[Federal Register Volume 61, Number 212 (Thursday, October 31, 1996)]
[Notices]
[Pages 56231-56234]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-27953]


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ENVIRONMENTAL PROTECTION AGENCY
[FRL-5644-4]


Allocation of Drinking Water State Revolving Fund Monies; Request 
for Comment

AGENCY: Environmental Protection Agency.

SUMMARY: The Environmental Protection Agency (EPA) is seeking public 
comment on allocation of Drinking

[[Page 56232]]

Water State Revolving Fund (DWSRF) monies among States.
    The DWSRF program was established by the reauthorized Safe Drinking 
Water Act (SDWA), signed by President Clinton on August 6, 1996. The 
SDWA authorizes $9.6 billion for the DWSRF program through Fiscal Year 
2003. For Fiscal Year 1997, EPA's budget includes $1.275 billion for 
the DWSRF program. On a national level, EPA's Office of Water is 
responsible for implementing the SDWA requirements, including the DWSRF 
program. As intended by Congress, the DWSRF program will be implemented 
largely by the States.
    DWSRF capitalization grants to States for FY 1997 will be allocated 
based on the formula used to distribute public water system supervision 
grant funds in fiscal year 1995 (SDWA Section 1452(a)(1)(D)). Congress 
has directed that capitalization grants for fiscal year 1998 and 
subsequent years be distributed among States based on the results of 
the most recent Drinking Water Needs Survey (SDWA section 
1452(a)(1)(D)(ii)). The first Drinking Water Needs Survey was conducted 
over the last two years with the cooperation of every State. The 
results of the Survey are required by the reauthorized SDWA to be 
published by February, 1997.
    For FY 1988 and subsequent years, EPA intends to establish a 
formula which allocates funds to States based on the need identified 
for each state in the most recent Needs Survey, provided that each 
State will be allocated a minimum share of one percent of the funds 
available to the States, as required by law. EPA is requesting comment 
on the six options for allocation explained here. Commentators may 
suggest other options within the scope of the law; commentators should 
remember that the law requires that funds be allocated based on the 
results of the most recent Drinking Water Needs Survey.

DATE: EPA will accept public comment on this approach until December 2, 
1996.

ADDRESSES: Send written comment on these options to Comment Clerk; 
Water Docket MC-4101; Environmental Protection Agency; 401 M Street, 
SW; Washington, D.C. 20460. Commentators are requested to submit any 
reference cited in their comments. Commentators are also requested to 
submit an original and 3 copies of their written comments and 
enclosures. Commentators who want receipt of their comments 
acknowledged should include a self addressed, stamped envelope. All 
comments must be postmarked or delivered by hand by [insert date 30 
days after comment period opens]. No facsimiles (faxes) will be 
accepted.

FOR FURTHER INFORMATION CONTACT:
Mr. Clive Davies (202) 260-1421.

SUPPLEMENTARY INFORMATION:

Background

    The 1996 amendments to the Safe Drinking Water Act (SDWA) provide 
for a Drinking Water State Revolving Loan Fund (DWSRF). DWSRF funding 
started in fiscal year 1997 at the level of $1.275 billion. As directed 
by Congress, DWSRF capitalization grants to States for 1997 will be 
allocated based on the formula used to distribute public water system 
supervision grant funds in fiscal year 1995. DWSRF funding will likely 
continue from fiscal year 1998 through at least fiscal year 2003 (SDWA 
Section 1452(m)).
    Congress has directed that capitalization grants for fiscal year 
1998 and subsequent years be distributed among States based on the 
results of the most recent Drinking Water Needs Survey (SDWA Section 
1452(a)(1)(D)(ii)).

Drinking Water Needs Survey

    The Drinking Water Needs Survey was conducted over the last two 
years with the cooperation of every State. States participated in 
design of the survey methodology, the questionnaire, documentation 
requirements, and the Report to Congress (which will be published this 
fall). The survey examined the needs of approximately 4,000 water 
systems and used this information to extrapolate needs for each State. 
The survey included all but ten of the 795 largest systems. Site visits 
were performed at about 600 small systems. The result is a very precise 
estimate of national need that is statistically significant on a State-
by-State basis.
    The Drinking Water Needs Survey includes needs for Community Water 
Systems (CWS) only. Both CWSs and not-for-profit non-community water 
systems (NCWS) are eligible to receive loans from a State's DWSRF (SDWA 
Section 1452(a)(2)). Unfortunately, resource constraints and 
limitations on the quality of inventory data made it impossible to 
include the estimated 19,000 not-for-profit NCWSs in the survey. 
However, including the not-for-profit NCWSs in a grant allocation 
formula would not significantly affect distribution of funds. As an 
exercise to show that the needs of not-for-profit NCWSs would not cause 
significant variance, all not-for-profit NCWSs were assigned a generous 
need and included in a needs analysis. The change in the allocation 
formula as a result of this exercise proved to be insignificant.
    The Needs Survey will present State-by-State needs in several ways. 
The bottom line of the Needs Survey is Total Need, which reflects 
capital costs for all drinking water infrastructure projects allowed 
for inclusion in the Survey. Total Need can be divided into Current 
Need (projects needed now to protect public health) and Future Need 
(projects needed over the next 20 years).
    The Survey also provides an estimate of each State's Total SDWA 
Need. The Total SDWA Need is the capital expenditure required for 
compliance with SDWA regulations. For example, a new filtration plant 
needed for compliance with the Surface Water Treatment Rule would be 
counted in both the Total Need and the Total SDWA Need, while a storage 
tank needed to meet peak demands would be counted in the Total Need, 
but not in the Total SDWA Need. The Total SDWA Need is divided into 
Current SDWA Need (projects needed now for SDWA compliance) and Future 
SDWA Need (projects needed over the next 20 years for compliance with 
existing or proposed regulations). Proposed regulations included in the 
Future SDWA Need are for the Disinfectants and Disinfection Byproducts 
Rule (D/DBPR) and the Enhanced Surface Water Treatment Rule (ESWTR). 
Distribution system improvements needed for compliance with the Total 
Coliform Rule are considered SDWA-related needs and are included in the 
Total Need, but not in the Total SDWA Need.

Options

    EPA has developed options for allocating DWSRF funds among States. 
Preliminary options were presented to State drinking water program 
administrators at an October 14, 1996, meeting of the Association of 
State Drinking Water Administrators (ASDWA), and comments from the 
State program administrators have been incorporated into the revised 
options as presented below.
    It should be noted that the options outlined here are for 
allocation of funds among States. While the choice of an option may 
affect the level of funding available to each State, such a choice will 
not affect eligibility of individual projects for funding. Guidance for 
eligibility of individual projects for funding will be specified in the 
DWSRF Guidance.
    All of the options discussed below assume that each State will 
receive a minimum share of one percent of the funds available to the 
States, as required by law. Like State grants, allocations for

[[Page 56233]]

the Pacific Islands, the Virgin Islands, and Washington, DC, are taken 
from the funds available to the States. The funds available to the 
States will be the level of funds appropriated by Congress, less the 
national set-asides, which include the allocation for Native Americans. 
This framework was specified by Congress in the 1996 amendments to the 
SDWA.

Option 1--Total Need

    Option 1 is to allocate DWSRF monies to States based on each 
State's share of the Total Need, provided that each State receives a 
minimum allocation of one percent of the funds available to States, as 
required by the law. The Total need is the survey's bottom line and the 
simplest way of allocating DWSRF grant funds among States. States 
participating in the October 14, 1996, ASDWA meeting favored this 
option.
    The Total Need is broad and includes all projects that were allowed 
for collection under the Drinking Water Needs Survey. The Total need 
includes projects needed now and over the next 20 years in all 
categories--source rehabilitation and development, storage, treatment, 
and transmission and distribution. Some types of need were not included 
in the Drinking Water Needs Survey and are therefore not included in 
the Total Need. Notable projects not included include those designed 
solely for future growth, as well as distribution system needs not 
associated with the Total Coliform Rule.
    A formula based on the Total Need does not discriminate between 
categories and considers all needs equal. The Total Need includes 
documented projects that water systems believed were important enough 
to be included in the survey. Under a formula based on Total Need, 
projects to correct imminent public health threats (e.g., a replacement 
filter plant) would be given the same weight as less critical needs 
(e.g., replacing a storage tank that is expected to reach the end of 
its useful life in five years). However, a formula based on Total Need 
may be appropriate since the repayment stream from a DWSRF would be 
used to fund future projects.

Option 2--Current Need

    Under Option 2, DWSRF funds would be allocated to States based on 
each State's share of Current Need, with each State receiving at least 
one percent of the funds available to States, as required by the law. 
Current Need is for infrastructure improvements needed now to protect 
public health. Current Need includes projects needed for compliance 
with the SDWA (``Current SDWA Needs'') and the portion of current 
distribution needs tied to the Total Coliform Rule.
    Using Current Need as the basis for allocating DWSRF capitalization 
grant funds would emphasize projects needed now. Examples of Current 
Needs are replacement of a failing filtration plant and replacement of 
a storage tank that have reached the end of their useful lives. An 
allocation formula based on Current Need would place emphasis on 
Current Need, and also emphasize other important but less critical 
needs, such as maintenance of adequate storage.
    It is impossible that using an allocation formula based on Current 
Need may penalize States with active enforcement or funding programs. 
This would be the case if such States were shown to have relatively low 
levels of Current Need. However, some States with active funding 
programs also have active capital planning processes. These States, 
although they may have funded many projects, have many more projects 
documented. They may also have had a relatively high need reflected in 
the Drinking Water Needs Survey (undocumented needs were not accepted) 
and may benefit from an allocation formula based on Current Need.

Option 3--Current SDWA Need

    Under Option 3, monies would be allocated to States based on each 
State's share of Current SDWA Need, with each State receiving a minimum 
of one percent of the funds available to States, as required by the 
law. This approach for allocating funds deserves special attention 
because it deals with improvements required now to ensure compliance 
with drinking water regulations. Importantly, 84 percent of the Current 
SDWA Need is for protection against microbiological contaminants. Most 
of the remainder of the Current SDWA Need is for corrosion control for 
lead and copper, replacement of lead service lines and treatment or new 
sources to deal with nitrate contamination. Current SDWA Need does not 
include distribution need tied to the Total Coliform Rule.
    Using Current SDWA Need as the basis for allocating DWSRF 
capitalization grant funds would emphasize the high-priority projects 
that fall into this category. Importantly, the 1996 amendments to the 
SDWA (SDWA Section 1452(b)(3)(A)) state that priority should be given 
to projects that address the most serious risks to human health and to 
projects that will ensure compliance with the SDWA.

Option 4--Total SDWA Need

    Under Option 4, monies would be allocated to States based on each 
State's share of Total SDWA Need, with each State receiving a minimum 
of one percent of the funds available to States, as required by the 
law. This component of the need includes the Current SDWA Need and 
Future SDWA Need--both are for improvements required by SDWA 
regulations. Future SDWA need includes projects needed over the next 20 
years for compliance with existing regulations. Future SDWA Need also 
includes projects for the proposed D/DBPR and ESWTR. Total SDWA Need 
does not include distribution need tied to the coliform rule.
    Using Total SDWA Need as the basis for allocating DWSRF 
capitalization grant funds would emphasize the high priority of SDWA 
projects and also give emphasis to projects for compliance with 
proposed regulations. Please note that the capital need for future 
regulations is based on national regulatory impact analysis estimates. 
These estimates used EPA's best knowledge of existing infrastructure 
and the paths that water systems will likely use to attain compliance. 
The need for proposed regulations is divided among States based solely 
on the number of systems in given size categories in each State. It 
does not factor in geographical differences. Estimates for proposed 
regulations are rough and not as good as the estimates of need for 
existing regulations from the Drinking Water Needs Survey.
    Options 1 through 4 outline the range of possibilities for use as 
the basis of a grant allocation formula. Because each has limitations, 
a hybrid option may be more suitable. The following are examples of 
hybrid formulas. EPA seeks comment on appropriate hybrid formulas for 
allocation of DWSRF funding.

Option 5--Hybrid of Current Need and Current SDWA Need

    A hybrid formula using the Current Need and Current SDWA Need 
(e.g., a formula based on 50 percent Current Need and 50 percent 
Current SDWA Need) would take advantage of the positives of both 
approaches. The Current Need component of the hybrid formula would take 
into account all projects needed now that were included in the Drinking 
Water Needs Survey. The Current SDWA Need component would place 
emphasis on the projects required now for compliance. Additionally, 
distribution need associated with the Total Coliform Rule could be 
factored in.

[[Page 56234]]

Option 6--Hybrid to Emphasize Small System Need

    Small water systems will likely have a greater need for DWSRF 
monies than larger systems that have better access to other sources of 
funding. Small water systems have a comparatively high per-household 
need and analysis of data shows that small water systems have more 
trouble than other systems in maintaining compliance with drinking 
water regulations.
    A formula could be constructed to give extra weight to small 
systems, which could be defined as systems serving fewer than 10,000, 
or 3,300, or some other level, as appropriate. For example, 50 percent 
of the formula could be based on Total Need (or Current Need, or 
Current SDWA Need) and the other 50 percent could be based on the Total 
Need (or Current Need, or Current SDWA Need) of systems serving fewer 
than 10,000 persons. Such a formula could include or exclude 
distribution need tied to the coliform rule.

    Dated: October 23, 1996.
Cynthia C. Dougherty,
Director, OGWDW.
[FR Doc. 96-27953 Filed 10-30-96; 8:45 am]
BILLING CODE 6560-50-P