Drinking Water State Revolving Funds
[Federal Register: August 7, 2000 (Volume 65, Number 152)]
[Rules and Regulations]
[Page 48285-48312]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07au00-19]
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Part II
Environmental Protection Agency
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40 CFR Parts 9 and 35
Drinking Water State Revolving Funds; Interim Final Rule
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Parts 9 and 35
[FRL-6846-5]
RIN 2040-AD20
Drinking Water State Revolving Funds
AGENCY: Environmental Protection Agency.
ACTION: Interim final rule.
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SUMMARY: The national Drinking Water State Revolving Fund (DWSRF)
program, which was established by the Safe Drinking Water Act (SDWA)
Amendments of 1996, authorizes the U.S. Environmental Protection Agency
(EPA) to award capitalization grants to States, which in turn may
provide low-cost loans and other types of assistance to eligible public
water systems to finance the costs of infrastructure projects needed to
achieve or maintain compliance with SDWA requirements. States are also
authorized to set aside a portion of their capitalization grants to
fund a range of activities including source water protection, capacity
development, and operator certification.
This interim final rule codifies the DWSRF Program Final Guidelines
published in February 1997 and explains: what States must do to receive
a capitalization grant; what States may do with capitalization grant
funds intended for infrastructure projects; what States may do with
funds intended for set-aside activities; and the roles of both the
States and EPA in managing and administering the program. Each State
has considerable flexibility to determine the design of its DWSRF
program and to direct funding toward its most pressing compliance and
public health needs.
DATES: This interim final rule is effective August 7, 2000. Public
comments must be received by EPA, in writing, by October 6, 2000.
Comments will be considered and, if necessary, EPA will issue a revised
final rule changing today's interim final rule to respond to these
comments.
ADDRESSES: Send written comments on this interim final rule to the
Comment Clerk (Docket W-00-11), Water Docket (MC-4101), U.S.
Environmental Protection Agency, Ariel Rios Building, 1200 Pennsylvania
Avenue, NW, Washington, DC 20460. Comments may be hand-delivered to the
Water Docket, U.S. Environmental Protection Agency, 401 M Street, SW,
East Tower Basement, Room EB57, Washington, DC 20460. Comments may also
be submitted electronically to ow-docket@epa.gov.
Please submit an original and three copies of your comments and
enclosures (including references). The Agency requests that commentors
follow the following format: Type or print in ink, and cite, where
possible, the paragraphs in this interim final rule to which each
comment refers. Electronic comments must be submitted as a WordPerfect
5.1, 6.1, or 8.0 file or as an ASCII file avoiding the use of special
characters and forms of encryption. Electronic comments must be
identified by Docket W-00-11. Comments and data will also be accepted
on disks in the formats above. Electronic comments may be filed online
at many Federal Depository Libraries. Commentors who want EPA to
acknowledge receipt of their comments should include a self-addressed,
stamped envelope. No facsimiles (faxes) will be accepted.
The record for this interim final rule has been established under
Docket W-00-11, which includes supporting documentation, and is
available for review at the Water Docket, U.S. Environmental Protection
Agency, 401 M Street, SW, East Tower Basement, Room EB57, Washington,
DC 20460. For access to the Docket materials, please call (202) 260-
3027 between 9 a.m. and 3:30 p.m. (Eastern Time), Monday through
Friday, for an appointment and reference Docket W-00-11.
FOR FURTHER INFORMATION CONTACT: For technical inquiries, contact
Kimberley Roy, Implementation and Assistance Division, Office of Ground
Water and Drinking Water (MC-4606), U.S. Environmental Protection
Agency, Ariel Rios Building, 1200 Pennsylvania Avenue, NW, Washington,
DC 20460. The telephone number is (202) 260-2794 and the e-mail address
is roy.kimberley@epa.gov. For general information, contact the Safe
Drinking Water Hotline, toll free at (800) 426-4791. The Safe Drinking
Water Hotline is open Monday through Friday, excluding Federal
holidays, from 9:00 a.m. to 5:30 p.m. (Eastern Time). DWSRF program
information, including a copy of this interim final rule, are available
on EPA's Office of Ground Water and Drinking Water website at http://
www.epa.gov/safewater/dwsrf.html.
SUPPLEMENTARY INFORMATION: Regulated Entities: Entities listed in
Sec. 35.3500 are regulated by this rule. Regulated categories and
entities include:
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Category Regulated entities
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Government.......................... Governments/Agencies of the 50
States and the Commonwealth of
Puerto Rico.
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This table is not intended to be exhaustive, but rather provides a
guide for readers regarding entities likely to be regulated by this
action. This table lists the types of entities that EPA is now aware
could potentially be regulated by this action. Other types of entities
not listed in this table could also be regulated by this action. To
determine whether your organization is regulated by this action, you
should carefully examine the applicability criteria in Sec. 35.3500 of
this rule. If you have questions regarding the applicability of this
action to a particular entity, consult the person listed in the
preceding FOR FURTHER INFORMATION CONTACT section.
Preamble Outline
I. Statutory Authority
II. Purpose
III. DWSRF Program Background
IV. Allocation of National Appropriation for DWSRF Program
A. National Set-asides
B. Allotment to States
C. Allotment to Other Jurisdictions and the District of Columbia
V. DWSRF Program Implementation
VI. Rule Development Process
VII. Major Matters in this Rule
A. Withholdings of Funds (40 CFR 35.3515 (b)(1)(i) through
(b)(1)(iii))
B. Use of Examples of Projects Eligible for Assistance from the
Fund (40 CFR 35.3520(b))
C. Eligibility of Creation of New Public Water Systems for
Assistance from the Fund (40 CFR 35.3520(b)(2)(vi))
D. Ineligibility of Dams, Reservoirs, Water Rights, and Future
Population Growth for Assistance from the Fund (40 CFR 35.3520
(e)(1) through (e)(3) and (e)(5))
E. Inclusion of Eligible Project Reimbursement Costs Within
Loans (40 CFR 35.3525(a)(2))
F. Assistance from the Fund for Disadvantaged Communities (40
CFR 35.3525(b))
G. Program Administration: Fees Paid Directly by an Assistance
Recipient (40 CFR 35.3530(b)(2))
H. Program Administration: Fees Included as Principal in a Loan
(40 CFR 35.3530(b)(3))
I. Transfer and Cross-collateralization of Funds Between the
DWSRF and CWSRF Programs (40 CFR 35.3530 (c) through (d))
J. Authorized Set-aside Activities (40 CFR 35.3535(a)(2))
K. State Program Management Set-aside Match Requirement (40 CFR
35.3535(d)(2))
L. Reserving Set-aside Funds (40 CFR 35.3540(d))
M. State Match Requirement (40 CFR 35.3550(g))
N. Preparation of an IUP (40 CFR 35.3555(a))
O. Meaningful Public Review of the IUP (40 CFR 35.3555 b))
P. Priority System Requirements in the IUP (40 CFR
35.3555(c)(1))
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Q. Cash Draw Rules (40 CFR 35.3560 and 35.3565)
R. Audit Requirements (40 CFR 35.3570(b))
S. Application of Federal Cross-Cutting Authorities (Cross-
cutters) (40 CFR 35.3575)
T. Minority and Women's Business Enterprise (MBE/WBE)
Procurement Requirements (40 CFR 35.3575(d))
U. Environmental Review Requirements (40 CFR 35.3580)
VIII. Administrative Requirements
A. Executive Order 12866: Regulatory Planning and Reviews
B. Regulatory Flexibility Act (RFA), as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5
U.S.C. 601 et seq.
C. Paperwork Reduction Act
D. Unfunded Mandates Reform Act
E. National Technology Transfer and Advancement Act
F. Congressional Review Act
G. Executive Order 13132: Federalism
H. Executive Order 13045: Children's Health
I. Executive Order 13084: Consultation and Coordination with
Indian Tribal Governments
J. Executive Order 12898: Environmental Justice
I. Statutory Authority
This interim final rule implements section 1452 of the SDWA (42
U.S.C. 300j-12) which establishes a national DWSRF program to assist
public water systems in financing the cost of drinking water
infrastructure projects needed to achieve or maintain compliance with
SDWA requirements and to further the public health objectives of the
Act. Section 1452(g)(3) of the SDWA states that ``the Administrator
shall publish guidance and promulgate regulations as may be necessary
to carry out the provisions of this section.''
II. Purpose
This interim final rule codifies and implements requirements for
the national DWSRF program under section 1452 of the SDWA. This interim
final rule supplements EPA's general grant regulations at 40 CFR part
31 which contain administrative requirements that apply to governmental
recipients of EPA grants and subgrants. With the exception of
requirements for the participation of minority and women's business
enterprises (MBE/WBEs), EPA's general grant regulations at 40 CFR part
31 do not apply to recipients of loans and other types of assistance
from a State DWSRF program Fund. The requirements for the participation
of MBE/WBEs apply to assistance recipients under EPA's fiscal year 1993
Appropriations Act (Pub. L. 102-389). In developing this interim final
rule, EPA has attempted to identify all the major program requirements.
To that end, this rule includes items required by the SDWA and those
additional program requirements that EPA considers necessary for
effective program management.
This interim final rule applies to States (i.e., each of the 50
States and the Commonwealth of Puerto Rico) which receive
capitalization grants and are authorized to establish a Fund under
section 1452 of the SDWA. While eligible public water systems and other
assistance recipients are not regulated by this interim final rule,
they may be indirectly affected because it includes requirements that
they must meet in order to receive funding from the State for purposes
authorized under section 1452 of the SDWA. This interim final rule does
not apply to Indian Tribes and Alaska Native Villages, the District of
Columbia, and other jurisdictions (i.e., Virgin Islands, the
Commonwealth of the Northern Mariana Islands, American Samoa, and Guam)
that receive grants under section 1452 because they are not authorized
to establish a Fund. Grants under section 1452 to Indian Tribes and
Alaska Native Villages, the District of Columbia, and other
jurisdictions are administered by the EPA Regional Offices under
separate guidance.
III. DWSRF Program Background
The SDWA authorizes EPA to award capitalization grants to States
that have established DWSRF programs complying with the requirements of
section 1452. States use a portion of these grants to capitalize a
revolving Fund from which low-cost loans and other types of assistance
are provided to publicly-owned and privately-owned community water
systems and non-profit noncommunity water systems to finance the costs
of infrastructure projects. States must also contribute to the
capitalization of their DWSRF programs by depositing State monies
equaling at least 20 percent of each grant into the Fund. Loan
repayments made by assistance recipients to the States return to the
Fund and provide a continuing source of financing for projects. States
are responsible for developing a priority system that identifies how
projects will be ranked for funding and a list of projects, in priority
order, that are eligible for funding.
While it is essential to address infrastructure needs of public
water systems, Congress recognized the value of establishing programs
which will prevent drinking water problems in the future. Therefore,
States may set aside a portion of their capitalization grants to fund
activities that encourage enhanced water system management and help to
prevent contamination problems through source water protection
measures. The success of these set-aside activities will act to
safeguard the DWSRF program funds that are provided for improving
system compliance and public health protection. The SDWA also places
particular emphasis on assisting small systems serving fewer than
10,000 people and on systems serving less affluent populations by
providing greater funding flexibility for these systems.
A State may combine the financial administration of the Fund with
the financial administration of any other revolving fund established by
the State, including the Clean Water State Revolving Fund (CWSRF)
program established under Title VI of the Clean Water Act (CWA).
However, section 1452(g)(1)(B) of the SDWA requires that ``the
authority to establish assistance priorities and carry out oversight
and related activities (other than financial administration) with
respect to assistance remains with . . .'' the State primacy agency,
after consultation with other appropriate State agencies.
In view of this language and the overall role of the State primacy
agency in SDWA programs, EPA has determined that Congress intended for
the primacy agency to be the State agency which determines assistance
priorities for the DWSRF program, including priorities assigned to
projects and allocation of funds between the Fund and set-asides,
regardless of whether or not a State combines financial administration
of the Fund. Further, although the primacy agency has the authority to
carry out oversight and related activities, memoranda of understanding
or interagency agreements may be entered into with other State agencies
to manage aspects of the DWSRF program which could include reviewing
assistance applications and project bid documents, monitoring projects,
and ensuring compliance with environmental review and other program
requirements.
Beginning one year after a State establishes its Fund (i.e., one
year after the State has received its first DWSRF program
capitalization grant for projects), a State may transfer an amount
equal to 33 percent of a fiscal year's DWSRF program capitalization
grant to the CWSRF program or an equivalent amount from the CWSRF
program to the DWSRF program. This provision linking the national DWSRF
and the CWSRF programs signals Congressional intent for EPA and the
States to implement and manage the two programs in a similar manner. To
the
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maximum extent practicable, EPA intends to administer the financial
aspects of the national DWSRF program in a manner that is consistent
with the policies and procedures of the national CWSRF program. Each
State has considerable flexibility to determine the design of its
program and to direct funding toward its most pressing compliance and
public health protection needs.
IV. Allocation of National Appropriation for DWSRF Program
Section 1452(m) of the SDWA authorizes Congress to appropriate a
total of $9.6 billion for the national DWSRF program for fiscal years
1994 through 2003.
A. National Set-Asides
National set-asides are reserved from funds annually appropriated
by Congress under section 1452 of the SDWA. These national set-asides
are:
(1) Indian Tribes/Alaska Native Villages. Section 1452(i) of the
SDWA indicates that the Administrator may reserve 1.5 percent from
annually appropriated funds under section 1452 to make grants to Indian
Tribes and Alaska Native Villages. Projects for Indian Tribes and
Alaska Native Villages that have not otherwise received either grant or
DWSRF program assistance under section 1452 for a specific project are
eligible for grant financing under this provision. EPA published the
Tribal Set-aside Program Final Guidelines (EPA 816-R-98-020) in October
1998 establishing requirements for the selection of projects, project
management, and program oversight for these grants. The Tribal Set-
aside Program is administered by the EPA Regional Offices.
(2) Health effects studies. Section 1452(n) of the SDWA requires
the Administrator to reserve $10 million from annually appropriated
funds under section 1452 to conduct health effects studies on drinking
water contaminants. However, the Department of Veteran Affairs and
Housing and Urban Development, and Independent Agencies Appropriations
Acts, 1998, 1999, and 2000 (Public Law 105-65, Public Law 105-276, and
Public Law 106-74, respectively) have precluded the Administrator from
reserving these funds from annually appropriated funds under section
1452 and have instead provided funding for health effects studies from
other sources.
(3) Unregulated contaminant monitoring. Starting in fiscal year
1998, section 1452(o) of the SDWA requires the Administrator to reserve
$2 million from annually appropriated funds under section 1452 to pay
for the costs of monitoring unregulated contaminants under section
1445(a)(2)(C).
(4) Small system technical assistance. Section 1452(q) of the SDWA
indicates that the Administrator may reserve up to 2 percent of the
funds appropriated under section 1452 in fiscal years 1997 through 2003
to carry out the technical assistance for small systems provisions of
section 1442(e) to the extent that the total amount of funding
appropriated under section 1442(e) is not sufficient. The total
combined amount of funds made available under this set-aside and the
funds appropriated under section 1442(e) cannot exceed $15 million per
year.
(5) Operator training reimbursement. Section 1419(d)(1) of the SDWA
requires the Administrator to provide grants to States to reimburse the
costs of training and certifying operators of public water systems
serving 3,300 persons or fewer to meet the requirements of the Final
Guidelines for the Certification and Recertification of the Operators
of Community and Nontransient Noncommunity Public Water Systems
published in the Federal Register (64 FR 5916) on February 5, 1999.
Congress has authorized $30 million annually for fiscal years 1997
through 2003 for grants for reimbursement under section 1419(d)(3). If
the appropriation for any fiscal year is not sufficient to meet
training and certification costs, the Administrator will, prior to any
other allocation or reservation, reserve the necessary funds from those
appropriated under section 1452.
B. Allotment to States
The funds available for allotment to the States for capitalization
grants are those funds appropriated by Congress under section 1452 of
the SDWA less the national set-asides. For fiscal year 1997
appropriations only, section 1452(a)(1)(D)(i) required EPA to allot
funds according to the formula used for distributing public water
system supervision (PWSS) grants in fiscal year 1995 under section
1443. The minimum proportional share that each State received was one
percent of the funds available for allotment to all of the States. This
interim final rule does not include this requirement for determining
the State allotment formula for fiscal year 1997 appropriations.
Beginning with fiscal year 1998 appropriations, section
1452(a)(1)(D)(ii) of the SDWA requires EPA to allot funds to each State
based on the State's proportional share of total eligible needs
reported for the most recent Drinking Water Infrastructure Needs Survey
conducted under section 1452(h) of the SDWA. The minimum proportional
share that each State can receive is one percent of funds available for
allotment to all of the States.
The first Drinking Water Infrastructure Needs Survey: First Report
to Congress (EPA 812-R-97-001) was presented to Congress on January 29,
1997. Prior to finalizing this January 1997 report, EPA solicited
public comment on six options for using the results to determine the
allotment formula for fiscal year 1998, 1999, 2000, and 2001
appropriations and finalized the allotment formula in the Federal
Register (62 FR 12900) on March 18, 1997.
Subsequent Drinking Water Infrastructure Needs Surveys are due to
Congress every four years after the January 1997 report. The State
allotment formula for fiscal year 2002 appropriations and subsequent
appropriations will be adjusted to reflect the needs identified in the
most recently published report.
C. Allotment to Other Jurisdictions and the District of Columbia
Section 1452(j) of the SDWA requires the Administrator to reserve
up to 0.33 percent of the funds available for allotment to the States
to provide grants to the Virgin Islands, the Commonwealth of the
Northern Mariana Islands, American Samoa, and Guam. Section
1452(a)(1)(D) of the SDWA requires the Administrator to reserve one
percent of the funds available for allotment to the States to provide
grants to the District of Columbia. These grants are administered by
the EPA Regional Offices.
V. DWSRF Program Implementation
The DWSRF Program Interim Guidance was distributed on October 4,
1996, to allow States to begin to develop their DWSRF programs and to
allow capitalization grants to be awarded as soon as possible. The
notice of availability of the Interim Guidance was published in the
Federal Register (61 FR 55635) on October 28, 1996, and announced a
public comment period which ended on November 28, 1996. EPA
subsequently held a series of public meetings with stakeholders to
provide information about the program and to review the Interim
Guidance. Comments received during the period of public comment and
from attendees of the public meetings were critical in developing the
DWSRF Program Final Guidelines.
The DWSRF Program Final Guidelines (EPA-816-R-97-005) were
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signed by the Assistant Administrator for Water on February 28, 1997.
The Final Guidelines were made widely available to stakeholders,
including the appropriate State agencies that are recipients of the
DWSRF program capitalization grants and were published in the Federal
Register (63 FR 59844) on November 5, 1998.
Program requirements contained in the DWSRF Program Final
Guidelines are superceded by this interim final rule. However, the
Final Guidelines, the DWSRF program management manual, and other
memoranda such as periodic question and answer documents will continue
to provide guidance to States on DWSRF program implementation.
VI. Rule Development Process
This interim final rule is the result of a thorough stakeholder
consultation process. Because States have the responsibility for
managing and administering the DWSRF program, members of a State/EPA
SRF Work Group (formed to address policy implementation issues for the
national DWSRF and CWSRF programs) were given the opportunity to review
and comment on previous drafts of this rule. The State/EPA SRF Work
Group is comprised of State DWSRF managers, State CWSRF managers, and
managers of State financial agencies as well as EPA Regional and
Headquarters staff. In May 1998, comments on a draft outline of the
interim final rule were solicited and discussed at a State/EPA SRF Work
Group meeting in Washington, District of Columbia. All comments on the
draft outline were considered in developing the first draft of this
rule.
In September 1998, the first draft of this rule was sent to the
State/EPA SRF Work Group for a 30 day comment period. Work Group
members were encouraged to share the draft rule with their colleagues
from other States. EPA received comments from 27 parties, 18 of whom
were Work Group members. A number of comments that EPA considered
significant (because they addressed policy issues or because they were
submitted by more than one commentor) were discussed at a Work Group
meeting in Seattle, Washington in November 1998. After the meeting, all
comments were considered in developing the second draft of this rule.
The second draft of this rule was posted on the Internet on April
12, 1999, for a 45 day public comment period to give all interested
parties an opportunity to comment. National stakeholder organizations,
the State/EPA SRF Work Group, and State DWSRF managers were notified by
EPA when the rule was posted. EPA received comments from 32 parties
representing State government agencies, national trade organizations,
and national State government organizations. All comments were
considered in developing this interim final rule.
VII. Major Matters in This Rule
This interim final rule includes several modifications or additions
to the DWSRF Program Final Guidelines based on policies that have
evolved as the DWSRF program has been implemented. These modifications
or additions to the Final Guidelines provide additional flexibility to
States in implementing their programs. The policies released after the
DWSRF Program Final Guidelines went through rounds of comment and
revisions in memoranda, guidance documents, or were published in the
Federal Register for public comment. The requirements in these policies
are reflected in this interim final rule.
A. Withholdings of Funds (40 CFR 35.3515 (b)(1)(i) Through (b)(1)(iii))
In order to avoid a withholding of DWSRF program funds, each State
is required to: (1) Ensure that new community water systems and new
nontransient, noncommunity water systems demonstrate adequate
technical, managerial, and financial capacity; (2) develop and
implement a strategy to assist existing systems in acquiring and
maintaining capacity; and (3) adopt and implement a program for
certifying operators of community and nontransient, noncommunity water
systems.
EPA published the Draft Guidance on Implementing the Capacity
Development Provisions of the SDWA Amendments for public comment in
February 1998 for a 60 day comment period and published Final Guidance
(EPA-816-R-98-006) in July 1998. The Final Guidance established
national policy regarding the implementation of capacity development
related provisions of the SDWA including how EPA would assess State
capacity development programs for purposes of making withholding
decisions.
This interim final rule reflects the requirements in sections
1420(a) and 1452(a)(1)(G)(i) of the SDWA that EPA withhold 20 percent
of a State's allotment unless the State has the legal authority or
other means to ensure that all new community water systems and new
nontransient, noncommunity water systems commencing operations after
October 1, 1999, demonstrate technical, managerial, and financial
capacity with respect to each drinking water regulation in effect, or
likely to be in effect, on the date of commencement of operations.
EPA made the determination in the Final Guidance on Implementing
the Capacity Development Provisions that, for fiscal year 1999
allotments only, States would receive 100 percent of their allotments
if they had the necessary basis of authority (statutory authority or
other means) and were in the process of a scheduled administrative
rulemaking, or were otherwise developing implementing authorities with
a realistic schedule and expectation to have fully functional programs
as of October 1, 1999. States failing to meet this requirement at the
time of their capitalization grant awards would have 20 percent of
their allotments ``held back.'' This 20 percent holdback of fiscal year
1999 allotments would become a permanent withholding for any State that
could not demonstrate by September 30, 1999, that it would have a fully
functional program in place on October 1, 1999.
EPA also made the determination in the Final Guidance on
Implementing the Capacity Development Provisions that, for fiscal year
2000 allotments and beyond, withholdings would be based on an
assessment of the status of the State program as of October 1 of the
fiscal year for which the funds were allotted. This interim final rule
only reflects the withholding provisions in the Final Guidance for
fiscal year 2000 allotments and beyond.
This interim final rule reflects the requirements in sections
1420(c)(1) and 1452(a)(1)(G)(i) of the SDWA that EPA withhold funds
from any State unless the State is developing and implementing a
strategy to assist public water systems in acquiring and maintaining
technical, financial, and managerial capacity. The amount of a State's
allotment that will be withheld is 10 percent for fiscal year 2001, 15
percent for fiscal year 2002, and 20 percent for each subsequent fiscal
year. EPA made the determination in the Final Guidance on Implementing
the Capacity Development Provisions that withholdings would be based on
an assessment of the status of the State strategy as of October 1 of
the fiscal year for which the funds were allotted. This interim final
rule reflects the withholding provisions in the Final Guidance.
EPA published the Public Review Draft Guidelines for the
Certification and Recertification of the Operators of Community and
Nontransient Noncommunity Public Water Systems in the Federal Register
(63 FR 15064) for public comment on March 27, 1998, and the Final
Guidelines in the Federal
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Register (64 FR 5916) on February 5, 1999. This interim final rule
reflects the requirements in sections 1419(b) and 1452(a)(1)(G)(ii) of
the SDWA that, beginning on February 5, 2001 (two years after the
Operator Certification Final Guidelines were published), EPA will
withhold 20 percent of a State's allotment unless the State has adopted
and is implementing a program for certifying operators of community and
nontransient, noncommunity water systems that meets the requirements of
section 1419 of the SDWA.
This interim final rule also states that the determination for
withholdings will be based on an assessment of the status of the State
program for each fiscal year. After seeking comment, EPA will finalize
the specific process for reviewing and making withholding
determinations for operator certification program submittals and
publish it in the Federal Register. This process will be included as
part of the Operator Certification Final Guidelines in Section III
(Program Submittal Process), Subsection A (Submittal Schedule and
Withholding Process), which is currently reserved in these Final
Guidelines.
B. Use of Examples of Projects Eligible for Assistance From the Fund
(40 CFR 35.3520(b))
During development of this interim final rule, several commentors
expressed concern that the use of examples of projects that are
eligible for assistance from the Fund could be perceived as
exclusionary. Specifically, commentors were concerned that if there is
a project that falls under a particular category but does not closely
match an example, then it could be construed that the project would be
ineligible. The use of examples of eligible projects is not
exclusionary. Examples of eligible projects are used simply to clarify
the types of projects that fall under a particular project category in
order to improve the readability of this interim final rule. For
instance, although water meters are not included in this interim final
rule as a funding example under the transmission and distribution
project category, they are eligible if owned and maintained by a public
water system. Questions about the eligibility of specific types of
projects are generally handled by EPA on a case by case basis.
C. Eligibility of Creation of New Public Water Systems for Assistance
From the Fund (40 CFR 35.3520(b)(2)(vi))
Section 1452(a)(2) of the SDWA authorizes a State to provide
assistance from the Fund to a public water system, which is defined in
section 1401 of the SDWA as ``a system for the provision to the public
of water for human consumption through pipes or other constructed
conveyances, if such system has at least 15 service connections or
regularly serves at least 25 individuals * * *'' Several States
expressed concern that this provision could be interpreted to prevent
them from providing assistance to an entity (e.g., homeowners'
association, township) that has a public health problem and is not
currently a public water system, but which would become a Federally
regulated public water system upon construction of a piped system.
In response to State concerns, EPA proposed a policy on the
eligibility of providing assistance from the Fund to create a public
water system. This policy was published in the Federal Register (63 FR
32208) on June 12, 1998, for a 30 day comment period. EPA also held a
stakeholder meeting to discuss the policy. After consideration of
comments, a final policy was published in the Federal Register (63 FR
59299) on November 3, 1998. The final policy allows for assistance to
be provided for the creation of a Federally regulated community water
system to address an existing public health problem caused by unsafe
drinking water provided by individual wells or surface water sources.
This policy also applies to situations where a new regional community
water system is created by consolidating several existing systems that
have technical, financial, or managerial difficulties.
A proposed project may only receive assistance if the following
conditions are met: (1) Upon completion of the project, the entity
responsible for the loan must meet the definition of a Federal
community water system; (2) the project must be on the State's priority
list of projects eligible for funding and must address an actual public
health problem with serious risks; (3) the project must be limited in
scope to the specific geographic area affected by contamination; (4)
the project can only be sized to accommodate a reasonable amount of
growth expected over the life of the facility--growth cannot be a
substantial portion of the project; (5) the project must meet the same
technical, financial, and managerial capacity requirements that the
SDWA requires of all DWSRF program assistance recipients; and (6) the
project must be a cost-effective solution to the public health problem.
Condition (1) is specifically included in Sec. 35.3520(a)(2). The
statement in condition (2) that ``the project must be on the State's
priority list of projects eligible for funding,'' the statement in
condition (4) that ``the project can only be sized to accommodate a
reasonable amount of growth expected over the life of the facility,''
and condition (5) are not specifically included in Sec. 35.3520
(b)(2)(vi) of this interim final rule because the provisions in these
conditions are addressed in other sections of the rule
(Sec. 35.3555(c)(2), Sec. 35.3520(e)(5), and Sec. 35.3520(d)(2),
respectively) as general requirements that all projects must meet to be
eligible for assistance.
The latter part of condition (2) stating that a project ``must
address an actual public health problem with serious risks'' and
condition (6) are specifically included in Sec. 35.3520 (b)(2)(vi).
Condition (3) is clarified in Sec. 35.3520(b)(2)(vi) by indicating that
projects to address existing public health problems associated with
individual wells or surface water sources must be limited in scope to
the specific geographic area affected by contamination. Condition (3)
is also clarified in Sec. 35.3520(b)(2)(vi) by indicating that projects
that create new regional community water systems by consolidating
existing systems must be limited in scope to the service area of the
systems being consolidated. The latter part of condition (4) stating
that ``growth cannot be a substantial portion of the project'' is
specifically included in Sec. 35.3520 (b)(2)(vi) of this interim final
rule as an additional test that projects must meet to be eligible for
assistance. As noted earlier, a general requirement for an applicant to
receive DWSRF program funding is that a project must be sized only to
accommodate a reasonable amount of growth expected over the life of the
facility. However, if a substantial portion of a project to create a
new system involves funding capacity for future populations anticipated
by reasonable growth projections, then the project is not eligible. The
purpose of conditions (3) and (4) is to focus the use of funds from the
DWSRF program on solving existing public health problems rather than
financing new development.
D. Ineligibility of Dams, Reservoirs, Water Rights, and Future
Population Growth for Assistance From the Fund (40 CFR 35.3520(e)(1)
Through (e)(3) and (e)(5))
During development of the DWSRF Program Final Guidelines and this
interim final rule, many comments were received on EPA's decision to
make the construction and rehabilitation of dams and reservoirs and the
purchase of water rights ineligible for assistance from the Fund. In
making the decision to restrict
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these types of projects and activities from funding, EPA considered the
intent of Congress in passing the SDWA Amendments and, in particular,
the required criteria of section 1452(a)(2) that financial assistance
under the DWSRF program ``* * * may be used by a public water system
only for expenditures * * * of a type or category which the
Administrator has determined * * * will facilitate compliance with the
national primary drinking water regulations applicable to the system
under section 1412 or otherwise significantly further the health
protection objectives of the Act.''
EPA also considered the required criteria of section 1452(b)(3)(A)
of the SDWA to focus limited dollars on projects needed to address the
most serious risk to human health, to ensure that the nation's drinking
water is safe through compliance with the national primary drinking
water regulations, and to assist those systems with the greatest
economic need. Examples of such projects include installation of
filtration facilities to help systems meet the Surface Water Treatment
Rule, treatment technologies to meet SDWA regulated contaminants, and
consolidation of systems that fail to maintain adequate technical,
financial, and managerial capacity.
EPA believes that the foremost purpose of the construction and
rehabilitation of dams and reservoirs and the purchase of water rights
is not to improve drinking water quality, but to satisfy demand for
drinking water. Providing DWSRF program assistance for these types of
projects will not further the objectives Congress set out in the SDWA
to the same extent as the other projects eligible under this interim
final rule. The position that the construction and rehabilitation of
dams and reservoirs and the purchase of water rights are ineligible for
assistance from the Fund has been maintained in this interim final rule
in Sec. 35.3520 (e)(1) through (e)(3).
The DWSRF Program Final Guidelines and this interim final rule do
allow for specific exceptions to the restrictions on using DWSRF
program funds for the purchase of water rights and for the construction
and rehabilitation of reservoirs. The exception to the restriction on
the purchase of water rights is for those rights that are owned by a
system that is being purchased through consolidation as part of a
capacity development strategy. The exceptions to the restriction on
reservoirs are finished water reservoirs and those reservoirs that are
part of the treatment process and are on the property where the
treatment facility is located.
The DWSRF Program Final Guidelines and this interim final rule
limit the use of DWSRF program funds for costs associated with
population growth. Section 1452(g)(3) of the SDWA calls on EPA to
publish guidance and regulations as may be necessary to carry out the
program, including ``guidance to avoid the use of funds made available
under * * * [section 1452] to finance the expansion of any public water
system in anticipation of future population growth.'' In the
legislative history to the SDWA Amendments, Congress explained that EPA
is not to implement this provision in a manner that would ``* * *
preclude the use of SRF financing for facilities with the capacity
necessary to meet the objectives of the Safe Drinking Water Act for the
population to be served by the facility over its useful life.'' [H.
Conf. Rep. No. 104-741, at 89 (1996).]
It is clear that Congress did not intend for DWSRF program funds to
be used to expand drinking water facilities solely in anticipation of
future population growth. However, when read together, the language of
the SDWA and its legislative history demonstrate that Congress did
allow for the use of DWSRF program funds to accommodate a reasonable
amount of population growth, which at the time that funding is
provided, is expected to occur over the useful life of a facility. This
concept is reflected in this interim final rule in Sec. 35.3520(e)(5).
E. Inclusion of Eligible Project Reimbursement Costs Within Loans (40
CFR 35.3525(a)(2))
Several States wanted to have the flexibility to notify eligible
privately-owned and publicly-owned systems that they will receive
funding from the State, allow those systems to move ahead with
construction, and then reimburse the systems for costs incurred in the
time period between the notification and execution of the loan
agreement. This flexibility would encourage systems to move ahead with
construction in order to, for example, take advantage of seasonal
construction cycles. This flexibility was particularly needed for
privately-owned systems which cannot benefit from the refinancing
provisions under section 1452(f)(2) of the SDWA.
In response to State concerns, EPA proposed a policy on the
eligibility of reimbursement of incurred costs for approved projects.
This policy was published in the Federal Register (63 FR 32208) on June
12, 1998, for a 30 day comment period. EPA also held a stakeholder
meeting to discuss the policy. After consideration of comments, a final
policy was published in the Federal Register (64 FR 1802) on January
12, 1999. The final policy stated that a project (for a privately-owned
or publicly-owned system) that has been given approval, authorization
to proceed, or any similar action by the State prior to initiation of
construction would be eligible for reimbursement for construction costs
incurred after such State action, provided that the project meets all
of the requirements of the DWSRF program and certain criteria. Planning
and design and associated pre-project costs are eligible for
reimbursement regardless of when the costs were incurred.
A project must be on the State's fundable list, developed using a
priority system approved by EPA. However, a project on the
comprehensive list which is funded due to the bypass of a project on
the fundable list may be eligible for reimbursement of costs incurred
after the system has been informed that it will receive funding.
Projects receiving reimbursement of incurred costs are also subject to
all other DWSRF program requirements applicable to a recipient of
funds, including an environmental review which must consider the
impacts of the project based on the pre-construction site conditions.
Failure to comply with the State's environmental review process cannot
be justified on the grounds that costs have already been incurred,
environmental impacts have already been caused, or contractual
obligations have been made prior to the binding commitment. This
interim final rule reflects the provisions in the final policy.
F. Assistance From the Fund for Disadvantaged Communities (40 CFR
35.3525(b))
Section 1452(d) of the SDWA allows a State to provide additional
loan subsidies to benefit communities meeting the State's definition of
``disadvantaged'' or which the State expects to become
``disadvantaged'' as a result of the project, provided that ``* * * for
each fiscal year, the total amount of loan subsidies made by a State *
* * may not exceed 30 percent of the amount of the capitalization grant
received by the State for the year.''
This interim final rule clarifies EPA's interpretation of this
provision which is that the 30 percent allowance for loan subsidies to
disadvantaged communities refers to the amount of loan subsidies (e.g.,
loans which include principal forgiveness, negative interest rate
loans) that can be provided from funds associated with a particular
fiscal year's capitalization grant. If a State does not
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take the entire 30 percent allowance for loan subsidies associated with
a particular fiscal year's capitalization grant, it cannot reserve the
authority to take the remaining balance from future capitalization
grants. For example, if a State indicates that it will use an amount
equal to 20 percent of the amount of a capitalization grant for loan
subsidies, it cannot reserve the authority to take an additional 10
percent from a future capitalization grant. Loan subsidies in the form
of reduced interest rate loans that are at or above zero percent do not
fall under the 30 percent allowance.
A State must indicate in its Intended Use Plan (IUP) how much of
the 30 percent allowance in loan subsidies it plans to make available
to disadvantaged communities. To the maximum extent practicable, a
State must identify in its IUP the projects that will receive
disadvantaged assistance and the respective amounts. A State can then
provide loan subsidies for those projects it has identified in its IUP.
Because this approach provides a great deal of flexibility to States,
EPA believes that there should be constraints on the time period that
States can have to commit funds taken for loan subsidies. Therefore,
this interim final rule requires States to commit capitalization grant
and required State match dollars taken for loan subsidies in accordance
with the binding commitment requirements in Sec. 35.3550(e). In
addition, States must commit any other dollars (e.g., principal and
interest repayments, investment earnings) taken for loan subsidies to
projects over the same time period during which binding commitments are
made for the capitalization grant from which the allowance was taken.
G. Program Administration: Fees Paid Directly by an Assistance
Recipient (40 CFR 35.3530(b)(2))
Many States assess fees on assistance recipients to supplement
program administration and other program costs. Examples of these fees
include annual loan servicing fees, application fees, loan origination
fees, and processing fees. A State may assess fees on an assistance
recipient which are paid directly by the recipient (discussed in this
section). A State may also assess fees on an assistance recipient and
provide the recipient with the funds for the fees as principal in a
loan (discussed in the next section).
Fees assessed on assistance recipients, which include interest
earned on fees, must be deposited into the Fund or into an account
outside of the Fund. If the fees are deposited into the Fund, they are
subject to the authorized uses of the Fund. If the fees are deposited
into an account outside of the Fund, they must be used for program
administration, other purposes for which capitalization grants can be
awarded under section 1452, State match under sections 1452 (e) and
(g)(2) of the SDWA, or combined financial administration of the DWSRF
program and CWSRF program Funds where the programs are administered by
the same State agency. Allowing fees to be used for combined financial
administration enables States which administer the CWSRF and DWSRF
programs under the same State agency to combine eligible funds to pay
costs for financial oversight of the two programs and thereby ease
their administrative burden. The uses of fees assessed on assistance
recipients as provided in this interim final rule are consistent with
the program income requirements of EPA's general grant regulations at
40 CFR 31.25 and offer a great deal of flexibility to States.
A State must provide information in its IUP on the rates and uses
of fees it assesses on assistance recipients and give an accounting of
the total dollar amount of funds it is holding in fee accounts. A State
must establish in its Biennial Report that it has used the fees only
for eligible purposes and must submit information on the total dollar
amount in fee accounts as part of the detailed financial reports.
H. Program Administration: Fees Included as Principal in a Loan (40 CFR
35.3530(b)(3))
A State may assess fees on an assistance recipient and, within the
principal of a loan, provide the recipient with the funds to pay the
fees (i.e., the recipient pays the fees from the proceeds of the loan).
EPA determined that such fees are permissible if they enable the State
to make a loan which ``* * * facilitate(s) compliance with national
primary drinking water regulations * * * or otherwise significantly
further(s) the health protection objectives'' of the SDWA under section
1452(a)(2). However, this interim final rule imposes requirements and
limitations on the amount and use of fees included as principal in a
loan.
Fees included as principal in a loan, which include interest earned
on fees, must be deposited into the Fund or into an account outside of
the Fund. If the fees are deposited into the Fund, they are subject to
the authorized uses of the Fund. If the fees are deposited into an
account outside of the Fund, they must be used for program
administration or other purposes for which capitalization grants can be
awarded under section 1452. Fees included as principal in a loan cannot
be used for State match under sections 1452 (e) and (g)(2) of the SDWA
or combined financial administration of the DWSRF program and CWSRF
program Funds. EPA believes that the authorized uses for fees included
as principal in a loan offer a great deal of flexibility to States.
After discussions with the State/EPA SRF Work Group during meetings
in July 1998 and November 1998, the following three specific
limitations on fees included as principal in a loan were included in
this interim final rule: (1) Fees cannot be assessed on a disadvantaged
community which receives a loan subsidy provided from the 30 percent
allowance in Sec. 35.3525(b)(2); (2) fees cannot cause the effective
rate of a loan (which includes both interest and fees) to exceed the
market rate; and (3) fees cannot be assessed if the effective rate of a
loan could reasonably be expected to cause a system to fail to meet the
technical, financial, and managerial capability requirements under
section 1452 of the SDWA.
A State must provide information in its IUP on the rates and uses
of fees included as principal in a loan and give an accounting of the
total dollar amount of funds it is holding in fee accounts. A State
must establish in its Biennial Report that it has used the fees only
for eligible purposes and must submit information on the total dollar
amount in fee accounts as part of the detailed financial reports.
I. Transfer and Cross-Collateralization of Funds Between the DWSRF and
CWSRF Programs (40 CFR 35.3530 (c) Through (d))
Section 302 of the SDWA authorizes a State to transfer up to 33
percent of the amount of a fiscal year's DWSRF program capitalization
grant to the CWSRF program or an equivalent amount from the CWSRF
program to the DWSRF program. The Department of Veteran Affairs and
Housing and Urban Development, and Independent Agencies Appropriations
Acts, 1998 and 1999 (Pub. L. 105-65 and Pub. L. 105-276, respectively)
authorize cross-collateralization between the DWSRF and CWSRF programs.
EPA released a draft policy entitled ``Transfer/Cross-
collateralization Policy for the DWSRF and CWSRF'' in June 1998 which
specifies the provisions that States must meet in order to gain EPA
approval for incorporating transfers and cross-collateralization
provisions into their programs. This draft policy was developed with
substantial input from EPA Regional staff, the State/EPA SRF
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Work Group, and national stakeholder organizations. The final policy
will be published in the Federal Register. This interim final rule
includes the transfer and cross-collateralization requirements for both
the DWSRF program and the CWSRF program.
J. Authorized Set-Aside Activities (40 CFR 35.3535(a)(2))
As in the DWSRF Program Final Guidelines, set-aside funds may not
be used for projects or project-related costs eligible for funding from
the Fund or for those projects or project-related costs explicitly
identified as ineligible for assistance from the Fund in this interim
final rule. This requirement was included in this rule because EPA
determined that projects that are eligible for loans or other types of
assistance from the Fund should not also be eligible to receive
assistance from the set-asides in the form of grants which would not be
required to be repaid. In addition, set-aside funds should not be used
to provide assistance to projects that are explicitly ineligible for
assistance from the Fund since it has been determined that these types
of projects will not further the objectives Congress set out in the
SDWA to the same extent as the projects that are eligible in this
interim final rule.
During development of this interim final rule, several commentors
indicated that the requirement that set-aside funds may not be used for
any projects that are eligible or explicitly ineligible for assistance
from the Fund is overly restrictive because there are some eligible
project costs that States would want the flexibility to be able to
finance from the set-asides. Specifically, commentors noted that they
wanted the flexibility to provide grants to small systems for drinking
water infrastructure planning and design as part of a State's technical
assistance program, with the reasonable expectation that as a result of
a grant, a recipient would then be in a position to apply for a loan
from the Fund at a future time. In addition, commentors wanted the
flexibility to provide grants to systems for projects that would assist
in implementation of capacity development provisions.
In response to commentor concerns, this interim final rule allows
for two exceptions to the requirement that a State may not use set-
aside funds for those projects or project-related costs that are
eligible or explicitly ineligible for assistance from the Fund. These
exceptions are: (1) A State may use set-aside funds for project
planning and design costs for small systems, and (2) a State may use
set-aside funds for costs associated with restructuring a system as
part of a capacity development strategy. EPA believes that these
exceptions provide the flexibility that commentors wanted.
K. State Program Management Set-Aside Match Requirement (40 CFR
35.3535(d)(2))
Section 1452(g)(2) of the SDWA states that ``* * * each State may
use up to an additional 10 percent of the funds allotted to the State
under this section [for specified purposes] * * * if the State matches
the expenditures with at least an equal amount of State funds. At least
half of the match must be additional to the amount expended by the
State for public water supervision in fiscal year 1993.'' This interim
final rule states that ``* * * a State is authorized to use the amount
of State funds it expended on its PWSS program in fiscal year 1993
(including PWSS match) as a credit toward meeting its match
requirement. The value of this credit can be up to, but not greater
than, 50 percent of the amount of match that is required. After
determining the value of the credit that it is eligible to receive, a
State must provide the additional funds necessary to meet the remainder
of the match requirement. The source of these additional funds can be
State funds (excluding PWSS match) or documented in-kind services.''
During development of this interim final rule, commentors had
questions about how the match for the State program management set-
aside is specifically calculated. Suggestions were made to include a
specific example of how to calculate the match requirement in this
interim final rule. Rather than include a lengthy example within the
text of this rule, EPA worked to make the language describing the match
for the set-aside more clear than it had been in the DWSRF Program
Final Guidelines. The Final Guidelines, which can still serve as a
resource for States, does include a lengthy example that States may
refer to if they have any questions.
Commentors also suggested that a list of the specific types of in-
kind services that are eligible for a State to use to meet the
remainder of the match requirement should be included in this interim
final rule. EPA determined that listing all of the eligible types of
in-kind services in this interim final rule would be unnecessarily
limiting and that in-kind services are sufficiently addressed in the
DWSRF Program Final Guidelines and specific questions can be handled by
EPA on a case by case basis.
L. Reserving Set-Aside Funds (40 CFR 35.3540(d))
The DWSRF Program Final Guidelines allowed States to ``bank''
(i.e., reserve) certain set-aside funds and/or authority that it could
not use in the current year for use in future years to give States
flexibility in implementing set-aside activities. Several early
capitalization grant applications indicated that States were reserving
a high percentage of set-aside funds with the intention of using only a
small percentage in the short-term and leaving the remaining funds as
undrawn reserves. Because EPA was concerned that reserved set-aside
funds would sit idle while needed infrastructure projects went
unfunded, a proposed policy was developed to describe how set-aside
funds should be managed in the DWSRF program. The proposal was
distributed to EPA Regional staff, States, and the State/EPA SRF Work
Group in February 1998. After several rounds of review and comment, an
interim final policy entitled ``Management of Set-asides for the DWSRF
Program'' was released and became effective on March 15, 1999.
The interim final policy allowed a State to reserve set-aside funds
from a capitalization grant and expend them over a period of time,
provided that the State identifies the amount of funds reserved in the
IUP and describes the use of the funds in workplans approved by EPA.
With the exception of the local assistance and other State programs
set-aside authorized under section 1452(k) of the SDWA, a State may
also reserve the authority to take from future capitalization grant
awards those set-aside funds that it has not included in workplans. The
State must identify in its IUP the amount of authority reserved from a
capitalization grant for future use.
States can submit annual or multi-year workplans in accordance with
schedules identified by EPA Regional staff to describe how funds will
be used. The length of workplans must be less than four years, unless a
longer term is approved by EPA, and must be updated if the State
significantly changes planned activities or budgets. This interim final
rule reflects the provisions in the interim final policy.
M. State Match Requirement (40 CFR 35.3550(g))
This interim final rule reflects the requirement in section 1452(e)
of the SDWA that a State deposit into the Fund an amount from State
monies that equals at least 20 percent of each capitalization grant
payment. However,
[[Page 48294]]
this interim final rule does not include the provision in section
1452(e) which allowed States to defer their matching requirement for
fiscal year 1997 appropriations. Specifically, for grant payments made
to States from funds appropriated in fiscal year 1997, States were
authorized to defer deposit of their matching amount to no later than
September 30, 1999. This flexibility was provided to those States that
needed additional time to secure State funding for the required
matching amount. States were required to identify the source of the
matching funds in their capitalization grant applications and to agree
to provide the State match for grant payments already received from
fiscal year 1997 appropriations by September 30, 1999. In addition,
after September 30, 1999, States could not draw Federal dollars from
the EPA Automated Clearing House (ACH) for projects until the deferred
State match had been expended and the States reached proportionality
with previously drawn Federal dollars.
N. Preparation of an IUP (40 CFR 35.3555(a))
This interim final rule reflects the requirement in the DWSRF
Program Final Guidelines that a State prepare an annual IUP as long as
the Fund or set-aside accounts remain in operation. During development
of this interim final rule, several commentors objected to this
requirement because they believe that the SDWA only ties the
preparation of an IUP to the award of a capitalization grant and is
silent on what is required of States after capitalization ends. Section
1452(b)(1) of the SDWA states that ``after providing for public review
and comment, each State that has entered into a capitalization grant
agreement pursuant to this section shall annually prepare a plan that
identifies the intended uses of the amounts available to the State loan
fund of the State.'' Thus, a State that has entered into an agreement
to receive a capitalization grant under section 1452 must prepare an
IUP each year, regardless of whether it receives a capitalization grant
in that year.
In addition, section 1452(c) requires that ``the fund corpus shall
be available in perpetuity for providing financial assistance under
this section.'' This provision shows that Congress intended for State
DWSRF programs to continue after capitalization ends. The primary means
by which the public and EPA can ensure that this provision and the
intent of Congress is satisfied is through review of the IUP.
Therefore, the language in this interim final rule has not been changed
as a result of the comments received.
O. Meaningful Public Review of the IUP (40 CFR 35.3555(b))
Section 1452(b)(1) of the SDWA requires a State to provide for
public comment and review during the development of its IUP. Any State
process that solicits input from a variety of interested parties,
allows adequate time for the public to comment, and allows time for the
State to address major comments meets the SDWA's public participation
requirements for the IUP. This interim final rule reflects the
requirement in the DWSRF Program Final Guidelines that a State seek
``meaningful public review and comment'' during the development of its
IUP. During development of this interim final rule, comments were
received that EPA should define the term ``meaningful public review.''
This interim final rule does not include specific requirements as
to what constitutes ``meaningful public review'' of the IUP. Due to the
variation among States, no single approach will work under all
conditions. However, at a minimum, States should make an effort to
include interested parties, such as environmental and public health
groups, that extend beyond those on existing mailing lists when seeking
public review. In addition, as a guide, States should strive to achieve
the following objectives when seeking public review: (1) Assure that
the public has the opportunity to understand official programs and
proposed actions, and that the State fully considers the public's
concerns; (2) assure that the State does not make any significant
decision on any activity under section 1452 without consulting
interested and affected segments of the public; (3) assure that the
State action is as responsive as possible to public concerns; (4)
encourage public involvement in implementing section 1452; (5) keep the
public informed about significant issues and proposed project or
program changes as they arise; (6) foster a spirit of openness and
mutual trust between the State and the public; and (7) use all feasible
means to create opportunities for public participation, and to
stimulate and support public participation.
P. Priority System Requirements in the IUP (40 CFR 35.3555(c)(1))
This interim final rule requires that the IUP ``* * * include a
priority system for ranking individual projects for funding that
provides sufficient detail for the public and EPA to readily understand
the criteria used for ranking.'' During development of this interim
final rule, several commentors indicated that EPA should not require a
State to include its priority system in the IUP, but instead should
allow a State to provide a summary of the priority system or a
reference to where the priority system can be found. Commentors gave
the following primary reasons for not wanting to include the priority
system in the IUP: (1) Many of the priority systems are complex and are
not readily understood by the public, especially if the systems are in
regulation; (2) including the priority system within the text of the
IUP simply elongates and clutters the IUP and discourages people from
reading it; and (3) including the priority system gives the impression
to the public that the State is seeking additional comments when, in
actuality, the priority system has already undergone public review and
comment.
The language in this interim final rule has not been changed as a
result of the comments received because EPA believes that the public
should be given every opportunity to understand the basis for ranking
projects. EPA believes that the language in this rule does not preclude
a State that has a very complicated priority system which is difficult
for the public to understand from developing a detailed summary that
describes the criteria used to assess the priority for ranking
individual projects, including points. In addition, if a State does not
want to include the priority system within the text of the IUP, it can
include the system as an attachment that is distributed with the IUP.
Finally, a State can indicate in the IUP that the priority system was
developed with public comment and therefore it is not taking additional
comments, but the State is providing the information so that the public
can understand the basis for ranking of projects.
Q. Cash Draw Rules (40 CFR 35.3560 and 35.3565)
This interim final rule details the specific requirements for how
States access capitalization grant funds through the EPA ACH, which is
a Federal funds transfer system to electronically deposit funds into a
grant recipient's bank account. In Sec. 35.3560 of this interim final
rule, the general cash draw rules are provided for how States access
capitalization grant funds through the ACH, including the formula for
calculating the proportionate Federal share. In Sec. 35.3565 of this
interim final rule, the specific cash draw rules are provided for how
States access capitalization grant funds through the
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ACH for each of the authorized types of assistance from the Fund.
EPA published a Guide to Using EPA's Automated Clearing House for
the DWSRF Program (EPA-832-B98-003) in September 1998 to explain, in
more detail, the process States must use to access capitalization grant
funds through the ACH. This Guide provides easy to understand examples,
using sample capitalization grant amounts, of how to calculate the
proportionate Federal share and how to calculate the cash draw ratios
for each of the types of assistance from the Fund.
In the future, the EPA ACH will be replaced by a new Federal funds
transfer system called the Automated Standard Application for Payments
(ASAP). This change to ASAP will not have any effect on the cash draw
rules in this interim final rule.
R. Audit Requirements (40 CFR 35.3570(b))
The DWSRF Program Final Guidelines, published in February 1997
after release of the Single Audit Act Amendments of 1996, reflected
EPA's previous audit strategy which was to require annual independent
audits of the DWSRF program--a policy that was consistent with
requirements in the CWSRF program. However, provisions of the Single
Audit Act Amendments of 1996 necessitated changes to this strategy.
Specifically, since independent audits were not required by the Single
Audit Act Amendments of 1996, EPA revised its audit strategy to request
voluntary agreements from States to conduct these audits. The strategy
was based on EPA's belief that independent audits of financial
statements, beyond the Single Audit Act, are important to ensure the
financial integrity of the DWSRF program. On October 16, 1997, a
memorandum entitled ``Clean Water and Drinking Water State Revolving
Fund Financial Audit Strategy'' was released after discussions among
representatives from EPA Headquarters and Regional Offices, the Office
of the Inspector General, the Office of Management and Budget, and many
States.
Under the revised audit strategy for the DWSRF program, a State
must comply with the provisions of the Single Audit Act Amendments of
1996 and Office of Management and Budget's Circular A-133 and
Compliance Supplement. States may agree to implement, on an annual
basis, independent audits and document these agreements in the
Operating Agreements or in other parts of the capitalization grant
agreements. These independent audits are expected to be conducted
according to Generally Accepted Government Auditing Standards (GAGAS)
and provide an auditor's opinion on the DWSRF program financial
statements, reports on internal controls, and reports on compliance
with section 1452 of the Act, applicable regulations, and EPA's general
grant requirements. Based on a determination by EPA, those States that
do not conduct independent audits will be periodically audited by the
EPA Office of Inspector General.
For those States that conduct independent audits, the audit report
should be completed and submitted to EPA within one year of the end of
the fiscal year adopted by the State for the DWSRF program.
Specifically, copies of the audit report should be submitted to the EPA
DWSRF Regional Coordinator and to the Western Audit Division,
Divisional Inspector General for Audit. This interim final rule
reflects the provisions in the revised audit strategy. Exclusive of
requirements associated with the Single Audit Act, a State must include
detailed financial statements presenting the financial status of the
DWSRF program in its Biennial Report.
S. Application of Federal Cross-Cutting Authorities (Cross-Cutters) (40
CFR 35.3575)
There are a number of Federal laws, executive orders, and
government-wide policies that apply by their own terms to projects and
activities receiving Federal financial assistance, regardless of
whether the statute authorizing the assistance makes them applicable.
These Federal cross-cutting authorities (i.e., cross-cutters) include
Federal laws such as the Endangered Species Act (ESA) and the Age
Discrimination Act (ADA). A few cross-cutters apply by their own terms
only to the State as the grant recipient because the authorities
explicitly limit their application to grant recipients.
Federal cross-cutter requirements, which include environmental
review requirements, must be applied to projects and activities
receiving Federal dollars. Because each State's Fund consists of an
indistinguishable combination of Federal, State, and recycled monies,
EPA determined that Federal cross-cutter requirements must be applied
to projects identified by the State whose cumulative funding is
equivalent to the amount of the capitalization grant (i.e., equivalency
projects). The cross-cutter discussion in the DWSRF Program Final
Guidelines resulted in some confusion among States as to how cross-
cutter requirements must be applied to set-aside activities.
Due to requirements related to the deposit of funds in the DWSRF
program, almost all of the funds used to conduct set-aside activities
are Federal dollars. Therefore, Federal cross-cutter requirements must
be applied to all set-aside activities for which a State provides
assistance from capitalization grant funds deposited into set-aside
accounts. However, in the case of most set-aside activities, the cross-
cutter requirements will not be implicated because of the nature of the
activities conducted under the set-asides. For example, if a State
makes an expenditure from its set-aside accounts for the salaries of
State employees, the requirements of cross-cutters such as the ESA and
the National Historic Preservation Act (NHPA) are not implicated.
This interim final rule reflects EPA's determination that the
requirements of Federal cross-cutters must be applied to all activities
for which a State provides assistance from capitalization grant funds
deposited into set-aside accounts, to the extent that cross-cutter
requirements are applicable. The requirements of Federal cross-cutters
must also be applied to all projects for which a State provides
assistance in amounts up to the amount of the capitalization grant
deposited into the Fund. Federal anti-discrimination law requirements
apply to all programs, projects, and activities for which a State
provides assistance from the DWSRF program. Minority and women's
business enterprise (MBE/WBE) procurement requirements and
environmental review requirements (discussed in the following sections)
apply to specific types of DWSRF program actions and are treated
separately in this interim final rule.
Generally, a State that elects to impose the requirements of the
Federal cross-cutters to projects and activities in amounts that are
more than the amount of the capitalization grant may only credit this
excess to meet future cross-cutter requirements on assistance provided
from the respective accounts. For example, if a State takes $2 million
from a $10 million capitalization grant for set-aside activities and
then proceeds to apply cross-cutter requirements to set-aside
activities in an amount equal to $2.5 million (because the State has
contributed $500,000 of its own funds to these activities), the State
can only credit the excess $500,000 to meet future cross-cutter
requirements for set-aside activities. A State cannot use this excess
$500,000 to meet future cross-cutter requirements for projects funded
from the Fund.
[[Page 48296]]
This interim final rule provides clarification with respect to the
role of States in ensuring compliance with Federal cross-cutters.
Although EPA is ultimately responsible for ensuring compliance with
Federal cross-cutters, primarily through DWSRF program oversight and
approval, States review the projects and activities being funded under
the program. Therefore, this interim final rule indicates that States
are responsible for ensuring that assistance recipients comply with the
cross-cutter requirements, including initiating any required
consultations with State or Federal agencies responsible for individual
cross-cutters. For example, before a Federally-assisted action that may
affect an endangered species can begin, the Department of Interior's
Fish and Wildlife Service must be consulted pursuant to section 7 of
the ESA. States must notify EPA when it is necessary for the Agency to
resolve any issues that may arise during consultations with other
Federal agencies.
A list of the Federal cross-cutters that apply to the DWSRF program
is provided in Appendix A of the DWSRF Program Final Guidelines. This
list is subject to change.
T. Minority and Women's Business Enterprise (MBE/WBE) Procurement
Requirements (40 CFR 35.3575(d))
The requirements for the participation of MBE/WBEs apply to
assistance recipients under EPA's fiscal year 1993 Appropriations Act
(Public Law 102-389), which states that ``the Administrator of the
Environmental Protection Agency shall, hereafter, to the fullest extent
possible, ensure that at least 8 per centum of Federal funding for
prime and subcontracts in support of authorized programs, including
grants, loans and contracts * * * be made available to business
concerns * * * owned or controlled by socially and economically
disadvantaged individuals * * * [including] women.''
This interim final rule requires that a State negotiate a fair
share goal with the Regional Administrator (RA) of EPA for the
participation of MBE/WBEs. The fair share goal must be based on the
availability of MBE/WBEs in the relevant market area (i.e.,
availability of MBE/WBEs State-wide or availability of MBE/WBEs in
particular geographic areas of the State) to do the work under the
DWSRF program. Each capitalization grant agreement must describe how a
State will comply with MBE/WBE procurement requirements, including how
it will apply the fair share goal to assistance recipients to which the
requirements apply and how it will assure that assistance recipients
take the following six affirmative steps described in the general grant
regulations at 40 CFR 31.36(e): (1) Include small, minority and women's
businesses on solicitation lists; (2) assure that small, minority and
women's businesses are solicited whenever they are potential sources;
(3) divide total requirements, when economically feasible, into smaller
tasks or quantities to permit maximum participation by small, minority
and women's businesses; (4) establish delivery schedules, when the
requirements of the work permits, which will encourage participation by
small, minority and women's businesses; (5) use the services of the
Small Business Administration and the Minority Business Development
Agency of the U.S. Department of Commerce, as appropriate; and (6)
require the contractor to take the affirmative steps in (1) through (5)
if the contractor awards subagreements.
Currently, the application of MBE/WBE requirements in the DWSRF
program is described in a memorandum released on November 5, 1998,
entitled ``Application of Minority and Women-Owned Business Enterprise
Requirements in the Clean Water and Drinking Water State Revolving Fund
Programs'' and in a memorandum released on December 29, 1998, entitled
``FY 1999 MBE/WBE Terms and Conditions.'' These memoranda were released
in response to the Supreme Court decision in Adarand Constructors, Inc.
v. Pena, 515 U.S. 200 (1995), which was a case arising out of the
Department of Transportation. As a result of that decision, it became
necessary to make changes in the application of MBE/WBE procurement
requirements in all EPA grant programs.
These memoranda indicate that the fair share goal may be based
either on the availability of MBE/WBEs State-wide or on the
availability of MBE/WBEs in particular geographic areas of the State to
do the work for procurement. The fair share goal applies to all
procurement activities undertaken with assistance from the Fund or from
set-aside accounts up to the amount of the capitalization grant (i.e.,
``identified procurement activities''). The State may elect to apply
the fair share goal in place for the year in which the DWSRF program
assistance is awarded to the recipient or for the year in which the
procurement action occurs. The method a State elects to use to apply
the fair share goal must be described in the Operating Agreement or in
another part of the capitalization grant agreement. For identified
procurement activities, the State must assure that the recipients of
funding for these activities take the six affirmative steps as
described in 40 CFR 31.36(e). A State must submit a MBE/WBE Utilization
Report (EPA Form 5700-52A) to EPA within 30 days after the end of each
Federal fiscal quarter.
EPA's Office of Small and Disadvantaged Business Utilization
(OSDBU) is in the process of a rulemaking to address the use of MBE/WBE
firms in procurements under EPA financial assistance agreements and
will consolidate these requirements in a new 40 CFR part 33. This
rulemaking process will address the application of MBE/WBE requirements
in the DWSRF program, including reporting requirements. When the
OSDBU's rule is promulgated, the MBE/WBE requirements in that rule will
supercede the requirements in this interim final rule.
U. Environmental Review Requirements (40 CFR 35.3580)
As stated previously, cross-cutter requirements, which include
environmental review requirements, must be applied to all set-aside
activities for which a State provides assistance from capitalization
grant funds deposited into set-aside accounts. In Sec. 35.3580 (c), it
is indicated that a State may elect to apply the procedures at 40 CFR
part 6 and related subparts, which set out the requirements for EPA
actions which are subject to the National Environmental Policy Act
(NEPA), or apply its own ``NEPA-like'' State environmental review
process (SERP) for conducting environmental reviews, provided that
specific elements are met. In implementing environmental review
requirements applicable to the DWSRF program, EPA has taken an approach
similar to that of the CWSRF program whereby States must develop and
implement environmental provisions for projects and activities
receiving assistance.
EPA recognizes that there are types of activities conducted under
set-asides that are not likely to have a potential environmental
impact. Therefore, in this interim final rule, EPA has identified types
of set-aside activities for which a State is not required to conduct
environmental reviews because they are not likely to have a potential
environmental impact. A State does not need to include provisions in
its SERP for excluding these types of activities.
EPA's Office of Federal Activities (OFA) is currently revising 40
CFR part 6. However, this effort to revise 40 CFR part 6 is not
expected to affect the environmental review requirement provisions in
this interim final rule or
[[Page 48297]]
the SERPs that are currently approved and in effect in the States,
since State environmental review procedures, although they may be based
on 40 CFR part 6, are implemented under State statutes and authorities.
VIII. Administrative Requirements
A. Executive Order 12866: Regulatory Planning and Reviews
Under Executive Order 12866, (58 FR 51735 (October 4, 1993)) the
Agency must determine whether the regulatory action is ``significant''
and therefore subject to OMB review and the requirements of the
Executive Order. The Executive Order defines ``significant regulatory
action'' as one that is likely to result in a rule that may:
(1) Have an annual effect on the economy of $100 million or more or
adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or tribal governments or
communities;
(2) Create a serious inconsistency or otherwise interfere with an
action taken or planned by another agency;
(3) Materially alter the budgetary impact of entitlements, grants,
user fees, or loan programs or the rights and obligations of recipients
thereof; or
(4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
the Executive Order.
It has been determined that this rule is not a ``significant
regulatory action'' under the terms of Executive Order 12866 and is
therefore not subject to OMB review.
B. Regulatory Flexibility Act (RFA), As Amended by the Small Business
Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 U.S.C. 601 et
seq.
Today's interim final rule is not subject to the RFA, which
generally requires an agency to prepare a regulatory flexibility
analysis for any rule that will have a significant economic impact on a
substantial number of small entities. The RFA applies only to rules
subject to notice and comment rulemaking requirements under the
Administrative Procedure Act (APA) or any other statute. This rule is
not subject to notice and comment requirements under the APA or any
other statute. This rule pertains to grants which the APA expressly
exempts from notice and comment rulemaking requirements. 5 U.S.C.
553(a)(2). Moreover, the Safe Drinking Water Act, as amended, also does
not require EPA to issue a notice of proposed rulemaking prior to
issuing this rule.
Although this interim final rule is not subject to the RFA, EPA
nonetheless has assessed the potential of this rule to adversely impact
small entities subject to the rule. The Agency has determined that this
rule does not adversely impact small entities because small entities
are not subject to this rule.
C. Paperwork Reduction Act
The Office of Management and Budget (OMB) has approved the
information collection requirements contained in this rule under the
provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. and
has assigned OMB control number 2040-0185. OMB approved the information
collection requirements contained in the February 1997 DWSRF Program
Final Guidelines. This rule does not contain any collection of
information requirements beyond those already approved. Since this
action imposes no new or additional information collection, reporting
or record keeping requirements subject to the Paperwork Reduction Act,
44 U.S.C. 3501 et seq., no information request was submitted to the OMB
for review. OMB has approved ICR 2040-0185 for use with this rule and
authorized the inclusion of the OMB control number in 40 CFR part 9.
An Agency may not conduct or sponsor, and a person is not required
to respond to a collection of information unless it displays a
currently valid OMB control number. The OMB control numbers for EPA's
regulations are listed in 40 CFR part 9 and 48 CFR Chapter 15. EPA is
amending the table in 40 CFR part 9 of currently approved ICR control
numbers issued by OMB for various regulations to list the information
requirements contained in this rule.
D. Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public
Law 104-4, establishes requirements for Federal agencies to assess the
effects of their regulatory actions on State, local, and tribal
governments and the private sector. Under section 202 of the UMRA, EPA
generally must prepare a written statement, including a cost-benefit
analysis, for proposed and final rules with ``Federal mandates'' that
may result in expenditures to State, local, and tribal governments, in
the aggregate, or to the private sector, of $100 million or more in any
one year. Before promulgating an EPA rule for which a written statement
is needed, section 205 of the UMRA generally requires EPA to identify
and consider a reasonable number of regulatory alternatives and adopt
the least costly, most cost-effective or least burdensome alternative
that achieves the objectives of the rule. The provisions of section 205
do not apply when they are inconsistent with applicable law. Moreover,
section 205 allows EPA to adopt an alternative other than the least
costly, most cost-effective or least burdensome alternative if the
Administrator publishes with the final rule an explanation why that
alternative was not adopted. Before EPA establishes any regulatory
requirements that may significantly or uniquely affect small
governments, including tribal governments, it must have developed under
section 203 of the UMRA a small government agency plan. The plan must
provide for notifying potentially affected small governments, enabling
officials of affected small governments to have meaningful and timely
input in the development of EPA regulatory proposals with significant
Federal intergovernmental mandates, and informing, educating, and
advising small governments on compliance with the regulatory
requirements.
Today's rule contains no Federal mandates (under the regulatory
provisions of Title II of the UMRA) for State, local, or tribal
governments or the private sector. The UMRA excludes from the
definition of ``Federal intergovernmental mandate'' duties that arise
from conditions of Federal assistance. Thus, today's rule is not
subject to the requirements of sections 202 and 205 of the UMRA. EPA
has determined that this rule contains no regulatory requirements that
might significantly or uniquely affect small governments. Small
governments are not subject to this rule, therefore it will not
significantly or uniquely affect them. Many small governments will
actually benefit through receipt of assistance from the DWSRF program.
Thus, today's rule is not subject to the requirements of section 203 of
the UMRA.
E. National Technology Transfer and Advancement Act
Section 12(d) of the National Technology Transfer and Advancement
Act of 1995 (``NTTAA''), Public Law 104-113, section 12(d) (15 U.S.C.
272 note) directs EPA to use voluntary consensus standards in its
regulatory activities unless to do so would be inconsistent with
applicable law or otherwise impractical. Voluntary consensus standards
are technical standards (e.g., materials specifications, test methods,
sampling procedures, and business practices) that are developed or
adopted by voluntary consensus standards bodies. The NTTAA directs EPA
to provide Congress, through OMB, explanations when the Agency decides
[[Page 48298]]
not to use available and applicable voluntary consensus standards.
This action does not involve technical standards. Therefore, EPA
did not consider the use of any voluntary consensus standards.
F. Congressional Review Act
The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the
Small Business Regulatory Enforcement Fairness Act of 1996, generally
provides that before a rule may take effect, the agency promulgating
the rule must submit a rule report, which includes a copy of the rule,
to each House of the Congress and to the Comptroller General of the
United States. EPA will submit a report containing this rule and other
required information to the U.S. Senate, the U.S. House of
Representatives, and the Comptroller General of the United States prior
to publication of the rule in the Federal Register. A major rule cannot
take effect until 60 days after it is published in the Federal
Register. This action is not a ``major rule'' as defined by 5 U.S.C.
804(2). This rule will be effective August 7, 2000.
G. Executive Order 13132: Federalism
Executive Order 13132, entitled ``Federalism'' (64 FR 43255, August
10, 1999), requires EPA to develop an accountable process to ensure
``meaningful and timely input by State and local officials in the
development of regulatory policies that have federalism implications.''
``Policies that have federalism implications'' is defined in the
Executive Order to include regulations that have ``substantial direct
effects on the States, on the relationship between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government.''
Under Section 6 of Executive Order 13132, EPA may not issue a
regulation that has federalism implications, that imposes substantial
direct compliance costs, and that is not required by statute, unless
the Federal government provides the funds necessary to pay the direct
compliance costs incurred by State and local governments, or EPA
consults with State and local officials early in the process of
developing the proposed regulation. EPA also may not issue a regulation
that has federalism implications and that preempts State law, unless
the Agency consults with State and local officials early in the process
of developing the proposed regulation.
This interim final rule does not have federalism implications. It
will not have substantial direct effects on the States, on the
relationship between the national government and the States, or on the
distribution of power and responsibilities among the various levels of
government, as specified in Executive Order 13132. This interim final
rule mainly codifies and makes minor changes to the DWSRF Program Final
Guidelines under which the program has been operating since 1997. Apart
from the minor changes, this rule adds new provisions that increase
State flexibility, so it does not have federalism implications as that
phrase is defined for purposes of Executive Order 13132. Further,
because this is a rule that primarily conditions the use of Federal
assistance, it does not impose substantial direct compliance costs on
the States. Thus, the requirements of section 6 of the Executive Order
do not apply to this rule.
Although section 6 of Executive Order 13132 does not apply to this
rule, EPA did consult with representatives of State governments in
developing this rule. Specifically, members of a State/EPA SRF Work
Group comprised of State DWSRF managers, State CWSRF managers, and
managers of State financial agencies were given the opportunity to
review and comment on drafts of this rule. In addition, stakeholders,
including representatives from State government agencies and State
government organizations, were given an opportunity to comment on a
draft of the rule which was posted on the Internet for public comment.
A summary of the concerns raised during that consultation and EPA's
response to those concerns is provided in section VII. of this
preamble.
H. Executive Order 13045: Children's Health
Executive Order 13045, ``Protection of Children from Environmental
Health Risks and Safety Risks'' (62 FR 19885, April 23, 1997), applies
to any rule that: (1) Is determined to be ``economically significant''
as defined under Executive Order 12866, and (2) concerns an
environmental health or safety risk that EPA has reason to believe may
have a disproportionate effect on children. If the regulatory action
meets both criteria, the Agency must evaluate the environmental health
or safety effects of the planned rule on children, and explain why the
planned regulation is preferable to other potentially effective and
reasonably feasible alternatives considered by the Agency.
This interim final rule is not subject to Executive Order 13045
because it is not ``economically significant'' as defined under
Executive Order 12866. Further, it does not concern an environmental
health or safety risk that EPA has reason to believe may have a
disproportionate effect on children.
I. Executive Order 13084: Consultation and Coordination With Indian
Tribal Governments
Under Executive Order 13084, EPA may not issue a regulation that is
not required by statute, that significantly or uniquely affects the
communities of Indian tribal governments, and that imposes substantial
direct compliance costs on those communities, unless the Federal
government provides the funds necessary to pay the direct compliance
costs incurred by the tribal governments, or EPA consults with those
governments. If EPA complies by consulting, Executive Order 13084
requires EPA to provide to the Office of Management and Budget, in a
separately identified section of the preamble to the rule, a
description of the extent of EPA's prior consultation with
representatives of affected tribal governments, a summary of the nature
of their concerns, and a statement supporting the need to issue the
regulation. In addition, Executive Order 13084 requires EPA to develop
an effective process permitting elected officials and other
representatives of Indian tribal governments ``to provide meaningful
and timely input in the development of regulatory policies on matters
that significantly or uniquely affect their communities.''
Today's rule does not significantly or uniquely affect the
communities of Indian tribal governments, nor does it impose
substantial direct compliance costs on them. This rule only applies to
each of the 50 States and the Commonwealth of Puerto Rico that receive
capitalization grants and are authorized to establish a Fund under
section 1452 of the Safe Drinking Water Act, as amended, 42 U.S.C.
300j-12. Accordingly, the requirements of section 3(b) of Executive
Order 13084 do not apply to this rule.
J. Executive Order 12898: Environmental Justice
Under Executive Order 12898, ``Federal Actions to Address
Environmental Justice in Minority Populations and Low-Income
Populations,'' as well as through EPA's National Environmental Justice
Advisory Council, EPA has undertaken to incorporate environmental
justice into its policies and programs. EPA is committed to addressing
environmental justice concerns, and is assuming a leadership role in
environmental justice initiatives to enhance environmental quality for
all residents of the United States. The Agency's goals are to ensure
[[Page 48299]]
that no segment of the population, regardless of race, color, national
origin, or income, bears disproportionately high and adverse human
health and environmental effects as a result of EPA's policies,
programs, and activities, and all people live in clean and sustainable
communities.
No action from this rule will have a disproportionately high and
adverse human health and environmental effect on any segment of the
population. In addition, this rule does not impose substantial direct
compliance costs on those communities. Accordingly, the requirements of
Executive Order 12898 do not apply.
List of Subjects
40 CFR Part 9
Environmental protection, Reporting and recordkeeping requirements.
40 CFR Part 35
Environmental protection, Drinking water, Grant programs--
environmental protection, Public health, Safe drinking water act, State
revolving funds, Water supply.
Dated: July 31, 2000.
Carol M. Browner,
Administrator.
For the reasons set out in the preamble, EPA is proposing to amend
Title 40, chapter 1 of the Code of Federal Regulations to read as
follows:
PART 9--[AMENDED]
1. The authority citation for part 9 continues to read as follows:
Authority: 7 U.S.C. 135 et seq., 136-136y; 15 U.S.C. 2001, 2003,
2005, 2006, 2601-2671; 21 U.S.C. 331j, 346a, 348; 31 U.S.C. 9701; 33
U.S.C. 1251 et seq., 1311, 1313d, 1314, 1318, 1321, 1326, 1330,
1342, 1344, 1345 (d) and (e), 1361; E.O. 11735, 38 FR 21243, 3 CFR,
1971-1975 Comp. p. 973; 42 U.S.C. 241, 242b, 243, 246, 300f, 300g,
300g-1, 300g-2, 300g-3, 300g-4, 300g-5, 300g-6, 300j-1, 300j-2,
300j-3, 300j-4, 300j-9, 1857 et seq., 6901-6992k, 7401-7671q, 7542,
9601-9657, 11023, 11048.
2. In Sec. 9.1 the table is amended under the indicated heading by
adding new entries in numerical order to read as follows:
Sec. 9.1 OMB approvals under the Paperwork Reduction Act.
* * * * *
------------------------------------------------------------------------
40 CFR citation OMB control No.
------------------------------------------------------------------------
* * * *
* * *
Drinking Water State Revolving Funds..................
* * * *
* * *
35.3540 (c)........................................... 2040-0185
35.3545 (a)-(f)....................................... 2040-0185
35.3550 (a)-(p)....................................... 2040-0185
35.3555 (a)-(d)....................................... 2040-0185
35.3560 (a), (d)-(g).................................. 2040-0185
35.3565 (a)-(f)....................................... 2040-0185
35.3570 (a)-(d)....................................... 2040-0185
35.3575 (a)-(e)....................................... 2040-0185
35.3580 (a)-(h)....................................... 2040-0185
35.3585 (b)-(c)....................................... 2040-0185
* * * *
* * *
------------------------------------------------------------------------
PART 35--STATE AND LOCAL ASSISTANCE
3. Part 35 is amended by adding Subpart L to read as follows:
Subpart L--Drinking Water State Revolving Funds
Sec.
35.3500 Purpose, policy, and applicability.
35.3505 Definitions.
35.3510 Establishment of the DWSRF program.
35.3515 Allotment and withholdings of funds.
35.3520 Systems, projects, and project-related costs eligible for
assistance from the Fund.
35.3525 Authorized types of assistance from the Fund.
35.3530 Limitations on uses of the Fund.
35.3535 Authorized set-aside activities.
35.3540 Requirements for funding set-aside activities.
35.3545 Capitalization grant agreement.
35.3550 Specific capitalization grant agreement requirements.
35.3555 Intended Use Plan (IUP).
35.3560 General payment and cash draw rules.
35.3565 Specific cash draw rules for authorized types of
assistance from the Fund.
35.3570 Reports and audits.
35.3575 Application of Federal cross-cutting authorities (cross-
cutters).
35.3580 Environmental review requirements.
35.3585 Compliance assurance procedures.
Appendix A to Subpart L--Criteria for evaluating a State's proposed
NEPA-like process.
Subpart L--Drinking Water State Revolving Funds
Authority: Section 1452 of the Safe Drinking Water Act, as
amended, 42 U.S.C. 300j-12.
Sec. 35.3500 Purpose, policy, and applicability.
(a) This subpart codifies and implements requirements for the
national Drinking Water State Revolving Fund program under section 1452
of the Safe Drinking Water Act, as amended in 1996. It applies to
States (i.e., each of the 50 States and the Commonwealth of Puerto
Rico) which receive capitalization grants and are authorized to
establish a Fund under section 1452. The purpose of this subpart is to
ensure that each State's program is designed and operated in such a
manner as to further the public health protection objectives of the
Safe Drinking Water Act, promote the efficient use of all funds, and
ensure that the Fund corpus is available in perpetuity for providing
financial assistance to public water systems.
(b) This subpart supplements section 1452 of the Safe Drinking
Water Act by codifying statutory and program requirements that were
published in the Final Guidelines for the Drinking Water State
Revolving Fund program (EPA 816-R-97-005) signed by the Assistant
Administrator for Water on February 28,
[[Page 48300]]
1997, as well as in subsequent policies. This subpart also supplements
general grant regulations at 40 CFR part 31 which contain
administrative requirements that apply to governmental recipients of
Environmental Protection Agency (EPA) grants and subgrants. EPA will
not impose additional major program requirements without providing an
opportunity for affected parties to comment.
(c) EPA intends to implement the national Drinking Water State
Revolving Fund program in a manner that preserves for States a high
degree of flexibility to operate their programs in accordance with each
State's unique needs and circumstances. To the maximum extent
practicable, EPA also intends to administer the financial aspects of
the national Drinking Water State Revolving Fund program in a manner
that is consistent with the policies and procedures of the national
Clean Water State Revolving Fund program established under Title VI of
the Clean Water Act, as amended, 33 U.S.C. 1381-1387.
Sec. 35.3505 Definitions.
The following definitions apply to terms used in this subpart:
Act. The Safe Drinking Water Act (Public Law 93-523), as amended in
1996 (Public Law 104-182). 42 U.S.C. 300f et seq.
Administrator. The Administrator of the EPA or an authorized
representative.
Allotment. Amount available to a State from funds appropriated by
Congress to carry out section 1452 of the Act.
Automated Clearing House (ACH). A Federal payment mechanism that
transfers cash to recipients of Federal assistance using electronic
transfers from the Treasury through the Federal Reserve System.
Binding commitment. A legal obligation by the State to an
assistance recipient that defines the terms for assistance from the
Fund.
Capitalization grant. An award by EPA of funds to a State for
purposes of capitalizing that State's Fund and for other purposes
authorized in section 1452 of the Act.
Cash draw. The transfer of cash from the Treasury through the ACH
to the DWSRF program. Upon a State's request for a cash draw, the
Treasury will transfer funds to the DWSRF program account established
in the State's bank.
CWSRF program. Each State's clean water state revolving fund
program authorized under Title VI of the Clean Water Act, as amended,
33 U.S.C. 1381-1387.
Disadvantaged community. The entire service area of a public water
system that meets affordability criteria established by the State after
public review and comment.
Disbursement. The transfer of cash from the DWSRF program account
established in the State's bank to an assistance recipient.
DWSRF program. Each State's drinking water state revolving fund
program authorized under section 1452 of the Act, as amended, 42 U.S.C.
300j-12. This term includes the Fund and set-asides.
Fund. A revolving account into which a State deposits DWSRF program
funds (e.g., capitalization grants, State match, repayments, net bond
proceeds, interest earnings, etc.) for the purposes of providing loans
and other types of assistance for drinking water infrastructure
projects.
Intended Use Plan (IUP). A document prepared annually by a State,
after public review and comment, which identifies intended uses of all
DWSRF program funds and describes how those uses support the overall
goals of the DWSRF program.
Net bond proceeds. The funds raised from the sale of the bonds
minus issuance costs (e.g., the underwriting discount, underwriter's
legal counsel fees, bond counsel fee, and other costs incidental to the
bond issuance).
Payment. An action taken by EPA to increase the amount of funds
available for cash draw through the ACH. A payment is not a transfer of
cash to the State, but an authorization by EPA to make capitalization
grant funds available for transfer to a State after the State submits a
cash draw request.
Public water system. A system as defined in 40 CFR 141.2. A public
water system is either a ``community water system'' or a ``noncommunity
water system'' as defined in 40 CFR 141.2.
Regional Administrator (RA). The Administrator of the appropriate
Regional Office of the EPA or an authorized representative of the
Regional Administrator.
Set-asides. State and local activities identified in sections
1452(g)(2) and (k) of the Act for which a portion of a capitalization
grant may be used.
Small system. A public water system that regularly serves 10,000 or
fewer persons.
State. Each of the 50 States and the Commonwealth of Puerto Rico,
which receive capitalization grants and are authorized to establish a
Fund under section 1452 of the Act.
Sec. 35.3510 Establishment of the DWSRF program.
(a) General. To be eligible to receive a capitalization grant, a
State must establish a Fund and comply with the other requirements of
section 1452 of the Act and this subpart.
(b) Administration. Capitalization grants must be awarded to an
agency of the State that is authorized to enter into capitalization
grant agreements with EPA, accept capitalization grant awards made
under section 1452 of the Act, and otherwise manage the Fund in
accordance with the requirements and objectives of the Act and this
subpart. The State agency that is awarded the capitalization grant
(i.e., grantee) is accountable for the use of the funds provided in the
capitalization grant agreement under general grant regulations at 40
CFR part 31.
(1) The authority to establish assistance priorities and to carry
out oversight and related activities of the DWSRF program, other than
financial administration of the Fund, must reside with the State agency
having primary responsibility for administration of the State's public
water system supervision (PWSS) program (i.e., primacy) after
consultation with other appropriate State agencies.
(2) If a State is eligible to receive a capitalization grant but
does not have primacy, the Governor will determine which State agency
will have the authority to establish priorities for financial
assistance from the Fund. Evidence of the Governor's determination must
be included with the capitalization grant application.
(3) If more than one State agency participates in implementation of
the DWSRF program, the roles and responsibilities of each agency must
be described in a Memorandum of Understanding or interagency agreement.
(c) Combined financial administration. A State may combine the
financial administration of the Fund with the financial administration
of any other revolving fund established by the State if otherwise not
prohibited by State law under which the Fund was established. A State
must assure that all monies in the Fund, including capitalization
grants, State match, net bond proceeds, loan repayments, and interest
are separately accounted for and used solely for the purposes specified
in section 1452 of the Act and this subpart. Funds available from the
administration and technical assistance set-aside may not be used for
combined financial administration of any other revolving fund.
[[Page 48301]]
(d) Use of funds. (1) Assistance provided to a public water system
from the DWSRF program may be used only for expenditures that will
facilitate compliance with national primary drinking water regulations
applicable under section 1412 or otherwise significantly further the
public health protection objectives of the Act.
(2) The inability or failure of any public water system to receive
assistance from the DWSRF program, or any delay in obtaining
assistance, does not alter the obligation of the system to comply in a
timely manner with all applicable drinking water standards and
requirements of section 1452 of the Act.
Sec. 35.3515 Allotment and withholdings of funds.
(a) Allotment. (1) General. Each State will receive a minimum of
one percent of the funds available for allotment to all of the States.
(2) Allotment formula. Funds available to States from fiscal year
1998 appropriations and subsequent appropriations are allotted
according to a formula that reflects the infrastructure needs of public
water systems identified in the most recent Needs Survey submitted in
accordance with section 1452(h) of the Act.
(3) Period of availability. Funds are available for obligation to
States during the fiscal year in which they are authorized and during
the following fiscal year. The amount of any allotment not obligated to
a State by EPA at the end of this period of availability will be
reallotted to eligible States based on the formula originally used to
allot these funds, except that the Administrator may reserve up to 10
percent of any funds available for reallotment to provide additional
assistance to Indian Tribes. In order to be eligible to receive
reallotted funds, a State must have been obligated all funds it is
eligible to receive from EPA during the period of availability.
(4) Loss of primacy. The following provisions do not apply to any
State that did not have primacy as of August 6, 1996:
(i) A State may not receive a capitalization grant from allotments
that have been made if the State had primacy and subsequently loses
primacy.
(ii) For a State that loses primacy, the Administrator may reserve
funds from the State's allotment for use by EPA to administer primacy
in that State. The balance of the funds not used by EPA to administer
primacy will be reallotted to the other States.
(iii) A State will be eligible for future allotments from funds
appropriated in the next fiscal year after primacy is restored.
(b) Withholdings.--(1) General. EPA will withhold funds under each
of the following provisions:
(i) Capacity development authority. EPA will withhold 20 percent of
a State's allotment from any State that has not obtained the legal
authority or other means to ensure that all new community water systems
and new nontransient, noncommunity water systems commencing operations
after October 1, 1999, demonstrate technical, financial, and managerial
capacity with respect to each national primary drinking water
regulation in effect, or likely to be in effect, on the date of
commencement of operations. The determination of withholding will be
based on an assessment of the status of the State program as of October
1 of the fiscal year for which the funds were allotted.
(ii) Capacity development strategy. EPA will withhold funds from
any State unless the State is developing and implementing a strategy to
assist public water systems in acquiring and maintaining technical,
financial, and managerial capacity. The amount of a State's allotment
that will be withheld is 10 percent for fiscal year 2001, 15 percent
for fiscal year 2002, and 20 percent for each subsequent fiscal year.
The determination of withholding will be based on an assessment of the
status of the State strategy as of October 1 of the fiscal year for
which the funds were allotted. Decisions of a State regarding any
particular public water system as part of a capacity development
strategy are not subject to review by EPA and may not serve as a basis
for withholding funds.
(iii) Operator certification program. Beginning on February 5,
2001, EPA will withhold 20 percent of a State's allotment unless the
State has adopted and is implementing a program for certifying
operators of community and nontransient, noncommunity public water
systems that meets the requirements of section 1419 of the Act. The
determination of withholding will be based on an assessment of the
status of the State program for each fiscal year.
(2) Maximum withholdings. The maximum amount of funds that will be
withheld if a State fails to meet the requirements of both the capacity
development authority and the capacity development strategy provisions
is 20 percent of the allotment in any fiscal year. The maximum amount
of funds that will be withheld if a State fails to meet the
requirements of the operator certification program provision and either
the capacity development authority provision or the capacity
development strategy provision is 40 percent of the allotment in any
fiscal year.
(3) Reallotment of withheld funds. The Administrator will reallot
withheld funds to eligible States based on the formula originally used
to allot these funds. In order to be eligible to receive reallotted
funds under the withholding provisions, a State must have been
obligated all funds it is eligible to receive from EPA during the
period of availability. A State that has funds withheld under any one
of the withholding provisions in paragraphs (b)(1)(i) through
(b)(1)(iii) of this section is not eligible to receive reallotted funds
made available by that provision.
(4) Termination of withholdings. A withholding will cease to apply
to funds appropriated in the next fiscal year after a State complies
with the specific provision under which funds were withheld.
Sec. 35.3520 Systems, projects, and project-related costs eligible for
assistance from the Fund.
(a) Eligible systems. Assistance from the Fund may only be provided
to:
(1) Privately-owned and publicly-owned community water systems and
non-profit noncommunity water systems.
(2) Projects that will result in the creation of a community water
system in accordance with paragraph (b)(2)(vi) of this section.
(3) Systems referred to in section 1401(4)(B) of the Act for the
purposes of point of entry or central treatment under section
1401(4)(B)(i)(III).
(b) Eligible projects.--(1) General. Projects that address present
or prevent future violations of health-based drinking water standards
are eligible for assistance. These include projects needed to maintain
compliance with existing national primary drinking water regulations
for contaminants with acute and chronic health effects. Projects to
replace aging infrastructure are eligible for assistance if they are
needed to maintain compliance or further the public health protection
objectives of the Act.
(2) Only the following project categories are eligible for
assistance from the Fund:
(i) Treatment. Examples of projects include installation or upgrade
of facilities to improve the quality of drinking water to comply with
primary or secondary standards and point of entry or central treatment
under section 1401(4)(B)(i)(III) of the Act.
(ii) Transmission and distribution. Examples of projects include
[[Page 48302]]
installation or replacement of transmission and distribution pipes to
improve water pressure to safe levels or to prevent contamination
caused by leaks or breaks in the pipes.
(iii) Source. Examples of projects include rehabilitation of wells
or development of eligible sources to replace contaminated sources.
(iv) Storage. Examples of projects include installation or upgrade
of eligible storage facilities, including finished water reservoirs, to
prevent microbiological contaminants from entering a public water
system.
(v) Consolidation. Eligible projects are those needed to
consolidate water supplies where, for example, a supply has become
contaminated or a system is unable to maintain compliance for
technical, financial, or managerial reasons.
(vi) Creation of new systems. Eligible projects are those that,
upon completion, will create a community water system to address
existing public health problems with serious risks caused by unsafe
drinking water provided by individual wells or surface water sources.
Eligible projects are also those that create a new regional community
water system by consolidating existing systems that have technical,
financial, or managerial difficulties. Projects to address existing
public health problems associated with individual wells or surface
water sources must be limited in scope to the specific geographic area
affected by contamination. Projects that create new regional community
water systems by consolidating existing systems must be limited in
scope to the service area of the systems being consolidated. A project
must be a cost-effective solution to addressing the problem. A State
must ensure that the applicant has given sufficient public notice to
potentially affected parties and has considered alternative solutions
to addressing the problem. Capacity to serve future population growth
cannot be a substantial portion of a project.
(c) Eligible project-related costs. In addition to costs needed for
the project itself, the following project-related costs are eligible
for assistance from the Fund:
(1) Costs for planning and design and associated pre-project costs.
A State that makes a loan for only planning and design is not required
to provide assistance for completion of the project.
(2) Costs for the acquisition of land only if needed for the
purposes of locating eligible project components. The land must be
acquired from a willing seller.
(3) Costs for restructuring systems that are in significant
noncompliance with any national primary drinking water regulation or
variance or that lack the technical, financial, and managerial
capability to ensure compliance with the requirements of the Act,
unless the systems are ineligible under paragraph (d)(2) or (d)(3) of
this section.
(d) Ineligible systems. Assistance from the Fund may not be
provided to:
(1) Federally-owned public water systems and for-profit
noncommunity water systems.
(2) Systems that lack the technical, financial, and managerial
capability to ensure compliance with the requirements of the Act,
unless the assistance will ensure compliance and the owners or
operators of the systems agree to undertake feasible and appropriate
changes in operations to ensure compliance over the long-term.
(3) Systems that are in significant noncompliance with any national
primary drinking water regulation or variance, unless:
(i) The purpose of the assistance is to address the cause of the
significant noncompliance and will ensure that the systems return to
compliance; or
(ii) The purpose of the assistance is unrelated to the cause of the
significant noncompliance and the systems are on enforcement schedules
(for maximum contaminant level and treatment technique violations) or
have compliance plans (for monitoring and reporting violations) to
return to compliance.
(e) Ineligible projects. The following projects are ineligible for
assistance from the Fund:
(1) Dams or rehabilitation of dams.
(2) Water rights, except if the water rights are owned by a system
that is being purchased through consolidation as part of a capacity
development strategy.
(3) Reservoirs or rehabilitation of reservoirs, except for finished
water reservoirs and those reservoirs that are part of the treatment
process and are on the property where the treatment facility is
located.
(4) Projects needed primarily for fire protection.
(5) Projects needed primarily to serve future population growth.
Projects must be sized only to accommodate a reasonable amount of
population growth expected to occur over the useful life of the
facility.
(6) Projects that have received assistance from the national set-
aside for Indian Tribes and Alaska Native Villages under section
1452(i) of the Act.
(f) Ineligible project-related costs. The following project-related
costs are ineligible for assistance from the Fund:
(1) Laboratory fees for routine compliance monitoring.
(2) Operation and maintenance expenses.
Sec. 35.3525 Authorized types of assistance from the Fund.
A State may only provide the following types of assistance from the
Fund:
(a) Loans. (1) A State may make loans at or below the market
interest rate, including zero interest rate loans. Loans may be awarded
only if:
(i) An assistance recipient begins annual repayment of principal
and interest no later than one year after project completion. A project
is completed when operations are initiated or are capable of being
initiated.
(ii) A recipient completes loan repayment no later than 20 years
after project completion except as provided in paragraph (b)(3) of this
section.
(iii) A recipient establishes a dedicated source of revenue for
repayment of the loan which is consistent with local ordinances and
State laws or, for privately-owned systems, a recipient demonstrates
that there is adequate security to assure repayment of the loan.
(2) A State may include eligible project reimbursement costs within
loans if:
(i) A system received approval, authorization to proceed, or any
similar action by a State prior to initiation of project construction
and the construction costs were incurred after such State action; and
(ii) The project met all of the requirements of this subpart and
was on the State's fundable list, developed using a priority system
approved by EPA. A project on the comprehensive list which is funded
when a project on the fundable list is bypassed using the State's
bypass procedures in accordance with Sec. 35.3555(c)(2)(ii) may be
eligible for reimbursement of costs incurred after the system has been
informed that it will receive funding.
(3) A State may include eligible planning and design and other
associated pre-project costs within loans regardless of when the costs
were incurred.
(4) All payments of principal and interest on each loan must be
credited to the Fund.
(5) Of the total amount available for assistance from the Fund each
year, a State must make at least 15 percent available solely for
providing loan assistance to small systems, to the extent such funds
can be obligated for eligible projects. A State that provides
assistance in an amount that is greater
[[Page 48303]]
than 15 percent of the available funds in one year may credit the
excess toward the 15 percent requirement in future years.
(6) A State may provide incremental assistance for a project (e.g.,
for a particularly large, expensive project) over a period of years.
(b) Assistance to disadvantaged communities. (1) A State may
provide loan subsidies (e.g., loans which include principal
forgiveness, negative interest rate loans) to benefit communities
meeting the State's definition of ``disadvantaged'' or which the State
expects to become ``disadvantaged'' as a result of the project. Loan
subsidies in the form of reduced interest rate loans that are at or
above zero percent do not fall under the 30 percent allowance described
in paragraph (b)(2) of this section.
(2) A State may take an amount equal to no more than 30 percent of
the amount of a particular fiscal year's capitalization grant to
provide loan subsidies to disadvantaged communities. If a State does
not take the entire 30 percent allowance associated with a particular
fiscal year's capitalization grant, it cannot reserve the authority to
take the remaining balance of the allowance from future capitalization
grants. In addition, a State must:
(i) Indicate in the Intended Use Plan (IUP) the amount of the
allowance it is taking for loan subsidies;
(ii) Commit capitalization grant and required State match dollars
taken for loan subsidies in accordance with the binding commitment
requirements in Sec. 35.3550(e); and
(iii) Commit any other dollars (e.g., principal and interest
repayments, investment earnings) taken for loan subsidies to projects
over the same time period during which binding commitments are made for
the capitalization grant from which the allowance was taken.
(3) A State may extend the term for a loan to a disadvantaged
community, provided that a recipient completes loan repayment no later
than 30 years after project completion and the term of the loan does
not exceed the expected design life of the project.
(c) Refinance or purchase of local debt obligations.--(1) General.
A State may buy or refinance local debt obligations of municipal,
intermunicipal, or interstate agencies where the debt obligation was
incurred and the project was initiated after July 1, 1993. Projects
must have met the eligibility requirements under section 1452 of the
Act and this subpart to be eligible for refinancing. Privately-owned
systems are not eligible for refinancing.
(2) Multi-purpose debt. If the original debt for a project was in
the form of a multi-purpose bond incurred for purposes in addition to
eligible purposes under section 1452 of the Act and this subpart, a
State may provide refinancing only for the eligible portion of the
debt, not the entire debt.
(3) Refinancing and State match. If a State has credited repayments
of loans made under a pre-existing State loan program as part of its
State match, the State cannot also refinance the projects under the
DWSRF program. If the State has already counted certain projects toward
its State match which it now wants to refinance, the State must provide
replacement funds for the amounts previously credited as match.
(d) Purchase insurance or guarantee for local debt obligations. A
State may provide assistance by purchasing insurance or guaranteeing a
local debt obligation to improve credit market access or to reduce
interest rates. Assistance of this type is limited to local debt
obligations that are undertaken to finance projects eligible for
assistance under section 1452 of the Act and this subpart.
(e) Revenue or security for Fund debt obligations (leveraging). A
State may use Fund assets as a source of revenue or security for the
payment of principal and interest on revenue or general obligation
bonds issued by the State in order to increase the total amount of
funds available for providing assistance. The net proceeds of the sale
of the bonds must be deposited into the Fund and must be used for
providing loans and other assistance to finance projects eligible under
section 1452 of the Act and this subpart.
Sec. 35.3530 Limitations on uses of the Fund.
(a) Earn interest. A State may earn interest on monies deposited
into the Fund prior to disbursement of assistance (e.g., on reserve
accounts used as security or guarantees). Monies deposited must not
remain in the Fund primarily to earn interest. Amounts not required for
current obligation or expenditure must be invested in interest bearing
obligations.
(b) Program administration. A State may not use monies deposited
into the Fund to cover its program administration costs. In addition to
using the funds available from the administration and technical
assistance set-aside under Sec. 35.3535(b), a State may use the
following methods to cover its program administration and other program
costs.
(1) A State may use the proceeds of bonds guaranteed by the Fund to
absorb expenses incurred issuing the bonds. The net proceeds of the
bonds must be deposited into the Fund.
(2) A State may assess fees on an assistance recipient which are
paid directly by the recipient and are not included as principal in a
loan as allowed in paragraph (b)(3) of this section. These fees, which
include interest earned on fees, must be deposited into the Fund or
into an account outside of the Fund. If the fees are deposited into the
Fund, they are subject to the authorized uses of the Fund. If the fees
are deposited into an account outside of the Fund, they must be used
for program administration, other purposes for which capitalization
grants can be awarded under section 1452, State match under sections
1452(e) and (g)(2) of the Act, or combined financial administration of
the DWSRF program and CWSRF program Funds where the programs are
administered by the same State agency.
(3) A State may assess fees on an assistance recipient which are
included as principal in a loan. These fees, which include interest
earned on fees, must be deposited into the Fund or into an account
outside of the Fund. If the fees are deposited into the Fund, they are
subject to the authorized uses of the Fund. If the fees are deposited
into an account outside of the Fund, they must be used for program
administration or other purposes for which capitalization grants can be
awarded under section 1452. Fees included as principal in a loan cannot
be used for State match under sections 1452(e) and (g)(2) of the Act or
combined financial administration of the DWSRF program and CWSRF
program Funds. Additionally, fees included as principal in a loan:
(i) Cannot be assessed on a disadvantaged community which receives
a loan subsidy provided from the 30 percent allowance in
Sec. 35.3525(b)(2);
(ii) Cannot cause the effective rate of a loan (which includes both
interest and fees) to exceed the market rate; and
(iii) Cannot be assessed if the effective rate of a loan could
reasonably be expected to cause a system to fail to meet the technical,
financial, and managerial capability requirements under section 1452 of
the Act.
(c) Transfers. The Governor of a State, or a State official acting
pursuant to authorization from the Governor, may transfer an amount
equal to 33 percent of a fiscal year's DWSRF program capitalization
grant to the CWSRF program or an equivalent amount from
[[Page 48304]]
the CWSRF program to the DWSRF program. The following conditions apply:
(1) When a State initially decides to transfer funds:
(i) The State's Attorney General, or someone designated by the
Attorney General, must sign or concur in a certification for the DWSRF
program and the CWSRF program that State law permits the State to
transfer funds; and
(ii) The Operating Agreements or other parts of the capitalization
grant agreements for the DWSRF program and the CWSRF program must be
amended to detail the method the State will use to transfer funds.
(2) A State may not use the transfer provision to acquire State
match for either program or use transferred funds to secure or repay
State match bonds.
(3) Funds may be transferred after one year has elapsed since a
State established its Fund (i.e., one year after the State has received
its first DWSRF program capitalization grant for projects), and may
include an amount equal to the allowance associated with its fiscal
year 1997 capitalization grant.
(4) A State may reserve the authority to transfer funds in future
years.
(5) Funds may be transferred on a net basis between the DWSRF
program and CWSRF program, provided that the 33 percent transfer
allowance associated with DWSRF program capitalization grants received
is not exceeded.
(6) Funds may not be transferred or reserved after September 30,
2001.
(d) Cross-collateralization. A State may combine the Fund assets of
the DWSRF program and CWSRF program as security for bond issues to
enhance the lending capacity of one or both of the programs. The
following conditions apply:
(1) When a State initially decides to cross-collateralize:
(i) The State's Attorney General, or someone designated by the
Attorney General, must sign or concur in a certification for the DWSRF
program and the CWSRF program that State law permits the State to
cross-collateralize the Fund assets of the DWSRF program and CWSRF
program; and
(ii) The Operating Agreements or other parts of the capitalization
grant agreements for the DWSRF program and the CWSRF program must be
amended to detail the method the State will use to cross-collateralize.
(2) The proceeds generated by the issuance of bonds must be
allocated to the purposes of the DWSRF program and CWSRF program in the
same proportion as the assets from the Funds that are used as security
for the bonds. A State must demonstrate at the time of bond issuance
that the proportionality requirements have been or will be met. If a
default should occur, and the Fund assets from one program are used for
debt service in the other program to cure the default, the security
would no longer need to be proportional.
(3) A State may not combine the Fund assets of the DWSRF program
and the CWSRF program as security for bond issues to acquire State
match for either program or use the assets of one program to secure
match bonds for the other program.
(4) The debt service reserves for the DWSRF program and the CWSRF
program must be accounted for separately.
(5) Loan repayments must be made to the respective program from
which the loan was made.
Sec. 35.3535 Authorized set-aside activities.
(a) General. (1) A State may use a portion of its capitalization
grants for the set-aside categories described in paragraphs (b) through
(e) of this section, provided that the amount of set-aside funding does
not exceed the ceilings specified in this section.
(2) A State may not use set-aside funds for those projects or
project-related costs listed in Sec. 35.3520(b), (c), (e), and (f),
with the following exceptions:
(i) Project planning and design costs for small systems; and
(ii) Costs for restructuring a system as part of a capacity
development strategy.
(b) Administration and technical assistance. A State may use up to
4 percent of its allotment to cover the reasonable costs of
administering the DWSRF program and to provide technical assistance to
public water systems.
(c) Small systems technical assistance. A State may use up to 2
percent of its allotment to provide technical assistance to small
systems. A State may use these funds for activities such as supporting
a State technical assistance team or contracting with outside
organizations or other parties to provide technical assistance to small
systems.
(d) State program management. A State may use up to 10 percent of
its allotment for State program management activities.
(1) This set-aside may only be used for the following activities:
(i) To administer the State PWSS program;
(ii) To administer or provide technical assistance through source
water protection programs (including a Class V Underground Injection
Control Program), except for enforcement actions;
(iii) To develop and implement a capacity development strategy; and
(iv) To develop and implement an operator certification program.
(2) Match requirement. A State must provide a dollar for dollar
match for expenditures made under this set-aside.
(i) The match must be provided at the time of the capitalization
grant award or in the same year that funds for this set-aside are
expected to be expended in accordance with a workplan approved by EPA.
(ii) A State is authorized to use the amount of State funds it
expended on its PWSS program in fiscal year 1993 (including PWSS match)
as a credit toward meeting its match requirement. The value of this
credit can be up to, but not greater than, 50 percent of the amount of
match that is required. After determining the value of the credit that
it is eligible to receive, a State must provide the additional funds
necessary to meet the remainder of the match requirement. The source of
these additional funds can be State funds (excluding PWSS match) or
documented in-kind services.
(e) Local assistance and other State programs. A State may use up
to 15 percent of its capitalization grant to assist in the development
and implementation of local drinking water protection initiatives and
other State programs. No more than 10 percent of the capitalization
grant amount can be used for any one authorized activity.
(1) This set-aside may only be used for the following activities:
(i) A State may provide assistance only in the form of loans to
community water systems and non-profit noncommunity water systems to
acquire land or conservation easements from willing sellers or
grantors. A system must demonstrate how the purchase of land or
easements will protect the source water of the system from
contamination and ensure compliance with national primary drinking
water regulations. A State must develop a priority setting process for
determining what parcels of land or easements to purchase or use an
established priority setting process that meets the same goals. A State
must seek public review and comment on its priority setting process and
must identify the systems that received loans and include a description
of the specific parcels of land or easements purchased in the Biennial
Report.
(ii) A State may provide assistance only in the form of loans to
community water systems to assist in implementing voluntary, incentive-
based source water protection measures in areas delineated under a
source water assessment
[[Page 48305]]
program under section 1453 of the Act and for source water petitions
under section 1454 of the Act. A State must develop a list of systems
that may receive loans, giving priority to activities that facilitate
compliance with national primary drinking water regulations applicable
to the systems or otherwise significantly further the health protection
objectives of the Act. A State must seek public review and comment on
its priority setting process and its list of systems that may receive
loans.
(iii) A State may make expenditures to establish and implement
wellhead protection programs under section 1428 of the Act.
(iv) A State may provide assistance, including technical and
financial assistance, to public water systems as part of a capacity
development strategy under section 1420(c) of the Act.
(v) A State may make expenditures from its fiscal year 1997
capitalization grant to delineate and assess source water protection
areas for public water systems under section 1453 of the Act.
Assessments include the identification of potential sources of
contamination within the delineated areas. These assessment activities
are limited to the identification of contaminants regulated under the
Act or unregulated contaminants that a State determines may pose a
threat to public health. A State must obligate funds within 4 years of
receiving its fiscal year 1997 capitalization grant.
(2) A State may make loans under this set-aside only if an
assistance recipient begins annual repayment of principal and interest
no later than one year after completion of the activity and completes
loan repayment no later than 20 years after completion of the activity.
A State must deposit repayments into the Fund or into a separate
account dedicated for this set-aside. The separate account is subject
to the same management oversight requirements as the Fund. Amounts
deposited into the Fund are subject to the authorized uses of the Fund.
Sec. 35.3540 Requirements for funding set-aside activities.
(a) General. If a State makes a grant or enters into a cooperative
agreement with an assistance recipient to conduct set-aside activities,
the recipient must comply with general grant regulations at 40 CFR part
30 or part 31, as appropriate.
(b) Set-aside accounts. A State must maintain separate and
identifiable accounts for the portion of its capitalization grant to be
used for set-aside activities.
(c) Workplans.--(1) General. A State must submit detailed annual or
multi-year workplans to EPA for approval describing how set-aside funds
will be expended. For the administration and technical assistance set-
aside under Sec. 35.3535(b), the State is only required to submit a
workplan describing how it will expend funds needed to provide
technical assistance to public water systems. In order to ensure that
funds are expended efficiently, multi-year workplan terms negotiated
with EPA must be less than four years, unless a longer term is approved
by EPA.
(2) Submitting workplans. A State must submit workplans in
accordance with a schedule negotiated with EPA. If a schedule has not
been negotiated, the State must submit workplans no later than 90 days
after the capitalization grant award. If a State does not meet the
deadline for submitting its workplans, the set-aside funds that were
required to be described in the workplans must be transferred to the
Fund to be used for projects.
(3) Content. Workplans must at a minimum include:
(i) The annual funding amount in dollars and as a percentage of the
State allotment or capitalization grant;
(ii) The projected number of work years needed for implementing
each set-aside activity;
(iii) The goals and objectives, outputs, and deliverables for each
set-aside activity;
(iv) A schedule for completing activities under each set-aside
activity;
(v) Identification and responsibilities of the agencies involved in
implementing each set-aside activity, including activities proposed to
be conducted by a third party; and
(vi) A description of the evaluation process to assess the success
of work funded under each set-aside activity.
(4) Amending workplans. If a State changes the scope of work from
what was originally described in its workplans, it must amend the
workplans and submit them to EPA for approval.
(d) Reserving set-aside funds. (1) A State may reserve set-aside
funds from a capitalization grant and expend them over a period of
time, provided that the State identifies the amount of funds reserved
in the IUP and describes the use of the funds in workplans approved by
EPA. For the administration and technical assistance set-aside under
Sec. 35.3535(b), the State is only required to submit a workplan to
reserve funds needed to provide technical assistance to public water
systems.
(2) With the exception of the local assistance and other State
programs set-aside under Sec. 35.3535(e), a State may reserve the
authority to take from future capitalization grants those set-aside
funds that it has not included in workplans. The State must identify in
the IUP the amount of authority reserved from a capitalization grant
for future use.
(e) Fund and set-aside account transfers. (1) A State may transfer
funds among set-aside categories described in Sec. 35.3535(b) through
(e) and among activities within these categories, provided that set-
aside ceilings are not exceeded.
(2) A State may transfer funds between the Fund and set-asides,
provided that set-aside ceilings are not exceeded. Set-aside funds may
be transferred at any time to the Fund. If a State has taken payment
for the set-aside funds to be transferred to the Fund, it must make
binding commitments for these funds within one year of the transfer.
Monies intended for the Fund may be transferred to set-asides only if
the State has not yet taken a payment that includes those funds to be
transferred in accordance with the payment schedule negotiated with
EPA.
(3) The capitalization grant agreement must be amended prior to any
transfer among the set-aside categories or any transfer between the
Fund and set-asides.
Sec. 35.3545 Capitalization grant agreement.
(a) General. A State must submit a capitalization grant application
to EPA in order to receive a capitalization grant award. Approval of an
application results in EPA and the State entering into a capitalization
grant agreement which is the principal instrument by which the State
commits to manage the DWSRF program in accordance with the requirements
of section 1452 of the Act and this subpart.
(b) Content. In addition to the items listed in paragraphs (c)
through (f) of this section, the capitalization grant agreement must
contain or incorporate by reference the Application for Federal
Assistance (EPA Form 424) and other related forms, IUP, negotiated
payment schedule, State environmental review process (SERP),
demonstrations of the specific capitalization grant agreement
requirements listed in Sec. 35.3550, and other documentation required
by the Regional Administrator (RA). The capitalization grant agreement
must also define the types of performance measures, reporting
requirements, and oversight responsibilities that will be required to
determine compliance with section 1452 of the Act.
(c) Operating agreement. At the option of a State, the framework
and
[[Page 48306]]
procedures of the DWSRF program that are not expected to change
annually may be described in an Operating Agreement. The Operating
Agreement may be amended if the State negotiates the changes with EPA.
(d) Attorney General certification. With the capitalization grant
application, the State's Attorney General, or someone designated by the
Attorney General, must sign or concur in a certification that:
(1) The authority establishing the DWSRF program and the powers it
confers are consistent with State law;
(2) The State may legally bind itself to the proposed terms of the
capitalization grant agreement; and
(3) An agency of the State is authorized to enter into
capitalization grant agreements with EPA, accept capitalization grant
awards made under section 1452 of the Act, and otherwise manage the
Fund in accordance with the requirements and objectives of the Act and
this subpart.
(e) Roles and responsibilities of agencies. If more than one State
agency participates in the implementation of the DWSRF program, the
State must describe the roles and responsibilities of each agency in
the capitalization grant application and include a Memorandum of
Understanding or interagency agreement describing these roles and
responsibilities.
(f) Process for evaluating capability and compliance. A State must
include in the capitalization grant application a description of the
following:
(1) The process it will use to assess the technical, financial, and
managerial capability of all systems requesting assistance to ensure
that the systems are in compliance with the requirements of the Act.
(2) If a State provides assistance to systems that lack technical,
financial, and managerial capability, the process it will use to ensure
that the systems undertake feasible and appropriate changes in
operations to comply with the requirements of the Act over the long-
term.
(3) If a State provides assistance to systems in significant
noncompliance with any national primary drinking water regulation or
variance, the process it will use to ensure that the systems return to
compliance.
Sec. 35.3550 Specific capitalization grant agreement requirements.
(a) General. A State must agree to comply with this subpart, the
general grant regulations at 40 CFR part 31, and specific conditions of
the grant. A State must also agree to the following requirements and,
in some cases, provide documentation as part of the capitalization
grant application.
(b) Comply with State statutes and regulations. A State must agree
to comply with all State statutes and regulations that are applicable
to DWSRF program funds including capitalization grant funds, State
match, interest earnings, net bond proceeds, repayments, and funds used
for set-aside activities.
(c) Demonstrate technical capability. A State must agree to provide
documentation demonstrating that it has adequate personnel and
resources to establish and manage the DWSRF program.
(d) Accept payments. A State must agree to accept capitalization
grant payments in accordance with a payment schedule negotiated between
EPA and the State.
(e) Make binding commitments. A State must agree to enter into
binding commitments with assistance recipients to provide assistance
from the Fund.
(1) Binding commitments must be made in an amount equal to the
amount of each capitalization grant payment and accompanying State
match that is deposited into the Fund and must be made within one year
after the receipt of each grant payment.
(2) A State may make binding commitments for more than the required
amount and credit the excess towards the binding commitment
requirements of subsequent grant payments.
(3) If a State is concerned about its ability to comply with the
binding commitment requirement, it must notify the RA and propose a
revised payment schedule for future grant payments.
(f) Deposit of funds. A State must agree to promptly deposit DWSRF
program funds into appropriate accounts.
(1) A State must agree to deposit the portion of the capitalization
grant to be used for projects into the Fund.
(2) A State must agree to maintain separate and identifiable
accounts for the portion of the capitalization grant to be used for
set-aside activities.
(3) A State must agree to deposit net bond proceeds, interest
earnings, and repayments into the Fund.
(4) A State must agree to deposit any fees, which include interest
earned on fees, into the Fund or into separate and identifiable
accounts.
(g) Provide State match. A State must agree to deposit into the
Fund an amount from State monies that equals at least 20 percent of
each capitalization grant payment.
(1) A State must identify the source of State match in the
capitalization grant application.
(2) A State must deposit the match into the Fund on or before the
date that a State receives each payment for the capitalization grant,
except when a State chooses to use a letter of credit (LOC) mechanism
or similar financial arrangement for the State match. Under this
mechanism, payments to this LOC account must be made proportionally on
the same schedule as the payments for the capitalization grant. Cash
from this State match LOC account must be drawn into the Fund as cash
is drawn into the Fund through the Automated Clearing House (ACH).
(3) A State may issue general obligation or revenue bonds to derive
the State match. The net proceeds from the bonds issued by a State to
derive the match must be deposited into the Fund and the bonds may only
be retired using the interest portion of loan repayments and interest
earnings of the Fund. Loan principal must not be used to retire State
match bonds.
(4) If the State deposited State monies in a dedicated revolving
fund after July 1, 1993, and prior to receiving a capitalization grant,
the State may credit these monies toward the match requirement if:
(i) The monies were deposited in a separate revolving fund that
subsequently became the Fund after receiving a capitalization grant and
they were expended in accordance with section 1452 of the Act;
(ii) The monies were deposited in a separate revolving fund that
has not received a capitalization grant, they were expended in
accordance with section 1452 of the Act, and an amount equal to all
repayments of principal and payments of interest from loans will be
deposited into the Fund; or
(iii) The monies were deposited in a separate revolving fund and
used as a reserve for a leveraged program consistent with section 1452
of the Act and an amount equal to the reserve is transferred to the
Fund as the reserve's function is satisfied.
(5) If a State provides a match in excess of the required amount,
the excess balance may be credited towards match requirements
associated with subsequent capitalization grants.
(h) Provide match for State program management set-aside. A State
must agree to provide a dollar for dollar match for expenditures made
under the State program management set-aside in accordance with
Sec. 35.3535(d)(2). This match is separate from the 20 percent State
match requirement for the capitalization grant in paragraph (g) of this
section and must be identified as an eligible credit, deposited into
set-aside
[[Page 48307]]
accounts, or documented as in-kind services.
(i) Use generally accepted accounting principles. A State must
agree to ensure that the State and public water systems receiving
assistance will use accounting, audit, and fiscal procedures conforming
to Generally Accepted Accounting Principles (GAAP) as promulgated by
the Governmental Accounting Standards Board or, in the case of
privately-owned systems, the Financial Accounting Standards Board. The
accounting system used for the DWSRF program must allow for proper
measurement of:
(1) Revenues earned and other receipts, including but not limited
to, loan repayments, capitalization grants, interest earnings, State
match deposits, and net bond proceeds;
(2) Expenses incurred and other disbursements, including but not
limited to, loan disbursements, repayment of bonds, and other
expenditures allowed under section 1452 of the Act; and
(3) Assets, liabilities, capital contributions, and retained
earnings.
(j) Conduct audits. In accordance with Sec. 35.3570(b), a State
must agree to comply with the provisions of the Single Audit Act
Amendments of 1996. A State may voluntarily agree to conduct annual
independent audits.
(k) Dedicated repayment source. A State must agree to adopt
policies and procedures to assure that assistance recipients have a
dedicated source of revenue for repayment of loans, or in the case of
privately-owned systems, assure that recipients demonstrate that there
is adequate security to assure repayment of loans.
(l) Efficient expenditure. A State must agree to commit and expend
all funds as efficiently as possible and in an expeditious and timely
manner.
(m) Use funds in accordance with IUP. A State must agree to use all
funds in accordance with an IUP that was prepared after providing for
public review and comment.
(n) Biennial report. A State must agree to complete and submit a
Biennial Report that describes how it has met the goals and objectives
of the previous two fiscal years as stated in the IUPs and
capitalization grant agreements. The State must submit this report to
the RA according to the schedule established in the capitalization
grant agreement.
(o) Comply with cross-cutters. A State must agree to comply with
all applicable Federal cross-cutting authorities.
(p) Comply with provisions to avoid withholdings. A State must
agree to demonstrate how it is complying with the requirements of
capacity development authority, capacity development strategy, and
operator certification program provisions in order to avoid
withholdings of funds under Sec. 35.3515(b)(1)(i) through (b)(1)(iii).
Sec. 35.3555 Intended Use Plan (IUP).
(a) General. A State must prepare an annual IUP which describes how
it intends to use DWSRF program funds to support the overall goals of
the DWSRF program and contains the information outlined in paragraph
(c) of this section. In those years in which a State submits a
capitalization grant application, EPA must receive an IUP prior to the
award of the capitalization grant. A State must prepare an annual IUP
as long as the Fund or set-aside accounts remain in operation. The IUP
must conform to the fiscal year adopted by the State for the DWSRF
program (e.g., the State's fiscal year or the Federal fiscal year).
(b) Public review requirements. A State must seek meaningful public
review and comment during the development of the IUP. A State must
include a description of the public review process and an explanation
of how it responded to major comments and concerns. If a State prepares
separate IUPs (one for Fund monies and one for set-aside monies), the
State must seek public review and comment during the development of
each IUP.
(c) Content. Information in the IUP must be provided in a format
and manner that is consistent with the needs of the RA.
(1) Priority system. The IUP must include a priority system for
ranking individual projects for funding that provides sufficient detail
for the public and EPA to readily understand the criteria used for
ranking. The priority system must provide, to the maximum extent
practicable, that priority for the use of funds will be given to
projects that: address the most serious risk to human health; are
necessary to ensure compliance with the requirements of the Act
(including requirements for filtration); and assist systems most in
need, on a per household basis, according to State affordability
criteria. A State that does not adhere to the three criteria must
demonstrate why it is unable to do so.
(2) Priority lists of projects. All projects, with the exception of
projects funded on an emergency basis, must be ranked using a State's
priority system and go through a public review process prior to
receiving assistance.
(i) The IUP must contain a fundable list of projects that are
expected to receive assistance from available funds designated for use
in the current IUP and a comprehensive list of projects that are
expected to receive assistance in the future. The fundable list of
projects must include: the name of the public water system; the
priority assigned to the project; a description of the project; the
expected terms of financial assistance based on the best information
available at the time the IUP is developed; and the population of the
system's service area at the time of the loan application. The
comprehensive list must include, at a minimum, the priority assigned to
each project and, to the extent known, the expected funding schedule
for each project. A State may combine the fundable and comprehensive
lists into one list, provided that projects which are expected to
receive assistance from available funds designated for use in the
current IUP are identified.
(ii) The IUP may include procedures which would allow a State to
bypass projects on the fundable list. The procedures must clearly
identify the conditions which would allow a project to be bypassed and
the method for identifying which projects would receive funding. If a
bypass occurs, a State must fund the highest ranked project on the
comprehensive list that is ready to proceed. If a State elects to
bypass a project for reasons other than readiness to proceed, the State
must explain why the project was bypassed in the Biennial Report and
during the annual review. To the maximum extent practicable, a State
must work with bypassed projects to ensure that they will be prepared
to receive funding in future years.
(iii) The IUP may allow for the funding of projects which require
immediate attention to protect public health on an emergency basis,
provided that a State defines what conditions constitute an emergency
and identifies the projects in the Biennial Report and during the
annual review.
(iv) The IUP must demonstrate how a State will meet the requirement
of providing loan assistance to small systems as described in
Sec. 35.3525(a)(5). A State that is unable to comply with this
requirement must describe the steps it is taking to ensure that a
sufficient number of projects are identified to meet this requirement
in future years.
(3) Distribution of funds. The IUP must describe the criteria and
methods that a State will use to distribute all funds including:
(i) The process and rationale for distribution of funds between the
Fund and set-aside accounts;
(ii) The process for selection of systems to receive assistance;
[[Page 48308]]
(iii) The rationale for providing different types of assistance and
terms, including the method used to determine the market rate and the
interest rate;
(iv) The types, rates, and uses of fees assessed on assistance
recipients; and
(v) A description of the financial planning process undertaken for
the Fund and the impact of funding decisions on the long-term financial
health of the Fund.
(4) Financial status. The IUP must describe the sources and uses of
DWSRF program funds including: the total dollar amount in the Fund; the
total dollar amount available for loans, including loans to small
systems; the amount of loan subsidies that may be made available to
disadvantaged communities from the 30 percent allowance in
Sec. 35.3525(b)(2); the total dollar amount in set-aside accounts,
including the amount of funds or authority reserved; and the total
dollar amount in fee accounts.
(5) Short- and long-term goals. The IUP must describe the short-
term and long-term goals it has developed to support the overall goals
of the DWSRF program of ensuring public health protection, complying
with the Act, ensuring affordable drinking water, and maintaining the
long-term financial health of the Fund.
(6) Set-aside activities. (i) The IUP must identify the amount of
funds a State is electing to use for set-aside activities. A State must
also describe how it intends to use these funds, provide a general
schedule for their use, and describe the expected accomplishments that
will result from their use.
(ii) For loans made in accordance with the local assistance and
other State programs set-aside under Sec. 35.3535(e)(1)(i) and
(e)(1)(ii), the IUP must, at a minimum, describe the process by which
recipients will be selected and how funds will be distributed among
them.
(7) Disadvantaged community assistance. The IUP must describe how a
State's disadvantaged community program will operate including:
(i) The State's definition of what constitutes a disadvantaged
community;
(ii) A description of affordability criteria used to determine the
amount of disadvantaged assistance;
(iii) The amount and type of loan subsidies that may be made
available to disadvantaged communities from the 30 percent allowance in
Sec. 35.3525(b)(2); and
(iv) To the maximum extent practicable, an identification of
projects that will receive disadvantaged assistance and the respective
amounts.
(8) Transfer process. If a State decides to transfer funds between
the DWSRF program and CWSRF program, the IUPs for the DWSRF program and
the CWSRF program must describe the process including:
(i) The total amount and type of funds being transferred during the
period covered by the IUP;
(ii) The total amount of authority being reserved for future
transfer, including the authority reserved from previous years; and
(iii) The impact of the transfer on the amount of funds available
to finance projects and set-asides and the long-term impact on the
Fund.
(9) Cross-collateralization process. If a State decides to cross-
collateralize Fund assets of the DWSRF program and CWSRF program, the
IUPs for the DWSRF program and the CWSRF program must describe the
process including:
(i) The type of monies which will be used as security;
(ii) How monies will be used in the event of a default; and
(iii) Whether or not monies used for a default in the other program
will be repaid, and if they will not be repaid, what will be the
cumulative impact on the Funds.
(d) Amending the IUP. The priority lists of projects may be amended
during the year under provisions established in the IUP as long as
additions or other substantive changes to the lists, except projects
funded on an emergency basis, go through a public review process. A
State may change the use of funds from what was originally described in
the IUP as long as substantive changes go through a public review
process.
Sec. 35.3560 General payment and cash draw rules.
(a) Payment schedule. A State will receive each capitalization
grant payment in the form of an increase to the ceiling of funds
available through the ACH, made in accordance with a payment schedule
negotiated between EPA and the State. A payment schedule that is based
on a State's projection of binding commitments and use of set-aside
funds as stated in the IUP must be included in the capitalization grant
agreement. Changes to the payment schedule must be made through an
amendment to the grant agreement.
(b) Timing of payments. All payments to a State will be made by the
earlier of 8 quarters after the capitalization grant is awarded or 12
quarters after funds are allotted to a State.
(c) Funds available for cash draw. Cash draws will be available
only up to the amount of payments that have been made to a State.
(d) Estimated cash draw schedule. On a schedule negotiated with
EPA, a State must provide EPA with a quarterly schedule of estimated
cash draws for the Federal fiscal year. The State must notify EPA when
significant changes from the estimated cash draw schedule are
anticipated. This schedule must be developed to conform with the
procedures applicable to cash draws and must have sufficient detail to
allow EPA and the State to jointly develop and maintain a forecast of
cash draws.
(e) Cash draw for set-asides. A State may draw cash through the ACH
for the full amount of costs incurred for set-aside expenditures based
on EPA approved workplans. A State may draw cash in advance to ensure
funds are available to meet State payroll expenses. However, cash
should be drawn no sooner than necessary to meet immediate payroll
disbursement needs.
(f) Cash draw for Fund. A State may draw cash through the ACH for
the proportionate Federal share of eligible incurred project costs. A
State need not have disbursed funds for incurred project costs prior to
drawing cash. A State may not draw cash for a particular project until
the State has executed a loan agreement for that project.
(g) Calculation of proportionate Federal share--(1) General. The
proportionate Federal share is equal to the Federal monies intended for
the Fund (capitalization grant minus set-asides) divided by the total
amount of monies intended for the Fund (capitalization grant minus set-
asides plus required State match). A State may calculate the
proportionate Federal share on a rolling average basis or on a grant by
grant basis.
(2) State overmatch. (i) The proportionate Federal share does not
change if a State is providing funds in excess of the required State
match.
(ii) Federal monies may be drawn at a rate that is greater than
that determined by the proportionate Federal share calculation when a
State is given credit toward its match amount as a result of funding
projects in prior years (but after July 1, 1993), or for crediting
excess match in the Fund in prior years and disbursing these amounts
prior to drawing cash. If the entire amount of a State's required match
has been disbursed in advance, the proportionate Federal share of cash
draws would be 100 percent.
[[Page 48309]]
Sec. 35.3565 Specific cash draw rules for authorized types of
assistance from the Fund.
A State may draw cash for the authorized types of assistance from
the Fund described in Sec. 35.3525 according to the following rules:
(a) Loans--(1) Eligible project costs. A State may draw cash based
on the proportionate Federal share of incurred project costs. In the
case of incurred planning and design and associated pre-project costs,
cash may be drawn immediately upon execution of the loan agreement.
(2) Eligible project reimbursement costs. A State may draw cash to
reimburse assistance recipients for eligible project costs at a rate no
greater than equal amounts over the maximum number of quarters that
capitalization grant payments are made. A State may immediately draw
cash for up to 5 percent of each fiscal year's capitalization grant or
2 million dollars, whichever is greater, to reimburse project costs.
(b) Refinance or purchase of local debt obligations--(1) Completed
projects. A State may draw cash up to the portion of the capitalization
grant committed to the refinancing or purchase of local debt
obligations of municipal, intermunicipal, or interstate agencies at a
rate no greater than equal amounts over the maximum number of quarters
that capitalization grant payments are made. A State may immediately
draw cash for up to 5 percent of each fiscal year's capitalization
grant or 2 million dollars, whichever is greater, to refinance or
purchase local debt.
(2) Portions of projects not completed. A State may draw cash based
on the proportionate Federal share of incurred project costs according
to the rule for loans in paragraph (a)(1) of this section.
(3) Purchase of incremental disbursement bonds from local
governments. A State may draw cash based on a schedule that coincides
with the rate at which costs are expected to be incurred for the
project.
(c) Purchase insurance for local debt obligations. A State may draw
cash for the proportionate Federal share of insurance premiums as they
are due.
(d) Guarantee for local debt obligations--(1) In the event of
default. In the event of imminent default in debt service payments on a
guaranteed local debt, a State may draw cash immediately up to the
total amount of the capitalization grant that is dedicated for the
guarantee. If a balance remains after the default is satisfied, the
State must negotiate a revised cash draw schedule for the remaining
amount dedicated for the guarantee.
(2) In the absence of default. A State may draw cash up to the
amount of the capitalization grant dedicated for the guarantee based on
actual incurred project costs. The amount of the cash draw would be
based on the proportionate Federal share of incurred project costs
multiplied by the ratio of the guarantee reserve to the amount
guaranteed.
(e) Revenue or security for Fund debt obligations (leveraging)--(1)
In the event of default. In the event of imminent default in debt
service payments on a secured debt, a State may draw cash immediately
up to the total amount of the capitalization grant that is dedicated
for the security. If a balance remains after the default is satisfied,
the State must negotiate a revised schedule for the remaining amount
dedicated for the security.
(2) In the absence of default. A State may draw cash up to the
amount of the capitalization grant dedicated for the security using
either of the following methods:
(i) All projects method. A State may draw cash based on the
incurred project costs multiplied by the ratio of the Federal portion
of the reserve to the total reserve multiplied by the ratio of the
total reserve to the net bond proceeds.
(ii) Group of projects method. A State may identify a group of
projects whose cost is approximately equal to the total of that portion
of the capitalization grant and the State match dedicated as a
security. The State may then draw cash based on the incurred costs of
the selected projects only, multiplied by the ratio of the Federal
portion of the security to the entire security.
(3) Aggressive leveraging. Where the cash draw rules in paragraphs
(e)(1) and (e)(2) of this section would significantly frustrate a
State's leveraged program, EPA may permit an exception to these cash
draw rules and provide for a more accelerated cash draw. A State must
demonstrate that:
(i) There are eligible projects ready to proceed in the immediate
future with enough costs to justify the amount of the secured bond
issue;
(ii) The absence of cash on an accelerated basis will substantially
delay these projects;
(iii) The Fund will provide substantially more assistance if
accelerated cash draws are allowed; and
(iv) The long-term viability of the State program to meet drinking
water needs will be protected.
(f) Loans to privately-owned systems. In cases where State monies
cannot be used to provide loans to privately-owned systems, a State may
draw 100 percent Federal monies for costs incurred by privately-owned
systems. When Federal monies are drawn for incurred costs, the State
must deposit or have previously deposited into the Fund the required
match associated with the amount of cash drawn. Every 18 months, the
State must submit documentation showing that it has met its
proportionate Federal share within the last 6 months. If a State is
unable to document that it has met its proportionate Federal share,
State match deposited into the Fund must be expended before Federal
monies are drawn for costs incurred by publicly-owned systems until the
State meets its proportionate Federal share.
Sec. 35.3570 Reports and audits.
(a) Biennial report--(1) General. A State must submit a Biennial
Report to the RA describing how it has met the goals and objectives of
the previous two fiscal years as stated in the IUPs and capitalization
grant agreements, including the most recent audit of the Fund and the
entire State allotment. The State must submit this report to the RA
according to the schedule established in the capitalization grant
agreement. Information provided in the Biennial Report on other EPA
programs eligible for assistance from the DWSRF program may not replace
the reporting requirements for those other programs.
(2) Financial report. As part of the Biennial Report, a State must
present the financial status of the DWSRF program, including the total
dollar amount in fee accounts. This report must, at a minimum, include
the financial statements and footnotes required under GAAP to present
fairly the financial condition and results of operations.
(3) Matters to establish in the biennial report. A State must
establish in the Biennial Report that it has complied with section 1452
of the Act and this subpart. In particular, the Biennial Report must
demonstrate that a State has:
(i) Managed the DWSRF program in a fiscally prudent manner and
adopted policies and processes which promote the long-term financial
health of the Fund;
(ii) Deposited its match (cash or State LOC) into the Fund in
accordance with the requirements of Sec. 35.3550(g);
(iii) Made binding commitments with assistance recipients to
provide assistance from the Fund consistent with the requirements of
Sec. 35.3550(e);
(iv) Funded only the highest priority projects listed in the IUP
and
[[Page 48310]]
documented why priority projects were bypassed in accordance with
Sec. 35.3555(c)(2);
(v) Provided assistance only to eligible public water systems and
for eligible projects and project-related costs under Sec. 35.3520;
(vi) Provided assistance only for eligible set-aside activities
under Sec. 35.3535 and conducted activities consistent with workplans
and other requirements of Sec. 35.3535 and Sec. 35.3540;
(vii) Provided loan assistance to small systems consistent with the
requirements of Sec. 35.3525(a)(5) and Sec. 35.3555(c)(2)(iv);
(viii) Provided assistance to disadvantaged communities consistent
with the requirements of Sec. 35.3525(b) and Sec. 35.3555(c)(7);
(ix) Used fees for eligible purposes under Sec. 35.3530(b)(2) and
(b)(3) and assessed fees included as principal in a loan in accordance
with the limitations in Sec. 35.3530(b)(3)(i) through (b)(3)(iii);
(x) Adopted and implemented procedures consistent with the
requirements of Sec. 35.3530(c) and Sec. 35.3555(c)(8) if funds were
transferred between the DWSRF program and CWSRF program;
(xi) Adopted and implemented procedures consistent with the
requirements of Sec. 35.3530(d) and Sec. 35.3555(c)(9) if Fund assets
of the DWSRF program and CWSRF program were cross-collateralized;
(xii) Reviewed all DWSRF program funded projects and activities for
compliance with Federal cross-cutting authorities that apply to the
State as a grant recipient and those which apply to assistance
recipients in accordance with Sec. 35.3575;
(xiii) Reviewed all DWSRF program funded projects and activities in
accordance with approved State environmental review procedures under
Sec. 35.3580; and
(xiv) Complied with general grant regulations at 40 CFR part 31 and
specific conditions of the grant.
(4) Joint report. A State which jointly administers the DWSRF
program and the CWSRF program may submit a report that addresses both
programs. However, programmatic and financial information for each
program must be identified separately.
(b) Audit. (1) A State must comply with the provisions of the
Single Audit Act Amendments of 1996, 31 U.S.C. 7501-7, and Office of
Management and Budget's Circular A-133 and Compliance Supplement.
(2) A State may voluntarily agree to conduct annual independent
audits which provide an auditor's opinion on the DWSRF program
financial statements, reports on internal controls, and reports on
compliance with section 1452 of the Act, applicable regulations, and
general grant requirements. The agreement to conduct voluntary
independent audits should be documented in the Operating Agreement or
in another part of the capitalization grant agreement.
(3) Those States that do not conduct independent audits will be
subject to periodic audits by the EPA Office of Inspector General.
(c) Annual review--(1) Purpose. The purpose of the annual review is
to assess the success of the State's performance of activities
identified in the IUP, Biennial Report (in years when it is submitted),
and Operating Agreement (if used) and to determine compliance with the
capitalization grant agreement, requirements of section 1452 of the
Act, and this subpart. The RA will complete the annual review according
to the schedule established in the capitalization grant agreement.
(2) Records access. After reasonable notice by the RA, the State or
assistance recipient must make available such records as the RA
reasonably considers pertinent to review and determine State compliance
with the capitalization grant agreement and requirements of section
1452 of the Act and this subpart. The RA may conduct on-site visits as
deemed necessary to perform the annual review.
(d) Information management system--(1) Purpose. The purpose of the
information management system is to assess the DWSRF programs, to
monitor State progress in years in which Biennial Reports are not
submitted, and to assist in conducting annual reviews.
(2) Reporting. A State must annually submit information to EPA on
the amount of funds available and assistance provided by the DWSRF
program.
Sec. 35.3575 Application of Federal cross-cutting authorities (cross-
cutters).
(a) General. A number of Federal laws, executive orders, and
government-wide policies apply by their own terms to projects and
activities receiving Federal financial assistance, regardless of
whether the statute authorizing the assistance makes them applicable. A
few cross-cutters apply by their own terms only to the State as the
grant recipient because the authorities explicitly limit their
application to grant recipients.
(b) Application of cross-cutter requirements. Except as provided in
paragraphs (c) and (d) of this section and in Sec. 35.3580, cross-
cutter requirements apply in the following manner:
(1) All projects for which a State provides assistance in amounts
up to the amount of the capitalization grant deposited into the Fund
must comply with the requirements of the cross-cutters. Activities for
which a State provides assistance from capitalization grant funds
deposited into set-aside accounts must comply with the requirements of
the cross-cutters, to the extent that the requirements of the cross-
cutters are applicable.
(2) Projects and activities for which a State provides assistance
in amounts that are greater than the amount of the capitalization grant
deposited into the Fund or set-aside accounts are not subject to the
requirements of the cross-cutters.
(3) A State that elects to impose the requirements of the cross-
cutters on projects and activities for which it provides assistance in
amounts that are greater than the amount of the capitalization grant
deposited into the Fund or set-aside accounts may credit this excess to
meet future cross-cutter requirements on assistance provided from the
respective accounts.
(c) Federal anti-discrimination law requirements. All programs,
projects, and activities for which a State provides assistance are
subject to the following Federal anti-discrimination laws: Civil Rights
Act of 1964, as amended, 42 U.S.C. 2000d et seq.; section 504 of the
Rehabilitation Act of 1973, as amended, 29 U.S.C. 794; and the Age
Discrimination Act of 1975, as amended, 42 U.S.C. 6102.
(d) Minority and Women's Business Enterprise (MBE/WBE) procurement
requirements. A State must negotiate a fair share goal with the RA for
the participation of MBE/WBEs. The fair share goal must be based on the
availability of MBE/WBEs in the relevant market area to do the work
under the DWSRF program. Each capitalization grant agreement must
describe how a State will comply with MBE/WBE procurement requirements,
including how it will apply the fair share goal to assistance
recipients to which the requirements apply and how it will assure that
assistance recipients take the following six affirmative steps:
(1) Include small, minority and women's businesses on solicitation
lists;
(2) Assure that small, minority and women's businesses are
solicited whenever they are potential sources;
(3) Divide total requirements, when economically feasible, into
smaller tasks or quantities to permit maximum participation by small,
minority and women's businesses;
[[Page 48311]]
(4) Establish delivery schedules, when the requirements of the work
permits, which will encourage participation by small, minority and
women's businesses;
(5) Use the services of the Small Business Administration and the
Minority Business Development Agency of the U.S. Department of
Commerce, as appropriate; and
(6) Require the contractor to take the affirmative steps in
paragraphs (d)(1) through (d)(5) of this section if the contractor
awards subagreements.
(e) Complying with cross-cutters. A State is responsible for
ensuring that assistance recipients comply with the requirements of
cross-cutters, including initiating any required consultations with
State or Federal agencies responsible for individual cross-cutters. A
State must inform EPA when consultation or coordination with other
Federal agencies is necessary to resolve issues regarding compliance
with cross-cutter requirements.
Sec. 35.3580 Environmental review requirements.
(a) General. With the exception of activities identified in
paragraph (b) of this section, a State must conduct environmental
reviews of the potential environmental impacts of projects and
activities receiving assistance.
(b) Activities excluded from environmental reviews. A State must
conduct environmental reviews of source water protection activities
under Sec. 35.3535, unless the activities solely involve administration
(e.g., personnel, equipment, travel) or technical assistance. A State
is not required to conduct environmental reviews of all the other
eligible set-aside activities under Sec. 35.3535 because EPA has
determined that, due to their nature, they do not individually,
cumulatively over time, or in conjunction with other actions have a
significant effect on the quality of the human environment. A State
does not need to include provisions in its SERP for excluding these
activities. Activities excluded from environmental reviews remain
subject to other applicable Federal cross-cutting authorities under
Sec. 35.3575.
(c) Tier I environmental reviews. All projects that are assisted by
the State in amounts up to the amount of the capitalization grant
deposited into the Fund must be reviewed in accordance with a SERP that
is functionally equivalent to the review undertaken by EPA under the
National Environmental Policy Act (NEPA). With the exception of
activities excluded from environmental reviews in paragraph (b) of this
section, activities for which a State provides assistance from
capitalization grant funds deposited into set-aside accounts must also
be reviewed in accordance with a SERP that is functionally equivalent
to the review undertaken by EPA under the NEPA. A State may elect to
apply the procedures at 40 CFR part 6 and related subparts or apply its
own ``NEPA-like'' SERP for conducting environmental reviews, provided
that the following elements are met:
(1) Legal foundation. A State must have the legal authority to
conduct environmental reviews of projects and activities receiving
assistance. The legal authority and supporting documentation must
specify:
(i) The mechanisms to implement mitigation measures to ensure that
a project or activity is environmentally sound;
(ii) The legal remedies available to the public to challenge
environmental review determinations and enforcement actions;
(iii) The State agency that is primarily responsible for conducting
environmental reviews; and
(iv) The extent to which environmental review responsibilities will
be delegated to local recipients and will be subject to oversight by
the primary State agency.
(2) Interdisciplinary approach. A State must employ an
interdisciplinary approach for identifying and mitigating adverse
environmental effects including, but not limited to, those associated
with other cross-cutting Federal environmental authorities.
(3) Decision documentation. A State must fully document the
information, processes, and premises that influence its decisions to:
(i) Proceed with a project or activity contained in a finding of no
significant impact (FNSI) following documentation in an environmental
assessment (EA);
(ii) Proceed or not proceed with a project or activity contained in
a record of decision (ROD) following preparation of a full
environmental impact statement (EIS);
(iii) Reaffirm or modify a decision contained in a previously
issued categorical exclusion (CE), EA/FNSI or EIS/ROD following a
mandatory 5 year environmental reevaluation of a proposed project or
activity; and
(iv) If a State elects to implement processes for either
partitioning an environmental review or categorically excluding
projects or activities from environmental review, the State must
similarly document these processes in its proposed SERP.
(4) Public notice and participation. A State must provide public
notice when: a CE is issued or rescinded; a FNSI is issued but before
it becomes effective; a decision that is issued 5 years earlier is
reaffirmed or revised; and prior to initiating an EIS. Except with
respect to a public notice of a CE or reaffirmation of a previous
decision, a formal public comment period must be provided during which
no action on a project or activity will be allowed. A public hearing or
meeting must be held for all projects and activities except for those
having little or no environmental effect.
(5) Alternatives consideration. A State must have evaluation
criteria and processes which allow for:
(i) Comparative evaluation among alternatives, including the
beneficial and adverse consequences on the existing environment, the
future environment, and individual sensitive environmental issues that
are identified by project management or through public participation;
and
(ii) Devising appropriate near-term and long-range measures to
avoid, minimize, or mitigate adverse impacts.
(d) Tier II environmental reviews. A State may elect to apply an
alternative SERP to all projects and activities (except those
activities excluded from environmental reviews in paragraph (b) of this
section) for which a State provides assistance in amounts that are
greater than the amount of the capitalization grant deposited into the
Fund or set-aside accounts, provided that the process:
(1) Is supported by a legal foundation which establishes the
State's authority to review projects and activities;
(2) Responds to other environmental objectives of the State;
(3) Provides for comparative evaluations among alternatives and
accounts for beneficial and adverse consequences to the existing and
future environment;
(4) Adequately documents the information, processes, and premises
that influence an environmental determination; and
(5) Provides for notice to the public of proposed projects and
activities and for the opportunity to comment on alternatives and to
examine environmental review documents. For projects or activities
determined by the State to be controversial, a public hearing must be
held.
(e) Categorical exclusions (CEs). A State may identify categories
of actions which do not individually, cumulatively over time, or in
conjunction with other actions have a significant effect on the quality
of the human environment and which the
[[Page 48312]]
State will exclude from the substantive environmental review
requirements of its SERP. Any procedures under this paragraph must
provide for extraordinary circumstances in which a normally excluded
action may have a significant environmental effect.
(f) Environmental reviews for refinanced projects or reimbursed
project costs. A State must conduct an environmental review which
considers the impacts of a project based on conditions of the site
prior to initiation of the project. Failure to comply with the
environmental review requirements cannot be justified on the grounds
that costs have already been incurred, impacts have already been
caused, or contractual obligations have been made prior to the binding
commitment.
(g) EPA approval process. The RA must review and approve any State
``NEPA-like'' and alternative procedures to ensure that the
requirements for Tier I and Tier II environmental reviews have been
met. The RA will conduct these reviews on the basis of the criteria for
evaluating NEPA-like reviews contained in Appendix A to this subpart.
(h) Modifications to approved SERPs. Significant changes to State
environmental review procedures must be approved by the RA.
Sec. 35.3585 Compliance assurance procedures.
(a) Causes. The RA may take action under this section and the
enforcement provisions of the general grant regulations at 40 CFR 31.43
if a determination is made that a State has not complied with its
capitalization grant agreement, other requirements under section 1452
of the Act, this subpart, or 40 CFR part 31 or has not managed the
DWSRF program in a financially sound manner (e.g., allows consistent
and substantial failures of loan repayments).
(b) RA's course of action. For cause under paragraph (a) of this
section, the RA will issue a notice of non-compliance and may prescribe
appropriate corrective action. A State's corrective action must remedy
the specific instance of non-compliance and adjust program management
to avoid non-compliance in the future.
(c) Consequences for failure to comply. (1) If within 60 days of
receipt of the non-compliance notice a State fails to take the
necessary actions to obtain the results required by the RA or fails to
provide an acceptable plan to achieve the results required, the RA may
suspend payments until the State has taken acceptable actions. Once a
State has taken the corrective action deemed necessary and adequate by
the RA, the suspended payments will be released and scheduled payments
will recommence.
(2) If a State fails to take the necessary corrective action deemed
adequate by the RA within 12 months of receipt of the original notice,
any suspended payments will be deobligated and reallotted to eligible
States. Once a payment has been made for the Fund, that payment and
cash draws from that payment will not be subject to withholding. All
future payments will be withheld from a State and reallotted until such
time that adequate corrective action is taken and the RA determines
that the State is back in compliance.
(d) Dispute resolution. A State or an assistance recipient that has
been adversely affected by an action or omission by EPA may request a
review of the action or omission under general grant regulations at 40
CFR part 31, subpart F.
Appendix A to Subpart L--Criteria for Evaluating a State's Proposed
NEPA-Like Process
The following criteria will be used by the RA to evaluate a
proposed SERP:
(A) Legal foundation. Adequate documentation of the legal
authority, including legislation, regulations or executive orders
and/or Attorney General certification that authority exists.
(B) Interdisciplinary approach. The availability of expertise,
either in-house or otherwise, accessible to the State agency.
(C) Decision documentation. A description of a documentation
process adequate to explain the basis for decisions to the public.
(D) Public notice and participation. A description of the
process, including routes of publication (e.g., local newspapers and
project mailing list), and use of established State legal
notification systems for notices of intent, and criteria for
determining whether a public hearing is required. The adequacy of a
rationale where the comment period differs from that under NEPA and
is inconsistent with other State review periods.
(E) Alternatives consideration. The extent to which the SERP
will adequately consider:
(1) Designation of a study area comparable to the final system;
(2) A range of feasible alternatives, including the no action
alternative;
(3) Direct and indirect impacts;
(4) Present and future conditions;
(5) Land use and other social parameters including relevant
recreation and open-space considerations;
(6) Consistency with population projections used to develop
State implementation plans under the Clean Air Act;
(7) Cumulative impacts including anticipated community growth
(residential, commercial, institutional, and industrial) within the
project study area; and
(8) Other anticipated public works projects including
coordination with such projects.
[FR Doc. 00-19783 Filed 8-6-00; 8:45 am]
BILLING CODE 6560-50-P
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