[Federal Register Volume 63, Number 113 (Friday, June 12, 1998)]
[Notices]
[Pages 32208-32209]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-15738]


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ENVIRONMENTAL PROTECTION AGENCY

[FRL-6110-8]


Proposed Policies Affecting the Drinking Water State Revolving 
Fund (DWSRF) Program and Announcement of Stakeholder Meeting

AGENCY: Environmental Protection Agency.

ACTION: Notice.

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SUMMARY: The U.S. Environmental Protection Agency (EPA) is proposing to 
issue two policy decisions for the Drinking Water State Revolving Fund 
(DWSRF) program. The first would allow eligible privately-owned public 
water systems to be reimbursed for costs incurred after a State 
notifies the system that it will provide a loan, but before the system 
actually receives the loan. This will allow privately-owned systems to 
move ahead with construction to take advantage of construction seasons. 
The second policy would allow States to make loans for projects that 
are needed to solve public health problems for residents currently 
served by contaminated ground water wells. This policy would expand the 
universe of eligible loan recipients by allowing loans to an entity 
that is not currently a public water system, but which will become a 
public water system upon completion of the project.
    EPA has also developed a proposed strategy to be used, if 
necessary, for implementing withholding of DWSRF funds in cases where 
States fail to meet statutory requirements for ensuring capacity of new 
systems commencing operation after October 1, 1999.
    EPA is soliciting comments on these proposals until July 19, 1998. 
Comments in writing should be directed to Veronica Blette, 
Implementation and Assistance Division, Office of Ground Water and 
Drinking Water, U.S. EPA, (4606), 401 M Street SW, Washington, D.C. 
20460, by fax to (202) 260-4656 or by E-mail to 
[email protected]. EPA is also holding a stakeholders meeting on 
July 13, 1998 in Washington, D.C. to discuss the proposals, and to 
provide an opportunity for participants to comment, ask questions and 
express their views.

Background

    The DWSRF program was established by the reauthorized Safe Drinking 
Water Act (SDWA) (Pub. L. 104-182), signed by President Clinton on 
August 6, 1996. The SDWA Amendments authorizes $9.6 billion for the 
DWSRF program and related programs from fiscal year 1994 through fiscal 
year 2003. EPA's budget included $1.275 billion for the DWSRF program 
and related programs in FY 1997 and $725 million in FY 1998. Final 
Guidelines [EPA 816-R-97-005] for the program were released on February 
28, 1997. Funding provided by EPA from the national DWSRF appropriation 
is used by States to establish DWSRF loan programs. States can also use 
part of the funds to support State and local programs related to source 
water protection, operator certification and drinking water programs.
    State DWSRF programs can make loans to both privately-owned and 
publicly-owned community water systems and not-for-profit non-community 
water systems. A community water system is a system that serves at 
least 15 service connections used by year-round residents of the area 
served by the system; or regularly serves at least 25 year-round 
residents. A non-community water system is a public water system that 
is not a community water system. States have the flexibility to tailor 
DWSRF programs to address local needs as long as the programs meet 
minimum Federal requirements. States must develop a priority system 
which will be used to prioritize use of DWSRF funds. Funding priority 
must be based on three criteria: projects needed to protect public 
health, achieve or maintain SDWA compliance, and to help those systems 
with the greatest economic need. States are required annually to 
develop, and subject to public review, a comprehensive priority list of 
projects that have applied for funding and a fundable list, which is a 
list of the highest ranked projects which are expected to receive 
funding in that year.

Proposals

    (1) The Safe Drinking Water Act (SDWA) contains a provision which 
allows State DWSRF programs to provide loans to municipally owned 
systems to refinance debt incurred for eligible projects. Specifically, 
section 1452(f)(2) allows States ``to buy or refinance the debt 
obligation of a municipality, intermunicipal or interstate agency 
within the State * * * in any case in which a debt obligation is 
incurred after July 1, 1993.'' However, the SDWA does not have a 
similar provision for privately-owned facilities.
    A number of States have expressed concern that a strict 
interpretation of this refinance provision could delay construction of 
some privately-owned projects that are needed to solve public health 
problems. States would like the option of reimbursing eligible 
privately-owned systems for debt or costs incurred by the system after 
it receives notification from the State that the State intends to offer 
it a loan in the near future. Costs incurred after the notification, 
but before the loan was made, would be eligible for reimbursement. This 
would encourage systems to move ahead with construction in order to, 
for example, take advantage of seasonal construction cycles.
    EPA believes that projects which have been approved for funding 
from the DWSRF, but move ahead with construction prior to the actual 
award, should be able to include these short

[[Page 32209]]

term construction costs in the DWSRF loan under certain conditions. In 
these cases, where a privately-owned project incurs a cost prior to 
receiving a loan, even if by means of a short term debt, that debt will 
be treated as a previously incurred cost that is eligible for loan 
assistance.
    The Agency is proposing that any project that has been given 
approval, authorization to proceed, or any similar action by the State 
prior to the actual project construction will be eligible for 
reimbursement of construction expenses incurred after such State 
action, provided that the project meets all of the requirements of the 
DWSRF program. Such a project must be 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 may also be eligible 
for reimbursement of costs incurred after the system has been informed 
that it will receive funding. These requirements would apply regardless 
of whether the system financed costs using a short-term debt instrument 
or internal capital.
    Projects receiving reimbursement of incurred costs would be subject 
to all other Federal requirements required of a recipient of Federal 
funds, including an environmental review which must consider the 
impacts of the project based on the preconstructing site conditions. 
Failure to comply with the State's environmental review process cannot 
be justified on the grounds that costs had already been incurred, 
environmental impacts had already been caused, or contractual 
obligations had been made prior to the binding commitment.
    (2) Section 1452(a)(2) of the SDWA Amendments states that 
``financial assistance under this section may be used by a public water 
system only for expenditures * * * which * * * will facilitate 
compliance with national primary drinking water regulations * * *.'' 
The Act defines a public water system (PWS) as a ``system * * * (of) 
pipes or other constructed conveyances'' which regularly serves at 
least 15 service connections or at least 25 individuals. Several States 
have indicated that a strict interpretation of this provision would 
prevent them from providing funds to an entity (e.g., homeowners' 
association) that has a public health problem and is not currently a 
PWS, but which would become a PWS upon construction of a piped system. 
States want the flexibility to provide DWSRF funds to these entities in 
order to solve public health problems posed by contaminated wells. 
While the SDWA does allow States to lend funds to an existing PWS to 
extend lines to solve these types of public health problems, not all of 
these situations have an existing PWS nearby that is willing or able to 
help.
    EPA believes that the statute permits the DWSRF to create a 
federally regulated PWS in limited circumstances to solve the public 
health problems intended to be addressed by the statute; for example, 
health risks faced by homeowners currently served by individual wells. 
The conditions which would have to be met are: (a) upon completion of 
the project, the entity responsible for the loan must meet the 
definition of a Federal community public water system; (b) funding is 
limited to projects on the State's fundable list where an actual public 
health problem with serious risks exists; (c) the project must be 
limited in scope to the specific geographic area affected by 
contamination; (d) the project can only be sized to accomodate a 
reasonable amount of growth expected over the life of the facility--
growth cannot be a substantial portion of the project; and (e) the 
project must meet the same technical, financial and managerial capacity 
requirements that the SDWA requires of all DWSRF assistance recipients.
    (3) Section 1452(a)(1)(g) of the SDWA Amendments requires the 
Administrator to withhold 20% of a State's DWSRF 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 operation 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 operations commence (section 1420(a)). EPA proposes that for award 
of FY99 funds, a State will receive 100% of its allotment if it has the 
statutory authority and has completed or is in the process of a 
scheduled administrative rulemaking or equivalent approach with the 
realistic expectation that the State will have a fully functional 
program as of 10/1/99. States failing to meet this will have 20% of 
their allotment held back. If a State subsequently meets these 
requirements by 9/30/99 the held back funds will be released. If the 
State fails to meet the requirements by 9/30/99 the funds will be 
permanently withheld and reallotted to other States.
    For FY2000 funds and beyond, EPA is proposing to withhold and 
reallot 20% of the State's allotment if the State fails to demonstrate 
that it has, and is implementing, a fully functional program to ensure 
that new systems have capacity. The assessment will be performed as 
part of the capitalization grant application review, but will be based 
on the status of the State program as of October 1 of the fiscal year 
that the funds were allotted to the State.

DATES: A Stakeholder meeting to address these proposals and other 
implementation issues associated with the DWSRF program has been 
scheduled for July 13, 1998 from 1 p.m. to 5 p.m. The meeting will be 
held at the Washington Information Center (WIC) at EPA Headquarters, 
401 M Street SW, Washington, DC 20460.
    To register for the meeting, contact the Safe Drinking Water Act 
Hotline, telephone (800) 426-4791. Interested parties who cannot attend 
the meeting may participate via conference call and should register 
with the Safe Drinking Water Hotline by July 6, 1998 to guarantee 
availability.

FOR FURTHER INFORMATION CONTACT: The Safe Drinking Water Act Hotline, 
telephone (800) 426-4791. Information about the DWSRF program, 
including program guidelines and State contact information, is 
available from the EPA Office of Ground Water and Drinking Water Web 
Site at the URL address ``http://www.epa.gov/OGWDW.''

    Dated: June 5, 1998.
Cynthia C. Dougherty,
Director, Office of Ground Water and Drinking Water.
[FR Doc. 98-15738 Filed 6-11-98; 8:45 am]
BILLING CODE 6560-50-P