OPM proposes to amend the regulations in part 731 of title 5, Code of Federal Regulations (CFR), to modify and more precisely define and clarify the regulations' coverage, the procedural requirements for taking suitability actions, the respective authorities of OPM and agencies, and Merit Systems Protection Board (MSPB or Board) review of suitability actions. OPM also proposes various revisions to make the regulations more readable.

OPM proposes to amend §§ 731.101, 731.103, 731.104, 731.106, 731.204, and 731.206 to provide that part 731 also applies to persons who can be noncompetitively converted to the competitive service because of service in their excepted service positions. The regulations currently cover only persons in the competitive service and the Senior Executive Service. Expansion of the regulation's scope to include suitability determinations of persons applying for, entering or employed in, the excepted service when that appointment can lead to their noncompetitive conversion to the competitive service is consistent with OPM's suitability authority. The process for employing such persons in the competitive service is a continuous one beginning with initial appointment to the excepted service and ending in (noncompetitive) conversion to the competitive service. Because these persons can (and most do) enter into the competitive service as a result of their excepted service appointment, albeit through a longer process than others appointed directly, they should be treated in the same manner as those appointed directly, including the same review of their suitability for employment. Already, under part 302 of this chapter, persons in the excepted service are subject to investigations and disqualifying factors similar to those found in part 731 (but without procedural protections). OPM proposes to refer to positions in the competitive service, positions in the excepted service as described in this paragraph, and positions in the Senior Executive Service collectively throughout part 731 as “covered positions.”

OPM proposes to add definitions of suitability action and suitability determination to § 731.101 to help the reader better understand the coverage of part 731.

OPM also proposes that persons in intermittent, seasonal, per diem and temporary positions, with less than 180 days aggregate service, are not subject to the investigative requirements of this part as stated in current § 731.104. OPM believes this change is necessary to maintain consistency between this part, which concerns suitability, and part 732 of this chapter, which governs positions of national security. OPM also proposes to clarify the definition of material in § 731.101 by saying that a statement may be material whether or not OPM or an agency relies upon it. The added language is not intended to change, but rather to reinforce, the meaning of the current definition in that a “material” statement does not actually have to influence or affect an official decision by OPM or an agency.

In addition, OPM proposes to amend paragraph (a) of § 731.101 to state explicitly that suitability determinations are separate and distinct from objections or passover requests concerning preference eligibles (and OPM decisions on those requests) made according to the provisions of § 3318 of title 5, United States Code (U.S.C.), and 5 CFR 332.406. Paragraph (b) of § 731.203 is likewise modified to state clearly that objections and passover issues are not covered by part 731 even if a non-selection for a Federal position is based on a reason provided in § 731.202. OPM also proposes to remove “denial of appointment” as a suitability action, as currently defined in § 731.203. Altogether, these proposed changes confirm that a non-selection for a specific position based on reasons set forth in this part is not a suitability action and that an agency objection to or request to pass over a preference eligible applicant for consideration for a particular position is not a suitability action.

OPM is proposing to clarify in § 731.106 the level of investigation OPM or the agency may conduct when suitability issues are developed prior to a required investigation. OPM or the agency may conduct the level of investigation sufficient to resolve the issues and to support a suitability action. If the individual is later appointed, the minimum level of investigation must be conducted consistent with the requirements in § 731.106.

OPM is also proposing two changes that provide additional procedural protections for persons who may be subject to an unfavorable suitability determination or action. First, when an agency makes a decision under part 731, or changes a tentative favorable placement decision to an unfavorable decision based on an OPM report of investigation or upon an agency investigation conducted under OPM-delegated authority, OPM would require that the agency notify the person of the specific reasons for the decision and give the person the opportunity to explain or refute the information. The current regulations do not require agencies to provide this notice and opportunity to respond.

Second, OPM is proposing to clarify that when an agency proposes to find a person unsuitable, the person may elect to have a representative of the person's choice as long as he or she makes a written designation of representation. Persons subject to investigation under part 732 of this chapter currently have this opportunity, and OPM believes that it is appropriate to extend this option to persons subject to investigation under part 731 as well.

OPM is proposing to amend § 731.303 to discontinue the current practice of allowing only employees to give oral answers to proposed suitability actions by OPM. This would simplify and streamline the suitability process with OPM's procedures mirroring those used by agencies with delegated authority. This will ensure that all persons are guaranteed the same rights to answer proposed suitability actions regardless of their status as applicants, appointees, or employees under the rule.

OPM is proposing to expand the debarment authority that an agency currently possesses. Specifically, OPM proposes to permit an agency to debar from employment with that agency any person it finds unsuitable for up to three years, as opposed to a period of one year as provided in the current regulations. OPM is proposing this change to give agencies the same flexibility when deciding the appropriate length of debarment that OPM has. In addition, OPM is clarifying the regulations to indicate more clearly that an agency or OPM, when warranted, may make a subsequent suitability determination and impose an additional debarment period for the same conduct on which a previous suitability action was based. Simply put, a negative suitability action does not wipe the slate clean. It is an adjudication concerning an individual's suitability for Federal service during a particular time period, not expiation for wrongdoing. Thus, an additional debarment period may be appropriate where the conduct was of a heinous nature, where the conduct represents a pattern of misconduct, or where a nexus exists between the conduct and the responsibilities associated with the current position. An agency or OPM making determinations in these circumstances would follow all procedural requirements of Part 731, including affording the affected persons the right to answer the agency or OPM and to appeal any negative suitability determinations to the Merit Systems Protection Board.

In § 731.103, OPM is proposing to eliminate the requirement that agencies with delegated authority seek prior approval from OPM before taking action under other authorities, such as part 315, part 359, or part 752 of this chapter, in cases involving evidence of material, intentional false statement in examination or appointment, or deception or fraud in examination or appointment. Agencies, however, would still be required to notify OPM if they have taken, or plan to take, such action.

OPM is proposing modifications to § 731.202 to clarify that OPM or agencies with delegated authority to make suitability determinations and take suitability actions have the authority to rely on the additional suitability considerations contained in paragraph (c) of § 731.202 at their sole discretion. Factors not relied upon by OPM or agencies in individual cases may not be considered by the MSPB.

Finally, OPM is proposing in paragraph (c) of § 731.103 that agencies must exercise their delegated authorities in accordance with OPM regulations and issuances concerning procedures, policy guidance, criteria, standards, supplemental guidance, and quality control procedures established by OPM. OPM is also proposing to clarify in paragraph (d) of § 731.103 that agencies may choose to begin preliminary suitability reviews for all applicants at any time during the hiring process.

There is no statutory right to appeal a negative suitability determination. OPM, however, accorded applicants, appointees, and employees the right to appeal a negative suitability action taken by OPM, or an agency with delegated authority from OPM, under the procedures set forth in this part. This right of appeal applies only to an action taken under the procedures set forth in part 731. It does not extend to any other employment action that an agency takes outside of the procedures set forth in part 731 unless Congress or OPM has explicitly accorded a right of redress. In other words, what is not covered by part 731 may not be reviewed by the MSPB. For example, OPM has provided no right to appeal an agency's decision to object to or request to pass over a candidate under part 332 of this chapter, regardless of the basis for the agency's request. That is, even if an agency objects to or requests to pass over an applicant based upon an applicant's fitness or character, the applicant does not have a right of appeal under part 731. Likewise, an agency's reason(s) for not hiring someone is not an appropriate basis to determine whether a person may appeal the agency's action. Rather, the procedures an agency decides to use determine whether an agency's action may be appealed.

The Board recognized this clear distinction in Vislisel v. OPM, 29 M.S.P.R. 679 (1986). There, the Board observed that a sustained objection is an agency-initiated procedure separate and apart from a suitability determination under part 731. Id. at 682. In Edwards v. Department of Justice, 87 M.S.P.R. 518 (2001), the Board abandoned its approach in Vislisel, holding that, in deciding whether an action was an appealable suitability determination, “what matters is the substance of the action, not the form.” Id. at 522. This is an incorrect reading of the authority that OPM conferred upon the Board.

It is well-settled that the Board possesses jurisdiction only to the extent that Congress or OPM specifically confers jurisdiction upon it by statute and regulation. Moreover, an agency is free to utilize any applicable statutory or regulatory mechanism available if it wishes to take an employment action against an applicant, appointee, or employee. For example, an agency that is dissatisfied with an employee's performance may elect to take action under chapter 43 or 75 of title 5, United States Code, or under part 315 or 359 of this chapter of OPM's regulations if the person is serving a probationary period. Although the action an agency elects to use is based on the individual's poor performance, the agency is not limited to the procedures contained in chapter 43. Lovshin v. Department of the Navy, 767 F.2d 826 (Fed. Cir. 1985). An agency may elect the statutory or regulatory scheme under which it takes an action, and it is bound to follow the procedures and standards of proof found in the scheme it chooses to use. Similarly, when adjudicating an appeal of an agency action, the Board must assess the agency's action under the procedures elected by the agency and may not hold the agency to standards relating to a legal authority that the agency did not invoke. The Board may not create an appeal right where neither Congress nor OPM has expressly granted it. King v. Jerome, 42 F.3d 1371, 1374 (Fed. Cir. 1994).

These proposed regulations reaffirm and clarify that there is a distinction between objections or passovers and suitability actions and that OPM has not authorized an appeal to MSPB for objections or passovers.

Finally, while continuing to authorize suitability appeals, OPM is proposing to clarify the scope of jurisdiction conferred on MSPB. The proposed rule would eliminate the requirement that MSPB remand a case to OPM or an agency if fewer than all the charges are sustained and replace it with a requirement that the Board affirm the suitability determination and the suitability action when one or more charges are sustained. The specter of two simultaneous reviews in the same case by MSPB and OPM or an agency has led to confusion and uncertainty about the relationship of the two reviews, e.g., whether one takes precedence over the other and whether the outcome of one moots the review of the other. The proposed rule eliminates that confusion.

In addition to the above substantive changes, OPM proposes to rewrite the regulations in part 731 to make them more readable. Under this rewriting effort, OPM is proposing a number of grammatical and stylistic changes to the regulations to clarify their intended meaning. One example applied throughout the regulations, is a proposal to use “person” consistently (instead of “individual”) to describe those affected by the regulations. Another example is that the word “shall” is replaced in most cases by the word “must” to clearly state requirements. The current regulations use the terms interchangeably. OPM also is proposing to highlight the words “applicant,” “appointee,” and “employee” to emphasize their unique meanings when applied at various locations in the regulations.

The Office of Management and Budget has reviewed the proposed rule in accordance with Executive Order 12866.

I certify that these regulations will not have significant economic impact on a substantial number of small entities because they will affect Federal agencies, employees, and applicants only.

Accordingly, OPM is proposing to revise 5 CFR part 731 as follows:

The Department of Homeland Security (DHS), elsewhere in this edition of the Federal Register , published a Privacy Act system of records notice describing records in the DHS Redress and Response Records System. This system maintains records for the DHS Traveler Redress Inquiry Program (TRIP), which is the traveler redress mechanism being established by DHS in connection with the Rice-Chertoff Initiative, as well as in accordance with other policy and law. DHS TRIP will facilitate the public's ability to provide appropriate information to DHS for redress requests when they believe they have been denied entry, refused boarding for transportation, or identified for additional screening by DHS components or programs at their operational locations. Such locations include airports, seaports, train stations and land borders. DHS TRIP will create a cohesive process to address these redress requests across DHS.

DHS TRIP will serve as a mechanism to share redress-related information and facilitate communication of redress results across DHS components. It will also facilitate efficient adjudication of redress requests. Once the information intake is complete, DHS TRIP will facilitate the transfer of or access to this information for the DHS components or other agencies redress process, which will address the redress request.

This system contains records pertaining to various categories of individuals, including: individuals seeking redress or individuals on whose behalf redress is sought from DHS; individuals applying for redress on behalf of another individual; and DHS employees and contractors assigned to interact with the redress process.

No exemption shall be asserted with respect to information submitted by and collected from individuals or their representatives in the course of any redress process associated with this System of Records.

This system, however, may contain records or information recompiled from or created from information contained in other systems of records, which are exempt from certain provisions of the Privacy Act. For these records or information only, in accordance with 5 U.S.C. 552a (j)(2), (k)(1), (k)(2), and (k)(5), DHS will also claim the original exemptions for these records or information from subsections (c)(3) and (4); (d)(1), (2), (3), and (4); (e)(1), (2), (3), (4)(G) through (I), (5), and (8); (f), and (g) of the Privacy Act of 1974, as amended, as necessary and appropriate to protect such information. Moreover, DHS will add these exemptions to Appendix C to 6 CFR Part 5, DHS Systems of Records Exempt from the Privacy Act. Such exempt records or information may be law enforcement or national security investigation records, law enforcement activity and encounter records, or terrorist screening records.

DHS needs these exemptions in order to protect information relating to law enforcement investigations from disclosure to subjects of investigations and others who could interfere with investigatory and law enforcement activities. Specifically, the exemptions are required to: preclude subjects of investigations from frustrating the investigative process; avoid disclosure of investigative techniques; protect the identities and physical safety of confidential informants and of law enforcement personnel; ensure DHS' and other federal agencies' ability to obtain information from third parties and other sources; protect the privacy of third parties; and safeguard sensitive information.

In addition, because such investigations may arise out of DHS programs and activities, information in this system of records may pertain to national security and related law enforcement matters. In such cases, allowing access to such information could alert subjects of such investigations into actual or potential criminal, civil, or regulatory violations, and could reveal, in an untimely manner, DHS' and other agencies' investigative interests in law enforcement efforts to preserve national security.

Additionally, DHS needs these exemptions in order to protect information relating to background investigations from disclosure to subjects of investigations and others who could interfere with investigatory activities. Specifically, the exemptions are required to: withhold information to the extent it identifies witnesses promised confidentiality as a condition of providing information during the course of the background investigation; prevent subjects of investigations from frustrating the investigative process; avoid disclosure of investigative techniques; protect the privacy of third parties; ensure DHS' and other federal agencies' ability to obtain information from third parties and other sources; and safeguard sensitive information.

The exemptions proposed here are standard law enforcement and national security exemptions exercised by a large number of federal law enforcement and intelligence agencies.

Nonetheless, DHS will examine each separate request on a case-by-case basis, and, after conferring with the appropriate component or agency, may waive applicable exemptions in appropriate circumstances and where it would not appear to interfere with or adversely affect the law enforcement or national security purposes of the systems from which the information is recompiled or in which it is contained.

Again, DHS shall not assert any exemption with respect to information submitted by and collected from the individual or the individual's representative in the course of any redress process associated with the underlying System of Records.

Changes to Federal regulations must undergo several analyses. In conducting these analyses, DHS has determined:

This rule is not a significant regulatory action under Executive Order 12866, “Regulatory Planning and Review” (as amended). Accordingly, this rule has not been reviewed by the Office of Management and Budget (OMB). Nevertheless, DHS has reviewed this rulemaking, and concluded that there will not be any significant economic impact.

Pursuant to section 605 of the Regulatory Flexibility Act (RFA), 5 U.S.C. 605(b), as amended by the Small Business Regulatory Enforcement and Fairness Act of 1996 (SBREFA), DHS certifies that this rule will not have a significant impact on a substantial number of small entities. The rule would impose no duties or obligations on small entities. Further, the exemptions to the Privacy Act apply to individuals, and individuals are not covered entities under the RFA.

This rulemaking will not constitute a barrier to international trade. The exemptions relate to criminal investigations and agency documentation and, therefore, do not create any new costs or barriers to trade.

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), (Pub. L. 104-4, 109 Stat. 48), requires Federal agencies to assess the effects of certain regulatory actions on State, local, and tribal governments, and the private sector. This rulemaking will not impose an unfunded mandate on State, local, or tribal governments, or on the private sector.

The Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et seq. ) requires that DHS consider the impact of paperwork and other information collection burdens imposed on the public and, under the provisions of PRA section 3507(d), obtain approval from the Office of Management and Budget (OMB) for each collection of information it conducts, sponsors, or requires through regulations. DHS has determined that there are no current or new information collection requirements associated with this rule.

This action will not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government, and therefore will not have federalism implications.

DHS has reviewed this action for purposes of the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4347) and has determined that this action will not have a significant effect on the human environment.

The energy impact of this action has been assessed in accordance with the Energy Policy and Conservation Act (EPCA) Public Law 94-163, as amended (42 U.S.C. 6362). This rulemaking is not a major regulatory action under the provisions of the EPCA.

For the reasons stated in the preamble, DHS proposes to amend Chapter I of Title 6, Code of Federal Regulations, as follows:

The Order (7 CFR part 1260) is authorized under the Beef Promotion and Research Act of 1985 (Act) (7 U.S.C. 2901 et seq. ). This program is a national beef program for beef and beef product promotion, research, consumer information, and industry information as part of a comprehensive strategy to strengthen the beef industry's position in the marketplace by maintaining and expanding existing domestic and foreign markets and by developing new markets for beef and beef products. The program is funded by a mandatory assessment of $1-per-head, collected each time cattle are sold. All producers owning and marketing cattle, regardless of the size of their operation or the value of their cattle, must pay the assessment. A comparable assessment is collected on all imported cattle, beef, and beef products. Assessments collected under this program are used for promotion, research, consumer information, and industry information.

The national program is administered by the Cattlemen's Beef Board (Board), which has 104 producer and importer members. Board members serve 3-year terms, but no individual may serve more than two consecutive 3-year terms. Producer members represent 35 States and 4 geographic units. The program became effective on July 18, 1986, when the Order was issued. Assessments began on October 1, 1986.

On February 18, 1999, AMS published in the Federal Register (64 FR 8014) its plan to review certain regulations. On January 4, 2002, AMS published in the Federal Register (67 FR 525) an update to its plan to review regulations, including the Cattlemen's Beef Promotion and Research Program, which is conducted under the Order, under criteria contained in section 610 of the RFA (5 U.S.C. 601-612). Because many AMS regulations impact small entities, AMS decided, as a matter of policy, to review certain regulations that, although may not meet the threshold requirement under section 610 of the RFA, warrant review. Accordingly, this notice and request for comments is made for the Order.

The purpose of the review is to determine whether the Order should continue without change or whether it should be amended or rescinded (consistent with the objectives of the Act) to minimize the impact on small entities. AMS will consider the following factors: (1) The continued need for the Order; (2) The nature of complaints or comments received from the public concerning the Order; (3) the complexity of the Order; (4) the extent to which the Order overlaps, duplicates, or conflicts with other Federal rules, and, to the extent feasible, with State and local governmental rules; and (5) the length of time since the Order has been evaluated or the degree to which technology, economic conditions, or other factors have changed in the area affected by the Order.

Written comments, views, opinions, and other information regarding the Order's impact on small businesses are invited.

In the proposed rule published September 19, 2006, DOE proposed to modify the 2010 goal of 30 percent of U.S. motor fuel production to be supplied by replacement fuels, established in section 502(b)(2) of the Energy Policy Act of 1992, because it is not achievable. 71 FR 54771. The Department has authority to review the goal and to modify it, by rule, if it is not achievable, and in doing so may change the percentage level for the goal and/or the timeframe for achievement of the goal. (42 U.S.C. 13254(b).) The Department has preliminarily determined through its analysis that the 30 percent replacement fuel production goal could potentially be met, not by 2010, but at a later date. The Department consequently is proposing to keep the replacement fuel goal of 30 percent originally provided in EPAct 1992 (section 502(b)(2)), but extend the date for achieving the goal to 2030.

Due to technical difficulties in receiving the electronic comments on the proposed rule, the comment period is reopened until January 31, 2007. During the original comment period, some comments were not accepted by the electronic docket. We believe that all comments originally blocked from submission have since been resubmitted successfully.

However, to ensure that all comments submitted electronically during the original comment period are included in the docket for this rulemaking, we are reopening the comment period. If an interested person submitted a comment electronically during the original comment period, and that comment is not posted on the electronic docket ( http://www1.eere.energy.gov/vehiclesandfuels/epact/private/plg_docket.html ), that comment should be resubmitted as directed under the ADDRESSES heading.

Interested parties are invited to participate in this proposed rulemaking by submitting such written data, views, or arguments as they may desire. Comments that provide the factual basis supporting the views and suggestions presented are particularly helpful in developing reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal. Communications should identify both docket numbers and be submitted in triplicate to the address listed above. Commenters wishing the FAA to acknowledge receipt of their comments on this notice must submit with those comments a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. FAA-2006-26719/Airspace Docket No. 06-AAL-41.” The postcard will be date/time stamped and returned to the commenter.

All communications received on or before the specified closing date for comments will be considered before taking action on the proposed rule. The proposal contained in this notice may be changed in light of comments received. All comments submitted will be available for examination in the public docket both before and after the closing date for comments. A report summarizing each substantive public contact with FAA personnel concerned with this rulemaking will be filed in the docket.

An electronic copy of this document may be downloaded through the Internet at http://dms.dot.gov. Recently published rulemaking documents can also be accessed through the FAA's Web page at http://www.faa.gov or the Superintendent of Document's Web page at http://www.access.gpo.gov/nara.

Additionally, any person may obtain a copy of this notice by submitting a request to the Federal Aviation Administration, Office of Air Traffic Airspace Management, ATA-400, 800 Independence Avenue, SW., Washington, DC 20591 or by calling (202) 267-8783. Communications must identify both docket numbers for this notice. Persons interested in being placed on a mailing list for future NPRM's should contact the FAA's Office of Rulemaking, (202) 267-9677, to request a copy of Advisory Circular No. 11-2A, Notice of Proposed Rulemaking Distribution System, which describes the application procedure.

The FAA is considering an amendment to the Code of Federal Regulations (14 CFR Part 71), which would modify Class E airspace at Valdez, AK. The intended effect of this proposal is to modify the Class E airspace upward from 700 ft. and 1,200 ft. above the surface to contain Instrument Flight Rules (IFR) operations at Valdez Airport, in Valdez, AK.

The FAA Instrument Flight Procedures Production and Maintenance Branch has drafted two new SIAPs for the Valdez Airport. The approaches are (1) Localizer Type Directional Aid (LDA)/Distance Measuring Equipment (DME)-G, Original and (2) LDA-H, Original. The LDA-G is a Special procedure and will not be published in the U.S. Terminal Procedures (Alaska) publication. Revised Class E controlled airspace extending upward from 700 ft. and 1,200 ft. above the surface within the Valdez Airport area would be established by this action. The proposed airspace is sufficient to contain aircraft executing the new and existing instrument procedures at the Valdez Airport.

The area would be depicted on aeronautical charts for pilot reference. The coordinates for this airspace docket are based on North American Datum 83. The Class E airspace areas designated as 700/1200 foot transition areas are published in paragraph 6005 in FAA Order 7400.9P, Airspace Designations and Reporting Points, dated September 1, 2006, and effective September 15, 2006, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document would be published subsequently in the Order.

The FAA has determined that this proposed regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle 1, section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority.

This rulemaking is promulgated under the authority described in subtitle VII, part A, subpart 1, section 40103, Sovereignty and use of airspace. Under that section, the FAA is charged with prescribing regulations to ensure the safe and efficient use of the navigable airspace. This regulation is within the scope of that authority because it proposes to create Class E airspace sufficient in size to contain aircraft executing instrument procedures at the Valdez Airport and represents the FAA's continuing effort to safely and efficiently use the navigable airspace.

In consideration of the foregoing, the Federal Aviation Administration proposes to amend 14 CFR part 71 as follows:

In December 1972, the Commission published for public comment proposed Guides Concerning the Use of Endorsements and Testimonials in Advertising, 37 FR 25548 (1972). Extensive comment was received from interested parties. On May 21, 1975, the Commission promulgated, under the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. 41-58, three sections of the 1972 proposal as final guidelines (16 CFR 255.0, 255.3 and 255.4) and republished three others, in modified form, for additional public comment 40 FR 22127 (1975). Public comment was received on the three re-proposed guidelines, as well as on one of the final guidelines. On January 18, 1980, the Commission promulgated three new sections as final guidelines (16 CFR 255.1, 255.2 and 255.5) and modified one example to one of the final guidelines adopted in May 1975 (16 CFR 255.0 Example 4). 45 FR 3870 (1980).

The Guides are designed to assist businesses and others in conforming their endorsement and testimonial advertising practices to the requirements of Section 5 of the FTC Act. Although the Guides are interpretive of laws administered by the Commission, and thus are advisory in nature, proceedings to enforce the requirements of law as explained in the Guides can be brought under the FTC Act.

The Guides define both endorsements and testimonials broadly to mean any advertising message that consumers are likely to believe reflects the opinions, beliefs, findings, or experience of a party other than the sponsoring advertiser. 16 CFR 255.0(a) and (b). The Guides state that endorsements must reflect the honest opinions, findings, beliefs, or experience of the endorser. 16 CFR 255.1(a). Furthermore, endorsements may not contain any representations that would be deceptive, or could not be substantiated, if made directly by the advertiser. Id.

The Guides advise that an advertisement employing a consumer endorsement on a central or key attribute of a product will be interpreted as representing that the endorser's experience is representative of what consumers will generally achieve. 16 CFR 255.2(a). If an advertiser does not have adequate substantiation that the endorser's experience is representative, the advertisement should contain a clear and conspicuous disclosure. Id.

The Guides define an expert endorser as someone who, as a result of experience, study or training, possesses knowledge of a particular subject that is superior to that generally acquired by ordinary individuals. 16 CFR 255.0(d). An expert endorser's qualifications must, in fact, give him or her the expertise that he or she is represented as possessing with respect to the endorsement. 16 CFR 255.3(a). Moreover, an expert endorsement must be supported by an actual exercise of expertise and the expert's evaluation of the product must have been at least as extensive as someone with the same degree of expertise would normally need to conduct in order to support the conclusions presented. 16 CFR 255.3(b).

Among other things, the Guides also state that:

(1) Advertisements presenting endorsements by what are represented to be “actual consumers” should utilize actual consumers, or clearly and conspicuously disclose that the persons are not actual consumers. 16 CFR 255.2(b).

(2) An organization's endorsement must be reached by a process sufficient to ensure that the endorsement fairly reflects the collective judgment of the organization. 16 CFR 255.4.

(3) When there is a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement ( i.e. , the connection is not reasonably expected by the audience), such connection must be fully disclosed. 16 CFR 255.5.

The Commission has determined to review all of its rules and guides periodically. These reviews seek information about the costs and benefits of the Commission's existing rules and guides, and their regulatory and economic impact. The information thus obtained assists the Commission in identifying rules and guides that warrant modification or rescission. Therefore, the Commission solicits comment on, among other things, the economic impact of its Guides Concerning the Use of Endorsements and Testimonials in Advertising; possible conflict between the Guides and state, local, or other federal laws; and the effect on the Guides of any technological, economic, or other industry changes.

Specifically, the Commission solicits written public comment on the following questions with respect to the guides appearing in 16 CFR 255.

(1) Is there a continuing need for the Guides?

(a) What benefits have the Guides provided to consumers?

(b) Have the Guides imposed costs on consumers?

(2) What changes, if any, should be made to the Guides to increase their benefits to consumers?

(a) How would these changes affect the cost the Guides impose on businesses and others following their suggestions?

(b) How would these changes affect the benefits to consumers?

(3) What significant burdens or costs, including costs of compliance, have the Guides imposed on businesses and others following their suggestions?

(a) Have the Guides provided benefits to those following their suggestions? If so, what benefits?

(4) What changes, if any, should be made to the Guides to reduce the burdens or costs imposed on those following their suggestions? How would these changes affect the benefits provided by the Guides?

(5) Do the Guides overlap or conflict with other federal, state, or local laws or regulations?

(6) Since the Guides were issued, what effects, if any, have changes in relevant technology, such as email and the Internet, or economic conditions had on the Guides?

In conjunction with its regulatory review of the Guides, the Commission is releasing reports on two studies it commissioned regarding the messages conveyed by consumer endorsements. Both studies are available on the Commission's Web site, http://www.ftc.gov , or from the Commission's Public Reference Office, Room 130, 600 Pennsylvania Avenue, NW., Washington, DC 20580.

The first report, “The Effect of Consumer Testimonials and Disclosures of Ad Communication for a Dietary Supplement” (“the Endorsement Booklet Study”), can be found at http://www.ftc.gov/reports/endorsements/study1/report.pdf. 2 It reports the results of a consumer survey, conducted in the course of a law enforcement investigation, that examined the communication effects of a promotional booklet for a dietary supplement. The booklet consisted solely of three pages of consumer endorsements, primarily from senior citizens, touting the product's efficacy for treating various diseases and conditions. The survey was designed to examine whether consumer endorsements by themselves communicate product efficacy ( i.e. , that the product works for the user discussed in the testimonials) and typicality ( i.e., that endorsers' experiences are representative of what consumers will generally achieve with the advertised product), and whether any of several prominent disclosures qualify the claims conveyed by the advertisements.

According to the authors, the study suggest “that multiple testimonials about a product effectively communicate efficacy claims, i.e., that the product works for the uses discussed in the testimonials. Testimonials also appear to communicate that the product will work for all, most, or about half of the people who use it. Finally, the study suggests that prominent disclosures in ads containing multiple testimonials may be ineffective in limiting the communication of efficacy and typicality claims. This study used disclosures that were more prominent and stronger than the disclosures typically used in ads containing testimonials.”

The second report, “Effects of Consumer Testimonials in Weight Loss, Dietary Supplement and Business Opportunity Advertisements” (“the Second Endorsement Study”), can be found at http://www.ftc.gov/reports/endorsements/study2/report.pdf . 3 It reports the results of a consumer survey examining the messages conveyed to consumers by one-page print advertisements containing consumer endorsements for a weight loss program, a cholesterol-lowering dietary supplement, or a business opportunity. Advertisements contained testimonials by either one or five individuals who claimed to have achieved specific (that is, numerically quantified) results with the advertised product or system ( e.g. , “I am earning an extra $2,300 a month.”). Some of the advertisements also included one of several disclosures regarding the typicality of the consumer endorsers' experiences. The study was designed to explore these advertisements' communication of product efficacy and typicality.

According to the authors, the testimonials tested in this study communicated to a substantial percentage of consumers that the advertised products:

• Would enable new users to achieve results similar to those portrayed by the testimonials ( i.e. , the testimonialists communicated product efficacy); and

• Would enable a substantial proportion (half or more) of new users to achieve results similar to those portrayed by the testimonialists ( i.e. , the testimonials communicated typicality).

The study authors also concluded that two of the disclosures tested (“results not typical” and “experiences of a few”) in most cases failed to significantly reduce the communication of efficacy and typicality. The authors concluded that a third disclosure (which stated how much weight the average user loses in three months), tested on the advertisement for the weight loss program, did significantly reduce such communication in most cases.

The Commission solicits written public comment on the following questions.

(1) What are the implications and limitations of the Endorsement Booklet Study with respect to the question of whether consumer testimonials about a product's efficacy or performance convey that the product is effective for the purpose(s) discussed in the testimonials? What are the implications and limitations of the study with respect to the question of whether consumer testimonials convey that the endorser's experience is representative of what consumers will generally achieve with the advertised product? Is there any other research or evidence that would be relevant in answering these questions?

(2) What are the implications and limitations of the Endorsement Booklet Study with respect to the effectiveness of disclaimers in limiting any communication of product efficacy from consumer testimonials? What are the implications and limitations of the study with respect to the effectiveness of disclaimers in limiting any communication of typicality from consumer testimonials? Is there any other research or evidence that would be relevant in answering these questions?

(3) What are the implications and limitations of the Second Endorsement Study with respect to the question of whether consumer testimonials about a product's efficacy or performance convey that the product is effective for the purpose(s) discussed in the testimonials? What are the implications and limitations of the Second Endorsement Study with respect to the question of whether consumer testimonials convey that the endorser's experience is representative of what consumers will generally achieve with the advertised product? Is there any other research or evidence that would be relevant in answering these questions?

(4) What are the implications and limitations of the Second Endorsement Study with respect to the effectiveness of disclaimers in limiting any communication of product efficacy from consumer testimonials? What are the implications and limitations of the Second Endorsement Study with respect to the effectiveness of disclaimers in limiting any communication of typicality from consumer testimonials? Is there any other research or evidence that would be relevant in answering these questions?

(5) Is there any other research that would be relevant in assessing the messages communicated by consumer testimonials?

(6) Is there any other research that would be relevant in assessing the effectiveness of disclaimers in limiting any communication from consumer testimonials of product efficacy or typicality?

(7) In 2002, Commission Staff analyzed the use of consumer testimonials and disclaimers in the context of weight-loss advertising, see Weight-Loss Advertising: An Analysis of Current Trends, a Federal Trade Commission Staff Report, Sept. 2002. ( http://www.ftc.gov/bcp/reports/weightloss.pdf ).

(a) What other evidence is there regarding the prevalence or effect of consumer testimonials, either generally or for specific product categories, especially with respect to the typicality of the testimonials?

(b) What other evidence is there regarding the prevalence or effect of disclaimers of typicality?

(8) What other research is there on the role of consumer endorsements in marketing?

(9) The current Guides allow advertisers to use testimonials that are not generally representative of what consumer can expect from the advertised product so long as the advertisers clearly and conspicuously disclose either (1) what the generally expected performance would be in the depicted circumstances, or (2) the limited applicability of the depicted results to what consumers can generally expect to receive, i.e. , that the depicted results are not representative.

(a) What would be the effects on advertisers and consumers of requiring clear and conspicuous disclosure of the generally expected performance whenever the testimonial is not generally expected performance whenever the testimonial is not generally representative of what consumers can expect from the advertised product?

(b) What information, other than what is required to substantiate an efficacy or performance claim, would be required for an advertiser to determine generally expected results? How difficult would it be for the advertiser to make this determination? Do the answers to these questions vary by product type and, if so, how?

Section 255.5 of the Guides states that advertisers must disclose connections between themselves and their endorsers that might materially affect the weight or credibility of the endorsement ( i.e., the connection is not reasonably expected by the audience).

Section 255.5 also indicates that consumers will ordinarily expect that endorsers who are well known personalities ( i.e., celebrities) or experts will be compensated for their endorsements; therefore, an advertiser need not disclose the payment of compensation to such endorsers. A September 2003 petition submitted to the Commission by Commercial Alert suggests an exception to the principle that consumers will ordinarily expect that endorsers who are well known personalities are compensated for their endorsements. According to an August 11, 2002 New York Times article cited by the petitioners, “dozens of celebrities * * * have been paid hefty fees to appear on television talk shows and morning news programs and to disclose intimate details of ailments that afflict them or people close to them. Often, they mention brand-name drugs without disclosing their financial ties to the medicine's maker.” The Commission is interested in any extrinsic evidence regarding consumer expectations about celebrity endorsements made during an interview. Specifically, the Commission solicits written public comment on the following questions.

(1) Is there any research showing whether consumers have any expectations regarding compensation paid to celebrities who speak favorably about particular products while being interviewed outside the context of an advertisement ( e.g., during television talk shows) and, if so, what does that research show?

(2) Would knowledge that a celebrity endorsing a product during such an interview is being paid for doing so affect the weight or credibility consumers give to the celebrity's endorsement?

All persons are hereby given notice of the opportunity to submit written data, views, facts, and arguments addressing the issues raised by this Notice. Written comments must be received on or before March 19, 2007. All comments should be filed as prescribed in the ADDRESSES section above.

The Commission issued part 1211 on December 21, 1992 to minimize the risk of entrapment by residential garage door openers. As mandated by section 203 of Public Law 101-608, subpart A of part 1211 codifies garage door operator entrapment provisions of Underwriter Laboratories, Inc. (“UL”) standard UL 325, third edition, “Door, Drapery, Louver and Window Operators and Systems.” Subparagraph (c) of section 203 of Public Law 101-608 also required the Commission to incorporate into part 1211 any revisions that UL proposed to the entrapment protection requirements of UL 325, unless the Commission notified UL that the revision does not carry out the purposes of Public Law 101-608.

Recently, UL revised some provisions of UL 325 in response to a request from Commission staff. The staff identified several incidents in which children became entrapped beneath a garage door that had been left partially open. In most of these incidents, a child tried to crawl under the partially open door and became stuck under the door. A bystander pressed the wall control button thinking the door would go up and release the child. Instead, the garage door moved down compressing and further entrapping the child. The Commission determined that the entrapment related revisions incorporated into the UL standard do carry out the purposes of Public Law 101-608. The proposed rule would revise part 1211 to reflect the changes UL made to UL 325. UL set an effective date of February 21, 2008 for these provisions in the UL standard. The Commission proposes the same effective date for these provisions in the CPSC standard.

To address the same entrapment hazard, UL also added to its standard a requirement that the statement “Never go under a stopped partially open door” be added to garage door operator instruction manuals. The Commission is proposing to make this change in the CPSC standard as well. UL set an effective date of September 14, 2004 for this provision in UL 325. The Commission proposes that the instruction manual provision in the CPSC standard would become effective when it is published as a final rule.

Pursuant to section 605(b) of the Regulatory Flexibility Act, 5 U.S.C. 605(b), the Commission certifies that this rule will not have a significant impact on a substantial number of small entities. The changes are minor. Moreover, UL has already made these changes to its UL 325 standard which is widely followed by the industry. The Commission also certifies that this rule will have no environmental impact. The Commission's regulations state that safety standards for products normally have little or no potential for affecting the human environment. 16 CFR 1021.5(c)(1). Nothing in this proposed rule alters that expectation.

Public Law 101-608 contains a preemption provision. It states: “those provisions of laws of States or political subdivisions which relate to the labeling of automatic residential garage door openers and those provisions which do not provide at least the equivalent degree of protection from the risk of injury associated with automatic residential garage door openers as the consumer product safety rule” are subject to preemption under 15 U.S.C. 2075. Public Law 101-608, section 203(f).

Accordingly, 16 CFR part 1211 is proposed to be amended as follows:

This regulation could directly affect businesses that generate certain wastes from the manufacturing of motor vehicles in the (1) automobile manufacturing industry and (2) light truck/utility vehicle manufacturing industry (NAICS codes 336111 and 336112, respectively). Other motor vehicle manufacturing industries (e.g., heavy duty truck or motor home manufacturing (NAICS code 336120)) are not affected by this rule. The wastes affected by this proposed rule are wastewater treatment sludges generated from the chemical conversion coating of aluminum using a zinc phosphating process and are currently listed as EPA Hazardous Waste No. F019 (see 40 CFR 261.31). If the rule is promulgated in either of the two ways it is proposed today, these wastes would not be hazardous waste, provided the wastes are disposed in a landfill unit that meets certain liner design criteria. Impacts on potentially affected entities are summarized in Section VI of this Preamble. The document, “Estimate of Potential Economic Impacts for USEPA's Proposed Amendment to RCRA Hazardous Wastecode F019 to Exclude Motor Vehicle Manufacturing Industries,” presents an analysis of potentially affected entities (hereinafter, referred to as the Economics Background Document). This document is available in the docket established in support of today's proposed rule. Entities potentially affected by this action are at least 14 current generators within the motor vehicle manufacturing industry consisting of six auto and eight light truck/utility vehicle plants and up to 39 other facilities in these two industries that may begin applying aluminum parts and could potentially generate F019 waste.

To determine whether your facility is affected by this action, you should examine 40 CFR Parts 260 and 261 carefully, along with the proposed regulatory language amending Chapter I of the Code of Federal Regulations (CFR). This language is found at the end of this Federal Register notice. If you have questions regarding the applicability of this action to a particular entity, consult the person listed in the preceding section entitled FOR FURTHER INFORMATION CONTACT.

1. Submitting CBI. Do not submit this information to EPA through www.regulations.gov or e-mail. Clearly mark the part or all of the information that you claim to be CBI. For CBI information submitted on a disk or CD ROM that you mail to EPA, mark the outside of the disk or CD ROM as CBI and then identify electronically within the disk or CD ROM the specific information that is claimed as CBI. In addition to one complete version of the comment that includes information claimed as CBI, a copy of the comment that does not contain the information claimed as CBI must be submitted for inclusion in the public docket. Information so marked will not be disclosed except in accordance with the procedures set forth in 40 CFR part 2.

2. Tips for Preparing your Comments. When submitting comments, remember to:

• Identify the rulemaking by docket number and other identifying information (subject heading, Federal Register date and page number).

• Follow directions—The agency may ask you to respond to specific questions or organize comments by referencing a Code of Federal Regulations (CFR) part or section number.

• Explain why you agree or disagree; suggest alternative and substitute language for your requested changes.

• Describe any assumptions that you used and provide any technical information and/or data that you used.

• If you estimate potential burden or costs, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.

• Provide specific examples to illustrate your concerns and suggest alternatives.

• Explain your views as clearly as possible, avoiding the use of profanity or personal threats.

• Make sure to submit your comments by the comment period deadline identified.

EPA proposes these regulations under the authority of Sections 2002 and 3001(b) and (f), 3004(d)-(m) and 3007(a) of the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act (RCRA), as amended, most importantly by the Hazardous and Solid Waste Amendments of 1984 (HSWA), 42 U.S.C. 6912, 6921(b), 6924(d)-(m) and 6927(a). These statutes combined are commonly referred to as the “Resource Conservation and Recovery Act” (RCRA) and will be referred to as such for the remainder of this Notice.

Because EPA is modifying the national listing of F019, EPA believes the appropriate statutory authority is that found in section 3001 (b), rather than the authority in section 3001 (f). RCRA section 3001 (f) pertains solely to the exclusion of a waste generated at a particular facility in response to a petition. Accordingly, neither the procedures nor the standards established in that provision, or in EPA's regulations at 40 CFR 260.22 are applicable to this rulemaking.

Section 102(a) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), 42 U.S.C. 9602(a) is the authority under which the CERCLA aspects of this rule are promulgated.

The Agency is proposing to amend the list of hazardous wastes from non-specific sources under 40 CFR 261.31 by modifying the scope of EPA Hazardous Waste No. F019, which currently reads: “Wastewater treatment sludges from the chemical conversion coating of aluminum except from zirconium phosphating in aluminum can washing when such phosphating is an exclusive conversion coating process.” The Agency is proposing to amend the F019 listing to exempt the wastewater treatment sludge generated from zinc phosphating, when zinc phosphating is used in the automobile assembly process and provided the waste is disposed in a landfill unit subject to certain liner design criteria. Specifically, under the two options proposed today, these wastes would not be hazardous if they are disposed in a landfill unit subject to, or otherwise meeting, certain liner requirements. Wastes that meet this condition would be exempted from the listing from their point of generation, and would not be subject to any RCRA Subtitle C management requirements for generation, storage, transport, treatment, or disposal (including the land disposal restrictions). Generators of such wastes may be exempted from the F019 listing if they meet the condition for exemption, and they maintain adequate records. EPA is proposing to require generators to keep records showing that they used a landfill that meets the design requirements.

The motor vehicle manufacturing industry incorporates aluminum into vehicle parts and bodies for the purpose of making them lighter-weight and thus more capable of increasing gas mileage. However, when aluminum is incorporated into the body of an automobile, the conversion coating step in the manufacturing process results in the generation of a RCRA-listed hazardous waste (F019) in the form of a wastewater treatment sludge from the conversion coating process, while the wastewaters from the conversion coating of steel in the same industry do not generate a listed hazardous waste. By removing the regulatory controls under RCRA, EPA is facilitating the use of aluminum in motor vehicles. The Agency believes that the incorporation of aluminum will be advantageous to the environment since lighter-weight vehicles are capable of achieving increased fuel economy and associated decreased exhaust air emissions.

EPA's regulations establish two ways of identifying solid wastes as hazardous under RCRA. A waste may be considered hazardous if it exhibits certain hazardous properties (“characteristics”) or if it is included on a specific list of wastes EPA has determined are hazardous (“listing” a waste as hazardous) because the Agency found them to pose substantial present or potential hazards to human health or the environment. EPA's regulations in the Code of Federal Regulations (40 CFR) define four hazardous waste characteristic properties: ignitability, corrosivity, reactivity, and toxicity (see 40 CFR 261.21-261.24). As a generator, you must determine whether or not a waste exhibits any of these characteristics by testing, or by using your knowledge of the process that produced the waste (see § 262.11(c)).

EPA may also conduct a more specific assessment of a waste or category of wastes and “list” them if they meet criteria set out in 40 CFR 261.11. Under the third criterion, identified in 40 CFR 261.11 (a)(3), the Agency may list a waste as hazardous if it contains hazardous constituents identified in 40 CFR part 261, Appendix VIII, and if EPA concludes that “the waste is capable of posing a substantial present or potential hazard to human health or the environment when improperly treated, stored, transported, or disposed of, or otherwise managed.” EPA places chemicals on the list of hazardous constituents in Appendix VIII “if they have been shown in scientific studies to have toxic, carcinogenic, mutagenic or teratogenic effects on humans or other life forms.” See 40 CFR 261.11(a)(3). When listing a waste, the Agency also adds any hazardous constituents that serve as the basis for listing the waste to 40 CFR part 261, Appendix VII.

The regulations at 40 CFR 261.31 through 261.33 contain the various hazardous wastes the Agency has listed to date. Section 261.31 lists waste generated from non-specific sources, known as “F-wastes,” and contain wastes that are usually generated by various industries or types of facilities. Today's proposed regulations would revise the listing for one of these wastes, F019.

If a waste exhibits a hazardous characteristic, or is listed as a hazardous waste, then it is subject to federal requirements under RCRA. Facilities that generate, transport, treat, store or dispose of such waste must meet hazardous waste management requirements, including the need to obtain permits to operate, are commonly referred to as “Subtitle C” facilities. (Subtitle C is the subsection of RCRA that governs the management of hazardous waste. EPA standards and procedural regulations implementing Subtitle C are found generally at 40 CFR parts 260 through 273.)

The RCRA regulations provide a form of relief for listed wastes through a site-specific process known as “delisting.” The regulations governing the delisting process are given at 40 CFR 260.20 and 260.22. These regulations set out a procedure and standards by which persons may demonstrate that a specific waste from a particular generating facility should not be regulated as a listed hazardous waste under Subtitle C of RCRA. Under these regulations, any person may petition EPA to remove its waste from regulation by excluding it from the lists of hazardous wastes contained in Part 261. EPA has granted delistings to various facilities that generate or manage F019 wastes, including motor vehicle manufacturing plants. (See Section IV.D.) As a condition to some of the granted delistings, the facility generating that waste must periodically sample and analyze the waste for the presence and quantity of specific chemical constituents of concern. This periodic sampling and analysis is called “verification sampling.” In some cases, facilities submit the results of the verification sampling and analysis to EPA to ensure that the waste's continuing status of nonhazardous is appropriate.

A solid waste, that is determined not to be a listed and/or characteristic hazardous waste, may be managed at “Subtitle D” facilities. These facilities are approved by state and local governments and generally impose less stringent requirements on management of wastes than Subtitle C facilities. Subtitle D is the statutory designation for that part of RCRA that deals with disposal of nonhazardous solid waste. EPA regulations affecting Subtitle D facilities are found at 40 CFR parts 240 through 247, and 255 through 258. Regulations for Subtitle D landfills that accept municipal waste (“municipal solid waste landfills”) are in 40 CFR part 258.

Hazardous Waste No. F019 is defined as “Wastewater treatment sludges from the chemical conversion coating of aluminum except from zirconium phosphating in aluminum can washing when such phosphating is an exclusive conversion coating process.” The hazardous constituents for which the waste is listed are hexavalent chromium and cyanide (complexed). The F019 wastewater treatment sludge is generated from the rinses and overflows from the chemical conversion coating of aluminum. Chemical conversion coating processes involve the application of a coating to a previously deposited metal or a base metal for increased corrosion protection, lubricity, preparation of the surface for additional coatings, or formulation of a special surface appearance. This manufacturing operation includes chromating, phosphating, metal coloring and immersion plating.

Phosphate conversion coatings produce a mildly protective layer of insoluble crystalline phosphate on the surface of a metal. Phosphate coatings are used to provide a more suitable base for paints and other inorganic coatings, to condition the surfaces for cold forming operations by providing a base for drawing compounds and lubricants, and to impart corrosion resistance to the metal surface by the coating itself or by providing a suitable base for rust-preventive oils or waxes. Phosphate conversion coatings are formed by the immersion of iron, steel or zinc plated steel in a dilute solution of phosphoric acid plus other reagents. Phosphate conversion coatings can also involve spray-on applications.

On May 19, 1980, EPA published an interim final rule listing “wastewater treatment sludges from electroplating operations” as EPA Hazardous Waste No. F006. See 40 CFR 261.31 (45 FR 33112). The hazardous constituents for which this waste was listed are cadmium, hexavalent chromium, nickel and complexed cyanide. In response to comments on the interim final regulation, the listing was modified on November 12, 1980 (45 FR 74884) to read as follows: “wastewater treatment sludges from electroplating operations except from the following processes: (1) Sulfuric acid anodizing of aluminum; (2) tin plating on carbon steel; (3) zinc plating (segregated basis) on carbon steel; (4) aluminum or zinc-aluminum plating on carbon steel; (5) cleaning/stripping associated with tin, zinc and aluminum plating on carbon steel; and, (6) chemical etching and milling of aluminum.”

Additionally, in response to other comments, the Agency separated “wastewater treatment sludges from the chemical conversion coating of aluminum” from the F006 listing and listed them as F019. Commenters had argued that these sludges should not be listed as F006 because they do not contain all four of the constituents for which F006 was listed. That is, commenters contended that these wastes do not typically contain cadmium and nickel. EPA agreed that these wastes did not typically contain cadmium and nickel, but maintained that, since the wastes contain hexavalent chromium and complexed cyanides, they should nevertheless be regulated. The Agency, therefore, listed them as hazardous waste, F019, and only listed hexavalent chromium and complexed cyanides as the constituents of concern for these wastes in Appendix VII of Part 261. 1

On December 2, 1986 (51 FR 43350), EPA issued an interpretive rule stating that the Agency had re-evaluated its previous interpretations of the scope of the application of F006 and had determined that those interpretations were overly broad. As a result, the Agency stated that the following processes were not included in the F006 listing: chemical conversion coating, electroless plating and printed circuit board manufacturing. EPA further clarified that the F006 listing includes wastewater treatment sludges from: (1) Common and precious metals electroplating, except tin, zinc (segregated basis), aluminum and zinc plating on carbon steel; (2) anodizing, except sulfuric acid anodizing of aluminum; (3) chemical etching and milling, except when performed on aluminum; and, (4) cleaning and stripping, except when associated with tin, zinc, and aluminum plating on carbon steel. While this interpretation removed chemical conversion coating from the scope of F006, it did not affect the F019 listing. That is, wastewater treatment sludges from the chemical conversion coating of aluminum continued to be regulated as F019.

Through a number of delistings and the Agency's evaluation for today's proposal, EPA has since learned that one of the chemical conversion coating operations—zinc phosphating—may not result in the generation of a hazardous wastewater treatment sludge. (See discussion below describing the zinc phosphating process.) Therefore, EPA is proposing today to amend the F019 listing to exempt the wastewater treatment sludges from zinc phosphating, when such phosphating is used at motor vehicle manufacturing plants, provided certain disposal conditions are met.

EPA is not reopening any aspect of the F019 listing other than those specifically identified in this proposal, and will not respond to any comments that address issues beyond the specific proposals outlined in this notice.

The zinc phosphating process at motor vehicle manufacturing plants is a multiple stage immersion process. The number of stages in the zinc phosphating process may vary from plant to plant, but they generally involve: cleaning and surface preparation, rinsing, conversion coating and rinsing.

Cleaning and surface preparation: The purpose of this stage is to remove the physical contaminants from the surface of the assembled vehicle body so that the conversion coating will be applied evenly and continuously across the metal surfaces. Typical surface contaminants are metal working oil, rust protection oil, dirt and oxides from corrosion. Since the surface of the metal becomes part of the coating, this stage is particularly important. Improper processing can result in blisters or poor appearance in the metal finish. Cleaning and surface preparation is typically done first with water and surfactants followed by an alkaline solution. The alkaline solution removes microscopic layers of metal to ensure that metal is exposed and available for the chemical conversion reactions.

Rinsing: The rinse stage stops the metal removal by washing away the alkaline solution. Rinsing is done with water followed by an alkaline rinse conditioner, which prepares the metal surface for the conversion coating process.

Conversion coating: During this stage, the conversion coating process converts the metal surface of the assembled vehicle bodies by dissolving the metal and forming “sites” into which the zinc phosphate coating is deposited. The zinc phosphate coating provides a stable, corrosion resistant base for painting. The phosphated conversion coating bath contains phosphoric acid with certain metals (zinc and manganese) and accelerators such as nickel. Fluoride is added to control crystal structure and maintain the composition of the bath. Hexavalent chromium and complexed cyanides are not used in this zinc phosphating conversion coating process. 2

Rinsing: Once the conversion coating process is completed, the assembled vehicle bodies go through a water rinse to stop the conversion coating process and to remove any excess salts from the metal surfaces. A final acidic rinse is then used to seal the pores in the zinc phopshate coating and to remove any excess materials from the metal surfaces. During this final rinse, a sealant is added for additional corrosion protection. From here, the assembled vehicle bodies then proceed to the painting process.

As of 2003, 11 automobile manufacturing plants (NAICS 336111) generated a total of 5,300 tons per year of F019 sludge ranging between 177 and 1,249 tons per year per plant (average of 477 tons per year per plant), and 12 light truck/utility vehicle manufacturing plants (NAICS 336112) generated a total of 9,300 tons per year of F019 sludge ranging between 112 to 1,620 tons per year per plant (average of 772 tons per year per plant). As of year-end 2005, EPA regional offices have delisted 47 former F019 generators in 19 industries, including 35,000 cubic yards (i.e., about 35,000 tons) per year of F019 sludge formerly generated by 15 motor vehicle manufacturing plants. Historically, between 1995 and 2003, the annual count of F019 generators in the motor vehicle manufacturing industries affected by this proposed rule has fluctuated between 10 to 22 generators, and between 8,000 to 13,000 tons per year of F019 sludge generated.

The F019 sludge from motor vehicle manufacturers is generated from dewatering of wastewater, typically yielding a pressed “filter cake” with a solids content that ranges between 30% and 50% by weight. Reviewing the Material Safety Data Sheets for the chemicals used in, and prior to, the conversion coating process indicates that a wide range of elements can be expected to be present in the wastewaters and the sludges resulting from wastewater treatment.

The specific chemical constituents that are found in motor vehicle manufacturers' F019 sludge, listed in order of frequency found, are nickel, fluoride, zinc, barium, copper and chromium (all found in 100% of a selected number of samples reviewed); tin, formaldehyde, lead, cobalt, mercury, sulfide and xylenes (found in 70-99% of a selected number of samples reviewed); acrylamide, vanadium, arsenic, cyanide, hexavalent chromium, and ethylbenzene (found in 50-69% of a selected number of samples reviewed).

According to data from the 2003 RCRA Hazardous Waste Biennial Report ( http://www.epa.gov/enviro/html/brs/brs_query.html ), F019 sludges generated by motor vehicle manufacturers are disposed in RCRA Subtitle C regulated facilities, after de-watering, stabilization and/or other treatment. Although two of the 17 generators in the motor vehicle manufacturing industry reportedly disposed their F019 sludges onsite (about 300 tons/year), all of the 22 automobile and light truck/utility vehicle manufacturing plants in 2003 reported managing F019 sludges offsite at RCRA Subtitle C regulated landfills in six states (IL, LA, MI, OK, PA, and SC), located at transport distances of 19 to 1,500 miles (average 400 miles).

EPA recognizes that several recent rulemakings related to RCRA-listed hazardous wastes have proposed conditional exemptions from the regulatory definition of “solid waste” when such wastes, by virtue of their being recycled, are treated more as commodities than as wastes. For example, see 68 FR 61588, October 28, 2005. The Agency is not aware of any recycling or reclamation of F019 sludges; therefore, EPA believes that current market conditions do not support the recycling of F019 waste for the purposes of recovering the metal content of such waste. EPA requests comment on whether our understanding is accurate and whether recycling of F019 waste is economically feasible under today's market conditions. If recycling of F019 wastes becomes economically feasible or beneficial in the future, the Agency will consider its options for how to address this, including through a subsequent rulemaking, such as the ongoing rulemaking related to the definition of solid waste.

On April 22, 2005, EPA, through a posting on EPA's website, indicated that the Agency was in the process of considering a possible amendment to the F019 hazardous waste listing under RCRA. This possible amendment would have exempted waste water treatment sludges from the zinc phosphating processes at automotive assembly plants in the motor vehicle manufacturing industry when concentrations of constituents of concern in those wastes fell below risk-based exemption levels. On the F019 Web page, EPA provided waste sampling data and the methodology that the Agency would use in considering the revision of the F019 listing using a concentration-based approach. Interested parties were invited to review and comment on the information collected to support the possible amendment that EPA was considering. The comment period for the web posting closed on June 1, 2005. Twelve comments were received. All commenters supported a revision to the F019 listing, although some expressed concern regarding testing conditions for potential chemicals of concern in the waste and how the concentration-based exemption would be structured. Copies of these comments are included in the docket for today's proposed rulemaking.

Below in Section V. B., EPA presents a detailed discussion of the Agency's approach in assessing the potential risks to human health and the environment and how EPA chose the potential constituents of concern that could be used in the concentration-based approach. However, as the Agency conducted the risk analysis and developed the implementation schemes to go with this approach, several issues arose. First, a variety of issues arose related to establishing precise exemption concentrations for the waste, including: the amount of waste ultimately disposed in the modeled landfill (which is dependent on annual volume and years of disposal); which toxicity benchmarks to use (e.g., drinking water standards or other health-based values); and exposure assumptions built into the Delisting Risk Assessment Software (DRAS) model (e.g., groundwater consumption for different age groups). (See Section V. B. for a more detailed discussion on the documentation of the DRAS model.)

Second, in order to accommodate the wide range in the volumes of F019 wastewater treatment sludges generated at the different automotive assembly plants, the Agency would need to develop different exemption levels for each of the constituents of concern for the various annual waste volumes (e.g., 500 cubic yards to 5000 cubic yards per year at 500 cubic yard intervals). In order to ensure compliance with the concentration-based approach, the automotive assembly plants would need to maintain detailed records on the amount of waste generated and implement a representative sampling and analysis program to ensure that they met the exemption levels for the volume of waste each facility generated annually. Furthermore, two constituents were identified that presented potential risks to human health (arsenic and nickel) in an unlined landfill scenario as modeled by DRAS version 2. Rather than attempt to define precise exemption levels for constituents of concern, the Agency believes that it is simpler to require disposal in a landfill that is subject to certain liner design requirements. The Agency is proposing two options for the liner design requirements. Under option one, EPA is proposing that the landfill unit meet the liner requirements for municipal landfills in 40 CFR 258.40 or other liner designs containing a composite liner. 3 Under option two, the Agency is proposing to allow disposal in state-permitted municipal solid waste landfills (subject to regulations in 40 CFR 258) and state-permitted industrial solid waste landfills (subject to Federal regulations at 40 CFR 257), provided the landfill unit includes at least a single clay liner, 4 and also in permitted hazardous waste landfills. This second option could ease implementation, because the generator could rely on the state permitting agency to assure proper liner design. The Agency is seeking comment on this second approach, because the modeling results indicate that units with a less stringent liner design may also reduce the risk from the hazardous constituents of concern to acceptable levels.

As discussed further below, EPA found that disposal of the waste under evaluation in such lined landfills would ensure protection of human health and the environment, without the need for testing and tracking of waste volume. EPA believes that the proposed approaches outlined in today's notice would be easier and less costly to implement than the concentration-based approach, but provides at least the same level of protection for human health and the environment.

Today's action addresses a specific type of industrial sludge: sludge generated from the management of wastewaters generated at motor vehicle manufacturing (assembly) facilities. In general, industrial wastewater treatment sludges consist of suspended solids removed from wastewaters during treatment, which may involve various steps. As described in one delisting petition, for example, the treatment steps include: grit separation, pH adjustment to remove metals, addition of a coagulant, clarification to generate a dilute sludge, and dewatering of the sludge and grit solids via filter presses. 5

F019 sludges generated by the motor vehicle manufacturing industries are currently managed by onsite dewatering, followed by truck or rail shipment to offsite RCRA-permitted hazardous waste landfills. Because today's action proposes to allow disposal of the wastewater treatment sludge in landfills subject to, or meeting, certain design criteria, the Agency's risk assessment involved evaluating risks to human health and the environment from this landfill disposal scenario. (See the “Technical Support Document: Assessment of Potential Risks from Managing F019 Waste from the Motor Vehicle Manufacturing Industry” in the docket for this proposed rulemaking for a detailed description of the analysis that the Agency performed, hereinafter, referred to as the Technical Support Document.) EPA initially evaluated the potential risks posed by a hypothetical annual quantity of F019 waste that is disposed of in an unlined nonhazardous waste landfill, and then evaluated potential risks from disposal in landfills that use different liner technologies. The human health and environmental risk evaluation uses several environmental fate, transport, and exposure/risk models: Delisting Risk Assessment Software (DRAS), version 2.0, 6 Tier 1 of the Industrial Waste Management Evaluation Model (IWEM), 7 and EPA's Composite Model for Leachate Migration with Transformation Products (EPACMTP). 8 These models have all been peer reviewed; see the Technical Support Document for a detailed description of the use of these models and their peer review.

EPA's Regional Offices, and certain states, use version 2.0 of the DRAS model, or earlier versions of it, to determine whether to grant requests for delistings under 40 CFR 260.22. The DRAS model is a screening tool that contains several assumptions that are designed to be protective of public health. In addition, EPA then adjusted the DRAS model results to take into account exposures to children. The DRAS model assesses human health considerations, by assuming that populations that live near the landfill (nearby residents) may be exposed to chemical constituents that are released from the waste that is placed in the landfill. EPA used the DRAS model to calculate the levels of chemical constituents in a waste (waste concentrations) that would not exceed the acceptable levels at the nearby receptor. The acceptable levels are based on the target risks the Agency used in its evaluation. For carcinogens, EPA used an increased probability of developing cancer that is less than or equal to one in one hundred thousand (1 × 10 −5 ). For non-carcinogens, EPA used a “hazard quotient” less than or equal to 1.0; the hazard quotient is the ratio of an individual's chronic daily exposure to a standard, such as the chronic reference dose. (The reference dose is “an estimate (with uncertainty spanning perhaps an order of magnitude) of a daily oral exposure for a chronic duration (up to a lifetime) to the human population (including sensitive subpopulations) that is likely to be without an appreciable risk of deleterious effects during a lifetime.”)  9 These target risk levels are consistent with those discussed in EPA's hazardous waste listing determination policy (see the discussion in a proposed listing for wastes from the dye and pigment industries, December 22, 1994 (59 FR 66072)).

The DRAS model assesses environmental risk by examining the aquatic organisms in a body of surface water downhill from the landfill (ecological receptors) that are exposed to small quantities of chemical constituents that are released from the waste in the landfill. As with the human health considerations, the Agency can assess an acceptable risk level for those aquatic organisms, such that the sustainability of the organisms' population in the surface water body is not compromised. The DRAS model then calculates the levels of chemical constituents in waste placed in the landfill (i.e., waste concentrations) that should not be exceeded in order to have acceptable levels of these constituents in the nearby body of surface water.

For a landfill disposal scenario, the DRAS model predicts how constituents of potential concern, or COPCs, will move through the environment and affect nearby people or aquatic organisms. The DRAS model predicts releases of COPCs from the waste into the groundwater beneath the landfill, then accounts for human exposure from drinking contaminated groundwater, inhaling volatile constituents when using contaminated groundwater for showering, and dermal contact from bathing with contaminated groundwater. The DRAS model also predicts releases of COPCs from the waste (both waste particles and volatile emissions) into the air above the landfill. DRAS then accounts for inhalation of volatile constituents and particles, and for windblown particles landing on soil and a child ingesting the contaminated soil. Finally, the DRAS model predicts releases of COPCs from the waste, due to storm water that erodes waste from an open landfill and runs off into a nearby body of surface water. Then the DRAS model takes into account human exposure from eating fish and drinking contaminated surface water, and for the exposures of the fish to contaminated surface water. In addition, EPA adjusted the DRAS model results to take into account exposures to children. See the Technical Support Document for a complete description of the scenario that is modeled in DRAS version 2.0, the human health and ecological exposure pathways, and the data sources the Agency used as model inputs. The DRAS version 2.0 technical documentation, “User's Guide for the EPA Region 6 Delisting Risk Assessment Software” (EPA906-D-98-001) and the “Delisting Technical Support Document,” which is distributed as part of the DRAS modeling software, provides further details about the specific assumptions and the mathematical equations that the model uses. These documents are in the docket.

Section IV. F. describes briefly the constituents likely to be present in motor vehicle manufacturers' F019 waste. To identify constituents of potential concern, EPA reviewed information from 13 motor vehicle manufacturing facilities' delisting petitions. 10 This information included material safety data sheets (MSDS's) that identify the specific chemicals used in the conversion coating process; these chemicals are likely to be present in the wastewater that is treated and from which F019 sludge results.

EPA also compiled the analytical data received from the 13 facilities' delisting petitions (and from verification sampling at several facilities) into a spreadsheet that is available in the docket for this rulemaking. These 13 facilities analyzed F019 sludge samples for approximately 240 chemical constituents. Many chemicals were not found in the F019 sludge at the detection limits used. If these “non-detect” chemicals were not mentioned on the material safety data sheets, then EPA did not evaluate these constituents further. For example, petitioners analyzed sludge samples for pesticides, such as 2-sec-butyl-4,6-dinitrophenol (Dinoseb); however, these were not found in the MSDS's or in the sludge samples, nor would one expect to find them in a motor vehicle manufacturing facility's wastewater treatment sludge.

Of the constituents analyzed in the F019 wastes, 56 were detected in one or more samples. EPA evaluated the concentrations reported by the petitioners for these 56 chemicals (including concentrations that laboratories reported as estimates). The Agency used the DRAS model methodology to evaluate potential risks for 55 detected constituents for human health risks and 49 for environmental risks. 11

For both human health and environmental risk evaluations, EPA's analysis assumed the disposal of a total waste volume of 90,000 cubic yards of F019 into a landfill. This waste volume corresponds to either a 4,500 cubic yards per year disposal rate for 20 years, or a 3,000 cubic yards per year disposal rate for 30 years. EPA believes it is quite unlikely that motor vehicle manufacturers would dispose of amounts greater than 90,000 cubic yards for an extended period of time in the same landfill based on a review of the delisting facilities' stated annual F019 sludge production quantities. EPA examined the information contained in the delisting petitions submitted and more recent data provided by facilities in the motor vehicle manufacturing industry. Combining the data from both sources for past generation of this waste, EPA found that the volumes of sludges disposed ranged from 426 to 3,892 cy/yr (median was 1,088 cy/yr, and the 90th percentile ranked value was approximately 2,900 cy/yr). Therefore, the use of 3,000 cubic yards per year or 4,500 cubic yards per year represents a protective upper-bound for the waste volumes reported by the generators and is likely to overestimate volumes currently produced by the automotive industry. A number of the constituents detected in the waste appear to be present at levels that may be of concern from a human health viewpoint. (None of the constituents that EPA evaluated for potential environmental harm appeared to be present at levels of concern.) When using the maximum detected concentrations and a total volume of 90,000 cubic yards disposed in a landfill, the DRAS modeling indicated that two of the 55 waste constituents evaluated for human health effects showed an estimated hazard quotient greater than 1, or showed an individual's estimated lifetime potential excess cancer risk to be greater than one in one hundred thousand.

Based on the assessment using DRAS, the Agency determined that only two constituents (arsenic and nickel) had maximum detected values that exceeded the levels that DRAS modeling indicated would result in an acceptable exposure level. (The other constituents had estimated hazard quotients less than 1 and estimated individual lifetime excess cancer risk of less than one in one hundred thousand.) For nickel in groundwater used as drinking water, the estimated hazard quotient was three. For arsenic in groundwater used as drinking water, the estimated individual excess lifetime cancer risk was three in one hundred thousand. Thus, using protective exposure assumptions, the Agency found that disposing of a total of 90,000 cubic yards of waste (equivalent to 3,000 cubic yards disposed per year for 30 years) containing these two constituents, at their maximum detected concentrations in an unlined landfill, exceeded the DRAS limit by up to a factor of 3. The Technical Support Document describes the DRAS modeling and results, with discussion and conclusions, in considerably greater detail.

As described above, two constituents (arsenic and nickel) were at levels that may be of concern using upper-bound assumptions for waste quantities disposed and constituent concentrations in unlined landfills. Furthermore, the constituents were reported to be prevalent in the waste samples. Therefore, EPA examined the robustness of one of the key assumptions of the DRAS version 2.0 modeling—modeling disposal in a landfill without a liner. Within the past 15 years, changes to landfill requirements in the United States (the promulgation of federal regulations that require municipal solid waste landfills to meet certain leakage prevention requirements, and requirements for collecting and managing landfill gases, e.g. , see 40 CFR 258.40) have caused substantial changes in landfill practices. The majority of municipal solid waste landfills, and probably many landfills that accept nonhazardous industrial solid waste but not municipal solid waste, now are designed, built, and operated with liner systems that typically include composite liners and leachate collection systems (or other approved performance standards). The potential risks found by the DRAS version 2.0 modeling were all from groundwater exposure pathways. As a result, current landfills with liner systems and leachate collection systems should dramatically lessen impacts on local groundwater conditions.

DRAS does not have an option to model the impact of liners on landfill releases. Therefore, to examine the potential impact of liners, the Agency compared the levels calculated by the Industrial Waste Management Evaluation Model (IWEM), for single-lined and composite-lined landfills. 12 IWEM is the ground-water modeling component of the Guide for Industrial Waste Management, used for recommending appropriate liner system designs for the management of RCRA Subtitle D industrial waste. The initial IWEM evaluation (Tier 1) provides a screening assessment with results that are protective over a range of conditions and situations. The results of the IWEM analysis indicate that the use of a composite-lined landfill would result in acceptable risk levels for the two key constituents of concern. The IWEM generally uses more protective assumptions than the DRAS model. For example, the IWEM model assumes that the drinking water well is at a fixed location along the center line of the potential plume of contamination at a distance of 150 meters from the unit; the DRAS model allows the well location to vary downgradient from the unit.

To further examine the effectiveness of composite liners, EPA also used the modeling performed for lined landfills in the recent listing rule for dye and pigment production wastes (February 24, 2005, 70 FR 9138). In this rule, the Agency established a conditional exemption for wastes disposed in landfills meeting specified liner design requirements, similar to the proposal in today's notice. The results from that effort show that composite-lined landfills provided significant protection (about two orders of magnitude) compared to an unlined unit. 13 Therefore, based on both the IWEM results and the modeling in the dye and pigment waste listing, EPA believes that disposal of F019 sludges from motor vehicle manufacturers in composite-lined landfills (or other approved performance standards) is protective of human health and the environment.

The Agency also considered whether the presence of just a single clay liner would be sufficient to reduce the risks below levels of concern. In addition to the IWEM results that showed disposal in a composite-lined landfill was protective, this analysis also yielded levels that would be allowed for a landfill with a single clay liner and for an unlined landfill. For nickel, the levels that would be allowed for a single clay liner were approximately 3-fold higher than the allowable levels for an unlined unit. For arsenic, the allowable level for a single clay liner was approximately 7-fold higher than the allowable level for an unlined unit. Thus, a single clay liner (as defined in the IWEM model assumptions) may be sufficiently protective to allow disposal in a unit with such a single liner, because a single clay liner may reduce the risks from these constituents to levels below the DRAS levels of concern. (EPA is somewhat uncertain about the appropriateness of extending the apparent margin of safety afforded by a single clay liner from one model (IWEM) to another model's results (DRAS), and we are seeking comment on this approach.) Therefore, EPA is requesting comment on a second regulatory option that would allow disposal of this waste in all state-permitted municipal solid waste landfills (regulated under 40 CFR Part 258) and state-permitted industrial solid waste landfills (regulated under 40 CFR Part 257), even those that do not meet the liner design requirements in § 258.40, provided the landfills are equipped with at least a single clay liner. 14 The second option, for example, would allow disposal in a state-permitted municipal landfill that was constructed prior to the effective date for the § 258.40 regulations (an “existing” unit), provided the unit had at least a single clay liner. EPA expects that this would provide additional regulatory flexibility for generators, and would not be likely to result in adverse health effects.

Therefore, EPA is taking comment on a second option, which would allow disposal in a landfill with a single clay liner, as well as allowing disposal in landfills with the more protective composite liner systems. Under this option, the regulatory language for the F019 could be revised to read as follows.

EPA is requesting comments on whether adequate clay liners are found in active older municipal landfill units and industrial solid waste landfills, and whether this requirement would provide any significant regulatory relief for generators by meaningfully expanding their disposal options. EPA is also seeking comment on the likelihood of generators of the F019 waste constructing landfill units at their facilities and what types of liner systems would be used for these onsite units. EPA also solicits comment on whether the option allowing disposal in a landfill unit with a clay liner (permitted or licensed by the state) will be straightforward to implement or whether it will raise implementation or compliance issues for the waste generator, such as the availability of state standards for clay liners in older landfills.

The Agency is seeking comments on the level of regulatory relief that would be provided by both of these proposed approaches. Municipal landfills, for example, have been required to have composite liners (or performance based equivalents) as set out in 40 CFR 258.40, except for “existing” units ( i.e. , generally units or cells that existed prior to 1993). Therefore, EPA believes that most lined landfill units are likely to have composite liners. The Agency is seeking information on the extent to which generators would use the option of sending waste to units with only single clay liners (under proposed option two) and any information relevant to the existence and likely use of landfill units with single clay liners. In addition, EPA is seeking comments on the burden associated with the recordkeeping requirements that would result from documenting compliance with disposal of the exempt waste in a landfill unit with a single clay liner or a composite liner. Under the second proposed option, the generator would be required to document that the waste went to a permitted landfill unit that was equipped with a clay liner. In this case, however, the generator would be able to rely on the permitting agency to ensure that the clay liner was adequate. EPA solicits comments on any issues that might be raised by this approach to recordkeeping and documentation.

The Technical Background Document describes the risk results, and gives examples of the known uncertainties associated with the risk results. The risk results used for this proposal are based on the same kinds of data and health protective models that the Agency typically uses in national-scale waste policy decision making. The risk results show estimated risks for an individual at the “high-end” of the risk distribution, and are designed to be protective of human health and the environment. As such, the resulting risk estimates are likely to reflect protective outcomes in more than 90 percent of the situations modeled. 15 When using central tendency assumptions  16 for an unlined landfill, the hazard quotient for nickel was calculated to be 0.1 and the cancer risk factor for arsenic was two in a million, both values being well below the risk thresholds used by the Agency in hazardous waste listing determinations.

Our overall assessment is that the models we use could overestimate the potential adverse effects of disposing of the F019 waste in either unlined or lined landfills. Thus, actual exposures that would be experienced by future residents near the landfill will likely be lower than those estimated using the DRAS version 2 model. Examples of the protective assumptions used in the high-end DRAS results include: (1) The disposal volume (the 90th percentile value of 3,000 cubic yards per year in the same landfill for 30 years), (2) the constituent concentrations (the maximum values found in the sampling data from the 13 delisting submissions), and (3) exposure levels (90th percentile value for ingestion of groundwater by children for 350 days per year).

The risk results represent EPA's reasonable efforts in using existing knowledge of the national waste management system, the science of environmental fate and transport of chemicals, and the science of toxicology to assess the likely hazards of managing the F019 waste as nonhazardous. The Agency believes that, in spite of some of the specific uncertainties that exist, the risk estimates provide a useful basis for our decision about whether to continue to regulate this waste as a hazardous waste. EPA is requesting comments on our risk assessment approach and on the resulting risk estimates.

The proposed amendment to the F019 listing exempts certain wastes disposed in landfill units that are subject to certain liner design requirements. This exemption is based on EPA's risk analysis demonstrating that wastes disposed in landfills with certain types of liners do not present significant risks for sludges generated by motor vehicle manufacturers. Today's first proposal would allow motor vehicle manufacturers (as defined in § 261.31(b)(i)) to manage wastes from chemical conversion coating of aluminum when using a zinc phosphating process as nonhazardous, if the wastes are disposed in a landfill subject to, or otherwise meeting, the landfill requirements in § 258.40, § 264.301 or § 265.301. The second proposal in today's notice would also exempt the waste if the generators dispose of the waste in a state-permitted non-hazardous landfill unit that has, at a minimum, a single clay liner.

The requirements under § 258.40, which apply to new municipal solid waste landfills or new units at existing municipal solid waste landfills, require use of a composite liner and leachate collection system (or a design meeting a protective performance standard and approved by the Director of an approved state program or by EPA). The infiltration rates used by IWEM (and also for the Dye and Pigment listing; 70 FR 9138, February 24, 2005) were based on data from landfills with composite liners similar to the design required under § 258.40. Consequently, EPA's proposed option number one allows disposal of wastes in a municipal solid waste landfill unit that is subject to the § 258.40 design requirements. EPA is specifying that the landfill unit must be subject to these requirements because some operating landfills may still use older units that are not required to meet the design requirements in § 258.40. The Agency's risk assessment shows that unlined landfills may not be sufficiently protective for some of the sludges from automobile manufacturing, i.e., higher volume sludges with high levels of key constituents of concern. Federal law requires that all municipal landfills comply with the Part 258 landfill regulations. Additionally, states have permitting programs to implement the Part 258 requirements for municipal landfills. Permit programs must ensure that municipal landfill units in the states comply with the § 258.40 design standards (see 40 CFR 239.6(e)). Consequently, landfill cells subject to the Part 258.40 design standards are required to comply with the federal standards or more stringent state standards.

Some generators of F019 wastes may still choose to send wastes to Subtitle C hazardous waste landfills. New landfill units and lateral expansions of existing hazardous waste landfills are required to have “double” composite liners including synthetic components. See 40 CFR 264.301 and 265.301. The Agency would expect that these liner systems have even lower infiltration rates than the composite liners required under § 258.40, because the Subtitle C requirements include another composite liner, in addition to the composite liner (or equivalent) required of municipal solid waste landfills (e.g., see § 261.301(c)). Therefore, EPA is proposing to give generators the option of sending wastes to landfill units subject to these stricter hazardous waste liner requirements.

The Agency is also proposing to include a third class of landfills in the exemption, namely, Subtitle D industrial solid waste landfills that meet the liner design requirements in § 258.40 or Subtitle C landfills. These “industrial landfills” are subject to Federal regulations in Part 257, which apply to non-municipal, nonhazardous waste landfills. While the Part 257 regulations do not have liner requirements, states have regulations governing the design of such landfills that often include requirements for liner systems. 17 EPA believes that generators should have the option of using lined industrial landfills that are as protective as lined municipal solid waste landfills.

Therefore, under the first option, EPA is proposing that the amended listing include an exemption for wastes disposed in any landfill that is subject to, or meets, the landfill requirements in § 258.40, § 264.301, or § 265.301. Under the second option, EPA is proposing an alternative approach that would also allow disposal of the subject waste in a landfill unit with a single clay liner as described previously.

Note, however, that this exemption would not apply if wastewaters from aluminum conversion coating processes using the zinc phosphating process are commingled with wastewaters arising from aluminum conversion coating using other non-exempt processes (e.g., chromating processes); the sludge resulting from such commingled wastewaters would still carry the F019 waste code, because it would be derived, in part, from an aluminum conversion coating process that is not zinc phosphating. Furthermore, aluminum conversion coating sludges derived from zinc phosphating at motor vehicle manufacturers are still subject to the “mixture rule,” and would become hazardous waste if mixed with any other listed hazardous waste. 18 In addition, the motor vehicle manufacturers would also be subject to the requirements of § 268.3 (dilution prohibited as a substitute for treatment). Finally, if the zinc phosphating sludges were generated such that they exhibit one of the hazardous waste characteristics (see § 261.20 through § 261.24), the waste would continue to be regulated as a hazardous waste.

Under the proposed option number one, generators of wastewater treatment sludges claimed to be nonhazardous are responsible for ensuring that shipments of such waste are placed in landfill units that meet the design criteria specified in § 258.40, § 264.301, or § 265.301. Under option two, generators would also need to document compliance if they send their waste shipments to a state-permitted landfill unit that has an adequate single clay liner. Under either option, generators wishing to qualify for the exemption from the F019 listing would be required to maintain records to show that their wastes are placed in an appropriate landfill unit, whether the unit is at a municipal solid waste landfill, hazardous waste landfill, or an industrial solid waste landfill (in the case of option two, this would include disposal in a unit with a single clay liner). EPA is proposing a flexible performance standard that would allow the generator to demonstrate that shipments of waste were received by a landfill unit that is subject to or meets the landfill design standards set out in the listing description through various means. A generator may be able to demonstrate fulfillment of the landfill disposal condition by means of a signed contract with the owner/operator of a municipal solid waste landfill, a hazardous waste landfill, or an industrial solid waste landfill receiving the waste; the generator should also retain specific shipping documents to demonstrate that the contract was implemented. The contract must show that the landfill owner/operator would use only units subject to the applicable Part 258 or Part 264 or Part 265 design requirements (under option two, the contract, state permit, or documentation from the state may also be used to document that units meeting the single liner specifications would be used). A generator may also be able to support a claim of fulfilling the landfill design requirements by means of signed nonhazardous waste bills of lading, manifests, or invoices documenting delivery, provided they show that wastes were placed in municipal solid waste landfill units subject to the applicable Part 258 design requirements or Subtitle C landfill units subject to the Part 264 or Part 265 design requirements. Similarly, the generator would be responsible for documenting that non-municipal, nonhazardous waste landfill units (industrial landfill units) meet the specified liner standards. States have regulations governing the design of such industrial solid waste landfills, and landfill operators must have certifications or permit conditions available to provide to generators who wish to use such landfills instead of municipal solid waste or hazardous waste landfill units. Therefore, state regulations could help support a claim that the nonhazardous waste bills of lading, manifests, or invoices documenting delivery satisfy the applicable liner requirements.

Disposal in a landfill subject to or meeting the landfill design requirements is a condition of the exemption to the listing under the two approaches being proposed. If a generator does not fulfill this condition, the sludges would be F019 listed wastes, subject to the applicable Subtitle C requirements. Therefore, the Agency advises generators to properly store the wastewater treatment sludges that are claimed to be nonhazardous wastes to ensure that improper releases do not occur. EPA encourages all generators to store all wastes in containers, tanks, or buildings, so as to reduce potential releases to the environment through spills, wind dispersal, and precipitation. The exemption for these wastes is conditioned upon disposal in the landfill units that are subject to, or otherwise meet, the specified design criteria.

In addition, a generator claiming that the wastewater treatment sludges are not F019 listed waste must maintain sufficient documentation to demonstrate that shipments of such waste were disposed in a landfill subject to or meeting the liner design standards specified under the conditional exemption. The proposed regulatory text (§ 261.31(b)(4)(iii)) specifies necessary records that a generator claiming the exemption must keep.

Generators taking advantage of the exemption that fail to meet the condition of disposing the wastewater treatment sludges in a landfill unit that meets certain liner design criteria would be subject to enforcement action, and the wastewater treatment sludges may be considered to be hazardous waste from the point of their generation. EPA could choose to bring an enforcement action under RCRA § 3008(a) for all violations of hazardous waste regulatory requirements occurring from the time the wastewater treatment sludges are generated up to the time they are finally disposed. Releases of hazardous waste could also potentially be addressed through enforcement orders, such as orders under RCRA §§ 3013 and 7003. States could choose to take an enforcement action for violations of state hazardous waste requirements under state authorities.

Generators claiming the exemption from the F019 listing must be able to demonstrate to the appropriate regulatory agency that the condition of the exemption is being met. In accordance with existing requirements, the facility claiming the exemption bears the burden of proof to demonstrate conformance with the requirements specified in the regulation. See 40 CFR 261.2(f).

EPA requests comment on whether the proposed record-keeping requirements should also be made conditions of the exemption, rather than established as separate recordkeeping requirements. In addition, the Agency seeks comments on whether additional requirements or conditions are necessary to ensure that the waste is not improperly disposed or released prior to disposal in landfills meeting the landfill requirements in § 258.40, § 264.301 or § 265.310 (or under the second proposed option, a municipal or industrial solid waste landfill with a single clay liner). EPA is considering the need to include a condition for the exemption that the waste be stored so as to minimize releases to the environment. The regulatory condition being considered by the Agency could include the following possible regulatory language.

EPA obtained information from delisting petitions that indicates generators of the F019 sludge store the dewatered sludges in containers or bins prior to shipment offsite for disposal. During visits to three vehicle manufacturing plants generating sludges, EPA found that sludge dewatering equipment and sludge containers were kept inside buildings, reducing any potential for releases. While these management practices may reflect the fact that the delisted sludges were previously hazardous waste, we expect that these practices would continue after an exemption. 20 We seek any further information from commenters as to the current sludge management practices at facilities that currently generate F019 wastes (or delisted F019), and any information on practices at vehicle manufacturers that do not currently generate F019 (i.e., plants that do not use aluminum). If such information indicates that generators are already handling the waste to minimize releases, the Agency will take this into consideration when deciding whether storage conditions are necessary.

The Agency today is proposing to amend the F019 listing to exclude wastewater treatment sludges from zinc phosphating, when such phosphating is used at motor vehicle manufacturers. These wastewater treatment sludges will not be hazardous if the wastes are disposed in a landfill unit subject to, or otherwise meeting, the landfill requirements for the liner systems specified in the F019 listing under both of the proposed options.

40 CFR Part 268 prohibits the land disposal of RCRA hazardous waste unless they have been treated to meet a certain level or by a technology specified by EPA. See Table 1.Treatment Standards for Hazardous Wastes in § 268.40. The land disposal restrictions only apply to solid wastes that are RCRA hazardous wastes. Therefore, if the wastewater treatment sludges are disposed in landfill units that are subject to or meet the landfill design criteria outlined in today's proposal, they would not be hazardous waste from the point of generation and, thus, not subject to the land disposal restriction requirements.

The question arises as to the status of waste generated by facilities that currently have an exemption for their wastes through a delisting under § 260.22. Today's proposed revision to the F019 listing would exempt wastes from motor vehicle manufacturing facilities that meet the landfill disposal conditions. Thus, wastes that are to be disposed in a subtitle D or subtitle C unit that meets the liner design standards specified in the listings are exempted from the listing from their point of generation. As such, the exempt waste would not be subject to any RCRA subtitle C management requirements for generation, storage, transport, treatment, or disposal (including land disposal restrictions). These exempt wastes would never become F019 listed wastes (when the specified disposal conditions are met), and, thus, the existing delistings (including any conditions associated with the delisting) would be rendered moot by today's proposal, presuming the authorized state adopts the rule, where applicable. However, EPA realizes that facilities with delistings may wish to avoid any confusion that might arise in the implementation of the exemption proposed in today's notice. Therefore, the facility may wish to seek to have its delisting withdrawn by the regulatory authority (the EPA Region or state), unless the facility wishes to continue to manage its waste pursuant to its existing delisting. However, EPA encourages facilities with delistings to be sure that the state in which they operate has adopted the exemption prior to moving to drop an existing delisting. See the discussion below in Section VII. State Authorization for additional information on the authorization process.

Under section 3006 of RCRA, EPA may authorize a qualified state to administer and enforce a hazardous waste program within the state in lieu of the federal program, and to issue and enforce permits in the state. Following authorization, the state requirements authorized by EPA apply in lieu of equivalent Federal requirements and become Federally-enforceable as requirements of RCRA. EPA maintains independent authority to bring enforcement actions under RCRA sections 3007, 3008, 3013, and 7003. Authorized states also have independent authority to bring enforcement actions under state law.

A state may receive authorization by following the approval process described in 40 CFR part 271. Part 271 of 40 CFR also describes the overall standards and requirements for authorization. After a state receives initial authorization, new Federal regulatory requirements promulgated under the authority in the RCRA statute do not apply in that state until the state adopts and receives authorization for equivalent state requirements. The state must adopt such requirements to maintain authorization. In contrast, under RCRA section 3006(g), (42 U.S.C. 6926(g)), new Federal requirements and prohibitions imposed pursuant to the 1984 Hazardous and Solid Waste Amendments (HSWA) take effect in authorized states at the same time that they take effect in unauthorized states. Although authorized states still are required to update their hazardous waste programs to remain equivalent to the Federal program, EPA carries out HSWA requirements and prohibitions in authorized states, including the issuance of new permits implementing those requirements, until EPA authorizes the state to do so. Authorized states are required to modify their programs only when EPA promulgates Federal requirements that are more stringent or broader in scope than existing Federal requirements.

RCRA section 3009 allows the states to impose standards more stringent than those in the Federal program. See also 40 CFR 271.1(i). Therefore, authorized states are not required to adopt Federal regulations, either HSWA or non-HSWA, that are considered less stringent.

Today's rule is proposed pursuant to non-HSWA authority. The proposed changes in this rule are less stringent than the current Federal requirements. Therefore, states will not be required to adopt and seek authorization for the proposed changes. EPA will implement the changes to the exemptions only in those states which are not authorized for the RCRA program. Nevertheless, EPA believes that this proposed rulemaking has considerable merit, and the Agency thus strongly encourages states to amend their programs and become Federally-authorized to implement these rules once they become final.

The Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) defines the term “hazardous substance” to include RCRA listed and characteristic hazardous wastes. When EPA adds a hazardous waste under RCRA, the Agency also will add the waste to its list of CERCLA hazardous substances. EPA also establishes a reportable quantity, or RQ, for each CERCLA hazardous substance. EPA provides a list of the CERCLA hazardous substances along with their RQs in Table 302.4 at 40 CFR 302.4. If a person in charge of a vessel or facility that releases a CERCLA hazardous substance in an amount that equals or exceeds its RQ, then that person must report that release to the National Response Center (NRC) pursuant to CERCLA section 103. That person also may have to notify state and local authorities.

Because today's rule is proposing to modify the scope of the EPA Hazardous Waste No. F019 under 40 CFR 261.31 listing to exclude wastewater treatment sludges from zinc phosphating, when such phosphating is used in the motor vehicle manufacturing process, and if the wastes are disposed in a landfill is subject to, or meets certain liner design requirements, the Table 302.4 at 40 CFR 302.4 would be modified to adopt the same definition and scope.

We believe that today's proposed regulatory changes will not: (1) Increase the amount of discharged wastewater pollutants at the industry or facility levels; or (2) interfere with the ability of industrial generators and recyclers of electroplating residuals to comply with the Clean Water Act requirements (e.g., Metal Finishing Effluent Guidelines, 40 CFR Part 433).

Under Executive Order 12866 (58 FR 51735), the Agency must determine whether this regulatory action is “significant” and therefore subject to formal review by the Office of Management and Budget (OMB) and to the requirements of the Executive Order, which include assessing the costs and benefits anticipated as a result of the proposed regulatory action. The Order defines “significant regulatory action” as one that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, or tribal governments or communities; (2) create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

Pursuant to the terms of Executive Order 12866, although the annual effect of this proposed rule is expected to be less than $100 million, the Agency has determined that today's proposed rule is a significant regulatory action because this proposed rule contains novel policy issues. As such, this action was submitted to OMB for review. Changes made in response to OMB suggestions or recommendations are documented in the docket to today's proposal.

The following is a summary of EPA's economic analysis as contained in the Economics Background Document in support of this proposal, which is available for public review and comment in the EPA Docket ( www.regulations.gov ). Although 73 industries in 42 states generate 0.7 million tons per year of RCRA F019 hazardous waste sludge as of 1999, the scope of this F019 proposed rule is limited to the (1) automobile manufacturing industry (NAICS 336111) and (2) the light truck/utility vehicle manufacturing industry (NAICS 336112). The Agency defined this scope in relation to 15 recent (1997-2005) delisting final determinations for these two motor vehicle manufacturing industries in EPA Regions 4 and 5. 21 Under the current F019 listing description, motor vehicle manufacturers become F019 sludge generators if they use aluminum parts on vehicle bodies which undergo the chemical conversion (zinc phosphating) process. Motor vehicle manufacturers began in the early 1970's, to substitute lighter-weight aluminum parts for heavier steel parts to achieve national vehicle fleet fuel efficiency and vehicle pollutant emission reduction objectives. If promulgated, the proposed elimination of RCRA Subtitle C hazardous waste regulatory requirements for waste transport, waste treatment/disposal, and waste reporting/recordkeeping in this proposed rule, is expected to provide $1.6 to $4.6 million per year in regulatory cost savings to 14 facilities in these two industries which are known as of 2005 to generate about 8,700 tons per year of F019 sludge, but are not yet delisted (as of year-end 2005). Although today's proposed action presents alternative RCRA Subtitle D non-hazardous waste landfill liner specifications (i.e., liner design criteria) as possible conditions for exemption of F019 sludge from RCRA Subtitle C regulation, the economic impact analysis does not distinguish landfill liner types in this cost savings estimate. Secondary impacts of the proposed rule may also include potential future RCRA regulatory cost avoidance for up to 39 other facilities in these two industries not currently generating F019 sludge, but which may begin applying aluminum parts in vehicle assembly. Furthermore, by reducing regulatory costs, EPA anticipates that this rule may also induce other motor vehicle manufacturing facilities to begin using aluminum in vehicles sooner than they otherwise would, thereby possibly accelerating future achievement of national air quality and fuel efficiency objectives. The Economics Background Document provides estimates for these secondary and induced benefits for this proposed rule.

The information collection requirements in this proposed rule have been submitted for approval to the Office of Management and Budget (OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. An Information Collection Request (ICR) document prepared by EPA has been assigned EPA ICR number 1189.18 and a copy may be obtained from Susan Auby by mail at U.S. Environmental Protection Agency, Collection Strategies Division (Mail Code 2822), 1200 Pennsylvania Avenue, NW., Washington DC 20460, by e-mail at auby.susan@epa.gov, or by calling (202) 566-1672. A copy may also be downloaded from the Internet at http://www.epa.gov/icr .

EPA under 40 CFR 261.31(b)(4)(iii), proposes to add a recordkeeping requirement for generators. The proposed rule will require generators wanting to demonstrate compliance with the provisions of this proposal to maintain onsite for a minimum of three years documentation demonstrating that each shipment of waste was received by a landfill unit that is subject to or meets the landfill design criteria set out in the listing description. An enforcement action by the Agency can extend the record retention period (§ 268.7(a)(8)) beyond the three years.

EPA estimates that the total annual respondent burden for the new paperwork requirements in the rule is approximately 35 hours per year and the annual respondent cost for the new paperwork requirements in the rule is approximately $2,600. However, in addition to the new paperwork requirements in the rule, the Agency also estimated the burden and cost that generators could expect as a result of complying with the existing RCRA hazardous waste information collection requirements for the exempted materials (e.g., preparation of hazardous waste manifests, biennial reporting). Taking both the new proposed and existing RCRA requirements into account, EPA expects the rule would result in a net reduction in national annual paperwork burden to the 14 initially affected NAICS 336111 and 336112 facilities of approximately 920 hours and $67,300. As summarized in the Economics Background Document and in the prior sub-section of this notice, EPA expects this net cost savings to be further supplemented by annual cost savings to these same facilities from reduced waste management costs, by the expected shift of sludge management from RCRA Subtitle C hazardous waste management, to RCRA Subtitle D nonhazardous waste management. The net cost to EPA of administering the rule is expected to be negligible, since facilities are not required under this proposed rule to submit any information to the Agency for review and approval. Burden means the total time, effort, or financial resources expended by persons to generate, maintain, retain, or disclose or provide information to or for a Federal agency. This includes the time needed to review instructions; develop, acquire, install, and utilize technology and systems for the purposes of collecting, validating, and verifying information, processing and maintaining information, and disclosing and providing information; adjust existing systems to comply with any previously applicable instructions and requirements; train personnel to be able to respond to a collection of information; search data sources; complete and review the collection of information; and transmit or otherwise disclose the information.

An Agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The OMB control numbers for EPA's regulations are listed in 40 CFR Part 9.

To comment on the Agency's need for this information, the accuracy of the provided burden estimates, and any suggested methods for minimizing respondent burden, including the use of automated collection techniques, EPA has established a public docket for this rule, which includes this ICR, under Docket ID No. EPA-HQ-RCRA-2006-0984. Submit any comments related to the ICR for this proposed rule to EPA and OMB. See ADDRESSES section at the beginning of this notice for where to submit comments to EPA. Send comments to OMB at the Office of Information and Regulatory Affairs, Office of Management and Budget, Attn: Desk Officer for EPA, 725 17th Street, NW., Washington, DC 20503.

The Regulatory Flexibility Act (RFA), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 U.S.C. 601 et seq., generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions.

For purposes of assessing the impacts of today's rule on small entities potentially subject to this action, “small entity” is defined according to the for-profit small business size standards set by the Small Business Administration (SBA), in reference to the two six-digit NAICS code industries affected by this action: (1) NAICS 336111 automobile manufacturing SBA standard of less than 1,000 employees, and (2) NAICS 336112 light truck and utility vehicle manufacturing SBA standard of less than 1,000 employees. Today's action does not directly affect small governmental jurisdictions (i.e., a government of a city, county, town, school district or special district with a population of less than 50,000), or small organizations (i.e., any not-for-profit enterprise which is independently owned and operated and is not dominant in its field).

According to the most recent U.S. Census Bureau “Economics Census” data for these two NAICS codes—for data year 2002 published in December 2004 and May 2005, respectively—there were 176 NAICS 336111 establishments operated in 2002 by 161 companies, of which 154 establishments (88%) had less than 1,000 employees ( http://www.census.gov/prod/ec02/ec0231i336111t.pdf ), and there were 97 NAICS 336112 establishments operated in 2002 by 69 companies, of which 62 establishments (64%) had less than 1,000 employees ( http://www.census.gov/prod/ec02/ec0231i336112t.pdf ). These census statistics reveal that both industries consist of large fractions of small establishments according to the SBA definitions, but the census data do not reveal the fraction of companies which are small (which is the more relevant measure). However, it may be inferred that there are large fractions of small companies in both industries, because of the high degree of parity between establishment counts and companies counts of 0.96 for NAICS 336111 (i.e., 154:to:161), and of 0.71 for NAICS 336112 (i.e., 69:to:97).

Because this action is designed to lower the cost of waste management for these industries, this proposal will not result in an adverse economic impact effect on affected entities. Consequently, I hereby certify that this proposal will not have a significant economic impact on a substantial number of small entities. In determining whether a rule has a significant economic impact on a substantial number of small entities, the impact of concern is any significant adverse economic impact on small entities, since the primary purpose of the regulatory flexibility analyses is to identify and address regulatory alternatives “which minimize any significant economic impact of the proposed rule on small entities” (5 U.S.C. 603 and 604). Thus, an agency may certify that a rule will not have a significant economic impact on a substantial number of small entities if the rule relieves regulatory burden, or otherwise has a positive economic effect on small entities subject to the rule. For more information regarding the economic impact of this proposed rule, please refer to the “Economics Background Document” available from the EPA Docket ( www.regulations.gov ).

EPA therefore concludes that today's proposed rule will relieve regulatory burden for all size entities, including small entities. The Agency continues to be interested in the potential impacts of the proposed rule on small entities and welcomes comments on issues related to such impacts.

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104-4, establishes requirements for Federal Agencies to assess the effects of their regulatory actions on state, local, and tribal governments and the private sector. Under section 202 of the UMRA, EPA must prepare a written analysis, including a cost-benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures to state, local, and tribal governments, in the aggregate, or to the private sector, of $100 million or more in any one year. Before promulgating an EPA rule for which a written statement is needed, section 205 of the UMRA requires EPA to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, most cost-effective, or least burdensome alternative that achieves the objectives of the rule. The provisions of section 205 do not apply when they are inconsistent with applicable law. Moreover, section 205 allows EPA to adopt an alternative other than the least costly, most cost-effective or least burdensome alternative if the Administrator publishes with the final rule an explanation why that alternative was not adopted.

Before EPA establishes any regulatory requirements that may significantly or uniquely affect small governments, including tribal governments, it must have developed under section 203 of the UMRA a small government agency plan. The plan must provide for notifying potentially affected small governments, enabling officials to have meaningful and timely input in the development of regulatory proposals, and informing, educating, and advising small governments on compliance with the regulatory requirements.

EPA has determined that this rule does not include a Federal mandate that may result in expenditures of $100 million or more for state, local, or tribal governments, in the aggregate, or the private sector in any one year. This is because this proposed rule imposes no enforceable duty on any state, local, or tribal governments. EPA also has determined that this rule contains no regulatory requirements that might significantly or uniquely affect small governments. In addition, as discussed above, the private sector is not expected to incur costs exceeding $100 million. Therefore, today's proposed rule is not subject to the requirements of sections 202 and 205 of UMRA.

Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999), requires EPA to develop an accountable process to ensure “meaningful and timely input by state and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that have “substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government.”

This proposal does not have federalism implications. It will not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. This rule directly affects primarily generators of hazardous waste sludges in the NAICS 3361 motor vehicle manufacturing industry group. There are no state and local government bodies that incur direct compliance costs by this rulemaking. State and local government implementation expenditures are expected to be less than $500,000 in any one year. Thus, the requirements of Section 6 of the Executive Order do not apply to this proposal.

In the spirit of Executive Order 13132, and consistent with EPA policy to promote communications between EPA and state and local governments, EPA specifically solicits comment on this proposed rule from state and local officials.

Executive Order 13175, entitled “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, November 9, 2000), requires EPA to develop an accountable process to ensure “meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications.” This proposed rule does not have tribal implications, as specified in Executive Order 13175. Today's rule does not significantly or uniquely affect the communities of Indian tribal governments, nor would it impose substantial direct compliance costs on them. Thus, Executive Order 13175 does not apply to this rule.

The Executive Order 13045, entitled “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997) applies to any rule that EPA determines (1) is “economically significant” as defined under Executive Order 12866, and (2) the environmental health or safety risk addressed by the rule has a disproportionate effect on children. If the regulatory action meets both criteria, the Agency must evaluate the environmental health or safety effects of the planned rule on children; and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by the Agency.

This proposal is not subject to the Executive Order because it is not economically significant as defined in Executive Order 12866, and because the Agency does not have reason to believe the environmental health or safety risks addressed by this proposed rule present a disproportionate risk to children.

This proposed rule is not a “significant energy action” as defined in Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355 (May 22, 2001)) because it is not likely to have a significant adverse effect on the supply, distribution, or use of energy. This proposed rule reduces regulatory burden and as explained in our “Economics Background Document,” and may possibly induce fuel efficiency and energy savings in the national motor vehicle fleet. It thus should not adversely affect energy supply, distribution or use.

Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (“NTTAA”), Public Law 104-113, section 12(d) (15 U.S.C. 272 note) directs EPA to use voluntary consensus standards in its regulatory activities, unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies. The NTTAA directs EPA to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards. This proposed rulemaking does not involve technical standards. Therefore, EPA is not considering the use of any voluntary consensus standards.

Executive Order 12898, “Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Population” (February 11, 1994), is designed to address the environmental and human health conditions of minority and low-income populations. EPA is committed to addressing environmental justice concerns and has assumed a leadership role in environmental justice initiatives to enhance environmental quality for all citizens of the United States. The Agency's goals are to ensure that no segment of the population, regardless of race, color, national origin, income, or net worth bears disproportionately high and adverse human health and environmental impacts as a result of EPA's policies, programs, and activities. Our goal is to ensure that all citizens live in clean and sustainable communities. In response to Executive Order 12898, and to concerns voiced by many groups outside the Agency, EPA's Office of Solid Waste and Emergency Response (OSWER) formed an Environmental Justice Task Force to analyze the array of environmental justice issues specific to waste programs and to develop an overall strategy to identify and address these issues (OSWER Directive No. 9200.3-17).

The Agency's risk assessment did not identify risks from the management of the zinc phosphating sludge generated by the motor vehicle manufacturing industry provided that the waste is disposed in a landfill that is subject to or meets the landfill design criteria set out in today's proposal. Therefore, EPA believes that any populations in proximity to the landfills used by these facilities should not be adversely affected by common waste management practices for the wastewater treatment sludge.

For the reasons set out in the preamble, title 40, chapter I of the Code of Federal Regulations is proposed to be amended as follows:

For additional information, see the Direct Final Notice of Deletion which is located in the Rules Section of this Federal Register .

Information Respositories: Repositories have been established to provide detailed information concerning this decision at the following address:

U.S. EPA Region III, Regional Center for Environmental Information (RCEI), 2nd floor, 1650 Arch Street, Philadelphia, Pennsylvania, 19103-2029, (215) 814-5254 or (800) 553-2509 Monday through Friday 8 a.m. to 5 p.m.

West Cocalico Township Municipal Building, 156B, West Main Street, Reinholds, Pennsylvania 17569, Monday through Friday 8 a.m. to 4:30 p.m.

Submitting Comments: We welcome comments from the public on all issues set forth in this rule to assist us in fully considering issues and developing policies. You can assist us by referencing the file code CMS-2258-P and the specific “issue identifier” that precedes the section on which you choose to comment.

Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received: http://www.cms.hhs.gov/eRulemaking. Click on the link “Electronic Comments on CMS Regulations” on that Web site to view public comments.

Comments received timely will be also available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.

The Medicaid program is a cooperative Federal-State program established in 1965 for the purpose of providing Federal financial participation (FFP) to States that choose to reimburse certain costs of medical treatment for needy persons. It is authorized under title XIX of the Social Security Act (the Act), and is administered by each State in accordance with an approved State plan. States have considerable flexibility in designing their programs, but must comply with Federal requirements specified in the Medicaid statute, regulations, and program guidance.

FFP is provided only when there is a corresponding State expenditure for a covered Medicaid service to a Medicaid recipient. Federal payment is based on statutorily-defined percentages of total computable State expenditures for medical assistance provided to recipients under the approved State plan, and of State expenditures related to the cost of administering the State plan.

Since the summer of 2003, we have reviewed and processed over 1,000 State plan amendments related to State payments to providers. Of these, approximately 10 percent have been disapproved by the Centers for Medicare & Medicaid Services (CMS) or withdrawn by the States. Through examination of these State plan amendments and their associated funding arrangements, we have developed a greater understanding of how to ensure that payment and financing arrangements comply with statutory intent. As recently articulated by the U.S. Court of Appeals for the Ninth Circuit, “[t]he statutory text makes clear that the Secretary has the authority—indeed, the obligation—to ensure that each of the statutory prerequisites is satisfied before approving a Medicaid State plan amendment.” We believe that this proposed rule strengthens accountability to ensure that statutory requirements within the Medicaid program are met in accordance with sections 1902, 1903, and 1905 of the Act.

Sections 1902(a)(2), 1903(a) and 1905(b) of the Act require States to share in the cost of medical assistance and in the cost of administering the State plan. Under section 1905(b) of the Act, the Federal medical assistance percentage (FMAP) is defined as “100 per centum less the State percentage,” and section 1903(a) of the Act requires Federal reimbursement to the State of the FMAP of expenditures for medical assistance under the plan (and 50 percent of expenditures necessary for the proper and efficient administration of the plan). Section 1902(a)(2) of the Act and implementing regulations at 42 CFR 433.50(a)(1) require States to share in the cost of medical assistance expenditures but permit the State to delegate some responsibility for the non-Federal share of medical assistance expenditures to units of local government under some circumstances.

Under Pub. L. 102-234, which inserted significant restrictions on States' use of provider related taxes and donations at section 1903(w) of the Act, the Congress again recognized the ability of units of government to participate in the funding of the non-Federal share of Medicaid payments through an exemption at section 1903(w)(6)(A) of the Act that reads:

Subsequent regulations implementing Pub. L. 102-234 give effect to this statutory language. Amendments made to the regulations at 42 CFR. part 433, at 47 FR 55119 (November 24, 1992) explained:

The Medicaid statute does not define an IGT, but the plain meaning in the Medicaid context is a transfer of funding from a local governmental entity to the State. As we discuss below, this meaning would not include a transaction that does not in fact transfer funding but simply refunds Medicaid payments. IGTs from units of government that meet the conditions for protection under section 1903(w)(6)(A) of the Act, as described above, are a permissible source of State funding of Medicaid costs. Section 1903(w)(6)(A) of the Act is an exception to the very restrictive requirements governing provider-related donations. The IGT provision was meant to continue to allow units of local government, including government health care providers, to share in the cost of the State Medicaid program.

At section 1903(w)(6)(A) of the Act, the Medicaid statute provides that units of government within a State may transfer State and/or local tax revenue to the Medicaid agency for use as the non-Federal share of Medicaid payments. Because this provision does not override the definition of an expenditure as a net outlay, as discussed below, claimed expenditures must be net of any redirection or assignment from a health care provider to any State or local governmental entity that makes IGTs to the Medicaid agency. Generally, for the State to receive Federal matching on a claimed Medicaid payment where a governmentally operated health care provider has transferred the non-Federal share, the State must be able to demonstrate: (1) That the source of the transferred funds is State or local tax revenue (which must be supported by consistent treatment on the provider's financial records); and (2) that the provider retains the full Medicaid payment and is not required to repay, or in fact does not repay, all or any portion of the Medicaid payment to the State or local tax revenue account.

Under section 1903(a)(1) of the Act, the Federal government pays a share of State expenditures for medical assistance. Consistent with Office of Management and Budget (OMB) Circular A-87, an expenditure must be net of all “applicable credits” which include discounts, rebates, and refunds. Since the summer of 2003, we have examined Medicaid State financing arrangements across the country, and we have identified numerous instances in which health care providers did not retain the full amount of their Medicaid payments but were required to refund or return a portion of the payments received, either directly or indirectly. Failure by the provider to retain the full amount of reimbursement is inappropriate and inconsistent with statutory construction that the Federal government pay only its proportional cost for the delivery of Medicaid services. When a State claims Federal reimbursement in excess of net payments to providers, the FMAP rate has effectively been increased. To the extent that these State practices have come to light through the State plan amendment process, we have systematically required the States to eliminate these financing arrangements.

Therefore, we have concluded that requirements that a governmentally-operated health care provider transfer to the State more than the non-Federal share of a Medicaid payment creates an arrangement in which the net payment to the provider is necessarily reduced; the provider cannot retain the full Medicaid payment claimed by the State. This practice is not consistent with section 1902(a)(30)(A) of the Act.

We have found instances in which the State or local government has used the funds returned by the health care provider for costs outside the Medicaid program or to help draw additional Federal dollars for other Medicaid program costs. The Government Accountability Office (GAO) and the Department of Health and Human Services Office of Inspector General (OIG) have reviewed these practices and shared our concerns that they are not consistent with Medicaid financing requirements. The net effect of this re-direction of Medicaid payments is that the Federal government incurs a greater level of Medicaid program costs, which is inconsistent with the FMAP. This is because the claimed expenditure, which is matched by the Federal government according to the FMAP rate, is actually greater than the net expenditure, effectively producing an increase in the FMAP rate.

Some States and providers have defended the practices in question as means for financing the cost of providing services to non-Medicaid populations or financing public health activities or even justifying what they consider to be “unfair” FMAPs. Whether the Federal Medicaid program should participate in a general way in that financing, however, is an important decision that the Congress has not expressly addressed. As we discuss below, the Congress has expressly provided for certain kinds of limited Federal participation in the costs of providing services to non-Medicaid populations and public health activities.

Examples of limited congressional authorization of Federal financing for non-Medicaid populations and public health activities include the following. The Congress authorized disproportionate share hospital (DSH) payments to assist hospitals that serve a disproportionate share of low income patients which may include hospitals that furnish significant amounts of inpatient hospital services and outpatient hospital services to individuals with no source of third party coverage (that is, the uninsured). Under section 4723 of the Balanced Budget Act of 1997, the Congress also provided direct funding to the States to offset expenditures on behalf of aliens. Additional funding for payments to eligible providers for emergency health services to undocumented aliens was also provided by Congress under section 1011 of the Medicare Modernization Act. The Congress has periodically, and as recently as the Deficit Reduction Act of 2005 (DRA, Pub. L. 109-171, enacted on February 8, 2006), adjusted FMAPs for certain States and certain activities such as an enhanced FMAP to create incentives for States to assist individuals in institutions return to their homes. These examples are provided to illustrate that the Congress has previously authorized limited Federal financing of non-Medicaid populations and public health activities, but has not to date authorized wider use of Federal Medicaid funding for these purposes.

Indeed, the Congress indicated that Medicaid funding was not to be used for non-Medicaid purposes when in the Balanced Budget Act of 1997 (BBA, Pub.L.105-33, enacted on August 5, 1997), it added section 1903(i)(17) to the Act to prohibit the use of FFP “with respect to any amount expended for roads, bridges, stadiums, or any other item or service not covered under a State plan under this title.” Non-Medicaid populations and non-Medicaid services simply are not eligible for Federal reimbursements except where expressly provided for by the Congress.

We believe the lack of transparency and accountability undermine public confidence in the integrity of the Medicaid program as it is extremely difficult to track the flow of taxpayer dollars. These arrangements, regardless of the merits, are hidden in archaic, nearly indecipherable language that may be further re-interpreted over time, placing Federal and State dollars at risk as well as creating tensions and conflicts among the States.

As we have worked with States to promote appropriate Medicaid financing, it has become apparent that an increasing number of States are choosing to use CPEs as a method of financing the non-Federal share. Therefore, we are taking this opportunity to review key provisions governing the use of CPEs.

A discussion about CPEs begins with the concept of an expenditure. The term “expenditure” is defined in timing rules at 45 CFR 95.13. According to 45 CFR 95.13(b), for expenditures for services under the Medicaid program, an expenditure is made “in the quarter in which any State agency made a payment to the service provider.” There is an alternate rule for administration or training expenditures at 45 CFR 95.13(d), under which the expenditure is made in the quarter to which the costs were allocated or, for non-cash expenditures, in the quarter in which “the expenditure was recorded in the accounting records of any State agency in accordance with generally accepted accounting principles.” In the State Medicaid Manual, at section 2560.4.G.1.a(1), we indicated that “the expenditure is made when it is paid or recorded, whichever is earlier, by any State agency.” In either case, there must be a record of an actual expenditure, either through cash or a transfer of funds in accounting records. It is clear from these authorities that an expenditure must involve a shift of funds (either by an actual transfer or a debit in the accounting records of the contributing unit of government and a credit in the records of a provider of medical care and services) and cannot merely be a refund or reduction in accounts receivable.

Furthermore, provisions at § 433.51 clearly state that the CPE must, itself, be “eligible for FFP.” In keeping with this language, there must be a provision in the State plan that would authorize the State to make the expenditure itself if the certifying governmental unit had not done so. In other words, a CPE must be an expenditure by another unit of government on behalf of the single State Medicaid agency.

A CPE equals 100 percent of a total computable Medicaid expenditure, and the Federal share of the expenditure is paid in accordance with the appropriate FMAP rate. In a State with a 60 percent FMAP rate, the CPE would be equal to $100 in order to draw down $60 in FFP.

The approach a unit of government can permissibly take to a CPE depends on whether or not the unit of government is the provider of the service. A governmental non-provider that pays for a covered Medicaid service furnished by a provider (whether governmental or not) can certify its actual expenditure, in an amount equal to the State plan rate (or the approved provisions of a waiver or demonstration, if applicable) for the service. In this case, the CPE would represent the expenditure by the governmental unit to the service provider (and would not necessarily be related to the actual cost to the provider for providing the service).

If the unit of government is the health care provider, then it may generate a CPE from its own costs if the State plan (or the approved provisions of a waiver or demonstration, if applicable) contains an actual cost reimbursement methodology. If this is the case, the governmental provider may certify the costs that it actually incurred that would be paid under the State plan. If the State plan does not contain an actual cost reimbursement methodology, then the governmental provider may not use a CPE because it would not be able to establish an expenditure under the plan, consistent with the requirements of 45 CFR 95.13, where there was no cost incurred that would be recognized under the State plan. A provider cannot establish an expenditure under the plan by asserting that it would pay itself.

As part of the review of proposed State plan amendments and focused financial reviews, we have examined CPE arrangements in many States that include various service categories within the Medicaid program. We note that currently there are a variety of practices used by State and local governments in submitting a CPE as the basis of matching FFP for the provision of Medicaid services. Different practices often make it difficult to (1) Align claimed expenditures with specific services covered under the State plan or identifiable administrative activities; (2) properly identify the actual cost to the governmental entity of providing services to Medicaid recipients or performing administrative activities; and (3) audit and review Medicaid claims to ensure that Medicaid payments are appropriately made. Further, we find that in many instances State Medicaid agencies do not currently review the CPE submitted by another unit of government to confirm that the CPE properly reflects the actual expenditure by the unit of government for providing Medicaid services or performing administrative activities. These circumstances do not serve to advance or promote the fiscal integrity of the Medicaid program. By establishing minimum standards for the documentation supporting CPEs, we anticipate that this proposed rule would serve to enhance the fiscal integrity of CPE practices within the Medicaid program.

As explained previously, the Medicaid statute recognizes State and/or local tax revenue as a permissible source of the non-Federal share of Medicaid expenditures. In order for State and/or local tax dollars to be eligible as the non-Federal share of Medicaid expenditures, that tax revenue cannot be committed or earmarked for non-Medicaid activities. Tax revenue that is contractually obligated between a unit of State or local government and health care providers to provide indigent care is not considered a permissible source of non-Federal share funding for purposes of Medicaid payments. Health care providers that forego generally applicable tax revenue that has been contractually obligated for the provision of health care services to the indigent or for any other non-Medicaid activity, which is then used by the State or local government as the non-Federal share of Medicaid payments, are making provider-related donations. Any Medicaid payment linked to a provider-related donation renders that provider-related donation non-bona fide.

Section 2107(e)(1)(C) of the Act stipulates that section 1903(w) applies to the SCHIP program as well as Medicaid. Accordingly, SCHIP regulations at 42 CFR 457.628 incorporate by reference the provisions at 42 CFR 433.51 through 433.74 concerning the source of the non-Federal share and donations and taxes. Moreover, SCHIP rules at 42 CFR 457.220 mirror the language in 42 CFR 433.51.

The background section conveys critical information about the statutory and regulatory context of this proposed rule. We are proposing this rule specifically to (1) Clarify that only units of government are able to participate in the financing of the non-Federal share; (2) establish minimum requirements for documenting cost when using a CPE; (3) limit providers operated by units of government to reimbursement that does not exceed the cost of providing covered services to eligible Medicaid recipients; (4) establish a new regulatory provision explicitly requiring that providers receive and retain the total computable amount of their Medicaid payments; and (5) make conforming changes to the SCHIP regulations.

The provisions of this regulation apply to all providers of Medicaid and SCHIP services, except that Medicaid managed care organizations and SCHIP providers are not subject to the cost limit provision of this regulation. Except as noted above, all Medicaid payments (including disproportionate share hospital payments) made under the authority of the State plan and under Medicaid waiver and demonstration authorities are subject to all provisions of this regulation.

We are proposing to add new language to § 433.50 to define a unit of government to conform to the provisions of section 1903(w)(7)(G) of the Act. As discussed earlier, section 1903(w)(7)(G) of the Act identifies the five types of units of government that may participate in the non-Federal share of Medicaid payments: A State, a city, a county, a special purpose district, or other governmental units within the State. The proposed provisions at § 433.50 are modified to be consistent with this statutory reference. The newly proposed regulatory definition of unit of government includes:

• Any State or local government entity (including Indian tribes) that can demonstrate it has generally applicable taxing authority, and

• Any State-operated, city-operated, county-operated, or tribally-operated health care provider.

Under the proposed rule, health care providers that assert status to make IGTs or CPEs as a “special purpose district” or some form of “other” local government must demonstrate they are operated by a unit of government by showing that:

• The health care provider has generally applicable taxing authority; or

• The health care provider is able to access funding as an integral part of a governmental unit with taxing authority (that is legally obligated to fund the governmental health care provider's expenses, liabilities, and deficits), so that

• A contractual arrangement with the State or local government is not the primary or sole basis for the health care provider to receive tax revenues.

In some cases, evidence that a health care provider is operated by a unit of government must be assessed by examining the relationship of the unit of government to the health care provider. If the unit of government appropriates funding derived from taxes it collected to finance the health care providers general operating budget (which would not include special purpose grants, construction loans, or other similar funding arrangements), the provider would be considered governmentally operated. The inclusion of a health care provider as a component unit on the government's consolidated annual financial report indicates the governmentally operated status of the health care provider. If the unit of government merely uses its funds to reimburse the health care provider for the provision of Medicaid or other services, that alone is not sufficient to demonstrate that the entity is a unit of government. The unit of government must have a greater role in funding the entity's operations, including its expenses, liabilities, and deficits.

In recent reviews, we have found that health care providers asserting status as a “special purpose district” or “other” local government unit often do not meet this definition. Although the special purpose district or a unit of government with taxing authority may be required, either by law or contract, to provide limited support to the health care provider, the health care provider is an independent entity and not an integral part of the unit of government. Typically, the independent entity will have liability for the operation of the health care provider and will not have access to the unit of government's tax revenue without the express permission of the unit of government. Some of these types of health care providers are organized and operated under a not-for-profit status. Under these circumstances, the independently operated health care provider cannot participate in the financing of the non-Federal share of Medicaid payments, whether by IGT or CPE, because such arrangements would be considered provider-related donations.

The rule also includes language in § 433.50 referencing that units of government may participate in the financing of the non-Federal share of Medicaid expenditures.

This rule proposes to amend the provisions of § 433.51 to conform the language to the provisions of sections 1903(w)(6)(A) and 1903(w)(7)(G) of the Act that are discussed above, and thus to clarify that the State share of Medicaid expenditures may be contributed only by units of government. This rule also proposes to include provisions requiring documentation of CPEs that are used as part of the State share of claimed expenditures.

The regulatory provisions of § 433.51 predate the statutory amendments found in section 1903(w) of the Act, which established a broad prohibition against provider-related donations and included provisions specifically identifying permissible IGTs and CPEs from units of government. Recently, some have expressed the view that the term “public agency” in § 433.51(b) suggests that an entity which is not governmental in nature but has a public-oriented mission (such as a not-for-profit hospital, for example) may participate in the financing of the non-Federal share by CPEs. This view is inconsistent with the plain meaning of the Act; however, to avoid any further confusion, we are proposing to amend the regulation to conform the regulatory language to the current statutory language in section 1903(w) of the Act. This amendment also makes clear that a broader reading would be inconsistent with section 1902(a)(2) of the Act and § 433.50(a)(1), which have historically stipulated that State and local governments are the entities eligible to finance the non-Federal share.

As discussed previously, the donations and taxes amendments specifically allowed units of government to continue providing funding by IGT or CPE because of explicit statutory and regulatory provisions that allow units of government to share in the burden of financing the non-Federal share of Medicaid payments. To make regulatory language consistent with the statute and avoid confusion about whether there is a different regulatory standard, this rule proposes to modify § 433.51 by removing the terms “public” and “public agency” from § 433.51 and replacing these with references to units of government.

This rule also proposes to clarify that appropriate documentation is required whenever a CPE is used to fund the non-Federal share of expenditures in the Medicaid program. The governmental entity using a CPE must submit a certification statement to the State Medicaid agency attesting that the total computable amount of its claimed expenditures are eligible for FFP, in accordance with the Medicaid State plan and the revised provisions of § 433.51. That certification must be submitted and used as the basis for a State claim for FFP within 2 years from the date of the expenditure.

In this regard, the rule proposes to modify § 433.51(b) to require that a CPE must be supported by auditable documentation in a form approved by the Secretary that will minimally: (1) Identify the relevant category of expenditure under the State plan; (2) explain whether the contributing unit of government is within the scope of the exception to the statutory limitations on provider-related taxes and donations; (3) demonstrate the actual expenditures incurred by the contributing unit of government in providing services to Medicaid recipients or in administration of the State plan; and (4) be subject to periodic State audit and review.

To implement this rule, the Secretary would issue a form (or forms) that would be required for governments using a CPE for certain types of Medicaid services where we have found improper claims (for example, school-based services). These forms will be published in the Federal Register using procedures consistent with the Paperwork Reduction Act requirements. In preparing the way for these forms, this rule would serve to enhance fiscal integrity and improve accountability with respect to CPE practices in the Medicaid program.

Costs that are certified by units of government for purposes of CPE cannot include the costs of providing services to the non-Medicaid population or costs of services that are not covered by Medicaid, except that a hospital may certify costs for inpatient and outpatient hospital services that are not covered under the State plan but are the basis for a disproportionate share hospital payment consistent with the requirements of section 1923 of the Act.

It is important to note that the following conditions do not constitute compliance with the Federal statute and regulation governing CPEs:

1. A certification that funds are available at a State or local level. This certification is irrelevant to whether or not State or local dollars have actually been expended to provide health care services to Medicaid individuals.

2. An estimate of Medicaid costs derived from surveys of health care providers.

3. A certification that is higher than the actual cost or expenditure of the governmental unit that has generated the CPE based on its provision of services to Medicaid recipients.

4. A certification that presents costs as anything less than 100 percent of the total computable expenditure. Federal match is available only as a percentage of the total computable Medicaid expenditure documented through a CPE. A certification equal to the amount of the State share only is not acceptable.

The above list is not all-inclusive of arrangements that do not constitute compliance.

As we have examined Medicaid financing arrangements across the country, we have found that many States make supplemental payments to governmentally operated providers that are in excess of cost. These providers, in turn, use the excess of Medicaid revenue over cost to subsidize health care operations that are unrelated to Medicaid, or they may return a portion of the supplemental payments to the State as a source of revenue. In either case, we do not find that Medicaid payments in excess of cost to governmentally operated health care providers are consistent with the statutory principles of economy and efficiency as required by section 1902(a)(30)(A) of the Act. Consequently, this rule proposes to limit reimbursement for governmentally operated providers to amounts consistent with economy and efficiency by establishing a limit of reimbursement not to exceed cost.

The cost limit in § 447.206 specifies that the Secretary will determine a reasonable method for identifying allowable Medicaid costs that incorporates not only OMB Circular A-87 cost principles but also Medicare cost principles, as appropriate, and the statutory requirements of sections 1902, 1903, and 1905 of the Act. While OMB Circular A-87 provides a framework for cost analysis, not all cost principles under OMB Circular A-87 are consistent with Medicare cost principles or requirements found in the Act for economy and efficiency and the proper and efficient administration of the Medicaid State plan. Developing cost finding methodologies more directly to the Medicaid program will provide for a more accurate allocation of allowable costs to the Medicaid program.

For hospital and nursing facility services, we find that Medicaid costs are best documented when based upon a standard, auditable, nationally recognized cost report (for example, Medicare 2552-96 hospital cost report). Any hospital and nursing facility services that are not documented based on a standardized, nationally recognized cost report are generally not reimbursable Medicaid costs. We will address any exceptions to this on a case-by-case basis.

For non-hospital and non-nursing facility services in Medicaid, we note that a nationally recognized, standard cost report does not presently exist. Therefore, the proposed rule stipulates that Medicaid costs must be supported by auditable documentation in a form approved by the Secretary that, at a minimum, will: (1) Identify the relevant category of expenditure under the State plan; (2) explain whether the contributing unit of government is within the scope of the exception to the statutory limitations on provider-related taxes and donations; (3) demonstrate the actual expenditures incurred by the contributing unit of government in providing services to Medicaid recipients or in administration of the State plan; and (4) be subject to periodic State audit and review.

Each governmentally operated health care provider that is subject to cost reimbursement and using CPEs must file a cost report with the State Medicaid agency annually and retain records in accordance with 42 CFR 431.17 and 45 CFR 92.42.

Under a Medicaid cost reimbursement payment system funded by CPEs, States may utilize most recently filed cost reports to develop interim Medicaid payment rates and may trend these interim rates by an applicable health care-related index. Interim reconciliations must be performed by reconciling the interim Medicaid payment rates to the filed cost report for the spending year in which interim payment rates were made. Final reconciliation must also be performed by reconciling the interim payments and interim adjustments to the finalized cost report for the spending year in which interim payment rates were made.

When States do not use CPEs to pay providers operated by units of government, the new provisions would require the State Medicaid agency to review annual cost reports to verify that actual payments to each governmentally operated provider did not exceed the provider's cost.

Under this provision, if it is determined that a governmentally-operated health care provider received an overpayment, amounts related to the overpayment would be properly credited to the Federal government, in accordance with part 433, subpart F.

In order to strengthen efforts to remove any potential for abuse involving the re-direction of Medicaid payments by IGTs in the future, this rule proposes a new regulatory provision at § 447.207 requiring that providers receive and retain the full amount of the total computable payment provided to them for services furnished under the approved State plan (or the approved provisions of a waiver or demonstration, if applicable). Compliance with this provision will be determined by examining any transactions that are associated with the provider's Medicaid payments to ensure that expenditures have been appropriately claimed and the non-Federal share has been satisfied.

Compliance may be demonstrated by showing that the funding source of an IGT is clearly separated from the Medicaid payment that a health care provider received. Generally, an IGT that takes place before the Medicaid payment, which originates from an account funded by taxes that is separate from the account in which the health care provider receives Medicaid payments, is usually acceptable.

We are proposing to eliminate § 447.271(b), as this provision is no longer relevant due to the new cost limit for units of government proposed in this rule.

We are proposing a corresponding modification to the Medicaid upper payment limit (UPL) rules found at § 447.272 for inpatient hospital and nursing facility services, as well as the UPL rules at § 447.321 for outpatient hospital and clinic services, to incorporate by reference the new cost limit for providers operated by units of government and to make the defined UPL facility groups consistent with the new provisions of § 433.50.

With respect to the UPL regulations at § 447.272 and § 447.321, this rule proposes to limit Medicaid reimbursement for State government operated and non-State government operated facilities to the individual provider's cost, whereas the current UPL regulations provide an aggregate limit based on the UPL facility group. Formerly established UPL transition periods remain unchanged; therefore, any States that are still in transition periods under § 447.272(e) or § 447.321(e) when this rule becomes effective will be permitted to make additional payments above the cost UPL to governmentally operated providers throughout the duration of their transition periods. The UPL rules at § 447.272 and § 447.321 for privately operated facilities and Indian Health Service and tribal facilities remain unchanged.

It is important to note that the provisions of this proposed rule are consistent with the regulatory provisions concerning Medicaid DSH payments. Medicaid DSH payments are limited to the uncompensated care costs of providing inpatient hospital and outpatient hospital services to Medicaid beneficiaries and individuals with no source of third party coverage for the services they receive. To the extent any governmentally operated hospital is reimbursed by Medicaid at the level of cost, there will be no Medicaid shortfall factored into the facility's calculation of uncompensated care for purposes of DSH. This is true whether the Medicaid cost reimbursement is funded by CPEs or any other means.

Current provisions on the financing of the SCHIP at § 457.220 mirror the provisions at § 433.51. Because the changes we are making to § 433.51 apply equally to SCHIP programs, we are proposing to make conforming changes to § 457.220 so that this provision continues to mirror § 433.51.

Current provisions on the financing of the SCHIP at § 457.628 incorporate by reference the provisions at § 433.51 through § 433.74. Because the changes we are making to § 433.50, which implement section 1903(w) of the Act, apply equally to SCHIP programs, we propose to make conforming changes to § 457.628 to incorporate § 433.50. In addition, the new provision at § 447.207 requiring retention of payments is also incorporated by reference in § 457.628 because this provision applies to SCHIP providers as well as Medicaid providers.

With the issuance of this proposed rule, we recognize the need to evaluate individual health care providers to determine whether or not they are units of government as prescribed by the rule. States will need to identify each health care provider purportedly operated by a unit of government to CMS and provide information needed for CMS to make a determination as to whether or not the provider is a unit of government. We have developed a form questionnaire to collect information necessary to make that determination. The questionnaire will be published in connection with this proposed rule. For new State plan amendments that will reimburse governmentally operated providers or rely on the participation of health care providers for the financing of the non-Federal share, States will be required to complete this questionnaire regarding each provider that is said to be governmentally operated. For any existing arrangement that involves payment to governmentally operated providers or relies on the participation of health care providers for the non-Federal share, States will be required to provide the information requested on this form questionnaire relative to each applicable provider within three (3) months of the effective date of the final rule following this proposed rule.

Under the Paperwork Reduction Act of 1995, we are required to provide 60-day notice in the Federal Register and solicit public comment before a collection of information requirement is submitted to the Office of Management and Budget (OMB) for review and approval. In order to fairly evaluate whether an information collection should be approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 requires that we solicit comment on the following issues:

• The need for the information collection and its usefulness in carrying out the proper functions of our agency.

• The accuracy of our estimate of the information collection burden.

• The quality, utility, and clarity of the information to be collected.

• Recommendations to minimize the information collection burden on the affected public, including automated collection techniques.

We are soliciting public comment on each of these issues for the following sections of this document that contain information collection requirements (ICRs):

Section 433.51 requires that a certified public expenditure (CPE) be supported by auditable documentation in a form(s) approved by the Secretary that, at a minimum, identifies the relevant category of expenditures under the Medicaid State Plan, demonstrates the cost of providing services to Medicaid recipients, and is subject to periodic State audit and review.

The burden associated with this requirement is the time and effort put forth by a provider to complete the approved form(s) to be submitted with a CPE. Depending upon provider size, we believe that it could take approximately 10-60 hours to fill out the form(s) that would be required for an annual certified public expenditure. We estimate that providers in 50 States will be affected by this requirement, but we are unable to identify the total number of providers affected or the estimated total aggregate hours of paperwork burden for all providers, as such figures will be a direct result of the number of providers that are determined to be governmentally operated.

Section 447.206(e) states that each provider must submit annually a cost report to the Medicaid agency which reflects the individual providers cost of serving Medicaid recipients during the year. The Medicaid Agency must review the cost report to determine that costs on the report were properly allocated to Medicaid and verify that Medicaid payments to the provider during the year did not exceed the providers cost.

The burden associated with this requirement is the time and effort for the provider to report the cost information annually to the Medicaid Agency and the time and effort involved in the review and verification of the report by the Medicaid Agency. We estimate that it will take a provider 10 to 60 hours to prepare and submit the report annually to the Medicaid Agency. We estimate it will take the Medicaid Agency 1 to 10 hours to review and verify the information provided. We are unable to identify the total number of providers affected or the estimated total aggregate hours of paperwork burden for all providers, as such figures will be a direct result of the number of providers that are determined to be governmentally operated.

In the preamble of this proposed regulation, under the section titled “ Tool to Evaluate Governmental Status of Providers ”, we discuss a form questionnaire that we have developed to assist us in making a determination as to whether or not the provider is a unit of government. We have submitted this proposed information collection to OMB for its review and approval. To view the “Governmental Status of Health Care Provider” form and obtain additional supporting information, please access CMS' Web Site address at http://www.cms.hhs.gov/PaperworkReductionActof1995 or e-mail your request and include CMS-10176 as the document identifier to Paperwork@cms.hhs.gov.

As required by section 3504(h) of the Paperwork Reduction Act of 1995, we have submitted a copy of this document to the Office of Management and Budget (OMB) for its review of these information collection requirements.

If you comment on these information collection and record keeping requirements, please mail copies directly to the following:

Because of the large number of public comments we normally receive on Federal Register documents, we are not able to acknowledge or respond to them individually. We will consider all comments we receive by the date and time specified in the DATES section of this preamble, and, when we proceed with a subsequent document, we will respond to the comments in the preamble to that document.

We have examined the impacts of this rule as required by Executive Order 12866 (September 1993, Regulatory Planning and Review), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.

Executive Order 12866 (as amended by Executive Order 13258, which merely reassigns responsibility of duties) directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more in any 1 year).

The RFA requires agencies to analyze options for regulatory relief of small businesses. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and small governmental jurisdictions. Most hospitals and most other providers and suppliers are small entities, either by nonprofit status or by having revenues of $6 million to $29 million in any 1 year. Individuals and States are not included in the definition of a small entity.

In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 603 of the RFA. For purposes of section 1102(b) of the Act, we define a small rural hospital as a hospital that is located outside of a Metropolitan Statistical Area and has fewer than 100 beds. For the reasons cited below, we have determined that this rule may have a significant impact on small rural hospitals.

Section 202 of the Unfunded Mandates Reform Act of 1995 also requires that agencies assess anticipated costs and benefits before issuing any rule whose mandates require spending in any 1 year of $100 million in 1995 dollars, updated annually for inflation. That threshold level is currently approximately $120 million. We have determined that the rule will have an effect on State and local governments in an amount greater than $120 million. We have explained this assessment in the section entitled “Anticipated Effects” below.

Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a proposed rule (and subsequent final rule) that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has Federalism implications. For purposes of Executive Order 13132, we also find that this rule will have a substantial effect on State or local governments.

This rule is a major rule because it is estimated to result in $120 million in savings during the first year and $3.87 billion in savings over five years.

As CMS has examined Medicaid State financing arrangements across the country, we have identified numerous instances in which State financing practices do not comport with the Medicaid statute. As explained in the preamble, Section 1903(w) of the Act permits units of government to participate in the financing of the non-Federal share; however, in some instances States rely on funding from non-governmental entities for the non-Federal share. Because such practices are expressly prohibited by the donations and taxes amendments at Section 1903(w), we are issuing this rule to clarify the requirements of entities and health care providers that are able to finance the non-Federal share.

Furthermore, CMS has found several arrangements in which providers did not retain the full amount of their Medicaid payments but were required to refund or return a portion of the payments received, either directly or indirectly. Failure by the provider to retain the full amount of reimbursement is inappropriate and inconsistent with statutory construction that the Federal government pays only its proportional cost for the delivery of Medicaid services. When a State claims Federal reimbursement in excess of net payments to providers, the FMAP rate has effectively been increased, and federal Medicaid funds are redirected toward non-Medicaid services. When a State chooses to recycle FFP in this manner, the Federal taxpayers in other States disproportionately finance the Medicaid program in the State that is recycling FFP. This rule is designed to eliminate such practices.

The rule should also have a beneficial distributive impact on governmental providers because in many States there are a few selected governmental providers receiving payments in excess of cost, while other governmental providers receive a lower rate of reimbursement. This rule will reduce inflated payments to those few governmental providers and promote a more even distribution of funds among all governmental providers. This is because all governmental providers will be limited to a level of reimbursement that does not exceed the individual provider's cost.

We have observed that there are a variety of practices used by State and local governments in identifying costs and submitting a CPE as the basis of matching FFP for the provision of Medicaid services. These different cost methods and CPE practices make it difficult to (1) Align claimed expenditures with specific services covered under the State plan or identifiable administrative activities; (2) properly identify the actual cost to the governmental entity of providing services to Medicaid recipients or performing administrative activities; and (3) audit and review Medicaid claims to ensure that Medicaid payments are appropriately made. Such circumstances present risks of inflationary costs being certified and excessive claims of FFP. This rule will facilitate a more consistent methodology in Medicaid cost identification and allocation across the country, thereby improving the fiscal integrity of the program.

Because the RFA includes small governmental jurisdictions in its definition of small entities, we expect this rule to have a significant economic impact on a substantial number of small entities, specifically health care providers that are operated by units of government, including governmentally operated small rural hospitals, as they will be subject to the new cost limit imposed by this rule. We have reviewed CMS's Online Survey and Certification and Reporting System (OSCAR) data for information about select provider types that may be impacted by this rule. According to the OSCAR data, there are:

• 1,153 hospitals that have identified themselves as operated by local governments or hospital districts/authorities;

• 822 nursing facilities that have identified themselves as operated by counties, cities, or governmental hospital districts;

• 113 intermediate care facilities for the mentally retarded (ICF/MR) that have identified themselves as operated by cities, towns, or counties.

Some of the governmental providers identified as small entities for RFA purposes may have been receiving Medicaid payments in excess of cost, but as a result of this rule, payments will not be permitted to exceed cost. Governmentally operated providers will also be required under this rule to receive and retain the full amount of their Medicaid payments, which would result in a net increase in revenue to the extent such providers were returning a portion of their Medicaid payments to the State and payment rates remain the same following the effective date of this rule. On the other hand, if States reduce payment rates to such providers after this rule is effective, these providers may experience a decrease in net revenue. Finally, there are health care providers that are considered under the RFA as small entities (including small rural hospitals) but are not governmentally operated; to the extent these providers have been involved in financing the non-Federal share of Medicaid payments, this rule will clarify whether or not such practices may continue. However, for the most part, private health care providers are not affected by this rule. As stated earlier, for purposes of the RFA, the small entities principally affected by this rule are governmentally operated health care providers. In light of the specific universe of small entities impacted by the rule, the fact that this rule requires States to allow governmentally operated health care providers to receive and retain their Medicaid payments, and the allowance for governmentally operated health care providers to receive a Medicaid rate up to cost, we have not identified a need for regulatory relief under the RFA.

Ultimately, this rule is designed to ensure that Medicaid payments to governmentally operated health care providers are based on actual costs and that the financing arrangements supporting those payments are consistent with the statute. While some health care providers may lose revenues in light of this rule, those revenues were likely in excess of cost or may have been financed using methods that did not permit the provider to retain payments received. Other health care providers that were adversely affected by questionable reimbursement and financing arrangements may now, under this rule, benefit from a more equitable distribution of funds. Private providers are generally unaffected by this rule, except for limited situations where the clarification provided by the rule may require a change to current financing arrangements.

With respect to clinical care, we anticipate that this rule's effect on actual patient services to be minimal. The rule presents no changes to coverage or eligibility requirements under Medicaid. The rule clarifies statutory financing requirements and allows governmentally operated providers to be reimbursed at levels up to cost. Federal matching funds will continue to be made available based on expenditures for appropriately covered and financed services. While States may need to change reimbursement or financing methods, we do not anticipate that services delivered by governmentally operated providers or private providers will change.

The following chart summarizes our estimate of the anticipated effects of this rule.

These estimates are based on recent reviews of state Medicaid spending. Payment reform addresses both spending through intergovernmental transfers (IGT) and limiting payments to government providers to cost. For IGT spending, recent reports on spending on Disproportionate Share Hospitals (DSH) and Upper Payment Limit (UPL) spending were reviewed. From these reports, an estimate of the total spending that would be subject to the net expenditure policy was developed and then projected forward using assumptions consistent with the most recent President's Budget projections. The estimate of the savings in federal Medicaid spending as a result of this policy factors in the current authority and efforts of CMS and the impact of recent waivers; the estimate also accounts for the potential effectiveness of future efforts. There is uncertainty in this estimate to the extent that the projections of IGT spending may not match actual future spending and to the extent that the effectiveness of this policy is greater than or less than assumed.

Reports on UPL spending following the most recent legislation concerning UPL were reviewed to develop a projection for total enhanced payments in Medicaid spending. The estimate of savings from this policy reflects both estimates of the amount of UPL spending that exceeds cost and the effectiveness of this policy in limiting payments to cost. The estimate also accounts for transitional UPL payments, which are unchanged under this policy, and for the impact of recent waivers. There is uncertainty in this estimate to the extent that the projections of UPL spending may not match actual future spending, to the extent that the amount of UPL spending above cost differs from the estimated amount, and to the extent that the effectiveness of this policy is greater than or less than assumed.

There is an option to implement policies surrounding retention of payments, certain elements of certified public expenditures, and the definition of a unit of government under existing statutory and regulatory authority. However, the proposed rule is a more effective method of implementation because it promotes statutory intent, strengthens accountability for financing the non-Federal share of Medicaid payments, and clarifies existing regulations based on issues we have identified. Similarly, an option exists to continue to allow governmental providers to be reimbursed at current rates; however, given the information CMS has gathered regarding the use of Medicaid payments to governmental providers, we find that the proposal to limit governmental providers to cost offers a way to reasonably reimburse providers while ensuring that Federal matching funds are used for their intended purpose, which is to pay for a covered Medicaid service to a Medicaid beneficiary and not something else.

As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf ), in the table below, we have prepared an accounting statement showing the classification of the expenditures associated with the provisions of this proposed rule. This table provides our best estimate of the proposed decrease in Federal Medicaid outlays resulting from the provider payment reform proposal being implemented by CMS-2258-P (Cost Limit for Providers Operated by Units of Government and Provisions to Ensure the Integrity of Federal-State Financial Partnerships). The sum total of these expenditures is classified as savings in Federal Medicaid spending.

This is a summary of the Commission's Order [DA 06-2548] released December 20, 2006. The complete text of the Order is available for inspection and copying during business hours at the FCC Reference Information Center, Portals II, 445 12th St. SW., Room CY-A257, Washington, DC 20554. The complete text of this document also may be purchased from the Commission's copy contractor, Best Copy and Printing, Inc., 445 12th Street, SW., Room, CY-B402, Washington, DC 20554. The complete text may also be downloaded at: http://www.fcc.gov. By the Order, the Wireline Competition Bureau (WCB) grants a request for an extension of time to file reply comments on a proposed process to address phantom traffic issues and a related proposal for the creation and exchange of call detail records filed by the Supporters of the “Missoula Plan.” The Missoula Plan was filed on July 24, 2006 by the National Association of Regulatory Utility Commissioners' Task Force on Intercarrier Compensation. 71 FR 45510, August 9, 2006; 71 FR 54008, September 13, 2006; 71 FR 70709, December 6, 2006. Among other things, the Missoula Plan contained a Comprehensive Solution for Phantom Traffic, which called “for the filing of an industry proposal for a uniform process for the creation and exchange of call detail records.” On November 6, 2006, the Supporters of the Missoula Plan filed a written ex arte proposing an interim process to address phantom traffic issues and a related proposal for the creation and exchange of call detail records. On November 8, 2006, the WCB released a Public Notice requesting comment on the proposed phantom traffic interim process and call detail record proposal. 71 FR 67509, November 22, 2006. Thirty-nine (39) comments on this proposal were filed on December 7, 2006 and reply comments are due December 22, 2006. On December 18, 2006, the Supporters of the Missoula Plan filed a request for additional time to file reply comments on the phantom traffic proposal.

The WCB determined that providing additional time to file reply comments will facilitate the development of a more substantive and complete record in this proceeding. Although it is the policy of the Commission that extensions of time shall not be routinely granted, the WCB determined that given the number of comments filed, the complexity of the issues raised in the proposal, and the importance of the phantom traffic issue to the industry, we find that good cause exists to provide parties an extension of time, from December 22, 2006 to January 5, 2007 for filing reply comments in this proceeding.

Accordingly, it is ordered that, pursuant to sections 4(i), 4(j), and 5(c) of the Communications Act, 47 U.S.C. 154(i), 154(j), 155(c), and §§ 0.91, 0.291, and 1.46 of the Commission's rules, 47 CFR 0.91, 0.291, 1.46, the pleading cycle established in this matter shall be modified as follows:

Reply Comments Due: January 5, 2007.

All other filing procedures remain unchanged from those previously established in this proceeding.

It is further ordered that the request of the Supporters of the Missoula Plan for an Extension of Time is granted , as set forth herein.

This is a summary of the Commission's Order [DA 06-2577] released December 22, 2006. The complete text of the Order is available for inspection and copying during business hours at the FCC Reference Information Center, Portals II, 445 12th St., SW., Room CY-A257, Washington, DC 20554. The complete text of this document also may be purchased from the Commission's copy contractor, Best Copy and Printing, Inc., 445 12th Street, SW., Room, CY-B402, Washington, DC 20554. The complete text may also be downloaded at: http://www.fcc.gov. By the Order, the Wireline Competition Bureau (WCB) grants a motion requesting an additional extension of the date for filing reply comments on an intercarrier compensation plan called the “Missoula Plan.” The Missoula Plan was filed on July 24, 2006 by the National Association of Regulatory Utility Commissioners' Task Force on Intercarrier Compensation. On July 25, 2006, the WCB released a Public Notice requesting that comments on the Missoula Plan be filed by September 25, 2006, and reply comments by November 9, 2006. 71 FR 45510, August 9, 2006. On August 29, 2006, WCB released an order granting extensions of the comment and reply comment filing dates to October 25, 2006 and December 11, 2006. 71 FR 54008, September 13, 2006. Over 110 parties filed initial comments on or before October 25, 2006. On November 17, 2006, NARUC filed a motion requesting a further extension of the reply comment date to January 11, 2007, which was granted. 71 FR 70709, December 6, 2006. On December 20, 2006, the Indiana Utility Regulatory Commission, the Maine Public Utilities Commission, the Montana Public Service Commission, the Nebraska Public Service Commission, the Vermont Department of Public Service, the Vermont Public Service Board, and the Wyoming Public Service Commission (the “Early Adopter Regulatory Commissions”) filed a Motion for Extension of Time requesting an additional extension for all reply comments to February 1, 2007.

The WCB determined that providing additional time to file reply comments will facilitate the development of a more accurate and complete record in this proceeding. Although it is the policy of the Commission that extensions of time shall not be routinely granted, the WCB determined that given the extensive nature of the record and the potential effects of the Missoula Plan, good cause exists to provide parties an additional extension of time, from January 11, 2007 to February 1, 2007, for filing reply comments in this proceeding.

Accordingly, it is ordered that, pursuant to §§ 4(i), 4(j), and 5(c) of the Communications Act, 47 U.S.C. 154(i), 154(j), 155(c), and §§ 0.91, 0.291, and 1.46 of the Commission's rules, 47 CFR 0.91, 0.291, 1.46, the pleading cycle established in this matter shall be modified as follows:

Reply Comments Due: February 1, 2007.

All other filing procedures remain unchanged from those previously established in this proceeding.

It is further ordered that the Motion of the Early Adopter Regulatory Commissions for Extension of Time is granted , as set forth herein.

Companies that have implemented CPI methods and tools have significantly reduced waste and non-value added activities, improved cycle time, produced repeatable processes, reduced variation, and improved customer satisfaction.

This process has led to improved products and services at a reduced cost. The Navy and Marine Corps, as customers of goods and services, should receive a fair share of the reduced costs. A contract clause should benefit companies that are aggressive in implementing CPI tools and methods with quantifiable improved output. The purpose of this ANPR is to solicit comments and suggestions on contract requirements aimed at motivating and rewarding contractors for implementing CPI. After consideration of the comments submitted in writing, the DON may publish a draft proposed rule for additional public comments.

The DON seeks to better understand how to incentivize contractors to incorporate best business practices related to CPI and how such contract requirements are used commercially and when their use would be in the best interest of the Government. The DON has developed questions to obtain this information as part of this ANPR.

Accordingly, the DON invites the public to provide comments addressing the appropriate use of specific contract provisions to incentivize contractors to aggressively pursue and initiate CPI that identify increased efficiencies, cost avoidance, and cost savings. Comments are also requested on the use of solicitation provisions, source selection criteria, and performance incentives that will provide contractors with the greatest motivation to share related savings with the Government to the maximum extent practicable. The DON especially welcomes feedback to the following questions:

1. What contractual mechanisms can the Government use to incentivize contractors to implement CPI?

2. What are some of the contract provisions currently being used in supplier and other subcontracts to incentivize CPI?

3. How can the Government motivate contractors who implement CPI to share in related savings to the maximum extent practicable?

4. Are cost reimbursement or flexibly priced contracts more suitable for providing incentives for contractors to implement CPI that identify increased efficiencies, cost avoidance, and cost savings, and for providing the highest motivation to share in those related savings to the maximum extent practicable? Why or why not? What about firm fixed-priced contracts?