Notice2022-03738
Proposed 2022 Clean Water Act Financial Capability Assessment Guidance
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
February 23, 2022
Issuing agencies
Environmental Protection Agency
Abstract
When municipal discharges cause violations of the Clean Water Act (CWA), EPA sets a schedule for the municipality to address them as soon as possible. When developing schedules to implement the control measures, EPA considers factors such as public health, environmental protection, and a community's financial capability. The Proposed 2022 Financial Capability Assessment (FCA) Guidance describes the financial information and formulas the Agency intends to use to assess the financial resources a community has available to implement control measures. The Proposed 2022 FCA directly incorporates relevant portions of the 1997 Combined Sewer Overflows--Guidance for Financial Capability Assessment and Schedule Development (1997 FCA Guidance) and EPA's 2014 Financial Capability Assessment Framework for Municipal Clean Water Act Requirements (2014 FCA Framework) as Appendices. Once finalized, EPA intends for the Proposed 2022 FCA to replace the 1997 FCA Guidance to evaluate a community's capability to fund CWA control measures in both the permitting and enforcement context. Additionally, EPA intends Section IV.g of the 2022 FCA to assist states and authorized tribes in the consideration of economic impacts to public entities for supporting revisions to designated uses, water quality standard (WQS) variances, and antidegradation reviews for high quality waters. The Proposed 2022 FCA reflects EPA's consideration of public comments received in response to its September 18, 2020 Federal Register publication. The contents of this guidance document do not have the force and effect of law and are not meant to bind the public in any way. This document is intended only to provide clarity to the public regarding existing requirements under the law or agency policies.
Full Text
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<title>Federal Register, Volume 87 Issue 36 (Wednesday, February 23, 2022)</title>
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[Federal Register Volume 87, Number 36 (Wednesday, February 23, 2022)]
[Notices]
[Pages 10193-10196]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-03738]
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ENVIRONMENTAL PROTECTION AGENCY
[EPA-HQ-OW-2020-0426; FRL-8421-02-OW]
Proposed 2022 Clean Water Act Financial Capability Assessment
Guidance
AGENCY: Environmental Protection Agency (EPA).
ACTION: Notice; request for comment.
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SUMMARY: When municipal discharges cause violations of the Clean Water
Act (CWA), EPA sets a schedule for the municipality to address them as
soon as possible. When developing schedules to implement the control
measures, EPA considers factors such as public health, environmental
protection, and a community's financial capability. The Proposed 2022
Financial Capability Assessment (FCA) Guidance describes the financial
information and formulas the Agency intends to use to assess the
financial resources a community has available to implement control
measures. The Proposed 2022 FCA directly incorporates relevant portions
of the 1997 Combined Sewer Overflows--Guidance for Financial Capability
Assessment and Schedule Development (1997 FCA Guidance) and EPA's 2014
Financial Capability Assessment Framework for Municipal Clean Water Act
Requirements (2014 FCA Framework) as Appendices. Once finalized, EPA
intends for the Proposed 2022 FCA to replace the 1997 FCA Guidance to
evaluate a community's capability to fund CWA control measures in both
the permitting and enforcement context. Additionally, EPA intends
Section IV.g of the 2022 FCA to assist states and authorized tribes in
the consideration of economic impacts to public entities for supporting
revisions to designated uses, water quality standard (WQS) variances,
and antidegradation reviews for high quality waters. The Proposed 2022
FCA reflects EPA's consideration of public comments received in
response to its September 18, 2020 Federal Register publication. The
contents of this guidance document do not have the force and effect of
law and are not meant to bind the public in any way. This document is
intended only to provide clarity to the public regarding existing
requirements under the law or agency policies.
DATES: Comments must be received on or before April 25, 2022.
ADDRESSES: You may send comments, identified by Docket ID No. EPA-HQ-
OW-2020-0426, by the following method:
<bullet> Federal eRulemaking portal: <a href="https://www.regulations.gov/">https://www.regulations.gov/</a>.
Follow the online instructions for submitting comments.
Instructions: All submissions received must include the Docket ID
No. for this guidance. Comments received may be posted without change
to <a href="https://www.regulations.gov/">https://www.regulations.gov/</a>, including any personal information
provided. For detailed instructions on sending comments and additional
information on the guidance process, see the ``Request for Public
Comments'' heading of the SUPPLEMENTARY INFORMATION section of this
document. Out of an abundance of caution for members of the public and
our staff, the EPA Docket Center and Reading Room are open to the
public by appointment only to reduce the risk of transmitting COVID-19.
Our Docket Center staff also continues to provide remote customer
service via email, phone, and webform. Hand deliveries and couriers may
be received by scheduled appointment only. For further information on
EPA Docket Center services and the current status, please visit us
online at <a href="https://www.epa.gov/dockets">https://www.epa.gov/dockets</a>.
FOR FURTHER INFORMATION CONTACT: Sonia Brubaker, Office of Wastewater
Management, Water Infrastructure Division (MC4204M), Environmental
Protection Agency, 1200 Pennsylvania Ave. NW, Washington, DC 20460;
telephone number: (202) 564-0120; email address:
<a href="/cdn-cgi/l/email-protection#5735252235363c3225792438393e361732273679303821"><span class="__cf_email__" data-cfemail="8ae8f8ffe8ebe1eff8a4f9e5e4e3ebcaeffaeba4ede5fc">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Purpose of the Proposed 2022 Financial Capability Assessment
Guidance
II. Changes From the September 2020 Proposed FCA Guidance
III. Overview of the Proposed 2022 FCA Guidance
IV. Request for Public Comments
[[Page 10194]]
EPA'S Proposed 2022 Financial Capability Assessment Guidance
I. Purpose of the Proposed 2022 Financial Capability Assessment
Guidance
The Proposed 2022 FCA advances the ability of communities to more
thoroughly demonstrate the financial impacts they face and increases
the transparency of EPA's considerations as it endeavors to
consistently apply FCA methodologies across the country. The Proposed
2022 FCA allows communities to submit more consistent and comprehensive
information relevant to the entire community's capability to fund CWA
control measures and programs. Specifically, the Proposed 2022 FCA
includes templates and calculations that communities can use to submit
information regarding lowest quintile income (LQI), drinking water
costs, financial models or studies, and other relevant information. The
templates and calculations include references to publicly available
data sources that can be used in compiling this information.
The Proposed 2022 FCA sets forth two alternative approaches for
assessing a community's financial capability to carry out CWA control
measures. The first alternative is the existing 1997 FCA methodology
with expanded consideration of lowest quintile income and poverty in
the service area. The second alternative is the development of a
dynamic financial and rate model that looks at the impacts of rate
increases over time on utility customers. Additionally, EPA recommends
the application of the methodologies from Alternative 1 of the Proposed
2022 FCA to the consideration of economic impacts to public entities
when making decisions on WQS variances and antidegradation reviews. In
appropriate cases, these methodologies also inform decisions about
revisions to designated uses, subject to additional analyses.
EPA is proposing to base its FCA metrics on data that is available
in the American Community Survey (ACS). The ACS is conducted every year
by the U.S. Census Bureau to provide up-to-date information about the
social and economic conditions of communities. The annual updates
include key socio-demographic information at an appropriate geographic
scale with historic continuity. The ACS can produce data showing the
quintiles of household income (each quintile defines the household
income range for 20% of a community's households). The 2022 Proposed
FCA metrics meet the following criteria recommended by the National
Academy of Public Administration (NAPA): \1\
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\1\ NAPA issued a report titled ``Developing a New Framework for
Community Affordability of Clean Water Services'' in October 2017.
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<bullet> Readily available from publicly available data sources;
<bullet> Clearly defined and understood;
<bullet> Simple, direct, and consistent;
<bullet> Valid and reliable measures, according to conventional
research standards; and
<bullet> Applicable for comparative analyses among permittees.
The 2022 Proposed FCA strengthens both CWA protections and water
service affordability protections. For the first time, EPA may ask
municipalities negotiating compliance schedules and certain WQS
revisions to affirmatively demonstrate actions to reduce or mitigate
the financial impact of water service costs on the lowest quintile
households and to achieve compliance as expeditiously as possible.
II. Changes From the September 2020 Proposed FCA Guidance
On September 18, 2020, EPA published a Proposed 2020 Financial
Capability Assessment for Clean Water Act Obligations (Proposed 2020
FCA) in the Federal Register for notice and public comment.\2\ On
January 12, 2021, EPA posted a pre-publication version of the FCA
Guidance on the Agency's website. The pre-publication FCA was never
published in the Federal Register and was withdrawn for review and
approval in accordance with the January 20, 2021 White House
Memorandum, Regulatory Freeze Pending Review.\3\ The Proposed 2022 FCA
reflects EPA's consideration of public comments received in response to
its September 2020 Federal Register publication, as well as feedback
received through various stakeholder outreach sessions since then. The
three major changes from the Proposed 2020 FCA are outlined below.
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\2\ See 85 FR 58352 (September 18, 2020).
\3\ See <a href="https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/20/regulatory-freeze-pending-review/">https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/20/regulatory-freeze-pending-review/</a>.
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1. Consideration of Lowest Quintile Households and Poverty Indicators
EPA originally proposed to add two new FCA metrics, the Lowest
Quintile Residential Indicator (LQRI) and the Poverty Indicator (PI).
The LQRI was intended to evaluate the financial impact of CWA costs on
lowest quintile households in a community by calculating the ratio of
adjusted costs per lowest quintile household to the service area's
lowest quintile income.
While commenters were supportive of the new poverty measures, many
expressed concerns about the methodology proposed to scale the costs
for lowest quintile households and the proposed LQRI thresholds. A
number of community-specific factors--such as age of infrastructure,
housing type, and efficiency of water appliances--may impact water
usage and costs to lowest quintile households. In addition, if the
community charges residential customers on a fixed rate structure,
i.e., low-volume households receive the same bill as high-volume
households, a metric that scales down estimates of cost based on
projected water use would not be appropriate.
EPA recognizes that considering lowest quintile income is an
important measure to supplement existing FCA metrics. Median household
income (MHI) does not account for the variability of income
distribution from community to community. Even when communities have a
similar MHI, infrastructure investments could have a greater financial
impact on low-income households in certain situations, such as when
there is a wide distribution between the highest and lowest income
customers. For this reason, EPA is proposing two simplified Proposed
Options to assess the severity and prevalence of poverty in a
community's service area. EPA is seeking comment on both Proposed
Options, but only one of the Proposed Options is to be included in the
final 2022 FCA Guidance. Both Options consider the community's lowest
quintile income as benchmarked against the national lowest quintile
income, as well as five poverty indicators:
<bullet> Percentage of Population with Income Below 200% of Federal
Poverty Level;
<bullet> Percentage of Population Receiving Food Stamps/SNAP
Benefits;
<bullet> Percentage of Vacant Households;
<bullet> Trend in Household Growth; and
<bullet> Percentage of Unemployed Population 16 and Over in
Civilian Labor Force.
EPA has determined that the methodology of either Option 1 or 2
would enable EPA to distinguish between two communities with similar
MHI but different levels of poverty.
Proposed Option 1 for Comment: This Option would add a single new
metric to the assessment, the Lowest Quintile Poverty Indicator (LQPI)
to be considered with the Residential Indicator and Financial
Capability Indicator. The LQPI would combine a lowest quintile income
element with poverty indicator elements. To ensure that both the
severity and prevalence of
[[Page 10195]]
poverty are reflected in the LQPI metric, EPA would give equal weight
to the LQI (50%) and the five prevalence of poverty indicators
(weighted at 10% each for a total of 50%).
Under Proposed Option 1, Residential Indicator and Financial
Capability Indicator would be combined in a matrix to determine an FCA
Score. An Initial LQPI Score would be calculated, and adjusted based on
a Financial Alternatives Analysis, if appropriate. Finally, the FCA
Score and Final LQPI Score would be combined in the Expanded FCA Matrix
to provide the final FCA result.
Proposed Option 2 for Comment: This Option would add two new
metrics, the Lowest Quintile Income Indicator (LQII) and the Poverty
Indicator (PI) to be considered with the Residential Indicator and
Financial Capability Indicator. The LQII is the lowest quintile income
metric, and the PI is a separate metric based on the average score of
the five prevalence of poverty indicators.
Under Proposed Option 2, the Residential Indicator and Financial
Capability Indicator would be combined in a matrix to determine an FCA
Score. Then, LQII and PI would be each calculated separately. The LQII
and PI would be combined in a matrix to determine an Initial LQPI
Score. The Initial LQPI Score would be adjusted based on a Financial
Alternatives Analysis, if appropriate. Finally, the FCA Score and Final
LQPI Score would be combined in the Expanded FCA Matrix to provide the
final FCA result.
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Summary of Section IV.b of the Proposed 2022 FCA: Step 3 Shows Two
Proposed Options for Consideration of Lowest Quintile Income and Poverty
Indicators
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Step 1: Calculate Residential Indicator.
Step 2: Calculate Financial Capability Indicator.
Step 3: Calculate Initial Lowest Quintile Poverty Indicator Score--Two
Proposed Options.
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Step 3 Under Proposed Option 1 Step 3 Under Proposed Option
2
Calculate Initial Lowest Quintile Poverty First, calculate the Lowest
Indicator Score based on the six elements Quintile Income Indicator
below: Score (i.e., community's
<bullet> Lowest Quintile Income Lowest Quintile Income
benchmarked to National LQI--50% of benchmarked to the National
score. LQI).
<bullet> Percentage of Unemployed Then, average the five
Population 16 and Over in Civilian Labor poverty elements below to
Force--10% of score. determine the Poverty
<bullet> Percentage of Population Living Indicator Score:
Under 200% of Poverty Level--10% of <bullet> Percentage of
score. Unemployed Population 16
<bullet> Percentage of Population and Over in Civilian Labor
Receiving Food Stamps/SNAP Benefits--10% Force.
of score. <bullet> Percentage of
<bullet> Percentage of Vacant Households-- Population Living Under
10% of score. 200% of Poverty Level.
<bullet> Trend in Household Growth--10% of <bullet> Percentage of
score. Population Receiving Food
Stamps/SNAP Benefits.
<bullet> Percentage of
Vacant Households.
<bullet> Trend in Household
Growth.
Finally, combine the LQI and
PI in the Initial LQPI
Matrix to determine the
Initial LQPI Score.
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Step 4: Perform Financial Alternatives Analysis if Initial LQPI Score is
``medium'' impact or ``high'' impact.
Step 5: Determine Final LQPI Score.
Step 6: First, combine RI and FCI to determine Financial Capability
Matrix Score. Then, combine Financial Capability Matrix Score and Final
LQPI Score to determine Expanded Financial Capability Assessment Matrix
Score.
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2. Addition of Financial Alternatives Analysis
Where CWA compliance costs may have an impact on a community's
residents with incomes in the lowest quintile, a longer schedule may
not always be the best solution to address impacts to those residents.
In particular, if a community shows strong economic indicators in other
categories, there may be better options for the community to address
the potential financial burden faced by its lowest quintile
residents.\4\ If the intended goal is to help a community's lowest
income residents, an extended CWA schedule may in fact have the
opposite effect if it delays addressing pollution in the neighborhoods
where they live.
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\4\ The CSO Policy identifies three additional financial
considerations for negotiating implementation schedules: Grant and
loan availability; previous and current residential, commercial and
industrial sewer user fees and rate structures; and other viable
funding mechanisms and sources of financing. See 59 FR 18688, 18694
(April 19, 1994).
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Use of variable rate structures, customer assistance programs, and
applications for grants or subsidies from the Clean Water State
Revolving Fund (CWSRF) are all potential tools to enable shorter
compliance schedules by allowing increased total spending on compliance
without burdening low-income customers. Federal funding initiatives and
programs such as the Bipartisan Infrastructure Law (BIL), American
Rescue Plan Act (ARPA), State Revolving Loan Funds (SRFs), Water
Infrastructure Finance and Innovation Act (WIFIA) and others provide
billions of dollars for state, local, territorial, and tribal
governments. For instance, the Bipartisan Infrastructure Law has
provided $11.7 billion in additional funds to the CWSRF. The state
match requirement has been reduced to 10% for the first two years and
49% of the money will be provided as grants or principal forgiveness
loans to communities. These resources create a historic opportunity for
communities to address long-standing challenges. In addition, shorter
compliance schedules provide water quality and public health
improvements that deliver important social, environmental, and economic
benefits to the community. For these reasons, EPA does not intend to
provide extended CWA compliance schedules or greater consideration for
WQS decisions unless the community demonstrates that it has taken all
feasible steps to reduce or mitigate the financial impact of water
service costs on the lowest quintile households and to achieve
compliance as expeditiously as possible. In evaluating this
demonstration, EPA expects to look comprehensively at the community's
financial strategy, including, but not limited to, an analysis of the
community's approach to covering costs through rate structure and
design as well as its other initiatives to assist low-income customers
while assuring necessary and timely compliance with environmental
requirements.
[[Page 10196]]
3. Modification of Scheduling Benchmarks
The Proposed 2020 FCA provided that communities with ``medium'' FCA
impacts could qualify for compliance schedules of up to 15 years and
``high'' impact communities could receive compliance schedules up to 25
years, or as long as the useful life of the CSO controls for unusually
high impacts. For users of the Proposed 2022 FCA, it is more
transparent and consistent to define a recommended scheduling boundary
rather than retain the ``useful life'' language. It is important to
consider human health and environmental impacts as well as cost when
considering extended schedules. EPA is also mindful that prolonging
water quality impairments could exacerbate environmental justice
concerns. EPA believes that, for unusually high impacts, 25 years is a
reasonable recommended scheduling benchmark that is more consistent
with environmental protection and the Agency's past FCA practice.
EPA proposes to revise the FCA guidance to keep 15 years as the
outer recommended boundary for ``medium'' impact communities and change
the benchmark for ``high'' impact communities to 20 years, or up to 25
years for unusually high impacts, but is seeking comment on whether
these are appropriate recommended scheduling boundaries.
III. Overview of the Proposed 2022 FCA Guidance
The 2022 FCA Guidance recommends two alternative approaches for
assessing a community's financial capability to carry out CWA control
measures. The first alternative is the existing 1997 FCA methodology
with expanded consideration of poverty and impacts on the population in
the service area with incomes in the lowest quintile. EPA is retaining
the 1997 Residential Indicator (i.e., 2% of MHI) and the Financial
Capability Indicator because they measure factors required under the
Clean Water Act by the CSO Policy as part of a financial capability
assessment.\5\ These indicators also allow for consistent comparative
analysis among communities. The new critical metric, the Lowest
Quintile Poverty Indicator (LQPI), allows the Agency to assess severity
and prevalence of poverty. The second alternative is the development of
a dynamic financial and rate model that looks at the impacts of rate
increases over time on utility customers.
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\5\ The Clean Water Act requires that each permit, order, or
decree for a discharge from a municipal combined storm and sanitary
sewer conform to the CSO Policy. 33 U.S.C. 1342(q). The CSO Policy
lists the following considerations for financial capability: Median
household income; total annual wastewater and CSO control costs per
household as a percent of median household income; overall net debt
as a percent of full market property value; property tax revenues as
a percent of full market property value; property tax collection
rate; unemployment; and bond rating. See 59 FR 18688, 18694 (April
19, 1994).
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Both alternatives permit consideration of other metrics and may
support an extended implementation schedule. Nonetheless, EPA does not
anticipate establishing implementation schedules that would exceed 20
years, or up to 25 years for communities that demonstrate unusually
high impacts. The Proposed 2022 FCA can help to ensure that local
challenges related to low-income households are better reflected in CWA
implementation schedules. Consistent with previous policy, EPA plans to
consider any relevant financial or demographic information presented
that illustrates the unique or atypical circumstances faced by a
community. The Proposed 2022 FCA is available at: <a href="https://www.regulations.gov/">https://www.regulations.gov/</a>, Docket ID No. EPA-HQ-OW-2020-0426.
Additionally, EPA recommends application of the methodologies from
the Proposed 2022 FCA to the consideration of economic impacts to
public entities for supporting revisions to designated uses, WQS
variances, and antidegradation reviews for WQS. EPA intends that the
recommended expanded matrix for WQS decisions in the Proposed 2022 FCA,
once finalized, along with the electronic spreadsheet tools for the
public sector,\6\ would replace the worksheets and calculations for the
public sector sections of the 1995 Interim Economic Guidance for Water
Quality Standards. The Proposed 2022 FCA does not revise the
recommended methodology in the private sector sections of the 1995 WQS
Guidance.
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\6\ These electronic spreadsheet tools for the public sector,
available at <a href="https://www.epa.gov/wqs-tech/spreadsheet-tools-evaluate-economic-impacts-public-sector">https://www.epa.gov/wqs-tech/spreadsheet-tools-evaluate-economic-impacts-public-sector</a>, encompass the data inputs
and calculations of the 1995 Interim Economic Guidance for Water
Quality Standards.
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IV. Request for Public Comments
EPA requests public comment on the Proposed 2022 FCA. Specifically,
EPA is requesting comment on the following:
1. Should the Final 2022 FCA incorporate a single new metric--
LQPI--that considers lowest quintile income and poverty elements
together? Or should the Final 2022 FCA incorporate two new metrics
(a lowest quintile income indicator and a poverty indicator) to be
calculated separately and combined in a matrix?
2. EPA is seeking additional examples or case studies of funding
and financing considerations to add to Appendix C.
3. EPA is seeking feedback on the current proposed scheduling
benchmarks of 20 years for ``high'' Expanded FCA Matrix impacts, or
25 years for unusually high impacts. If commentors propose different
benchmarks, EPA is requesting examples to support the basis for such
benchmarks.
Dated: February 10, 2022.
Andrew D. Sawyers,
Director, Office of Wastewater Management, Office of Water.
[FR Doc. 2022-03738 Filed 2-22-22; 8:45 am]
BILLING CODE 6560-50-P
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