To: Environmental Protection Agency

From: Water Industry Council

Date: March 11, 1999

Re: E.O. 12803 – Provision for Delegation of Authority

EPA has issued draft Guidance with respect to E.O. 12803 intended both to assure proper preservation of the "Federal Interest" created by the Construction Grants program legislation and associated regulations and to expeditiously implement the types of privatization of public-private partnerships contemplated by that Executive Order (as well as E.O. 12893 with respect to "Privatization". The Water Industry Council (WIC) has previously submitted comments on that draft Guidance and most recently has submitted a background paper to EPA with specific recommendations as to procedures for implementation of the Guidance. This memorandum recommends an innovative approach to further expedite EPA review of privatization proposals in a manner which comports with developments at the State and local level.

There is an increasing need on the part of many medium and smaller sized communities for the financial resources to achieve compliance with applicable environmental requirements. Of course, those communities that are otherwise financially strapped are most likely to be included in this group. Increasingly, in recognition of the compounding negative impacts of municipal incapacity to provide services, States have been establishing programs to oversee or to monitor their finances.

The policy relationship of E.O. 12803 and environmental public-private partnerships to these facts has several dimensions. From the standpoint of municipalities, sale or encumbrance of existing facilities may, after application of E.O. 12803, result in some net short term infusion of funds. In some instances, where concession fees are paid by private parties for the opportunity to perform management contracts, additional funds may be realized. Finally, and ultimately of greatest importance, public-private arrangements consistently have provided a significant source of operating cost savings and a basis for control of the cost of planning and implementing capital budgets to deal with compliance and/or growth issues.

EPA’s draft Guidance is intended, in part, to assure that concession fees and other transactional arrangements do not, in effect, either improperly monetize Federal grants for general municipal funding purposes or become a conduit for high cost borrowing secured in part by wastewater treatment assets which were built in part with Federal grants. State fiscal management or oversight of financially impaired municipalities is focused on outsourcing not as a "quick fix" for their problems, but as a consistent long term methodology for service and product cost reduction. In addition, of course, State governments administer significant environmental programs, congruent in many respects with the Federal programs, and have on-going responsibility for environmental funding mechanisms, such as State Revolving funds which are responsible for application of Federal funds. In sum, there is a significant overlap in the interests and policies of State governments and EPA in the careful and expeditious review of E.O. 12803 Applications.

Under these circumstances, it would be desirable for arrangements to be made to enable EPA to delegate to States its responsibility for Application review and certification to EPA of E.O. 12803 compliance, subject to final EPA approval, as required by law. EPA has, of course delegated administrative responsibilities for performance of analyses with which it is charged in the past. (Citation).

B. Proposal

The proposed review will be facilitated by the fact that substantially all of the municipal application, as preliminarily described in the draft EPA Guidance on Executive Order 12803, relates either to (i) matters which State environmental or State fiscal authorities would, in any case, have involvement and/or interest in; (ii) factual matters (e.g. calculations) which can be processed by State administrators, using the definitions and tests contained in the Guidance.

Areas in the Application which overlap State fiscal or economic authority oversight include: price of asset sale or lease/nature or concession fee arrangements; municipal debt repayment structure; ratepayer protection; labor/public employee issues.

Areas of State environmental authority oversight include: continuation of asset use; asset reinvestment; compliance with Federal grant use; permit compliance; consent decrees; new construction; public notice; Federal-State issues; private compliance.

Factual areas for calculation include: payments due Federal and State governments under E.O. 12803; rate impact and costs with relation to public participation.

C. Proposed Delegation Arrangements

1. States prepared to assume responsibility for E.O. 12803 Application review should submit a request to do so to EPA (the "State Delegation Request").

2. The State Delegation Request should reflect:

(a) Overall State arrangements for high level coordination of municipal fiscal management and environmental compliance;

(b) Specific State involvement/capabilities for review and oversight of each major topic area of the Application; and

(c) State coordination with the applicable EPA Region Administrator on Application processing.

3. EPA should process the State Delegation Request within 60 days of receipt, inclusive of EPA follow-up inquiries to assure State capabilities to perform paragraphs 2(a)-(c) above, and shall grant the State Delegation Request in the absence of a documented unremedied deficiency.

4. A State to which E.O. 12803 authority is delegated ("Privatization Delegation") should observe the following procedures:

(a) Upon receipt of a municipal Application, it should notify headquarters and regional EPA (through designated EPA liaisons), and make arrangements for receipt of any necessary supporting information.

(b) Privatization Delegation State administrators should consult with headquarters EPA, during its review, with respect to any issues as to which uncertainties as to interpretation of the meaning of regulations. In all other respects, the decision-making process with respect to the Application should be performed at the State level.

(c) A State’s determination that an Application should not be approved absent remediation of the Application or of the arrangements underlying the Application (which determination is accompanied by a statement of necessary areas of remediation or modification) should be final and non-appealable.

(d) A State’s certification that an Application should be approved shall be binding on EPA as to its factual determinations, and may be reversed by EPA only on the grounds that (i) the facts presented to the State were fraudulent or grossly misrepresented; or (ii) the governing law, regulation and precedent has been applied by a State in a manner EPA deems to constitute an abuse of administrative discretion.

(e) Any EPA finding per subparagraph 4(d) above shall be made by EPA within thirty (30) days of its receipt of the Privatization Delegation State certification, together with the factual record developed by that State with respect to the Application in question.

(f) Reapplications of municipalities whose initial Applications have not been certified, shall be processed at the State level in the same manner as set forth above.