Veterinary Services User Fees

SUPPLEMENTARY INFORMATION:

Background

The regulations in 9 CFR part 130 (referred to below as the regulations or the user fee regulations), cover user fees to reimburse the U.S. Department of Agriculture's (USDA's) Animal and Plant Health Inspection Service (APHIS) for the costs of providing veterinary diagnostic services and import/export related services for live animals, animal products and byproducts, poultry, birds, germplasm, organisms, and vectors. These user fees are authorized by section 2509(c) of the Food, Agriculture, Conservation, and Trade Act (FACT Act) of 1990, as amended (21 U.S.C. 136a(c)), which provides that the Secretary of Agriculture may, among other things, prescribe regulations and collect fees to recover the costs of providing import/export related services for animals, animal products and byproducts, birds, germplasm, organisms, and vectors, and for veterinary diagnostics relating to the control and eradication of communicable diseases of livestock or poultry within the United States.

Since fiscal year 1992, APHIS has received no directly appropriated funds to cover the cost of certain veterinary diagnostics or to provide import/export related services for animals, animal products and byproducts, birds, germplasm, organisms, and vectors. Our ability to provide these services depends on user fees. User fees are associated with providing services for live animal, animal product, bird, and germplasm imports and exports and the user fees fund, among other things, quarantine services, the processing of import permit applications, port of entry inspections, inspections and approvals of import/export facilities and establishments, endorsements of export certificates, and services related to emergency situations that arise during the export or import process.

On August 1, 2023, APHIS published a final rule in the Federal Register that revised the regulations (88 FR 49994-50002, Docket No. APHIS-2021-0052). This rule removed tables providing the individual fees from the regulations and instead indicated that they are posted on the following website: www.aphis.usda.gov/business-services/vs-fees. It also provided that, on an annual basis, APHIS would propose changes to the fee rates through publication of a notice in the Federal Register .

This is the first such notice. Below, we provide a general overview of the factors that led most of our proposed adjusted fees to increase, then provide a summary of the cost components for our fees, as set forth in the revised regulations. In this discussion, we provide three examples to demonstrate the fee calculations. Then, we proceed table by table, sequentially, for each table set forth in the previous regulations. In each table, the first column sets forth the current fee and the second column sets forth the proposed adjusted fee.

Overview of Factors Leading to Proposed Adjusted Fee Increases

As we forecasted in the proposed rule (see footnote 1) on which the August 2023 final rule was based, most rates will change and increase. The increase in fees within the tables throughout this notice are based on several factors including: Time, inflation, increase in subject matter expert workload, a shift in the level of work complexity, and trade and the general economy. As we stated in that same proposed rule, this is primarily because the current fees were established in 2011 and 2012 using the best available 2009 data. The actual costs of providing the services have increased in the intervening decade. This increase in costs pertains not only to direct costs, but also to indirect costs associated with the services. As noted in our proposed rule, the 2011 and 2012 fees did not anticipate the high level of information technology investment needed to meet customer demand to conduct business with APHIS' Veterinary Services (VS). Additionally, the capital required to keep our facilities operational is subject to the same inflationary pressures as the general economy.

Another factor impacting fee classes is an increased level of effort and expertise associated with providing certain services. Changing trade requirements in the intervening years have resulted in additional complexities in the work in this field, such as the issuance of export health certificates. For example, many trading partners (importing countries) have historically accepted VS forms with minimal health information. These VS forms contained all health information on one page. Also, the use of forms allowed information to be presented in a standardized way, making review of certificates a more consistent process across importing countries and species. Over the past years, many countries have changed their import requirements and now require country- and species-specific health certificates for the export of live animals from the United States. These health certificates vary widely in terms of information they contain, the requirements they cite, and the type of certificate that can be used. Most are two or more pages long, and all information must be reviewed and verified for each animal or shipment being exported. This has increased the level of effort needed to complete the work. It also means that the subject matter expertise needed to complete the work is much greater now than previously as a result of these growing complexities.

Finally, as we also noted in the proposed rule, on which the August 2023 final rule was based, the Office of Management and Budget circular A-25 requires user fees to be sufficient to recover the full cost to the Federal Government of providing the service. Calculations include imputed costs; these imputed costs are outside of APHIS' control. Imputed costs are the costs incurred by the U.S. Department of Labor, U.S. Office of Personnel Management, the U.S. Department of State (State Department), and the Department of Justice in order to provide retirement, health, life insurance, worker's compensation, judgment fund, and other related benefits to the Agency and employees who provide the services covered by the fees. These costs have gone up, and, as noted above, must be factored into the fee setting.

Fee Amount Calculations

We have summarized the fee amount calculation formulas below. In addition to the formulas, we have provided three examples to demonstrate application of the formulas.

Paragraph (a) of § 130.2 of the revised regulations provides that, with limited exceptions, APHIS will calculate user fees as follows:

• APHIS will prorate the total inspection, certification, or laboratory service program personnel direct pay (on board and in hiring process including benefits) for the previous fiscal year to each fee based upon the direct time factor percentage of employee's average time to perform and complete each fee code process and then multiply by the next year's percentage of cost-of-living increase.
• APHIS will prorate total direct operating costs for the previous fiscal year based upon the direct time factor percentage of employee's average time to perform and complete each fee code process to each fee and then multiply by the anticipated percentage of inflation for the next year.
• APHIS will add estimates for Program, Agency, and Department support costs, imputed costs, and reserves by applying a percentage based on most recent information to the sum of the direct pay plus direct operating costs.
• APHIS will round calculated fees up to the next $0.25 for all fees less than $10 or round up to the nearest dollar for all fees greater than $10.

Additional discussion on APHIS' calculations of the proposed adjusted fees in this notice is below:

The prior year (2023) costs are obtained from the official financial systems of record. As part of our accounting procedures, we maintain separate accounting hierarchies to record costs that can be charged to each program ( e.g., Import Export and Veterinary Diagnostics). Costs are those things on which an organization spends its budget, such as salaries and benefits for employees, rent, equipment, travel, and so on. We are required to capture the full cost of the services that we provide.

As discussed in our August 1, 2023, final rule, Import Export and Veterinary Diagnostics projected program costs will include:

• Direct pay (including benefits). The wage labor costs (on board and in the hiring process), including benefits, for employees who specifically support and provide the required service.
• Direct operating costs. Costs attributed to travel and transportation for personnel; materials, supplies, and other necessary items; training; general office supplies; rent; facility maintenance; equipment purchase and maintenance; utilities; contractual services; and information system operations, maintenance, and development.
• Consumer price index. The measure of the average change over time in prices paid by urban consumers for a market basket of consumer goods and services, as determined by the Bureau of Labor Statistics annually.
• Cost of living. The adjusted annual rate used to determine the cost of maintaining a certain standard of living based on the economic assumptions in the Office of Management and Budget's Presidential Economic Assumptions.
• Imputed costs. Office of Workers' Compensation costs from the Department of Labor; costs of employee leave earned in a prior fiscal year and used in the current fiscal year; Office of Personnel Management and Department of State (State Department) costs to provide retirement, health, and life insurance benefits to employees; unemployment compensation costs; and Department of Justice judgment fund costs.
• Program, Agency, and Department support. Indirect or direct costs of the program, including supporting services provided to the industry.
• Reserve. Funds above expected obligations that are required to effectively manage uncertainties in demand and timing to ensure sufficient operating funds in cases of bad debt, customer insolvency, fluctuations in activity volumes, information technology development costs, cash flow, facilities capital needs, or fluctuations in activity volumes caused by unforeseen global and national events.

Reserve

As discussed in our October 3, 2022, proposed rule, and reiterated in the August 1, 2023, final rule, the reserve would be calculated each year based on the forecasted needs identified during the annual fee setting session by estimating 25 percent or 90 days of annual expenditures adding a prorated component of forecasted IT and facilities capital needs and investments, and offsetting that sum by the existing amount in the reserve.

Therefore, we estimate the reserve component costs annually as follows:

At the time each year that we calculate our proposed user fee rates, we estimate cash flow needs by estimating 25 percent or 90 days of annual expenditures, whichever is greater.

We forecast information technology and facilities capital needs and investments, including any major purchases or improvement of equipment or systems, for the next 5 fiscal years, and assign an estimated date by year at which we anticipate these costs to be actualized. Based on the expected time of cost actualization within that 5-year forecast, we will add a component of that cost to the above cash flow needs. Finally, this sum of expenses calculated will be offset by the existing amount in the reserve, and the difference to be collected is calculated for each user fee.

Reserve levels will be set at a level meant to reflect the forecasted needs, as articulated above, but are monitored and adjusted annually as needs or costs change. We intend to closely monitor the operations and operating environment including demand, costs changes, administrative policies, investment needs, and the economic environment closely and propose adjustments, as needed, in our fees annually to ensure an adequate reserve balance to ensure cash flow and capital planning needs are met.

Capital costs included in the reserve calculation are items such as facility design, development and maintenance costs, equipment, and other items as needed to ensure facilities and equipment are kept at acceptable standards for both Import Export and Veterinary Diagnostics. Plans are reviewed annually and forecasted for 5 years as costs are gathered for our annual update. Facilities, equipment, and other shared items that may house or support both user fee and non-user fee functions are shared proportionately. The cost model only includes those costs attributable to the user fee services. The total capital costs included in this update are $2,228,707.50 for Import Export and $1,350,000.00 for Veterinary Diagnostics to ensure funding is available as costs are actualized.

Information technology costs included in the reserve calculation are also projected for the following 5 years and include items such as systems modernization, particularly for trade modernization systems, billing system replacement and other user fee related operational systems enhancements or maintenance. Technology costs that may support both user fee and non-user fee functions are shared proportionately based upon the most appropriate driver of the costs. The total information technology costs included in this update is $6,461,071.38 for Import Export to ensure funding is available as costs are actualized. There are no planned information technology development or maintenance user fee expenses for Veterinary Diagnostics at this time.

The reserve percentage to be applied to recover the costs derived is expressed as a percentage (total reserve target divided by the total of prior year expenses including vacancies plus cost of living and consumer price index costs). To allocate the identified reserve costs per service, a rate of 25.69 percent and 18.32 percent was derived for Import Export and Veterinary Diagnostics respectively.

Then, to ensure full cost recovery, we identified and added an appropriate amount of imputed costs. These are costs borne by other Federal agencies (such as the U.S. Treasury and the Office of Personnel Management) in support of the user fee programs. We used percentage of full time equivalent as the basis to identify the portion of these costs to attribute to the Import Export and Veterinary Diagnostics programs.

General Formula

The Veterinary Services User Fee cost model structure is developed in Microsoft Excel using cost allocation by direct time factors to each service provided. To determine the current costs for the general formula, of Import Export and Veterinary Diagnostic services, we first calculated the actual and projected costs of the current programs using the models. Tables A through D below set out examples of the calculations for certain fees. The costs for the general formula model are shown in table A.