only)
IDEM generally will not request penalties that are clearly beyond the means of the violator and therefore may consider the ability of a violator to pay a penalty. At the same time, it is important that the regulated community not see the violation of environmental requirements as a way of aiding a financially troubled business. It is unlikely, for example, that IDEM would reduce a penalty where a facility repeatedly refused to correct a serious violation. The same could be said for a violator with a long history of previous violations. That long history would demonstrate that less severe measures are ineffective.

The burden to demonstrate inability to pay rests on the respondent, as it does with any mitigating circumstances. Thus, a respondent's inability to pay usually will be considered at the settlement stage, and then only if the issue is raised by the respondent. If the respondent fails to provide sufficient information, the compliance/enforcement personnel should disregard this factor in adjusting the penalty.

When it is determined that a violator cannot afford the penalty prescribed by this policy, or that payment of all or a portion of the penalty will preclude the violator from achieving compliance or from carrying out remedial measures which IDEM believes to be more important than the deterrence effect of the penalty, the following options may be considered:

• a delayed payment schedule. Such a schedule might even be contingent upon an increase in sales or some other indicator of improved business.
• an installment payment plan with interest.
• straight penalty reductions as a last recourse.

The amount of any downward adjustment of the penalty is dependent on the individual financial facts of the case.

Costs of IDEM Enforcement Action
Pursuit of an enforcement action by IDEM involves the expenditure of varying amounts of staff time and frequently requires collection of special data or information. The base civil penalty should be adjusted to include all special costs that are incurred that are unique to a particular enforcement action. These costs would include: special sampling and analysis costs, research time for collecting other specialized information, and other costs associated with above average staff time for collecting evidence of violation or for pursuing settlement of the violation. Additional Department costs associated with work needed to pursue administrative resolution if a settlement cannot be reached should also be considered in assessing a penalty within a Unilateral Order.

Other Unique Factors
This policy allows an adjustment for unanticipated factors which may arise on a case-by-case basis. Compliance/enforcement personnel have discretion to make adjustments by as much as 50% of the base civil penalty for such reasons.

Possible circumstances that may necessitate a downward adjustment in the base penalty include:

• Compelling public concerns that would not be served taking a case to trial;
• It is highly unlikely that the IDEM will be able to recover the full civil penalty in litigation;
• Defects in evidence, loss of witnesses, revision of rules, or other complicating factors which may make negotiation desirable or reasonable.

VII. Effect of Economic Benefit of Noncompliance

The Civil Penalty Policy includes the consideration of the economic benefit of noncompliance to a violator when penalties are assessed.
An "economic benefit component" should be calculated and added to the base civil penalty when a violation results in significant economic benefit to the violator. Whenever possible, the economic benefit of noncompliance must be considered. However, for many regulatory requirements, the economic benefit of noncompliance may be difficult to quantify or is relatively insignificant. Examples would be failure to submit a timely report or failure to maintain adequate records. If the calculated economic benefit is less than $1,000, it may be disregarded in computing the total civil penalty to be imposed.

Compliance/enforcement personnel should examine the following types of economic benefit from noncompliance in determining the economic benefit component:

• Benefit from delayed costs;
• Benefit from avoided costs;
• Other benefits, e.g., profits for period of startup prior to obtaining permit.

Delayed Costs
Delayed costs are expenditures which have been deferred by the violator for failure to comply with the requirements. The violator eventually will have to spend the money in order to achieve compliance. Delayed costs are the equivalent of capital costs. The economic benefit for delayed costs consists of the amount of interest on the unspent money that reasonably could have been earned by the violator during noncompliance. The types of violations which result in savings from deferred costs include:

• Failure to install equipment needed to meet discharge or emission control standards,
• Failure to effect process changes needed to eliminate pollutants from products or waste streams,
• Testing violations, where the testing still must be done to demonstrate achieved compliance,
• Improper disposal, where proper disposal is still required to achieve compliance,
• Failure to obtain necessary permits for discharge, where such permits would probably be granted.

A "rule of thumb" for calculating the economic benefit of delayed compliance may be estimated at: 5% per year of the delayed one-time only capital cost for the period from the date the violation began until the date compliance was or is expected to be achieved. This "rule of thumb" only provides a first-cut estimate of the benefit of delayed compliance and may not be appropriate if a detailed analysis is needed to defend or support the Agency's position.

Avoided Costs
Avoided costs are expenditures which are nullified by the violator's failure to comply. These costs will never be incurred. Examples of avoided costs include:

• Cost savings for operation and maintenance of equipment that the violator failed to install,
• Failure to properly operate and maintain existing control equipment,
• Failure to employ sufficient number of adequately trained staff,
• Failure to establish or follow precautionary methods required by rules or permits,
• Improper storage, where commercial storage is reasonably available,
• Improper disposal, where redisposal or cleanup is not possible,
• Process, operational, or maintenance savings from removing pollution equipment.

For avoided costs, the economic benefit equals the cost of complying with the requirement from the time of violation to compliance, less any tax savings.

Compliance/enforcement personnel should calculate the economic benefit of the delayed, avoided and other costs for each year. A model such as U.S. EPA's Economic Benefit (BEN) model may be used in estimating economic benefit costs.

If a respondent believes that the economic benefit derived from noncompliance differs from the estimated amount, it should present information documenting its actual savings to compliance/enforcement personnel at the settlement stage.

VIII. Stipulated Penalties

An Order may specify certain actions that the respondent must take in order to remediate the environmental problem or to comply with the rule. The Order will list these actions and include a milestone date for each action. In these instances, the respondent should stipulate to pay penalties contingent upon completion of the critical actions in a timely and satisfactory manner. Stipulated penalties are separate and in addition to the assessed civil penalty.

Stipulated penalties should be assessed in amounts that will provide an incentive sufficient to meet the milestone. That is, the penalty should be calculated to recover the economic savings associated with not meeting the milestone. The penalties in many instances should escalate with time. For example, a $500/day penalty for the first month past a milestone, $1,000/day for the second month and $5,000/day for subsequent days.

IX. Settlement Discussions

If the respondent believes that it is not liable or that the circumstances of its case justify mitigation of the penalty proposed in the complaint, these issues can be discussed during the settlement conference. In many cases, the fact of a violation will be less of an issue than the amount of the penalty assessed. The burden always is on the violator to justify any mitigation of the assessed penalty. The mitigation, if any, of the penalty assessed in the complaint should follow the guidelines in the Adjustment Factors section of this policy. The agreed order should include a general statement of the reasons for mitigating the proposed penalty. Specific percentage reductions for individual factors need not be included.

Civil and stipulated penalties will be deposited into the Environmental Management Special Fund or other Funds established under the statute for this purpose.

However, all or portions of civil penalties may be offset by a project that has clearly identifiable and quantifiable environmental benefits and that is not otherwise required by local, state or federal rule or statute. Credit towards payment of civil penalties based on costs of an environmentally beneficial offset project should be less than one-to-one basis (e.g., one-half or less of the project costs should be credited toward the penalty). Many factors should be considered in determining the credit value of offset projects (e.g., relative value of environmental benefit, economic benefits toward violator of the project, other factors which may motivate violator to undertake project, etc.)

If a settlement cannot be reached, program enforcement staff should reevaluate a civil penalty using this policy prior to proposing a civil penalty as part of an IDEM Unilateral Order. The penalty should be continuously reassessed throughout the entire process for resolution of an enforcement case.

This policy is intended to be used as guidance by IDEM staff during work related to resolution of violations. A civil penalty imposed by IDEM is the decision of the commissioner and may be established at an amount which is consistent with the statute for each particular violation.

Nothing in this policy is intended to preclude IDEM from imposing a civil penalty using an alternative approach or requires IDEM to impose a civil penalty for a violation. There is no upper limit for assessing a civil penalty as part of a unilateral order or court case other than the statutory limit of $25,000 per violation per day.

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Civil Penalty Policy Worksheet

Name of Violator: ___________________________________________________

Description
of Violation: ___________________________________________________

I.	Base Civil Penalty	Degree	Civil Penalty
A. Potential for Harm	_____________
B. Extent of Deviation	_____________
C. Matrix Penalty	_____________
D. # Violation Days	_____________
E. Base Civil Penalty (I.C. x I.D.)	_____________
II.	Adjustment Factors	%Adjustment
A. Activity Before Violation	_____________
B. Activity After Violation	_____________
C. History of Noncompliance	_____________
D. Ability to Pay (-$)	_____________
E. Enforcement Costs (+$)	_____________
F. Other Factors	_____________
G. Total % Adjustment	_____________
H. Adjustment to Base Penalty	_____________
	(II.G.) x (I.E.) + (D+E)

III. Economic Benefit

Economic Benefit Costs _____________ (See Attached Sheet)

IV. Total Penalty (I. + II. + III.) _____________

Statutory Maximum Penalty ($25,000 x # Days) _____________ (Penalty in IV must be no more than statutory maximum.)

TOTAL PENALTY (from all worksheets) _____________

Stipulated Penalties: _____Yes _____No (If yes, penalty calculation and rationale attached.)

___________________________Signature                                ____________________Date

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