[Federal Register Volume 69, Number 106 (Wednesday, June 2, 2004)]
[Notices]
[Pages 31278-31286]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-12417]



[[Page 31277]]

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Part V





Environmental Protection Agency





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Agency Policy and Guidance: Small Local Governments Compliance 
Assistance Policy; Notice

  Federal Register / Vol. 69, No. 106 / Wednesday, June 2, 2004 / 
Notices  

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ENVIRONMENTAL PROTECTION AGENCY

[Docket OECA-2004-001; FRL-7669-2]


Agency Policy and Guidance: Small Local Governments Compliance 
Assistance Policy

AGENCY: Environmental Protection Agency.

ACTION: Notice.

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SUMMARY: The U.S. Environmental Protection Agency (EPA) today issues 
the Small Local Governments Compliance Assistance Policy (the Revised 
Policy), which revises and supercedes EPA's Policy on Flexible State 
Enforcement Responses to Small Community Violations (the Prior Policy). 
EPA issues the Revised Policy to clarify who are the intended 
recipients of state penalty mitigation benefits under the Prior Policy, 
and to make those benefits available, in defined circumstances, to 
local governments with larger resident populations and in response to a 
wider variety of environmental compliance activities. By establishing 
parameters within which EPA will generally defer to a states decision 
to reduce or waive the normal noncompliance penalty of a unit of small, 
general-purpose local government, the Revised Policy provides an 
incentive for small local governments to seek compliance assistance 
from their states and take the actions necessary to achieve and sustain 
comprehensive environmental compliance.

DATES: This Revised Policy becomes effective on June 2, 2004.

ADDRESSES: EPA has established a docket for this action under Docket ID 
No. OECA-2004-001. All documents in the docket are listed in the 
EDOCKET index at http://www.epa.gov/edocket. Docket materials are 
available either electronically in EDOCKET or in hard copy at the 
Office of Environmental Information Docket, EPA/DC, EPA West, Room 
B102, 1301 Constitution Ave., NW., Washington, DC. The 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 Public Reading 
Room is (202) 566-1744, and the telephone number for the Office of 
Environmental Information Docket is (202) 566-1752. In addition to 
being available in the docket, an electronic copy of the Revised Policy 
will also be available on the Worldwide Web through the Office of 
Enforcement and Compliance Assurance Web site at http://www.epa.gov/compliance/index.html.

FOR FURTHER INFORMATION CONTACT: Kenneth Harmon, Compliance Assistance 
and Sector Programs Division, Office of Compliance, Office of 
Enforcement and Compliance Assurance, Mail Code 2224A, United States 
Environmental Protection Agency, 1200 Pennsylvania Avenue, Washington, 
DC 20460; telephone number (202) 564-7049; fax number (202) 564-7083; 
e-mail address [email protected].

SUPPLEMENTARY INFORMATION: 

I. General Information

    The United States Census Bureau's 2002 Census of Governments 
indicates that 89 percent of America's 35,933 subcounty units of 
general-purpose local government have fewer than 10,000 permanent 
residents. One in five Americans lives in, and receives government 
services from, one of these small, subcounty general-purpose 
governments. There are also 671 counties in America that have fewer 
than 10,000 permanent residents. A unit of local government with a 
small resident population has a smaller number of taxpayers and rate 
payers to bear the costs of providing governmental and municipal 
services. These economies of scale can mean that small local 
governments are unable to charge their residents the higher per capita 
rates that would be necessary to deliver the same level of government 
services that larger local governments can deliver to their residents 
at a lower per capita cost. With limited financial resources at their 
disposal, small local governments may have more difficulty than larger 
local governments attracting and funding the managerial and technical 
expertise they need to ensure comprehensive compliance with 
environmental requirements. Small local governments may be reluctant to 
ask the state for help because a state regulator will normally require 
the local government to pay a penalty if violations are found. The 
Revised Policy establishes parameters within which EPA will generally 
defer to a state's decision to reduce or waive the normal noncompliance 
penalties for a small local government violator, thereby removing one 
of a small local government's disincentives to ask for compliance 
assistance from the state. By encouraging small local governments to 
assess their compliance with all of the environmental requirements that 
apply to their governmental operations and to commit to achieving and 
sustaining comprehensive environment compliance, the Revised Policy 
potentially reduces health risks for the 56 million Americans who live 
in small local governments.

II. Background and History

    In 1995, EPA's Policy on Flexible State Enforcement Responses to 
Small Community Violations (the Prior Policy), established parameters 
within which EPA would generally defer to a state's decision to reduce 
or waive the normal noncompliance penalties of a small community that 
worked in good faith to correct its environmental violations and 
achieve comprehensive environmental compliance. By comprehensive 
compliance, EPA meant compliance with every environmental requirement 
to which the small community's governmental operations were subject. If 
a small community could not achieve comprehensive compliance within 180 
days of the state's commencement of compliance assistance to the 
community, the Prior Policy requires that within that same 180 days the 
community must enter into a written agreement with the state 
establishing an enforceable schedule for the community to address and 
correct all of its environmental violations as soon as practicable. A 
state seeking EPA's deference to its decision to reduce a small 
community's noncompliance penalties must have had adequate processes 
for:
     Responding quickly to requests for compliance assistance;
     Selecting communities to participate in the state's 
compliance assistance program;
     Assessing a community's good faith and compliance status;
     Establishing priorities for addressing noncompliance; and
     Ensuring prompt correction of violations
    EPA reserved all of its enforcement authorities, including its 
discretion to initiate an enforcement action to address any violation 
or circumstance that may have presented an imminent and substantial 
endangerment to, had caused or was causing actual serious harm to, or 
was presenting a serious threat to, public health or the environment. 
EPA would not defer to a state's decision to reduce or waive the normal 
noncompliance penalty if, in EPA's judgment, a state's implementation 
of the Small Communities Policy failed to provide, in a specific case, 
adequate protection to human health and the environment. EPA would not 
defer to a state's decision to reduce or waive the normal noncompliance 
penalty if, in EPA's judgment, a state's implementation of the Small 
Communities Policy neither required nor resulted in reasonable

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progress toward, and achievement of, environmental compliance by a date 
certain.
    In the years since EPA published the Small Communities Policy, few 
states created programs to implement the policy. Some other states 
sought to implement the policy, but then found few local governments 
willing to participate. Contacts with small local government 
stakeholders and public comments submitted in response to Federal 
Register notices dated January 23, 2002 and October 3, 2004, provided 
EPA useful suggestions for revisions that could make the policy more 
useful to states and to small local governments. EPA today incorporates 
many of those suggestions in the Small Local Governments Compliance 
Assistance Policy.

III. Major Changes in the Small Local Governments Compliance Assistance 
Policy

    Although the Small Local Governments Compliance Assistance Policy 
retains and reaffirms much of the Small Communities Policy, the Small 
Local Governments Compliance Assistance Policy (the Revised Policy) 
amends the Small Communities Policy (the Prior Policy) in the following 
important ways: A. The Revised Policy replaces the term ``community'' 
with the term ``local government'' to describe eligible entities; B. 
The Revised Policy provides a two-tiered population cap that allows 
states, in certain circumstances, to reduce or waive the non-compliance 
penalties of qualifying local governments with up to 10,000 permanent 
residents; C. States can now reduce or waive the normal noncompliance 
penalties of small local governments that satisfy the Revised Policy's 
requirements for developing and implementing an environmental 
management system for their municipal operations; and D. Although the 
Prior Policy provided its additional penalty mitigation only for 
projects that resulted in comprehensive environmental compliance at all 
of a local government's municipal operations, the Revised Policy 
permits states, in limited circumstances, to reduce or waive the normal 
noncompliance penalties of local governments whose projects address 
comprehensive compliance at a subset of its municipal operations.
    Each of these major revisions is discussed in turn.

A. Using the Term ``Local Government'' To Describe Eligible Entities

    The Prior Policy applied to ``small communities'', which EPA 
defined as ``communities, generally comprised of fewer than 2,500 
residents, [that are]:
     Non-profit.
     Governing entities (incorporated or unincorporated).
     That own facilities that supply municipal services.

    The Revised Policy replaces the ambiguous term ``community'' with 
the more precise and widely-understood term ``local government''. The 
Revised Policy further specifies that only organized units of general-
purpose local government authorized by a state's constitution and 
statutes and established to provide general government for a defined 
area are eligible for a reduction or waiver of the normal noncompliance 
penalty. This new definition of an eligible entity, intended to focus 
resources more narrowly, excludes unincorporated communities, units of 
special-purpose local government, and private entities that provide 
municipal services under contract.
    Please note that states can offer compliance assistance to entities 
that do not meet the Revised Policy's definition of eligible entity. 
States can also offer compliance assistance to small local governments 
in a manner inconsistent with the policy. States cannot, however, 
expect EPA deference if they reduce or waive the normal noncompliance 
penalty for entities that ineligible under the Revised Policy or for 
eligible entities that have not acted within the parameters of the 
Revised Policy.
1. Why Does the Revised Policy Exclude Unincorporated Communities?
    In America, there are 38,967 government-like entities with 10,000 
or fewer permanent residents that the states have vested with general 
authority to govern a defined locality. The states recognize these 
entities as sufficiently organized to present a legal entity that 
manages its own governmental affairs in a manner that clearly separates 
it from the administrative and fiscal control of other governments. EPA 
sought to focus the benefits of the Revised Policy on these 38,967 
small local governments when, in the October 3, 2003 Federal Register 
notice, EPA proposed defining eligible entities as ``any unit of 
general purpose government authorized in a state's constitution and 
statutes, and established to provide general government for a defined 
area.'' Some commenters expressed concern that this definition would 
bar application of the Revised Policy either to unincorporated 
communities or to privately owned and operated facilities that provide 
government services under contract. These commenters noted that there 
are small unincorporated communities that provide municipal water and 
sewer services to their residents, and their compliance problems, like 
those of small local governments, can often be traced to a lack of 
technical, managerial, or financial capacity. EPA acknowledges there 
are many different kinds of entities whose lack of capacity can make 
compliance challenging, but intends the Revised Policy to direct 
attention and benefits to addressing the special compliance needs of 
organized legal entities with general governmental character and 
substantial autonomy in the management of their administrative and 
fiscal affairs. Small unincorporated communities usually lack most or 
all of these characteristics of governmental units. EPA and the states 
have a number of compliance assistance and enforcement programs and 
policies in place that address the needs of non-governmental entities. 
Small unincorporated communities concerned about their compliance with 
drinking water or waste water requirements can take advantage of media-
specific technical assistance supported by EPA's Office of Water, and 
can consider either consolidating with other nearby systems operated by 
a unit of local government or restructuring their operations to share 
the services of certified operators with other regulated entities. 
Unincorporated communities also have the option of disclosing 
violations to the regulator, promptly correcting those violations, and 
having their penalties reduced in a manner consistent with other EPA 
policies, such as the Incentives for Self-Policing: Discovery, 
Disclosure, Correction and Prevention of Violations (the Audit Policy) 
and the Small Business Compliance Policy (the Small Business Policy). 
Many states have adopted their own self-disclosure policies similar the 
Audit Policy and the Small Business Policy. Even in states that have 
not adopted their own self-disclosure policies, if a regulated entity 
and a state act in a manner consistent with the Audit Policy or the 
Small Business Policy, EPA would have little reason to initiate a 
federal enforcement action to seek additional relief.
2. Why Does the Revised Policy Exclude Units of Special-Purpose Local 
Government?
    The United States Census Bureau recognizes the federal government, 
state governments, and five basic types of local governments. Three of 
the five recognized types of local government are designated general-
purpose governments, and two are designated special-purpose 
governments. As the

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Census Bureau noted in its 2002 Census of Governments, the three types 
of general-purpose governments; county, municipal, and township 
governments; are readily recognized, in part because the distinguishing 
characteristics of these forms of general-purpose local government are 
well-established and consistently applied. States establish the two 
recognized forms of special-purpose governments, school district 
governments and other units of special-purpose government, through 
enabling legislation. Units of special-purpose governments exist as 
separate entities with substantial administrative and fiscal 
independence from general-purpose local governments. Most special-
purpose governments are formed expressly to provide a service, or a 
limited set of services, without increasing the financial burden on 
general-purpose governments that may have been unable to meet the 
fiscal requirements associated with providing those services. Of the 
48,558 units of special-purpose local government recognized in the 2002 
Census of Government, 13,506 are school district governments. Ninety-
one percent of the remaining 35,052 unitsf special-purpose government 
perform a single function, most often a function related to natural 
resources, such as drainage and flood control, irrigation, and soil and 
water conservation. Other functions include sewerage, fire protection, 
housing and community development, and other social needs like 
hospitals and mosquito abatement. The nine percent of special-purpose 
governments that provide multiple services usually provide services 
that are closely related, most commonly a combination of drinking water 
and sewerage services.
    The Revised Policy excludes units of special-purpose government 
from eligibility for two reasons. First, the Revised Policy is intended 
to promote comprehensive compliance across a broad range of municipal 
operations. Special-purpose governments, which engage in a limited 
range of activities, would be better served by a single-medium approach 
to compliance assistance designed to meet the limited needs of those 
particular operations. Second, special-purpose governments are usually 
established specifically to ensure that the resulting governmental 
entity has the technical, managerial, and financial capacity to 
discharge its special responsibilities. Special-purpose governments 
generate the necessary financial capacity either by pooling the 
resources of several separate units of general-purpose local government 
located within the service district, or by designating a service 
district that includes residents of more than one unit of general-
purpose local government within the rate base. To determine a special-
purpose government's eligibility to participate on the basis of the 
populations of the individual contributing local governments would 
misstate the size of the tax base or rate base that supports the unit 
of special-purpose government. Doing so 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 a similar 
organization that provides services only to the population of a single 
small local government.
3. Why Does the Revised Policy Exclude Private Entities That Provide 
Municipal Services Under Contract?
    Private entities that provide municipal services under contract, 
even those providing municipal services to small populations, represent 
themselves as having the technical, managerial, and financial capacity 
for compliant operation at the time they contract to provide service at 
an agreed-upon rate. These private entities are responsible for 
complying with all applicable environmental requirements, and should be 
held accountable if they do not. Providers of municipal services under 
contract may be able to obtain penalty relief from the state if they 
disclose their violations and correct them in accordance with the Audit 
Policy or the Small Business Policy. Either of those policies may be a 
better option than the Revised Policy for resolving environmental 
concerns at a single facility that engages in only one operation. 
Additionally, it may not be appropriate to offer some of the unique 
aspects of the Revised Policy (e.g., penalty mitigation for violations 
discovered by the regulator) to private entities that provide services 
under contract, and some aspects of the Revised Policy may not be 
applicable to such entities (e.g., the comprehensive environmental 
compliance evaluations of several different operations; building 
technical, managerial, and financial capacity; and developing a 
schedule for addressing all violations in order of risk-based 
priority).

B. Proposed Revisions to the Population Cap

    As noted above, the Prior Policy applied to communities ``generally 
comprised of fewer than 2,500 residents.'' The Revised Policy 
establishes a two-tier population cap that extends eligibility to units 
of local government with populations larger than 2,500. The Revised 
Policy also clarifies that population to be counted consists of the 
permanent residents.
1. Why Two Tiers?
    Commenters and stakeholders generally agreed that units of general-
purpose local government with 3,300 or fewer permanent residents are 
unlikely to possess the technical, managerial, or financial capacity to 
achieve and sustain environmental compliance without assistance from 
the state. Accordingly, the Revised Policy establishes that level of 
population as its first-tier population cap. States comprehensive 
compliance assistance programs may accept as participants units of 
general-purpose local government with 3,300 or fewer permanent 
residents without first making a determination that the small local 
government lacks capacity. If those participating small local 
governments fulfill their obligations as described in the Revised 
Policy, states may reduce or waive the small local governments' normal 
noncompliance penalties.
    Because local governments with populations of less than 10,000 
often lack the financial capacity to hire professional environmental 
staff (and local governments with more than 10,000 permanent residents 
usually do have professional environmental staff), the Revised Policy 
establishes the level of 10,000 permanent residents as its second-tier 
population cap. A state comprehensive compliance assistance program can 
provide the Revised Policy's additional penalty mitigation to a 
participating unit of general-purpose government with more than 3,300 
but no more than 10,000 permanent residents only after the state makes 
a determination that due to its lack of technical, managerial or 
financial capacity, the unit of local government is unlikely to achieve 
and sustain comprehensive environmental compliance without the state's 
assistance.
    Please note that this two-tier population cap establishes outer 
limits on the size of local governments whose normal noncompliance 
penalties can be reduced or waived by states. States can establish more 
stringent criteria for the local governments they accept as 
participants in their comprehensive environmental compliance assistance 
programs. States may, for example, choose to admit into their programs 
only units of general-purpose local government with smaller populations 
than the Revised Policy would permit, or may elect to examine the 
technical, managerial, and financial capacity of any candidate local 
government, not just

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those with more than 3,300 permanent residents.
    In response to its October 3, 2003 Federal Register notice 
proposing the two-tiered population cap, EPA received a number of 
comments recommending that the Revised Policy raise the population cap 
to various higher levels. These commenters correctly asserted that 
setting the population cap higher would allow more units of local 
governments to enjoy the Revised Policy's benefits. EPA notes that the 
Revised Policy is intended to benefit those units of general-purpose 
local government that most need assistance. Establishing a ceiling of 
10,000 permanent residents for participating governments extends the 
Revised Policy's penalty mitigation benefits to 32,741 units of 
general-purpose local government--fully 84% of all the units of 
general-purpose local government in the United States, both county and 
sub-county. EPA believes a population cap that offers benefits to 84% 
of America's units of general-purpose local governments is sufficiently 
expansive.
2. How Will a State Assess a Small Local Government's Capacity?
    A state that wishes to reduce or waive the normal noncompliance 
penalty of a local government with between 3,301 and 10,000 permanent 
residents must have determined 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. The Revised 
Policy recommends that states develop and apply a test of small local 
government capacity that adopts a number of measures 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 Revised Policy, and recommends that 
states incorporate these measures as appropriate for their local 
conditions. A state that provides comprehensive 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.

C. Fencelining

    The term ``fencelining'' means restricting the scope of 
comprehensive compliance assistance activities to the boundaries of 
some subset of the local government's operations or facilities (i.e. 
vehicle fleet maintenance, provision of drinking water, grounds 
keeping, etc.). While EPA primarily intends the Revised Policy to 
promote the provision of comprehensive environmental compliance 
assistance with respect to all of a small local government's 
operations, the Agency acknowledges that states can lower the cost of 
providing comprehensive compliance assistance to local governments by 
providing that assistance with respect to a fencelined subset of the 
government's operations. For this reason, some commenters believed that 
the Revised Policy should allow its additional penalty mitigation for 
fenceline projects. EPA notes that ready approval of fenceline projects 
could encourage states to reduce costs by engaging in nothing but 
fenceline projects. Some states might choose to implement the Revised 
Policy not as a policy to ensure comprehensive compliance with all 
environmental requirements, but as a single-medium policy to ensure 
compliance at one type of public utility. EPA notes that ensuring 
comprehensive compliance at all of a local government's municipal 
operations demands comparatively fewer resources at a small local 
government that is likely to offer few services and engage in simpler 
processes. Accordingly, the Revised Policy, indicates that, with 
respect to compliance assistance to small local governments that have 
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, or to implement an environmental 
management system for, all of the small government's municipal 
operations. Local governments that provide municipal services to larger 
populations are likely to engage in more complex processes and offer 
more services than small local governments. In such circumstances, EPA 
will generally defer to a state's decision to reduce or waive the 
normal noncompliance penalty for appropriate fenceline projects 
completed by local governments with between 3,301 and 10,000 permanent 
residents.

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. The Revised Policy gives states the option of using 
penalty mitigation as an incentive to encourage small local governments 
to adopt an EMS. To ensure that the EMS adopted by a small local 
government is consistent with standards established by EPA, the Revised 
Policy describes seventeen EMS elements that must be part of the small 
local government's EMS if EPA is to defer to the penalty mitigation 
provided by the state.
    The Revised Policy provides a small local government penalty 
mitigation if it either achieves and sustains comprehensive compliance 
or develops and implements an EMS. EPA expects that a small local 
government seeking to achieve and sustain comprehensive compliance will 
rely on the state or its representative to perform a comprehensive 
environmental evaluation of all the local government's operations and 
to identify all of the environmental concerns that will be addressed in 
the enforceable agreement the small local government will enter into 
with the state. The EMS option places more responsibility with the 
small local government. To take advantage of the EMS option, a small 
local government must, 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. The small local government must also commit to developing 
and implementing an EMS. In developing an EMS, the small local 
government is responsible for ensuring performance of a 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

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may then amend the terms of their agreement under the Revised Policy's 
EMS option to incorporate a schedule for correction of the newly 
discovered violations. The state and the small local government may, 
however, agree to address any noncompliance discovered after the entry 
of the EMS option agreement in any manner consistent with this Revised 
Policy and other EPA enforcement policies and guidelines.
    EPA first proposed adding an EMS option to the Revised Policy in 
the October 3 Federal Register notice. Commenters on this point 
acknowledged the value of an EMS, but expressed concern that the cost 
and complexity of developing and implementing an EMS would prove too 
burdensome for small local governments. EPA acknowledges that 
developing and implementing an EMS is a complex undertaking. The Agency 
will continue to work toward providing small local governments guidance 
that will simplify and streamline this process. States working with 
small local governments to develop an EMS should consult the 
appropriate EPA Regional office to obtain the latest guidance. Another 
commenter noted that requiring small local governments' EMSs to meet a 
federal standard introduced a level of complexity that could be avoided 
if the Revised Policy were to indicate EPA will accept any EMS that has 
been approved by a state. At this time, however, EPA believes the 
Revised Policy must provide federal EMS standards to ensure national 
consistency.
    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 EMS. 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 Revised 
Policy be given priority access to the Local Resource Centers.

IV. Miscellaneous Issues

    EPA's October 3, 2003 Federal Register notice solicited public 
comment on alternative strategies for decreasing the resource burdens 
on states that implement the Revised Policy; as well as public comments 
on possible incentives to promote greater participation of small local 
governments in state programs offering them comprehensive environmental 
compliance assistance. The comments received reflected general 
agreement with and support for the options EPA discussed in the Federal 
Register notice. EPA will continue to explore these options. Because 
states can implement the Revised Policy without EPA-defined strategies 
for state burden reduction and for small government incentives, EPA 
will not delay publication of the Revised Policy as it collects 
information and considers alternatives for moving forward. The Federal 
Register notice also sought public comment on whether or not EPA should 
develop a Federal policy, similar to the Revised Policy, to apply when 
EPA itself is implementing a regulatory program and itself provides 
comprehensive environmental compliance assistance directly to small 
local governments. EPA received no comments from the public on this 
point and has no current plans to develop a separate Federal policy.

    Dated: May 18, 2004.
Michael M. Stahl,
Director, Office of Compliance.

Small Local Governments Compliance Assistance Policy

A. Introduction and Purpose

    The Small Local Governments Compliance Assistance Policy promotes 
comprehensive environmental compliance among small local governments by 
establishing parameters within which states \1\ can reduce or waive the 
normal noncompliance penalties of small local governments that make use 
of the state's comprehensive compliance assistance program. Providing 
conditions and circumstances in which states may reduce or waive normal 
noncompliance is intended to reassure small local governments that they 
will not be forced to pay a large penalty if environmental violations 
are discovered or revealed while they are participating in compliance 
assistance activities. To be eligible under this policy for reduction 
or waiver of the normal noncompliance penalty, a small local government 
must, within specified deadlines, either:
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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. 
In cases in which a state agrees to apply the policy to a small 
local government and that state has not been authorized to implement 
a particular federal program, EPA shall be the state for purposes of 
that federally implemented program. Regions should consult with 
OECA's Office of Regulatory Enforcement prior to implementing this 
policy.
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     Identify and correct all of its environmental violations;
     Identify all of its environmental violations and enter 
into an enforceable commitment to correct all of its environmental 
violations in a timely fashion; or
     Correct all of its known environmental violations and 
enter into an enforceable commitment to develop and implement an 
environmental management system (EMS) to identify the environmental 
aspects of its operations and ensure continual environmental 
improvement.

    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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    \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 available from EPA's 
National Center for Environmental Assessment, http://cfpub.epa.gov/ncea/, will help states and local governments identify which local 
environmental problems pose the greatest risk to human health, 
ecosystem health, and quality of life.
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    This policy does not apply to any criminal conduct by small local 
governments or their employees.

[[Page 31283]]

B. Who is Eligible for Reduction or Waiver of Normal Noncompliance 
Penalties Under This Policy?

    This policy applies to small local governments that own and operate 
facilities used to provide municipal services. A local government is 
defined as an organized unit of general-purpose local government, 
authorized in a state's constitution and statutes, and established to 
provide general government to a defined area. A defined area can be a 
county, municipality, city, town, township, village, or borough. A 
small local government is a local government that provides municipal 
services to 3,300 or fewer permanent residents. A local government that 
supplies municipal 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 (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.

C. 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 and in order of risk-based priority, all violations 
discovered by the state during an inspection of some subset of the 
local government's operations; 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:
     Responding expeditiously to a small local government's 
request for compliance assistance;
     Determining which local governments with between 3,301 and 
10,000 residents qualify for treatment as small local governments;
     Assessing the small local government's good faith and 
compliance status;
     Establishing priorities for addressing noncompliance; and
     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.

D. 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 and are deemed eligible to 
participate at the state's discretion. Local governments whose 
permanent residents number between 3,301 and 10,000 can qualify to 
receive the benefits of the policy only 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:
     The local government finds it difficult to comply with 
routine reporting requirements (e.g., in the past year, the local 
government has submitted less than 90 percent of the monitoring reports 
required by applicable environmental regulations);
     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);
     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;
     Utility operators are untrained or uncertified, or 
staffing of certified operators is inadequate to meet the local 
government's needs;
     Utility systems were installed without state oversight and 
approval, or began operating without receiving final operational 
approval from the state;
     Rights essential to the provision of municipal 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);
     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;
     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;
     Either there are no written job descriptions clearly 
defining the responsibilities of public utility staff, or the staff is 
unfamiliar with such documents;
     Staff is untrained or inadequately trained;
     Written policies covering personnel, customer service, and 
risk management either do not exist or are routinely ignored;
     Lines of communication between public utility staff and 
agencies or private sector staff that can provide assistance are 
inadequate or nonexistent;

[[Page 31284]]

     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;
     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;
     Public utility rates do not include all users or have not 
been recently reviewed to examine operational sustainability and 
viability;
     A significant percentage of accounts (either payable or 
receivable) are chronically delinquent;
     Periodic budget reports and balance sheets are either not 
produced, or, if produced, have not been approved;
     The local government's tax base is inadequate to support 
needed environmental expenditures; or
     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 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.

E. 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:
     Prompt self-disclosure of known violations;
     Attempts to comply or a request for compliance assistance 
prior to the initiation of an enforcement response;
     Willingness to participate in a comprehensive compliance 
evaluation;
     Prompt correction of known violations;
     Willingness to remediate harm to public health, welfare, 
or the environment;
     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
     Adherence to the terms of the agreement and to the 
schedule.

F. 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; that is assistance 
intended to ensure compliance with all environmental statutes and 
regulations that apply to the small local government's municipal 
operations. 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 
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 that have between 3,301 and 10,000 permanent residents if 
the state applies a capacity test consistent with the criteria 
described in part D 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:
     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, http://www.epa.gov/compliance/resources /
publications /assistance/sectors/notebooks/government.html; or the 
Local Government Environmental Assistance Network, http://www.lgean.org) or, in the case of a local government 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 environmental requirement that applies within the 
fenceline of a defined subset of the local government's operations;
     The local government's current and anticipated future 
noncompliance with those requirements;
     The comparative risk to public health, welfare, or the 
environment of each current and anticipated future noncompliance; and
     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 I, below.

[[Page 31285]]

G. 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 
Environmental Assessment at http://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.
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H. 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:
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    \4\ The agreement entered into by the local government and the 
state may not unilaterally alter or supersede a local government's 
obligations under existing federal administrative orders or federal 
judicial consent decrees.
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     Establishes a specified period for correcting all 
outstanding violations in order of risk-based priority; \5\
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    \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 important part 
of the priority setting process.
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     Incorporates interim milestones that demonstrate 
reasonable progress toward compliance;
     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
     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.

I. 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 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

[[Page 31286]]

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 party 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 http://www.epa.gov/owm/iso14001/ems2001final.pdf). Additional guidance and 
information regarding how to obtain assistance from a local EMS 
resource center can be found at http://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 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.

J. 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:
     a state's small local government environmental compliance 
assistance program process fails to satisfy the adequacy criteria 
stated above; or
     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 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. 04-12417 Filed 6-1-04; 8:45 am]
BILLING CODE 6560-50-P