[Federal Register Volume 68, Number 192 (Friday, October 3, 2003)]
[Notices]
[Pages 57447-57459]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-25137]


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ENVIRONMENTAL PROTECTION AGENCY

[FRL-7565-1]


Agency Policy and Guidance: Draft Small Local Governments 
Compliance Assistance Policy

AGENCY: Environmental Protection Agency.

ACTION: Request for public comment.

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SUMMARY: The U.S. Environmental Protection Agency (EPA) today seeks 
public comment on proposed revisions to its 1995 Policy on Flexible 
State Enforcement Responses to Small Community Violations (the Small 
Communities Policy). The Small Communities Policy encourages states to 
enhance protection of public health and the environment by providing 
comprehensive environmental compliance assistance to the 72% of 
American communities that are home to 2,500 or fewer permanent 
residents. If the actions of the state to provide compliance assistance 
and the actions of the small community to achieve compliance stay 
within the parameters of the Small Communities Policy, EPA will 
generally defer to the state's decision to reduce or waive the 
noncompliance penalty that EPA guidance would normally require the 
state to assess for the small community's violations. During the course 
of the compliance assistance, the small community must work in good 
faith with the state to: (1) Evaluate the small community's compliance 
status and identify all of its environmental violations; (2) develop a 
priority-based schedule for the small community to achieve compliance 
with all applicable environmental requirements as soon as practicable; 
and (3) build the technical, managerial, and financial capacity the 
small community needs to achieve and sustain comprehensive 
environmental compliance. The central tenets of the Small Communities 
Policy are:
    1. Good faith efforts; 2. enforceable commitments; and 3. 
comprehensive compliance with all environmental requirements.
    The 1995 Small Communities Policy can be downloaded from the 
Internet at http://www.epa.gov/compliance/resources/policies/incentives/smallcommunity/scpolicy.pdf.
    EPA now proposes a number of revisions intended to extend the scope 
of the Small Communities Policy. The policy will be retitled the Small 
Local Governments Compliance Assistance Policy to clarify EPA's intent 
that the policy benefit units of local government.
    To make the benefits of the Small Local Governments Compliance 
Assistance Policy available to a greater number of small local 
governments, EPA proposes to:
    1. Defer to states' decisions to reduce or waive the normal 
noncompliance penalties of local governments with 3,300 or fewer 
permanent residents--if the actions of the state to provide compliance 
assistance and the actions of the local government to achieve 
compliance are consistent with the parameters established by the Small 
Local Governments Compliance Assistance Policy.
    2. Defer to states' decisions to reduce or waive the normal 
noncompliance penalties of local governments with between 3,301 and 
10,000 permanent residents--if a state has followed guidelines in the 
Small Local Governments Compliance Assistance Policy to determine that 
the technical, managerial, and financial capacity of the local 
government is so limited that the local government is unlikely to 
achieve and sustain comprehensive environmental compliance without the 
state's assistance; and if the actions of the state to provide 
compliance assistance and the actions of the local government to 
achieve compliance are consistent with the parameters established by 
the policy.
    To make the benefits of the Small Local Governments Compliance 
Assistance Policy available in a wider range of circumstances, EPA 
proposes to defer to states' decisions to reduce or waive the normal 
noncompliance penalties for eligible local governments that enter into 
an enforceable agreement to: 1. correct known violations; and 2. 
develop and implement Environmental Management Systems for their 
governmental operations. EPA also proposes to defer to states' 
decisions to reduce or waive the normal noncompliance penalties for 
eligible local governments with between 3,301 and 10,000 permanent 
residents that enter into enforceable agreements either to achieve 
comprehensive environmental compliance or to develop and implement 
environmental management systems within the ``fenceline'' of a subset 
of their government operations.
    EPA also seeks public comment on whether and how the Agency could 
implement a policy similar to the Small Local Governments Compliance 
Assistance Policy for its compliance assistance and enforcement 
activities where EPA directly implements a program, where EPA retains 
primary enforcement authority, or where EPA takes action after 
consulting with a State

[[Page 57448]]

that has primacy or has been authorized to implement a Federal program.

DATES: The Agency requests comments on today's proposal. Comments must 
be received or post-marked by midnight January 2, 2004. Comments 
received after this date may not be considered in decision making on 
the proposed policy.

ADDRESSES: Send written comments (in triplicate, if possible) to: the 
Docket Clerk, U.S. Environmental Protection Agency Enforcement and 
Compliance Docket and Information Center, Mail Code: 2201T), Docket 
Number EC-P-2001-003, U.S. Environmental Protection Agency, 1200 
Pennsylvania Ave., NW., Washington, DC 20004. Please use a font size no 
smaller than 12. Comments may also be sent electronically to 
[email protected], or faxed to (202) 566-1511. Attach electronic 
comments as an ASCii (text) file, and avoid the use of special 
characters and any form of encryption. Be sure to include the docket 
number EC-P-2001-003 on your document. In person, deliver comments to 
the Enforcement and Compliance Docket and Information Center, U.S. 
Environmental Protection Agency, 1200 Pennsylvania Ave., NW., EPA West, 
Room B133, Washington, DC 20004.

FOR FURTHER INFORMATION CONTACT: Kenneth Harmon, telephone (202)564-
7049; e-mail [email protected].

SUPPLEMENTARY INFORMATION: 

I. Background and History

    EPA's enforcement response policies generally provide for 
initiation of an enforcement action and assessment of standard 
penalties (which can be adjusted downward on the basis of the 
violator's inability to pay) if a local government entity is discovered 
to have violated environmental regulations. In 1994, EPA began informal 
discussions with the States of Oregon and Idaho, later joined by the 
State of Nebraska, centered on those States' planned use of enforcement 
discretion with respect to small community violators. These States 
noted that small communities may have more difficulty complying with 
environmental regulations than larger communities do. Small communities 
that lack personnel trained in environmental management may be unaware 
of environmental requirements. Once informed of their environmental 
noncompliance, small communities may not know how to correct their 
problems. Because small communities have a smaller tax base and a 
smaller pool of ratepayers, their residents often must pay higher per 
household costs for environmental compliance. Oregon, Idaho, and 
Nebraska sought assurances that EPA would defer to a State's exercise 
of enforcement discretion to reduce or waive the normal noncompliance 
penalty where a State determines that a small community violator is 
working diligently in good faith to identify and correct its 
noncompliance.
    In 1995, EPA responded by issuing the Policy on Flexible State 
Enforcement Responses to Small Community Violations (``the Small 
Communities Policy''). The Small Communities Policy established 
parameters within which EPA encourages States to provide incentives for 
small communities to seek State assistance in identifying their 
environmental problems, developing a priority-based schedule for 
returning to full comprehensive environmental compliance, and building 
the technical, managerial, and financial capacity needed to achieve and 
sustain compliance.

II. Overview of the Small Communities Policy

    EPA's 1995 Small Communities Policy gives States \1\ considerable 
freedom to tailor small community environmental compliance assistance 
practices or programs that meet specific local needs. EPA's deference 
on penalty reductions and waivers under the Small Communities Policy is 
generally restricted to agreements States enter into with communities 
with no more than 2,500 permanent residents. These communities must be 
working diligently in good faith to achieve and sustain comprehensive 
environmental compliance, i.e., compliance with every environmental 
requirement to which their government operations are subject. If a 
small community cannot achieve comprehensive compliance within 180 days 
of the State's commencement of compliance assistance to the community, 
within that same 180 days, the community must enter into a written and 
enforceable agreement with the State that establishes a schedule for 
addressing and correcting all of its environmental violations as soon 
as practicable. A State that seeks EPA's deference to its decision to 
reduce a small community's noncompliance penalties must have adequate 
processes for:
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    \1\ ``State'' means the agency of any State, Commonwealth, or 
territory of the United States that has received EPA's approval to 
implement environmental laws and regulations. An Indian Tribe can be 
a State if it has received EPA's approval for treatment as a State.
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    [sbull] Responding quickly to requests for compliance assistance;
    [sbull] Selecting communities to participate in the State's 
compliance assistance program;
    [sbull] Assessing a community's good faith and compliance status;
    [sbull] Establishing priorities for addressing noncompliance; and
    [sbull] Ensuring prompt correction of violations
    The Agency reserves all of its enforcement authorities, including 
its discretion to initiate an enforcement action to address any 
violation or circumstance that may present an imminent and substantial 
endangerment to, has caused or is causing actual serious harm to, or 
presents a serious threat to, public health or the environment.
    Deference under the Small Communities Policy is not warranted if, 
in EPA's judgment, a State's program to reduce or waive small 
communities' noncompliance penalties in exchange for comprehensive 
environmental compliance fails to satisfy the conditions of the Small 
Communities Policy. Neither is deference under the Small Communities 
Policy warranted if, in EPA's judgment, a State's application of its 
program to reduce or waive small communities' noncompliance penalties 
in exchange for comprehensive environmental compliance fails to 
provide, in a specific case, adequate protection to human health and 
the environment because that application neither requires nor results 
in reasonable progress toward, and achievement of, environmental 
compliance by a date certain.

III. Differences Among the Self-Disclosure Policies

    In addition to the Small Communities Policy, EPA has issued 
Incentives for Self-Policing: Discovery, Disclosure, Correction and 
Prevention of Violations (the Audit Policy) and the Small Business 
Compliance Policy (the Small Business Policy), both of which were last 
revised in April of 2000. These policies provide penalty relief to 
regulated entities who, upon discovering their violations, promptly 
disclose them to EPA and promptly return to compliance. Although the 
Small Communities Policy is often grouped with the Audit Policy and the 
Small Business Policy under the shared term ``self-disclosure 
policies,'' it differs in significant ways. The Audit Policy and the 
Small Business Policy apply only to violations discovered outside the 
scope of a compliance assessment required by statute or regulation. The 
Small Communities Policy can apply to a violation no matter how 
discovered. It can apply to violations discovered

[[Page 57449]]

outside the scope of required compliance assessments as well as to 
violations discovered during required compliance assessments and to 
violations discovered by the regulator during the course of an 
inspection. While the Audit Policy and the Small Business Policy do not 
provide penalty relief for repeat violations, the Small Communities 
Policy allows application of the policy to communities with a history 
of noncompliance if the State determines that the community has been 
acting in good faith and to the best of its ability to address 
violations and achieve compliance. The Audit Policy and the Small 
Business Policy generally allow disclosing violators no more than 60 
days and 90 days, respectively, to correct their violations (the Small 
Business Policy will allow 180 days for corrections if the violator 
first submits a written schedule, and up to 360 days for corrections if 
the violator will correct the violations by putting pollution 
prevention measures in place). The Small Communities Policy gives 
communities up to 180 days to correct violations without a written 
agreement and schedule, but, if a community cannot achieve compliance 
within 180 days, the policy permits the community to enter into a 
written and enforceable agreement with the State establishing a 
schedule for the community to address all of its violations as 
expeditiously as practicable in order of risk-based priority. Also, the 
Audit Policy and the Small Business Policy do not require, as the Small 
Communities Policy does, that noncompliers evaluate their compliance 
with all applicable regulatory requirements. This significant 
difference between the Small Communities Policy and the other self-
disclosure policies is the best illustration that the Small Communities 
Policy has a different purpose. The Audit Policy and the Small Business 
Policy are intended to provide incentives for regulated entities to 
conduct self-audits and disclose the violations they discover. The 
Small Communities Policy is intended to encourage States to conduct 
comprehensive evaluations of their small communities' compliance with 
every environmental requirement that applies to the community's 
governmental operations, and then work with communities to help them 
build the technical, managerial, and financial capacity they need to 
achieve and sustain comprehensive environmental compliance.

IV. The January 23, 2002 Federal Register Notice

    Although State comprehensive environmental compliance assistance 
programs have provided compliance assistance to more than 250 small 
communities since EPA issued the Small Communities Policy, most of that 
activity took place in just two States. In discussions with small 
community and State stakeholders questioning why so few States had 
implemented the policy, EPA learned that many stakeholders find aspects 
of the policy problematic. Some stakeholders believe that the Small 
Communities Policy's population cap of 2,500 is too low. Many States 
point out that EPA has not provided funding for States to establish 
programs offering comprehensive environmental compliance assistance to 
small communities. Many small communities do not see how participating 
in a State's comprehensive compliance assistance program would benefit 
them. These and other perceived shortcomings of the policy were seen as 
impediments to its more wide-spread implementation among the States.
    On January 23, 2002, EPA published a Federal Register notice (67 FR 
3185) requesting public comment on possible revisions to various 
aspects of the Small Communities Policy. The Federal Register notice 
sought comment on: (1) Raising the policy's population cap to allow 
participation of larger (but still small) communities; (2) allowing 
comprehensive environmental compliance assistance projects confined 
within the ``fenceline'' of one of a community's operations; (3) 
reducing the resource burdens associated with establishing and 
participating in comprehensive environmental compliance assistance 
programs; and (4) enhancing incentives for both States and small local 
governments to participate in such programs. The Federal Register 
notice also discussed the relationship between actions undertaken in 
accordance with the Small Communities Policy and actions undertaken as 
part of an environmental management system (EMS). EPA noted that if a 
small local government receiving comprehensive environmental compliance 
assistance from the State were to develop and implement an EMS as part 
of its strategy to address its noncompliance, the local government 
should incorporate its EMS activities into the written and enforceable 
agreement and the schedule required by the policy. Finally, EPA 
requested comment on more general aspects of the Small Communities 
Policy, including the policy's definition of community, the time frames 
for disclosure and correction of violations, and the types of 
violations to which the Small Communities Policy would apply.
    EPA received comments from ten respondents. A summary of these 
comments and the comments themselves are available from EPA's 
Enforcement and Compliance Docket and Information Center (EDIC) in the 
EPA Docket Center (EPA/DC), EPA West Room B102, 1301 Constitution 
Avenue, NW., Washington, DC. The EPA Docket Center Public Reading Room 
is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding 
legal holidays. The telephone number for the Reading Room is (202) 566-
1744, and the telephone number of the EDIC is (202) 566-1514. An 
electronic version of the public docket is available through EPA 
Dockets (EDOCKET) at http://www.epa.gov/edocket. Use EDOCKET to submit 
or view public comments, access the index listing of the contents of 
the public docket, and to access those documents in the public docket 
that are available electronically. Once in the system, select 
``search,'' then type in the docket ID number identified above.

V. The Role of the EPA Inspector in Providing Compliance Assistance 
During Inspections

    On June 25, 2003, EPA issued a national policy titled: The Role of 
the EPA Inspector in Providing Compliance Assistance During Inspections 
(Inspector Policy). EPA's Inspector Policy concerns the actions of EPA 
inspectors, not State inspectors, conducting compliance inspections, 
but it can provide useful guidance for States. The Inspector Policy 
encourages EPA inspectors' current practice of providing compliance 
assistance during on-site compliance inspections, and clarifies what 
compliance assistance is appropriate in such circumstances. The 
Inspector Policy can be accessed at www.epa.gov/Compliance/resources/policies/monitoring/ inspection/inspectorrole.pdf.

VI. Proposed Changes to the Small Communities Policy

    EPA today proposes replacing the term ``community'' with the term 
``local government'' as derived from U.S. Census Bureau definitions. 
This change, which clarifies EPA's intent to focus compliance 
assistance on small governmental entities, is also reflected in the 
title of the revised policy: the Small Local Governments Compliance 
Assistance Policy. EPA also proposes three major changes to the Small 
Communities Policy, one related to the cap on the population of 
participating local governments, one allowing projects of restricted 
scope in some circumstances, and one encouraging local governments to 
develop and implement EMS. These changes are intended to make it easier 
for more local

[[Page 57450]]

governments to get needed compliance assistance from their States, and 
to promote more effective management of environmental responsibilities 
by local governments.
    The following sections discuss the revised term used to describe 
entities eligible for participation under the policy, proposed 
revisions to the population cap and to the requirement of comprehensive 
assistance at all of a local government's operations, and the proposed 
addition of an EMS option.

A. Entities Eligible To Receive all Benefits

    The 1995 Small Communities Policy applied to ``small communities'', 
which EPA defined as ``communities, generally comprised of fewer than 
2,500 residents, [that are]:
    [sbull] Non-profit
    [sbull] Governing entities (incorporated or unincorporated)
    [sbull] That own facilities that supply municipal services.
    EPA now proposes to minimize possible confusion by replacing the 
term ``community'' with the term ``local government'', thereby 
designating familiar, legally-defined entities as those entities 
eligible to receive benefits under the policy. Although EPA originally 
adopted a broad definition of eligible entities to provide States 
flexibility to develop compliance assistance programs that addressed 
the State's particular needs, in the seven years the policy has been in 
force, EPA has seen no evidence that States wish to offer comprehensive 
environmental compliance assistance to communities that are not 
traditional units of local government. EPA's proposal derives its 
definition of ``local government'' from United States Census Bureau 
definitions (see, www.census.gov/geo /www/tiger/glossary.html#glossary) 
related to ``governmental unit''. As used by the policy, the term 
``local government'' can mean any organized unit of government 
authorized in a State's constitution and statutes, and established to 
provide general government for a defined area. This includes 
governments designated as a county, parish (in Louisiana), 
municipality, borough, city, village, town, township, or plantation (in 
Maine).
    EPA acknowledges that this definition differs from ``local 
government'' as defined in Section 2 of the Homeland Security Act of 
2002 (Pub. L. 107-296). For the purposes of that Act, Congress defined 
`local government' as:
    (A) A county, municipality, city, town, township, local public 
authority, school district, special district, intrastate district, 
council of governments (regardless of whether the council of 
governments is incorporated as a nonprofit corporation under State 
law), regional or interstate government entity, or agency or 
instrumentality of a local government;
    (B) An Indian tribe or authorized tribal organization, or in Alaska 
a Native village or Alaska Regional Native Corporation; and
    (C) A rural community, unincorporated town or village, or other 
public entity.

For the Small Local Governments Compliance Assistance Policy EPA 
proposes a more restrictive definition because it is the Agency's 
intention to focus the benefits of the policy on small units of general 
purpose local government. It is EPA's belief that special districts and 
governmental entities comprised of more than one participating 
governmental unit are created specifically for the purpose of ensuring 
that the resulting governmental unit has the technical, managerial, and 
financial capacity to discharge its responsibilities. EPA also believes 
single-medium compliance assistance programs or compliance assistance 
efforts designed for that specific sector of the regulated community 
can best meet the needs of governmental entities created for the 
purpose of delivering one type of service (not general services) to the 
public.
    EPA invites public comment on this proposed change to the 
definition of entities eligible to receive the full benefits of the 
Small Local Governments Compliance Assistance Policy, particularly to 
the extent the policy would now not apply either to unincorporated 
entities that provide municipal services, or to district government 
entities authorized by State statute to provide, not general services, 
but to perform a specific function (e.g., school, water, or power 
districts).

B. Proposed Revisions to the Population Cap

    EPA's January 23, 2002 Federal Register notice sought comment on 
two specific questions related to the population cap: (1) Should the 
policy raise its current cap to allow participation of communities with 
more than 2,500 residents? and (2) should the population cap be 
replaced by a test of a community's capacity to address its 
environmental responsibilities?
    Nine of the ten commenters addressed the population cap. All nine 
favored giving State programs flexibility to admit communities with 
more than 2,500 permanent residents. Four commenters supported raising 
the population cap to 10,000, both to be consistent with some of the 
population-dependent provisions of the Safe Drinking Water Act (in 
which public water systems that serve more than 10,000 users are 
labeled ``large'') and because the commenters believe communities with 
populations of up to 10,000 often provide essential public services to 
a customer base too small to fund a full-time professional 
environmental staff. Three commenters indicated that while a population 
of 2,500 could serve as a reliable rule of thumb for determining which 
communities need compliance assistance, they recommended that States be 
given discretion to justify application of the policy to larger 
communities if those larger communities can be shown also to need 
compliance assistance.
    None of the eight respondents who offered comments on capacity 
tests supported determining a community's eligibility for compliance 
assistance solely on the basis of a capacity test. Three commenters 
rejected capacity tests outright, as they believe small local 
governments lack the expertise and resources needed to gather the 
information that would be required by such tests, and States lack the 
resources needed to evaluate the large number of small local 
governments potentially eligible for assistance. Five commenters 
asserted that States should have the flexibility to use a capacity test 
as a means of determining if a community whose population exceeds the 
population cap should nonetheless be eligible for participation.
    After considering these comments, EPA decided to propose a hybrid 
approach. The proposed revised policy establishes a two-tiered 
population cap. EPA will defer to the States' acceptance into their 
programs of local governments with up to 3,300 permanent residents 
without analysis demonstrating a lack of technical, managerial, or 
financial capacity on the part of the local government. The proposed 
revised policy also provides that States can apply a capacity test to 
justify the participation of a local government with more than 3,300 
but no more than 10,000 permanent residents. As a practical matter, 
such an upper limit is necessary if EPA wishes to focus comprehensive 
compliance assistance resources on small local governments who most 
need it while encouraging larger municipalities to use their greater 
technical, managerial, and financial capacity to assume more 
responsibility for ensuring their environmental compliance. In 
proposing these population levels for the population cap and the upper 
population limit, EPA

[[Page 57451]]

acknowledges the desirability of consistency with the definition of 
small local government in environmental statutes (most notably 
regulations implementing the Safe Drinking Water Act, in which public 
water systems serving 3,300 and fewer users are labeled ``small'' ) and 
in the recent Public Health Security and Bioterrorisim Preparedness and 
Response Act of 2002 (Pub. L. 107-188) (which, in its amendments to the 
Safe Drinking Water Act, reaffirmed 3,300 as the population level below 
which public water systems were exempt from some requirements). EPA 
also acknowledges that States, in implementing the Small Local 
Governments Compliance Assistance Policy are free to adopt a more 
stringent population cap if they believe lower population levels are 
more appropriate for their local circumstances. If, for example, a 
State believes population levels of 2,500 without a demonstration of 
incapacity and up to 5,000 with a demonstration of incapacity are more 
appropriate to its local circumstances, the State can establish those 
levels for its program. A State may choose to evaluate the capacity of 
requiring all potential participating local governments, or choose not 
to conduct any capacity tests and simply limit participation in its 
program to local governments no larger than 3,300 permanent residents. 
A State also has the option of providing comprehensive environmental 
compliance assistance to local governments without regard to their 
populations, but if the State reduces or waives the normal 
noncompliance penalties of local governments with more than 10,000 
permanent residents, EPA may find it appropriate to initiate its own 
enforcement action to recover additional remedies.
    EPA's proposed revised policy recommends that States adopt a number 
of listed capacity measures the Agency has drawn from studies performed 
by EPA's Boise Environmental Finance Center. In the context of 
measuring the ability of small local governments to implement the 
requirements of the Safe Drinking Water Act, the Boise Environmental 
Finance Center identified a number of factors that influence the 
technical, managerial, and financial capacity of local governments 
(see, http://sspa.boisestate.edu/efc/). EPA adapted many of these 
measures for inclusion into the proposed revised policy, and recommends 
that States incorporate these measures as appropriate for their local 
conditions. A State that has provided compliance assistance to a small 
local government with more than 3,300 but no more than 10,000 permanent 
residents and seeks EPA deference to its decision to reduce or waive 
the normal noncompliance penalty of that small local government must 
have a capacity test in place and consistently apply it. EPA requests 
comment on the recommended measures presented in the proposed revised 
policy.

C. Fencelining

    Restricting the scope of activities to the boundaries of some 
subset of operations or facilities is called ``fencelining''. In its 
January 23, 2002, Federal Register notice, EPA asked if, as a cost 
saving measure, the Small Local Governments Compliance Assistance 
Policy should countenance ``fenceline'' projects. That is, should the 
policy apply if the State and small local government designate one of 
the local government's operations (i.e. vehicle fleet maintenance, 
provision of drinking water, grounds keeping, etc.), evaluate the local 
government's compliance with every environmental requirement that 
applies within the fenceline of that operation, and develop and 
implement a plan that addresses every environmental concern within that 
fenceline?
    Nine commenters addressed this point. Four commenters advised 
against allowing fenceline projects. Fencelining need not be 
incorporated into the policy, three of these four commenters asserted, 
because most States already offer statute-specific compliance 
assistance with respect to individual local government operations. 
These commenters suggested that allowing fencelining would abandon the 
policy's primary purpose--helping small local governments achieve and 
sustain comprehensive environmental compliance. Fencelining, they 
feared, would perpetuate a focus on operations with known or suspected 
violations while leaving other potentially more serious noncompliance 
at other operations undiscovered and unaddressed.
    Three other commenters believed fencelining's probable focus on 
known compliance concerns could be used to direct limited compliance 
assistance resources to where they are most needed. These commenters, 
however, advised limiting fencelining in some way. They suggested 
including restrictions to ensure that the policy did not become a 
compliance assistance program for one type of operation only, allowing 
fencelining only at operations EPA determines to be of particular 
concern, or allowing fencelining only at larger local governments where 
conducting comprehensive evaluations of all operations would be a 
prohibitive drain on available resources.
    EPA does primarily intend the policy to promote the provision of 
comprehensive environmental compliance assistance to small local 
governments. The Agency, however, acknowledges that fencelining can 
help States limit the cost of providing comprehensive compliance 
assistance to a local government that engages in a wide range of 
operations. EPA also notes there is no compelling reason to limit the 
scope of a fenceline to just one of a local government's operations. A 
State and a participating local government may have the capacity and 
the desire to undertake a comprehensive compliance assistance project 
incorporating more than one, but less than all, of the local 
government's operations.
    After reviewing the comments, EPA proposes to defer to States' 
decisions to reduce or waive the normal noncompliance penalties for 
fenceline projects involving only local governments with between 3,301 
and 10,000 permanent residents. With respect to compliance assistance 
to small governments with 3,300 or fewer permanent residents, EPA will 
generally defer to a State's decision to reduce or waive the normal 
noncompliance penalty only if the effort produced an enforceable 
agreement to achieve comprehensive compliance at all of the small 
government's operations.
    EPA seeks comment on whether this approach strikes an appropriate 
balance between the Agency's goal of encouraging States to provide 
truly comprehensive environmental compliance assistance to small local 
governments, and the Agency's goal of encouraging States to provide 
some form of comprehensive environmental compliance assistance to local 
governments with between 3,301 and 10,000 permanent residents. In 
developing this proposal, EPA considered that its Audit Policy and 
Small Business Policy currently provide fenceline-based penalty 
reductions and waivers to violators (including local governments) that 
voluntarily discover, promptly disclose, and expeditiously correct 
environmental noncompliance.
    If the Small Communities Policy were revised to support fenceline 
projects for some local governments, it would still differ from the 
Audit Policy and the Small Business Policy in some important ways:
    [sbull] Application of the Small Communities Policy is not limited 
to

[[Page 57452]]

those violations that are voluntarily discovered.
    [sbull] Projects under the Small Communities Policy must result in 
an assessment of the local government's compliance with all applicable 
environmental requirements, even if the project is confined within the 
fenceline of a subset of the local government's operations.
    [sbull] The Small Communities Policy gives local governments the 
flexibility to prioritize among their violations and develop a schedule 
to address all of their noncompliance as expeditiously as practicable 
in order of risk-based priority.

D. Environmental Management Systems

    An environmental management system (EMS) is an individualized 
internal management system designed, documented, and implemented to 
identify and manage the environmental impacts of an entity's 
operations. Developing and implementing an EMS is an effective way for 
a local government to identify the environmental aspects of its 
operations and manage its environmental responsibilities for continual 
improvement. EPA noted the similarities between the goals of the Small 
Communities Policy and the goals of an EMS in its January 23, 2002, 
Federal Register notice. Both the policy and an EMS establish a 
mechanism for moving a small local government toward sustained 
environmental compliance. In the Federal Register notice, the Agency 
noted that the primary difference between the two is the policy's focus 
on discovering and addressing all of a local governments' environmental 
noncompliance and an EMS's focus on implementing a system that provides 
for a local government's ongoing management of all its environmental 
responsibilities. EPA indicated in the Federal Register notice that if 
a small local government receiving comprehensive environmental 
compliance assistance from the State were to develop and implement an 
EMS as part of its strategy to address its noncompliance, the local 
government should incorporate its EMS activities into the written and 
enforceable agreement and the schedule required by the policy.
    All commenters on this point acknowledged the value of an EMS, but 
urged that development and implementation of an EMS, and the associated 
resource demands, not be made a condition of EPA deference.
    After considering the comments, EPA's has decided the policy, while 
not making EMSs mandatory, should provide local governments an 
incentive to develop and implement an environmental management system. 
Accordingly, the proposed revisions to the Small Communities Policy 
create an EMS option that will be available to small local governments 
that learn of environmental noncompliance as a result of a State's 
inspection of some subset of the small local government's operations. 
The revised policy would apply to small local governments that address 
their environmental noncompliance by entering into a written and 
enforceable agreement with the State establishing a schedule for the 
local government to: (1) Correct, as expeditiously as practicable in 
order of risk-based priority, the violations the State discovered 
during the inspection; and (2) develop and implement an environmental 
management system for all of its governmental operations. Local 
governments with populations between 3,301 and 10,000 that the State 
has determined eligible to participate under the policy may develop and 
implement an EMS applicable within a fenceline that incorporates the 
operation at which the violations were discovered. Not later than 180 
days after the State notifies the local government of the violations 
discovered during the inspection, the local government must enter into 
an enforceable agreement that establishes a schedule for correcting the 
violations, and for developing and implementing an EMS for its 
governmental operations. If the local government corrects the 
violations before the 180 days have passed, the written and enforceable 
agreement it enters into with the State can contain only provisions 
related to developing and implementing its EMS. In accordance with the 
schedule established by the EMS agreement, but in no event later than 
one year after entering into the EMS agreement with the State, a local 
government would demonstrate it has developed an EMS by producing and 
submitting to the State an EMS manual documenting how it will 
accomplish the essential elements of an environmental management 
system. Not less than one year, and not more than three years after the 
local government submits its EMS manual to the State, the State, or an 
independent third party approved by the State, would conduct an EMS 
audit to confirm that a local government has been implementing, and is 
continuing to implement, its EMS. This process is discussed more fully 
in part J of the policy.
    EPA proposes the EMS option as an alternative to the process 
established by the prior Small Communities Policy. That policy 
encourages small local governments to ask the State to perform a 
comprehensive environmental evaluation of all the local government's 
operations, enter into a written and enforceable compliance agreement 
establishing a schedule to correct all of its violations as 
expeditiously as practicable in order of risk-based priority, and 
correct all of its violations in accordance with that schedule.
    The EMS option would establish a process in which the small local 
government would, as expeditiously as practicable and in order of risk-
based priority, correct all of the violations discovered by the State 
during its inspection of a subset of the local government's operations. 
In committing to develop and implement an EMS, the small local 
government would be responsible for ensuring performance of the 
comprehensive analysis of the environmental aspects of all of its 
operations (or in the case of a local government approved for a 
fenceline project, all of its operations within the fenceline). If at 
any point during the development and implementation of its EMS a small 
local government discovers additional noncompliance, it must disclose 
these violations to the State as required by laws and regulations or in 
accordance with EPA's self-disclosure policies. The State and the small 
local government may then amend the terms of their agreement under the 
policy's EMS option to incorporate a schedule for correction of the 
newly discovered violations. The State and the small local government 
may, however, choose to address any noncompliance discovered after the 
entry of the EMS option agreement in any manner consistent with this 
policy and other EPA enforcement policies and guidelines.
    Local governments that wish to develop and implement an EMS should 
consult the EPA-sponsored Public Entity EMS Resource Center (PEER 
Center) at www.peercenter.net, and the nearest of its affiliated Local 
Resource Centers. The PEER Center provides case studies of completed 
local government EMS projects, process information, and guidance to 
local governments who wish to develop and implement an environmental 
management system. EPA will continue to support efforts to facilitate 
the development of EMS's by small local governments, will work to 
ensure State programs have access to EPA EMS tools, services, and 
funding, and will recommend that local governments that participate in 
State programs implementing the policy be given priority access to the 
Local Resource Centers.

[[Page 57453]]

    As this option was not described in the January 23, 2002, Federal 
Register notice, EPA seeks public comment on this point.

VII. Miscellaneous Issues

    In its January 23, 2002, Federal Register notice, EPA solicited 
comments on a number of other issues, including possible ways (such as 
fencelining) to reduce the States' burden of developing and 
implementing a comprehensive environmental compliance assistance 
program for small local governments, incentives for States and local 
governments to participate in such programs, the relationship between 
the policy and environmental management systems, and if a separate 
compliance assistance policy is needed for Tribal governments. With the 
exception of comments related to fencelining, the comments EPA received 
on these issues did not indicate a need for substantive revisions to 
the policy in these areas.

A. Burden on States

    In addition to fencelining, EPA specifically asked for comment on 
four other possible ways to reduce a State's burden of developing and 
implementing a comprehensive environmental compliance assistance 
program: In-kind contributions from EPA; shifting costs to communities; 
tiering; and streamlining.
    The commenters supported development and dissemination of in-kind 
contributions (i.e. compliance assistance materials, tools, and 
services that help implement a comprehensive environmental compliance 
assistance program) by EPA. Commenters advised against shifting costs 
to small local governments by requiring local governments to evaluate 
their own compliance status and devise a strategy to achieve and 
sustain environmental compliance as a prerequisite to receiving 
compliance assistance from the State. Commenters favored tiering, the 
provision of different levels of service to different classes of local 
governments, as a way to focus intensive compliance assistance where it 
is most needed. Streamlining drew little comment except from those 
commenters who pointed out that different branches of Federal 
government should always attempt to coordinate related mandates to the 
maximum extent possible.
    Commenters' support for in-kind contributions from EPA was tempered 
by their belief that such contributions would be of limited value, as 
State environmental standards often differ from Federal regulations in 
some details, and federally-produced materials would not provide 
information on State contacts. Shifting costs to small local 
governments drew negative comment. Respondents asserted that this 
approach, by requiring small local governments to identify their 
environmental responsibilities and develop a plan to address their 
environmental concerns before requesting assistance from the State, 
would be antithetical to the policy's goal of providing compliance 
assistance to small local governments unable to understand and address 
their environmental responsibilities. Respondents also questioned the 
reliability of compliance evaluations performed by untrained 
individuals--even if conducted with checklists and guidance materials 
provided for that purpose.
    EPA generally agrees with these comments. While the Agency's in-
kind assistance may not be able to meet every need of States and local 
governments, EPA believes, in most instances, States will need to make 
only minor modifications to incorporate essential State details the 
Federal materials may lack. For this reason, EPA will continue its 
efforts to make its compliance assistance materials as useful as 
possible, and to facilitate dissemination of the assistance to local 
governments. EPA also agrees that requiring small local governments to 
identify compliance concerns and a strategy for addressing them as a 
prerequisite of participation in a State's comprehensive compliance 
assistance program could effectively bar entry of the very local 
governments the policy was intended to reach. We acknowledge, however, 
that States with limited available resources can always establish 
eligibility criteria intended to restrict the number of qualifying 
applicants. One option would be for a State to establish tiers of 
service that allow the local governments defined as small to 
participate without first identifying a compliance concern while 
requiring larger, more capable local governments to make such a showing 
as part of an application process.
    In an attempt to promote streamlining, EPA has been an active 
participant in the U.S. Small Business Administration's E-Government 
project. E-Government is joining Federal agencies together to develop 
and pilot an on-line, interactive one-stop compliance assistance 
information source for businesses and local governments. Users will 
enter the system and complete a profile that describes their 
operations. E-Government will then generate links to compliance 
assistance resources available from the various Federal agencies that 
regulate the user's activities.
    Because EPA believes flexibility will allow Federal and State 
agencies to make best use of in-kind contributions from EPA, strategies 
for shifting costs to local governments, tiering levels of service, and 
streamlining among related government mandates, the proposed revised 
policy does not require states to take specific actions in these areas. 
EPA welcomes comments on this approach.

B. Incentives for Participation

    EPA's January 23, 2002, Federal Register notice described potential 
benefits of a comprehensive environmental compliance assistance program 
for States and small local governments. Benefits to an implementing 
State include more complete and accurate assessments of the 
environmental compliance status of its small local governments, 
measurements of progress toward reducing risks to the health of its 
citizens and the environment, and improved ability to plan and budget 
for future environmental and infrastructure needs. EPA also discussed 
options for recognizing States for their efforts to provide 
comprehensive environmental compliance assistance to small local 
governments, providing priority access to EPA compliance assistance 
tools and services, and the likelihood of EPA funding for pilot 
projects.
    All comments EPA received in response focused on Federal grants, 
which the commenters perceived as the only effective incentive for 
States to implement the policy.
    To provide an incentive for local government participation, the 
Small Communities Policy contemplates that States will reduce or waive 
the normal noncompliance penalties for local governments that 
participate in their comprehensive environmental compliance assistance 
programs. Seven years of limited participation by local governments has 
shown this to be an ineffective incentive. In the January 23, 2002, 
Federal Register notice, EPA noted that achieving and sustaining 
comprehensive environmental compliance created other benefits for local 
governments. A participating local government can expect to identify 
all its environmental compliance concerns; develop a plan for achieving 
and sustaining environmental compliance; learn how to build the 
technical, managerial, and financial capacity necessary to meet its 
compliance goals; gain assurance it is keeping its residents safe from 
environmental risks; and plan and budget for the future operations 
confident they will not face surprise

[[Page 57454]]

costs from unforeseen environmental problems. Other benefits to 
participating communities may include recognition from EPA or their 
states, priority access to EPA compliance assistance tools and 
services, or priority access to EPA-funded compliance grants. There are 
also indications that local governments that undertake a comprehensive 
environmental compliance evaluation and implement a program to ensure 
sustained compliance can improve their bond ratings and reduce their 
insurance premiums. Commenters generally approved of these incentives 
and stressed the importance of public recognition both as a means of 
rewarding local governments for their efforts to achieve and sustain 
comprehensive environmental compliance and as a way to promote interest 
among other local governments.
    To the extent yearly budgets allow, EPA's Office of Compliance will 
provide pilot grants to a limited number of States to help offset the 
resource demands of establishing a program to provide comprehensive 
environmental compliance assistance to small local governments. EPA 
will continue to work to provide and enhance other incentives for 
States. EPA will also continue to develop and expand the various local 
government incentives discussed above. As more tools and services are 
developed, and as funding for local government recognition becomes 
available, EPA will work to ensure coordination with State compliance 
assistance programs.

C. Application of the Policy to Tribes

    EPA received no comments on whether or not the policy should create 
a distinction between States and Tribes that have received EPA approval 
for treatment as States. As a result, the proposed revised policy 
leaves the policy's effects on Tribal governments unchanged.

VIII. Other Comments

    Commenters also suggested that the policy extend eligibility to 
non-governmental water systems that supply drinking water to a 
population equivalent to the population of a small local government, 
and to governmental organizations owned by a consortium of local 
governments that individually meet the policy's definition of small 
local government, but whose aggregated populations would exceed the 
policy's population cap. EPA does not propose making either of these 
suggested changes. Non-governmental water systems, even those serving 
small populations, represent themselves as having the technical, 
managerial, and financial capacity for compliant operation at the time 
they contract to offer service at an agreed-upon rate. Noncomplying 
non-governmental water systems can obtain penalty relief if they 
disclose and correct violations in accordance with the Audit Policy or 
the Small Business Policy. Either of those policies may be a better 
option than the Small Local Governments Compliance Assistance Policy 
for resolving environmental concerns at a single facility that engages 
in only one operation. Additionally, unique aspects of the Small Local 
Governments Compliance Assistance Policy may not be appropriate (e.g., 
including violations discovered by the regulator) or applicable (e.g., 
performing comprehensive environmental compliance evaluations of 
several operations; building technical, managerial, and financial 
capacity; and developing a schedule for addressing all violations in 
order of risk-based priority) to non-governmental water systems.
    With respect to governmental organizations owned by a consortium of 
small local governments, EPA notes that small local governments pool 
their resources in this fashion to ensure the resulting organization 
will have the technical, managerial, and financial capacity needed to 
perform its intended functions. Determining the organization's 
eligibility on the basis of the populations of the individual local 
governments misstates the size of the tax base and rate base that 
support the organization. It also fails to consider that an 
organization that can meet the needs of the entire population served 
must necessarily be greater in size and sophistication than that of a 
similar organization that provides services only to a single small 
local government.
    A common sentiment among commenters was a conviction that EPA 
should maintain the policy's considerable flexibility. Commenters 
thought it important that the policy establish outer bounds within 
which States have latitude to design a comprehensive environmental 
compliance assistance program tailored to the particular needs of their 
small local governments. In many respects, the proposed revised policy 
provides States more flexibility than the 1995 policy. Local 
governments with populations of up to 3,300 are defined as ``small'' 
and receive all of the policy's benefits without first demonstrating 
need. Local governments with populations between 3,301 and 10,000 can 
also receive all of the policy's benefits if a State's consistently 
applied capacity test determines that the local government lacks the 
technical, managerial, or financial capacity to achieve compliance 
without the State's assistance. In addition, these larger communities 
can participate on a ``fenceline'' basis to reduce the resource demands 
on both the State and the local government. The proposed revisions also 
increase flexibility by providing the EMS option to States and small 
local governments that wish to pursue this alternative. One way in 
which the proposed revision may arguably have decreased the States' 
flexibility under the policy is in replacing the former term ``small 
community'' with the term ``local government''.

IX. Possible EPA Implementation of a Federal Policy Similar to the 
Small Local Governments Compliance Assistance Policy

    EPA takes the lead in providing compliance assistance to small 
local governments and initiating enforcement responses to their 
violations when the Agency is responsible for directly implementing a 
program, where EPA has primary enforcement authority within a 
jurisdiction, or where EPA takes action after consulting with the 
primacy or authorized State. EPA could develop a Federal policy similar 
to the Small Local Governments Compliance Assistance Policy as a tool 
EPA Regions could elect to use, at their discretion, in appropriate 
circumstances. If EPA were to adopt a similar policy, the Agency would 
reserve the right to determine the circumstances in which such a 
Federal policy would apply to the violations of small local 
governments. For example, EPA could choose to implement the policy only 
when, consistent with the Agency's priority-setting process, the Agency 
decides to deploy compliance assurance and enforcement resources to 
address small local government noncompliance that is a significant 
contributor to impaired waters, as part of a geographic initiative, or 
as part of an integrated strategy. Although EPA did not raise this 
issue in its January 23, 2002, Federal Register notice, internal Agency 
discussions identified the issue as one for possible clarification. EPA 
now seeks comment on whether and how the Agency could implement a 
Federal policy similar to the proposed Small Local Governments 
Compliance Assistance Policy in its compliance assistance and 
enforcement activities.


[[Page 57455]]


    Dated: September 23, 2003.
Michael M. Stahl,
Director, Office of Compliance.

Small Local Governments Compliance Assistance Policy

A. Introduction and Purpose

    The Small Local Governments Compliance Assistance Policy is 
intended to promote comprehensive environmental compliance among small 
local governments by providing incentives for them to make use of State 
compliance assistance programs, environmental audits, environmental 
management systems (EMS), or to participate in any activities that may 
increase small local governments' understanding of their environmental 
requirements and how to comply with those requirements. The policy 
accomplishes this by authorizing States \1\ to reduce or waive, in 
certain circumstances, the civil penalty EPA guidance would normally 
require States to assess for the small local government's environmental 
violations, and to use enforcement discretion to provide compliance 
incentives for small local governments. EPA acknowledges that States 
and small local governments can realize environmental benefits by 
negotiating, entering into, and implementing enforceable compliance 
agreements and schedules that require local governments to correct all 
of their environmental violations expeditiously while allowing the 
local government to prioritize among competing environmental mandates 
on the basis of comparative risk.\2\ Small local governments can also 
realize environmental benefits by entering into enforceable agreements 
to develop and implement an EMS to manage the environmental aspects of 
their operations. States may provide small local governments an 
incentive to request compliance assistance by waiving part or all of 
the normal penalty for a small local government's violations if the 
criteria of this policy have been met. If a State acts in accordance 
with this policy and addresses small local government environmental 
noncompliance with compliance assistance in a way that results in the 
small local government making reasonable progress toward compliance, 
EPA generally will not pursue a separate Federal civil administrative 
or judicial action for additional penalties or additional injunctive 
relief.
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    \1\ This policy will also apply to the actions of territories 
and to the actions of Native American Tribes where conditions have 
been met for EPA to treat the Tribe as a State.
    \2\ As described below, EPA does not intend that States and 
small local governments must prepare a formal comparative risk 
assessment as part of the small local government environmental 
compliance assistance process. Information avialable from EPA's 
National Center for Ecological Assessment at www.epa.gov/ncea/ecologic.htm will help States and local governments identify which 
local environmental problems pose the greatest risk to human health, 
ecosystem health, and quality of life.
---------------------------------------------------------------------------

    This policy does not apply to any criminal conduct by small local 
governments or their employees.

B. Background

    This policy implements section 223 of the Small Business Regulatory 
Enforcement Fairness Act (SBREFA) of 1996.

C. Who Is Eligible for Compliance Assistance Under This Policy?

    This policy applies to State comprehensive environmental compliance 
assistance activity related to facilities owned and operated by small 
local governments. A local government is defined as an organized unit 
of local government, authorized in a State's constitution and statutes, 
and established to provide general government to a county, 
municipality, city, town, township, village, or borough. A small local 
government is a local government that provides public services to 3,300 
or fewer permanent residents. A local government that supplies public 
services to between 3,301 and 10,000 permanent residents can also 
qualify for treatment as a small local government if the State 
determines, in accordance with a capacity test (as described below), 
that the technical, managerial, and financial capacity of the local 
government is so limited that the local government is unlikely to 
achieve and sustain comprehensive environmental compliance without the 
State's assistance.
    This policy supersedes the previous version of the policy titled 
the Policy on Flexible State Enforcement Responses to Small Community 
Violations, which became effective on November 25, 1995. To the extent 
this policy may differ from the terms of applicable enforcement 
response policies (including penalty policies) under media-specific 
programs, this document supersedes those policies.

D. How Can a Small Local Government Qualify for Penalty Reduction?

    This policy seeks to encourage small local governments to achieve 
sustained comprehensive environmental compliance in one of two ways. A 
small local government can work with the State to identify all of the 
local government's environmental noncompliance and then enter into a 
written and enforceable agreement establishing a schedule to correct 
all of its violations in order of risk-based priority. Alternatively, a 
small local government can enter into a written and enforceable 
agreement establishing a schedule to: 1. Correct, as expeditiously as 
practicable, all violations discovered by the State during an 
inspection of some subset of the local government's operations in order 
of risk-based priority; and 2. develop and implement an EMS for all of 
its governmental operations. EPA's deference to such an exercise of a 
State's enforcement discretion in response to a small local 
government's violations will be based on an assessment of the adequacy 
of the process the State establishes and follows in:
    [sbull] Responding expeditiously to a small local government's 
request for compliance assistance;
    [sbull] Determining which local governments with between 3,301 and 
10,000 residents qualify for treatment as small local governments;
    [sbull] Assessing the small local government's good faith and 
compliance status;
    [sbull] Establishing priorities for addressing noncompliance; and
    [sbull] Ensuring either prompt correction of all environmental 
violations discovered during the State's comprehensive environmental 
compliance evaluation of all the local government's operations, or 
prompt correction of all violations discovered during a State 
inspection of some subset of the local government's operations and 
prompt development and implementation of an EMS for all of its 
governmental operations.

A State must document all findings and activities that are necessary to 
show adherence to the terms of this policy. If the small local 
government commits to correct its separate violations in order of risk-
based priority, the State's records must discuss the rationale for 
establishing priorities among the violations to be addressed and 
explain why the compliance agreement and schedule represents the 
shortest practicable time schedule feasible under the circumstances.
    EPA will defer more readily to a State that has previously 
submitted to the Agency a description of its comprehensive compliance 
assistance program for small local governments, thereby allowing EPA to 
familiarize itself with the adequacy of the State's processes.

[[Page 57456]]

E. How Should a State Select Participating Local Governments?

    EPA intends this policy to apply only to small local governments 
unable to satisfy all applicable environmental mandates without 
assistance from the State. For the purposes of this policy, local 
governments with 3,300 or fewer permanent residents are assumed to need 
the State's compliance assistance. Local governments whose permanent 
residents number between 3,301 and 10,000 can qualify to receive the 
benefits of the policy if the State determines that the technical, 
managerial, and financial capacity of the local government is so 
limited that the local government is unlikely to achieve and sustain 
comprehensive environmental compliance without the State's assistance. 
To make this determination, a state must apply a capacity test that 
measures such indicators as:
    [sbull] The local government finds it difficult to comply with 
routine reporting requirements (e.g., the local government has 
submitted less than 90 percent of the required drinking water 
monitoring reports in the past year);
    [sbull] The local government has no operation and maintenance plan 
for its utility operations, or has an operation and maintenance plan 
that is not routinely followed (e.g., maintenance logs are not 
regularly updated, are incomplete, or are not kept at all);
    [sbull] The required drinking water sanitary survey has not been 
scheduled, or the sanitary survey has been performed, but the local 
government has not addressed all identified significant deficiencies;
    [sbull] Utility operators are untrained or uncertified, or staffing 
of certified operators is inadequate to meet the local government's 
needs;
    [sbull] Utility systems were installed without State oversight and 
approval, or began operating without receiving final operational 
approval from the State;
    [sbull] Rights essential to the provision of public services are 
not clearly established and documented by contract (e.g., the local 
government has no contract with the source from which it obtains its 
drinking water, or for the disposal of its solid waste);
    [sbull] The local government does not have current and approved by-
laws, ordinances, or tariffs in place with respect to each of its 
public utility operations;
    [sbull] There is no formal organizational structure for operation 
and maintenance of the local government's public utilities clearly 
identifying the owner, the operator, and the staff and their 
responsibilities;
    [sbull] Either there are no written job descriptions clearly 
defining the responsibilities of public utility staff, or the staff is 
unfamiliar with such documents;
    [sbull] Staff is untrained or inadequately trained;
    [sbull] Written policies covering personnel, customer service, and 
risk management either do not exist or are routinely ignored;
    [sbull] Lines of communication between public utility staff and 
agencies or private sector staff that can provide assistance are 
inadequate or nonexistent;
    [sbull] The local government does not follow standard accounting 
principles in the funding of its public utilities, and either has not 
been audited or was issued an adverse opinion following an audit;
    [sbull] The local government either does not have an annual budget 
for operation of a public utility or has an annual budget that is 
inadequate to meet the demands of operation, maintenance, and 
environmental compliance;
    [sbull] Public utility rates do not include all users or have not 
been recently reviewed to examine operational sustainability and 
viability;
    [sbull] A significant percentage of accounts (either payable or 
receivable) are chronically delinquent;
    [sbull] Periodic budget reports and balance sheets are either not 
produced, or, if produced, have not been approved;
    [sbull] The local government's tax base is inadequate to support 
needed environmental expenditures; or
    [sbull] There are demographic factors that present quantifiable 
negative impacts on the local government's capacity.
    The State must document the capacity test it applied and all 
findings it made to support its determination of incapacity, and 
maintain that documentation in records accessible for EPA review.
    EPA's evaluation of the appropriateness of a State's small local 
government comprehensive environmental compliance assistance program 
will depend in part on whether the State uses adequate measures of 
technical, managerial, and financial capacity to ensure that only those 
local governments that truly need assistance were assessed 
noncompliance penalties that were reduced or waived beyond the extent 
normally allowed by EPA enforcement policies and guidance.
    Not less than quarterly, a State should provide EPA with a list of 
local governments participating in its small local government 
environmental compliance assistance program to ensure proper State and 
Federal coordination on enforcement activity. In addition to any 
records related to a finding of a local government's incapacity, a 
State must keep records of contacts between the State and participating 
local governments, results of compliance assessments, actions taken by 
the local government to achieve compliance, any written compliance 
agreements and schedules, and any assessments of a local government's 
adherence to the terms of its compliance agreement and schedule should 
be kept in the State's files accessible for review by EPA.

F. How Should a State Assess a Local Government's Good Faith?

    In considering whether a State has established and is following an 
adequate process for assessing a small local government's good faith, 
EPA generally will look at such factors as the participating local 
government's candor in contacts with State regulators and the local 
government's efforts to comply with applicable environmental 
requirements. Measures of a small local government's good faith 
include:
    [sbull] Prompt self-disclosure of known violations;
    [sbull] Attempts to comply or a request for compliance assistance 
prior to the initiation of an enforcement response;
    [sbull] Willingness to participate in a comprehensive compliance 
evaluation;
    [sbull] Prompt correction of known violations;
    [sbull] Willingness to remediate harm to public health, welfare, or 
the environment;
    [sbull] Readiness to enter into a written and enforceable 
compliance agreement establishing a schedule to correct all of its 
violations as expeditiously as practicable in order of risk-based 
priority, or to enter into a written and enforceable agreement 
establishing a schedule to correct all known violations as 
expeditiously as practicable in order of risk-based priority and to 
develop and implement an EMS for all of its governmental operations; 
and
    [sbull] Adherence to the terms of the agreement and to the 
schedule.

G. What Is the Scope of Compliance Evaluation and Assistance a State 
Should Offer?

    EPA intends this policy to encourage States to offer local 
governments comprehensive compliance assistance. Accordingly, a State's 
actions under the policy should promote an evaluation, performed by 
qualified personnel, of the small local government's compliance status 
with respect to all applicable environmental requirements. EPA 
acknowledges that a comprehensive

[[Page 57457]]

evaluation becomes more difficult to perform and requires more State 
resources as the size of the local government increases and as the 
local government offers more services to its residents. For this 
reason, the policy will allow ``fenceline'' projects at local 
governments with between 3,301 and 10,000 permanent residents if the 
State applies a capacity test consistent with the criteria described in 
part E of this policy and determines that the technical, managerial, 
and financial capacity of the local government is so limited that the 
local government is unlikely to achieve and sustain comprehensive 
environmental compliance without the State's assistance. A fenceline 
project is one that limits its scope to those activities conducted 
within a subset of the local government's operations.
    A State's assessment of a local government's compliance status 
should include:
    [sbull] A comprehensive evaluation of compliance with every 
applicable environmental requirement at all of the small local 
government's municipal operations (see, Profile of Local Government 
Operations, EPA 310-R-001, www.epa.gov/compliance/resources/publications/assistance/sectors/notebooks/government.html; or the Local 
Government Environmental Assistance Network, www.lgean.org) or, in the 
case of local governments with between 3,301 and 10,000 permanent 
residents that qualifies for participation after application of the 
State's capacity test, a comprehensive evaluation of compliance with 
every applicable environmental requirement within the fenceline of a 
defined subset of the local government's operations;
    [sbull] The local government's current and anticipated future 
noncompliance with those requirements;
    [sbull] The comparative risk to public health, welfare, or the 
environment of each current and anticipated future noncompliance; and
    [sbull] The local government's compliance options.
    In addition, EPA recommends that the process developed by the State 
include consideration of regionalization and restructuring as 
compliance alternatives. In the case of fenceline projects, the State 
should consider if compliance benefits can be achieved by consolidating 
staff and processes of the designated operations with other 
governmental operations within the local government. The State's 
process should also include consideration of the impact of promulgated 
regulations scheduled to become effective in the future.
    This policy is also intended to encourage States to provide 
participating local governments incentives to develop and implement 
environmental management systems (EMSs). The EMS aspects of this policy 
are discussed in part J, below.

H. How Should a Small Local Government Set Priorities for Addressing 
Violations?

    States seeking EPA's deference should require small local 
governments to correct any identified violations of environmental 
regulations as soon as possible, taking into consideration the local 
government's technical, managerial, and financial capacities, and the 
State's ability to assist in strengthening those capacities. A small 
local government should address all of its violations in order of risk-
based priority.\3\ While information regarding assessment of 
environmental risks is available from EPA's National Center for 
Ecological Assessment at www.epa.gov/ncea/ecologic.htm, the Agency 
expects that the comparative risk between violations will, in most 
instances, be apparent. For example, violations presenting a risk of 
ingestion or inhalation of, or contact exposure to, acute toxins must 
be a local government's highest priority for remediation and 
correction. Any identified violation or circumstance that may present 
an imminent and substantial endangerment to, has caused or is causing 
actual serious harm to, or presents a serious threat to, public health, 
welfare, or the environment is to be addressed immediately in a manner 
that abates the endangerment or harm and reduces the threat. Activities 
necessary to abate the endangerment or harm and reduce the threat posed 
by such violations or circumstances are not to be delayed while the 
State and small local government establish and implement the process 
for assigning priorities for correcting other violations.
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    \3\ EPA does not intend that local governments should be 
permitted to delay addressing low-risk violations that can be easily 
and quickly corrected without impeding progress on long-term 
compliance efforts undertaken to address high-risk violations.
---------------------------------------------------------------------------

I. How Can the State Ensure Prompt Correction of Violations?

    If the small local government cannot correct all of its violations 
within 180 days of the State's commencement of compliance assistance to 
the local government, the State and the local government should, within 
180 days of the State's commencement of compliance assistance to the 
local government, enter into and begin implementing a written and 
enforceable compliance agreement incorporating a schedule \4\ that:
---------------------------------------------------------------------------

    \4\ Neither a State nor a local government may unilaterally 
alter or supersede a local government's obligations under existing 
Federal administrative orders or federal judicial consent decrees.
---------------------------------------------------------------------------

    [sbull] Establishes a specified period for correcting all 
outstanding violations in order of risk-based priority; \5\
---------------------------------------------------------------------------

    \5\ States may allow weighing of unique local concerns and 
characteristics, but the process should be sufficiently standardized 
and objective that an impartial third person using the same process 
and the same facts would not reach significantly different results. 
Public notification and public participation are an importation part 
of the priority setting process.
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    [sbull] Incorporates interim milestones that demonstrate reasonable 
progress toward compliance;
    [sbull] Contains provisions to ensure continued compliance with all 
environmental requirements with which the local government is in 
compliance at the time the agreement is entered; and
    [sbull] Incorporates provisions, where they would be applicable to 
the small local government, to ensure future compliance with any 
additional already promulgated environmental requirements that will 
become effective after the agreement is signed.
    Consultation with EPA during the drafting of a compliance agreement 
and schedule and the forwarding of final compliance agreements and 
schedules to EPA are recommended to ensure appropriate coordination 
between the State and EPA.

J. What Is Required of a Small Local Government That Elects To Address 
Its Noncompliance by Developing and Implementing an Environmental 
Management System?

    Small local governments that learn of environmental violations as a 
result of the state's inspection of some subset of the small local 
government's operations may address their noncompliance by entering 
into a written and enforceable agreement establishing a schedule to: 
(1) Correct the violations discovered by the state; and (2) develop and 
implement an environmental management system for all of its 
governmental operations. Local governments with between 3,301 and 
10,000 permanent residents that the State has determined eligible to 
participate under the policy on a fenceline basis, may develop and 
implement an EMS for operations within the designated fenceline. The 
local government must enter into such an agreement with the State not 
later than 180 days after the State notifies the local government of 
the violations discovered during the inspection. The local government 
must either correct

[[Page 57458]]

those violations within the same 180 days or include, as part of the 
EMS agreement it enters into with the State, a written and enforceable 
agreement that establishes a schedule to correct the violations in 
accordance with the usual terms of this policy.
    As part of its schedule, the EMS agreement will include a deadline, 
not later than one year after entry into the agreement, for the local 
government's submission to the State of its EMS manual (see element 9, 
below), and a commitment to ensure the performance of an EMS audit not 
less than one year and not more than three years after the submission 
of its EMS manual (see element 16, below). The EMS manual must contain 
policies, procedures, and standards explaining and showing how the 
small local government's EMS conforms to and will accomplish these 
essential elements of an EMS:
    1. Environmental policy--The local government must develop a 
statement of its commitment to environmental excellence and use this 
statement as a framework for planning and action.
    2. Environmental aspects--The local government must identify which 
of its activities, products, and services have impacts on the 
environment and what those impacts are.
    3. Legal and other requirements--The local government must identify 
the environmental laws and regulations that apply to its operations.
    4. Objectives and targets--The local government must establish 
goals for its operations that are consistent with its environmental 
policy, that will eliminate the gap between the local government's 
current procedures and an accepted EMS framework, and that will reduce 
the environmental impacts of its operations.
    5. Environmental management program--The local government must plan 
specific actions that will achieve its objectives and targets.
    6. Structure and responsibility--The local government will 
establish roles and responsibilities for staff and management to 
implement the environmental management system, and provide adequate 
resources.
    7. Training, awareness and competence--The local government will 
have a plan to ensure its employees are trained and capable of carrying 
out their environmental responsibilities.
    8. Communication--The local government will establish a process for 
internal and external communications on environmental management 
issues.
    9. EMS documentation--The local government will maintain 
information both on its environmental management system and necessary 
for its operation. As part of this effort, the local government prepare 
an EMS manual that contains the policies, procedures, and standards 
explaining and showing how the local government's EMS conforms to and 
will accomplish the essential EMS elements. In accordance with the 
schedule established by its EMS agreement, and in no event later than 
one year after entering into the EMS agreement, the local government 
will submit a copy of its EMS manual to the State as proof that the 
local government has developed an EMS.
    10. Document control--The local government will establish a system 
to ensure effective management of documents related to the EMS and to 
environmental activities.
    11. Operational control--The local government will establish a 
system to identify, plan, and manage its operations consistent with its 
objectives and targets.
    12. Emergency preparedness and response--The local government will 
identify potential emergencies with environmental impacts and develop 
procedures for preventing them and for responding to them if 
unprevented.
    13. Monitoring and measurement--The local government will monitor 
key EMS activities and track performance. One periodic measure will be 
an assessment of compliance with legal requirements.
    14. Nonconformance and corrective and preventative action--The 
local government will identify and correct deviations from its EMS, and 
take actions to prevent their recurrence.
    15. Records--The local government will maintain and manage records 
of EMS performance.
    16. EMS audit--Not less than one year, and not more than three 
years after the local government submits its EMS manual to the State, 
the State, or an independent third approved by the State, will conduct 
an EMS audit to confirm that a local government has been and is 
continuing to implement its EMS.
    17. Management review--The local government must provide for 
periodic review of its EMS by local government management, with the 
goal of continual improvement of both the system and environmental 
performance.
    A fuller explanation of these 17 essential elements and of the EMS 
process can be found in Environmental Management Systems: An 
Implementation Guide for Small and Medium-Sized Organizations (EPA 
Document Number EPA 832-B-01-001; available electronically at 
www.epa.gov/OW-OWM.html/iso14001/ems2001final.pdf). Additional guidance 
and information regarding how to obtain assistance from a local EMS 
resource center can be found at www.peercenter.net.
    During the development and implementation of its EMS, the small 
local government may discover violations that were unknown to it at the 
time of its entry into the EMS agreement with the State. Such 
violations must be disclosed to the State as required by regulations or 
in accordance with EPA self-disclosure policies. The small local 
government and the State may agree to modify the terms of the terms of 
the agreement and schedule to incorporate correction of these 
violations. The small local government and the State may also to 
consider discovery of additional violations a separate event that can 
be resolved in any manner consistent with the terms of this policy and 
EPA enforcement policies and guidelines. An assessment of whether or 
not the local government has corrected all discovered violations as 
expeditiously as practicable in order of risk-based priority should be 
part of the EMS audit.

K. What Are the Limits on EPA Deference?

    EPA reserves all of its enforcement authorities. EPA will generally 
defer to a State's exercise of its enforcement discretion in accordance 
with this policy, except that EPA may require immediate with respect to 
any violation or circumstance that may present an imminent and 
substantial endangerment to, has caused or is causing actual serious 
harm to, or presents a serious threat to, public health, welfare, or 
the environment.\6\
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    \6\ EPA will regard as a matter of national significance any 
violation or circumstance that may present an imminent and 
substantial endangerment to, has caused or is causing actual serious 
harm to, or presents a serious threat to, public health, welfare, or 
the environment that is left unaddressed by a small local government 
participating in a State environmental compliance assistance 
program. Such circumstances require consultation with or the 
concurrence of, as appropriate, the Assistant Administrator for 
Enforcement and Compliance Assurance or his or her delegatee before 
initiation of an EPA enforcement response.
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    The Small Local Governments Compliance Assistance Policy does not 
apply if, in EPA's judgment:
    [sbull] A State's small local government environmental compliance 
assistance program process fails to satisfy the adequacy criteria 
stated above; or
    [sbull] A State's application of its small local government 
environmental compliance assistance program process fails, in a 
specific case, to provide adequate protection to public health and the 
environment because it neither

[[Page 57459]]

requires nor results in reasonable progress toward either achievement 
of environmental compliance or implementation of an adequate EMS by a 
date certain.
    Where EPA determines that this policy does not apply, and where EPA 
elects to exercise its enforcement discretion, other EPA enforcement 
policies remain applicable. The State's and EPA's options in these 
circumstances include discretion to take or not take formal enforcement 
action in light of factual, equitable, or local government capacity 
considerations with respect to violations that had been identified 
during compliance assistance and were not corrected. Neither the 
State's actions in providing, nor in failing to provide, compliance 
assistance shall constitute a legal defense in any enforcement action. 
However, a local government's good faith efforts to correct violations 
during compliance assistance may be considered a mitigating factor in 
determining the appropriate enforcement response or penalty in 
subsequent enforcement actions.
    Nothing in this policy is intended to release a State from any 
obligations to supply EPA with required routinely collected and 
reported information. As described above, States should provide EPA 
with lists of participating small local governments and copies of final 
compliance agreements and schedules. States should also give EPA 
immediate notice upon discovery of a violation or circumstance that may 
present an imminent and substantial endangerment to, has caused or is 
causing actual serious harm to, or presents serious threats to, public 
health, welfare, or the environment.
    This policy has no effect on the existing authority of citizens to 
initiate a legal action against a local government alleging 
environmental violations.
    This policy sets forth factors for consideration that will guide 
the Agency in its exercise of enforcement discretion. It states the 
Agency's views as to how the Agency intends to allocate and structure 
enforcement resources. The policy is not final agency action, and is 
intended as guidance only. This policy is not intended for use in 
pleading, or at hearing or trial. It does not create any rights, 
duties, obligations, or defenses, implied or otherwise, in any third 
parties.

[FR Doc. 03-25137 Filed 10-2-03; 8:45 am]
BILLING CODE 6560-50-P