[Federal Register Volume 85, Number 182 (Friday, September 18, 2020)]
[Notices]
[Pages 58352-58358]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-20649]
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ENVIRONMENTAL PROTECTION AGENCY
[EPA-HQ-OW-2020-0426; FRL-10014-59-OW]
Proposed 2020 Financial Capability Assessment for Clean Water Act
Obligations
AGENCY: Environmental Protection Agency (EPA).
ACTION: Notice; request for comment.
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SUMMARY: As part of EPA's commitment to implementing Clean Water Act
(CWA) objectives in a sustainable manner, EPA continues to enhance our
understanding of the issues surrounding financial capability
assessments (FCA) and seeks ways to move past the 1997 FCA Guidance and
the 2014 FCA Framework. Consistent themes have emerged during
discussions with stakeholders, such as the benefit of expanding on the
flexibility available under the existing 1997 FCA Guidance and ensuring
a consistent approach for implementing these flexibilities. The
proposed 2020 FCA embraces these stakeholder priorities and provides
tools to more easily articulate local financial circumstances, while
advancing the mutual goal to protect clean water. The 2020 FCA directly
incorporates relevant portions of the 1997 FCA Guidance and the 2014
FCA Framework as Appendices. When finalized, EPA expects to use the
2020 FCA to support negotiations of schedules for implementing CWA
requirements for municipalities and local authorities. EPA is
requesting comment on approaches for assessing financial capability of
communities to meet CWA obligations.
DATES: Comments must be received on or before October 19, 2020.
ADDRESSES: You may send comments, identified by Docket ID No. EPA-HQ-
OW-2020-0426, by the following method:
Federal eRulemaking portal: https://www.regulations.gov/.
Follow the online instructions for submitting comments.
Instructions: All submissions received must include the Docket ID
No. for this guidance. Comments received may be posted without change
to https://www.regulations.gov/, including any personal information
provided. For detailed instructions on sending comments and additional
information on the guidance process, see the ``Submitting Your
Comments'' heading of the SUPPLEMENTARY INFORMATION section of this
document. Out of an abundance of caution for members of the public and
our staff, the EPA Docket Center and Reading Room are closed to the
public, with limited exceptions, to reduce the risk of transmitting
COVID-19. Our Docket Center staff will continue to provide remote
customer service via email, phone, and webform. We encourage the public
to submit comments via https://www.regulations.gov/ or email, as there
may be a delay in processing mail and faxes. Hand deliveries and
couriers may be received by scheduled appointment only. For further
information on EPA Docket Center services and the current status,
please visit us online at https://www.epa.gov/dockets.
[[Page 58353]]
FOR FURTHER INFORMATION CONTACT: Sonia Brubaker, Office of Wastewater
Management, Water Infrastructure Division (MC4204M), Environmental
Protection Agency, 1200 Pennsylvania Ave. NW, Washington, DC 20460;
telephone number: (202) 564-0120; email address:
[email protected].
SUPPLEMENTARY INFORMATION:
I. Affordability of Water Services and the Financial Capability
Assessment for Clean Water Act Schedule Development
a. Why is the Agency requesting comments?
b. What is the Agency requesting comments on?
c. What should I consider as I prepare my comments for EPA?
1. Tips for Preparing Your Comments
2. Submitting Your Comments
II. Background on the Financial Capability Assessment Guidance and
Framework
a. EPA's Financial Capability Assessment Guidance and Framework
b. EPA's Use of the 1997 FCA Guidance and the 2014 FCA Framework
c. Stakeholder Feedback on EPA's Use of the 1997 FCA Guidance and
the 2014 FCA Framework
1. Congressional Direction
2. Mayors, League of Cities, Counties, and National Water
Associations Input
3. Utility Feedback
III. EPA's Proposed 2020 Financial Capability Assessment
a. Purpose of the Proposed 2020 Financial Capability Assessment
b. Overview of the 2020 FCA
IV. Request for Public Comment
I. Affordability of Water Services and the Financial Capability
Assessment for Clean Water Act Schedule Development
a. Why is the Agency requesting comments?
Water infrastructure is essential for healthy communities and the
success of our local and national economies. Ensuring that adequate
drinking water, wastewater, and stormwater infrastructure (collectively
referred to as water infrastructure) is in place is critical for all
communities to thrive. Additionally, as communities grow, they must
spend capital to increase capacity of their water infrastructure, thus
further complicating investment in aging infrastructure. Too often, the
toughest infrastructure challenges are found in low-income and resource
constrained communities that lack enough investment in water
infrastructure. Collaborating with local decision makers to help ensure
the proper collection and treatment of domestic sewage and wastewater
is vital to public health and clean water, which is a key part of our
mission at the EPA. EPA engages with local, state, and national
stakeholders to understand the challenges and successes that
communities experience in maintaining, replacing, and increasing the
capacity of their water infrastructure.
Communities are facing substantial needs to invest in water
infrastructure renewal, repair, and replacement. These investments are
necessary to keep pace with the aging of critical water infrastructure,
much of which is approaching or is already well past the end of its
service life. Challenges associated with aging infrastructure can be
exacerbated in economically stressed communities. A community may be
relatively strong economically on the whole but have a significant
number of low-income households, which further complicates matters.
Overall, there is considerable variation across communities in terms of
water infrastructure needs as well as the technical, managerial, and
financial ability to make investments and meet public health and
environmental regulatory obligations.
EPA recognizes that a single customer, or ratepayer, pays for both
drinking water and wastewater services and often sees these costs
reflected on one bill. Costs for stormwater services also impact
customers in many communities. EPA acknowledges that critical
infrastructure investment needs, including Clean Water Act (CWA)
obligations, impact many communities at the same time, making
investment in infrastructure challenging in many areas across the
country. To address these challenges, EPA is requesting comment on a
proposed 2020 Financial Capability Assessment (2020 FCA), which would
expand the metrics EPA uses to consider a community's financial
capability to fund its water obligations. Specific questions for public
comment are identified throughout the proposed 2020 FCA and are
summarized in Section IV of this Federal Register document.
The proposed 2020 FCA is intended to provide flexibility to
communities and offer templates and calculations that local authorities
can use in assessing their financial capability to implement control
measures needed to meet CWA obligations. The 2020 FCA incorporates
aspects of EPA's 1997 Combined Sewer Overflows--Guidance for Financial
Capability Assessment and Schedule Development (1997 FCA Guidance) and
EPA's 2014 Financial Capability Assessment Framework for Municipal
Clean Water Act Requirements (2014 FCA Framework). Once finalized, EPA
intends to use the 2020 FCA to evaluate the affordability of CWA
control measures applicable to municipalities in both the permitting
and enforcement context, including upgrades to publicly owned treatment
works; control measures to address combined sewer overflows (CSOs),
sanitary sewer overflows (SSOs), stormwater, and total maximum daily
loads; and integrated planning. EPA does not intend to use this
guidance to evaluate the affordability of the public health protections
required by the Safe Drinking Water Act (SDWA), although EPA does
employ compliance schedules in that context as well, where appropriate
and consistent with protecting public health.\1\
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\1\ The 2019 Safe Drinking Water Act settlement in U.S. v. City
of New York and New York City Department of Environmental Protection
includes a compliance schedule to complete $2.9 billion in capital
improvements at the Hillview Reservoir in Yonkers, NY.
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In addition, the 1997 FCA Guidance is substantively identical to
the public sector sections of the 1995 Interim Economic Guidance for
Water Quality Standards (1995 WQS Guidance) \2\ which is used for
supporting revisions to designated uses, water quality standard (WQS)
variances, and antidegradation reviews for WQS. EPA proposes to apply
the options and flexibilities from Alternative 1 of the proposed 2020
FCA to the consideration of economic impacts to public entities when
making such WQS decisions and EPA seeks comment on this in Section IV
of this Federal Register document.
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\2\ The 1995 WQS Guidance uses a substantively identical two-
phased approach and data as the 1997 FCA Guidance, although the
terminology of the two guidances is different. The 1997 FCA
Guidance's terms Residential Indicator and Financial Capability
Indicator are based on the same data and metrics as the 1995 WQS
Guidance's terms Muncipal Preliminary Screener and Secondary Score,
respectively. In the 1995 WQS Guidance, these indicators are brought
together into a matrix to determine the degree of economic impact
for a WQS decision whereas, the matrix in the 1997 FCA Guidance is
used to determine a community's financial capability to support
negotiations of schedules.
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b. What is the Agency requesting comments on?
EPA is requesting public comment on the proposed 2020 Financial
Capability Assessment. The proposed 2020 FCA implements a range of
ideas generated from recent stakeholder engagement to better support
affordability of water services in our nation's communities. This
proposal explores how a customer's ability to pay for services impacts
the affordability of capital
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expenditures and operation and maintenance needed to ensure compliance
with public health and environmental standards.
This proposal references the financial capability indicators
described in EPA's 1997 FCA Guidance. In addition to the 1997 FCA
Guidance, this proposal also references the 2014 FCA Framework,
developed in support of EPA's Integrated Planning Framework,\3\ to
provide an aid for identifying key financial elements, including
drinking water costs, that EPA may consider when working with
communities to establish schedules for implementing CWA control
measures. As part of EPA's commitment to implementing CWA objectives in
a sustainable manner, EPA continues to enhance our understanding of the
issues surrounding financial capability assessments and seeks ways to
move past the 1997 FCA Guidance and the 2014 FCA Framework. Consistent
themes have emerged during discussions with stakeholders, such as the
benefits of expanding on the flexibility available under the existing
1997 FCA Guidance and ensuring a consistent approach for implementing
these flexibilities. The proposed 2020 FCA embraces these stakeholder
priorities and provides tools to more easily articulate local financial
circumstances, while advancing the mutual goal to protect clean water.
The 2020 FCA directly incorporates relevant portions of the 1997 FCA
Guidance and the 2014 FCA Framework as Appendices. When finalized, EPA
expects to use the 2020 FCA to support negotiations of schedules for
implementing CWA requirements for municipalities and local authorities.
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\3\ US Environmental Protection Agency, Integrated Muncipal
Stormwater and Wastewater Planning Approach Framework, May 2012.
Accessible at https://www.epa.gov/npdes/integrated-municipal-stormwater-and-wastewater-planning-approach-framework.
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EPA is committed to working with state, tribal, local, and non-
government partners to assist communities in meeting CWA obligations in
a manner that recognizes unique local financial challenges. The
proposed 2020 FCA sets forth two alternatives for assessing financial
capability that a community may choose to employ. The first alternative
adopts the residential indicator approach from the 1997 FCA Guidance,
but adds elements to address how the lowest household incomes and other
poverty indicators in a service area can be considered in addition to
metrics from the 1997 FCA Guidance, such as a community's median
household income (MHI). Additional information, such as a community's
total water costs (i.e., costs for, wastewater, stormwater, and
drinking water infrastructure investment) may also be submitted and
will be considered when negotiating the length of an implementation
schedule for a municipality's CWA obligations. The second alternative
utilizes dynamic financial and rate models that evaluate the impacts of
debt service on customer bills. These new tools should help standardize
and advance the progress made in understanding and considering a
community's financial capability.
EPA seeks public comment on the proposed 2020 FCA, the metrics
considered, and the thresholds for selected metrics. See Section IV of
this Federal Register document for more information on the comments
requested. In addition, EPA requests comments on the use of the same
metrics and thresholds in Alternative 1 of the proposed 2020 FCA for
use in WQS decisions using the proposed expanded matrix in Appendix D.
This proposed matrix provides guidance on how to apply the options and
flexibilities in the proposed 2020 FCA to the consideration of economic
impacts to support WQS decisions related to public entities. EPA
intends that the proposed expanded matrix for WQS decisions, along with
the electronic spreadsheet tools for the public sector at https://www.epa.gov/wqs-tech/spreadsheet-tools-evaluate-economic-impacts-public-sector, which encompass the data inputs and calculations of the
1995 WQS Guidance, would replace the worksheets and calculations for
the public sector sections of the 1995 WQS Guidance. This replacement
would then guide states and authorized tribes in determining the degree
of economic impact for use in WQS decisions including revisions to
designated uses, WQS variances, and antidegradation reviews.
c. What should I consider as I prepare my comments for EPA?
1. Tips for Preparing Your Comments. When submitting comments,
remember to:
Identify the guidance 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 alternatives
and substitute language for your requested changes.
Describe any assumptions and provide any technical
information and/or data that you used.
Provide specific examples to illustrate your concerns and
suggest alternatives.
Explain your views as clearly as possible.
Make sure to submit your comments by the comment period
deadline identified.
2. Submitting Your Comments. Submit your comments, identified by
Docket ID No. EPA-HQ-OW-2020-0426, at https://www.regulations.gov.
Follow the online instructions for submitting comments. Once submitted,
comments cannot be edited or removed from regulations.gov. EPA may
publish any comment received to its public docket. Do not submit to
EPA's docket at https://www.regulations.gov any information you
consider to be Confidential Business Information (CBI) or other
information whose disclosure is restricted by statute. Multimedia
submissions (audio, video, etc.) must be accompanied by a written
comment. The written comment is considered the official comment and
should include discussion of all points you wish to make. EPA will
generally not consider comments or comment contents located outside of
the primary submission (i.e., on the web, cloud, or other file sharing
system). For additional submission methods, EPA public comment policy,
information about CBI or multimedia submissions, and general guidance
on making effective comments, please visit https://www.epa.gov/dockets/commenting-epa-dockets.
The EPA is temporarily suspending its Docket Center and Reading
Room for public visitors, with limited exceptions, to reduce the risk
of transmitting COVID-19. Our Docket Center staff will continue to
provide remote customer service via email, phone, and webform. We
encourage the public to submit comments via https://www.regulations.gov/ as there may be a delay in processing mail and
faxes. Hand deliveries or couriers will be received by scheduled
appointment only. For further information and updates on EPA Docket
Center services, please visit us online at https://www.epa.gov/dockets.
The EPA continues to carefully and continuously monitor information
from the Centers for Disease Control and Prevention (CDC), local area
health departments, and our Federal partners so that we can respond
rapidly as conditions change regarding COVID-19.
[[Page 58355]]
II. Background on the Financial Capability Assessment Guidance and
Framework
a. EPA's Financial Capability Assessment Guidance and Framework
EPA's 1997 FCA Guidance sets forth a two-phased approach for
evaluating a National Pollutant Discharge Elimination System (NPDES)
permittee's financial capability to implement CWA NPDES projects. In
the first phase, the Residential Indicator (RI) calculates the cost per
household as a percentage of MHI for the service area of the permittee
using data collected by the U.S. Census Bureau. In the second phase,
the Financial Capability Indicator (FCI) evaluates the municipality or
wastewater utility's overall fiscal health and local demographics
relative to national norms. The RI and FCI results are brought together
in a matrix that evaluates the burden a proposed CWA program imposes on
the municipality or utility (high, medium, or low). This two-phased
approach is referred to as the Financial Capability Assessment (FCA).
Though developed for use in assessing the affordability of CSO
controls, EPA also has used the 1997 FCA Guidance when negotiating
schedules to implement SSO controls.
The 2014 FCA Framework was developed to encourage the use of the
flexibility available under the 1997 FCA Guidance. Both the 1997 FCA
Guidance and the 2014 FCA Framework were developed with extensive
public input and are based on factors for consideration of financial
capability \4\ as identified in the Combined Sewer Overflow (CSO)
Policy, 59 FR 18688, 18894.\5\ As emphasized in both the 1997 FCA
Guidance and the 2014 FCA Framework, the primary financial indicators
in the 1997 FCA Guidance are a snapshot in time that might not present
the most complete picture of a community's financial capability to fund
its CWA obligations. However, the indicators did provide common
benchmarks for financial burden discussions among the community, EPA,
and state or tribal NPDES authorities. Communities were encouraged to
submit any additional documentation that would create a more accurate
and complete picture of their financial capability, whether as part of
the first or second phase of the FCA calculation. Additional
information that the community provided on its unique financial
circumstances was considered so that schedules could take local
considerations into account. Where appropriate, additional information
encouraged to be considered pursuant to the 2014 Framework has been
used to justify implementation schedules longer than the schedules
suggested by the 1997 FCA Guidance baseline analysis.
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\4\ These factors are: (i) Median household income; (ii) Total
annual wastewater and CSO control costs per household as a percent
of median household income; (iii) Overall net debt as a percent of
full market property value; (iv) Property tax revenues as a percent
of full market property value; (v) Property tax collection rate;
(vi) Unemployment; and (vii) Bond rating.
\5\ CWA 402(q) requires that each permit, order and decree shall
conform with the CSO Policy.
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b. EPA's Use of the 1997 FCA Guidance and the 2014 FCA Framework
Communities, in consultation with regulators and the public, are
responsible for evaluating and selecting controls that will meet CWA
requirements. After controls have been selected, an FCA is used to aid
in assessing a community's financial capability as a part of
negotiating implementation schedules under both permits and enforcement
agreements. EPA has used both the 1997 FCA Guidance and the 2014 FCA
Framework to support consent decree negotiations with over 100
wastewater utilities throughout the United States and U.S. territories.
The results of the FCA analyses provide an important benchmark for EPA
decision-makers to consider in CWA permitting and enforcement actions
to support consistency across the country.
EPA does not view or use the 1997 FCA as a rigid metric that points
to a given schedule length or threshold over which the costs are
unaffordable. It is a common misconception that the FCA can be used to
cap spending on CWA programs or projects at a percentage of MHI. The
FCA does not remove obligations to comply with the CWA nor does it
reduce regulatory requirements.\6\ Rather, EPA uses the FCA to assess a
community's financial capability for the purpose of developing a
reasonable implementation schedule that will not overly burden the
community. In practice, EPA considers each community's financial
capability on a holistic case-by-case basis, and MHI is only one of the
metrics that EPA evaluates. EPA has approved implementation schedules
for CWA municipal consent decrees that go beyond the general scheduling
boundaries in the 1997 FCA Guidance to ensure CWA requirements are met
while also taking the financial capability of the community into
consideration. In these cases, the implementation schedules were
determined to be reasonable based upon the baseline FCA calculation
done in accordance with EPA's 1997 FCA Guidance and consideration of
supplemental information that was submitted by the community, as
encouraged by the 2014 FCA Framework.
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\6\ If a permittee cannot meet water quality-based requirements
of the CWA, the permittee should work with its state or authorized
tribe to evaluate other tools, such as a revision to designated uses
under 40 CFR part 131.
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c. Stakeholder Feedback on EPA's Use of the 1997 FCA Guidance and the
2014 FCA Framework
1. Congressional Direction
As part of the 2016 Appropriation, Congress directed EPA to
contract with the National Academy of Public Administration (NAPA) \7\
to create a framework for ``community affordability.'' \8\ The contract
gave NAPA one year to conduct an independent study to create a
definition of, and framework for, community affordability for clean
water infrastructure. NAPA surveyed both EPA staff and stakeholders
through over 50 in-person interviews with approximately 100
participants; electronic interviews; and a stakeholder roundtable that
included the American Water Works Association (AWWA), the National
Association of Clean Water Agencies (NACWA), the National League of
Cities (NLC), the Brookings Institute, Center for Progressive Reform
(CPR), the Natural Resources Defense Council (NRDC), and the U.S.
Conference of Mayors (USCM).
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\7\ NAPA was Chartered by Congress as an independent, non-
partisan organization to assist government leaders in building more
effective, efficient, accountable, and transparent organizations.
See http://www.napawash.org/.
\8\ Senate Report 114-70 on the Department of the Interior,
Environment, and Related Agencies Appropriations Bill, 2016, p. 54:
``Community Affordability--Within the funds provided, the Committee
directs EPA to contract with the National Academy of Public
Administration--an independent, nonpartisan, nonprofit organization
chartered by the U.S. Congress--to conduct an independent study to
create a definition and framework for ``community affordability.''
The Academy shall consult with EPA, States and localities, and such
organizations, including, but not limited to the National
Association of Counties, the National League of Cities, and the U.S.
Conference of Mayors; review existing studies of the costs and
benefits associated with major regulations under such laws as the
Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, the
Comprehensive Environmental Response, Compensation, and Liability
Act, and the Resource Conservation and Recovery Act; and determine
how different localities can effectively fund municipal projects.
The Academy shall submit a report with its findings, conclusions,
and recommendations no later than 1 year after the date of contract
with EPA.
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NAPA issued its report, ``Developing a New Framework for Community
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Affordability of Clean Water Services'' \9\ in October 2017. NAPA's
report provided several recommendations to EPA, including:
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\9\ Available at https://www.napawash.org/uploads/Academy_Studies/NAPA_EPA_FINAL_REPORT_110117.pdf.
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Recommendations regarding EPA's 1997 FCA Guidance and the
2014 FCA Framework:
[cir] Recommendation to improve the RI and the FCI metrics in the
1997 FCA Guidance; the metrics used should meet the following criteria:
[ssquf] Readily available from publicly available data sources;
[ssquf] Clearly defined and understood;
[ssquf] Simple, direct, and consistent;
[ssquf] Valid and reliable measures, according to conventional
research standards; and
[ssquf] Applicable for comparative analyses among permittees.
[cir] Recommendation to include all water costs (Clean Water Act
and Safe Drinking Water Act) and to focus on the income of the low-
income users rather than MHI when considering burdens to communities of
the costs of CSO control measures.
[cir] Recommendation to expand the socioeconomic components
affecting the community's market conditions to include trends in
population, relative wealth, economic growth, and other economic
structural problems in the community.
Recommendations regarding EPA's Integrated Planning
Framework:
[cir] Recommendation to provide additional technical assistance to
municipalities seeking to develop integrated plans.
[cir] Recommendation to allow municipalities to develop an
integrated plan as a primary step for addressing regulatory
requirements with ``formalized agreements'' between the municipality,
the state, and EPA.
Recommendations on EPA's cost/benefit analysis and
financing for water infrastructure.
In response to NAPA's report, EPA reviewed current guidances that
address household and community financial capability within EPA's water
program. Three guidance documents were reviewed:
1995 Interim Economic Guidance for Water Quality
Standards: Implemented by EPA's Office of Water, Office of Science and
Technology and used for supporting revisions to designated uses, water
quality standard (WQS) variances, and antidegradation reviews for WQS.
1997 CSO Financial Capability Assessment Guidance and the
2014 Financial Capability Assessment Framework: Implemented by EPA's
Office of Water, Office of Wastewater Management and EPA's Office of
Enforcement and Compliance Assurance, Office of Civil Enforcement to
provide guidance for CWA schedule development in CWA permitting and
enforcement actions.
1998 Developing Affordability Criteria for Drinking Water
Systems: Implemented by EPA's Office of Water, Office of Ground Water
and Drinking Water and used to grant variances for compliance
technology to small drinking water systems.
In addition, EPA researched affordability at both the household and
community level for essential services such as drinking water,
wastewater, stormwater, housing, energy, and others.
2. Mayors, League of Cities, Counties, and National Water Associations
Input
The National Association of Counties, the National League of
Cities, and the U.S. Conference of Mayors have expressed concerns
regarding ``EPA's reliance on 2% Median Household Income to determine a
community's financial capability.'' The groups are concerned that the
MHI metric puts an ``unfair and oppressive financial burden on low- and
middle-income citizens.''
In April 2019, AWWA, NACWA, and the Water Environment Federation
(WEF) jointly submitted a report to EPA titled ``Developing a New
Framework for Household Affordability and Financial Capability
Assessment in the Water Sector.'' \10\ The authors of the report
requested that EPA consider changes to how the Agency takes
affordability into account across its CWA and SDWA programs. The report
proposed a new methodology for calculating financial capability using:
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\10\ Available at https://www.awwa.org/Portals/0/AWWA/Government/DevelopingNewFrameworkForAffordabilityReport.pdf.
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All water sector costs (drinking water, wastewater, and
stormwater);
Utility revenue and customer bills rather than the cost of
CSO control measures;
Lowest Quintile Income (LQI) and Federal Poverty Levels
(FPL); and
Forward-looking analysis/long-term cash flow forecasting.
3. Utility Feedback
Individual utilities have met with EPA to discuss concerns
surrounding affordability of providing drinking water, wastewater, and
stormwater services. The utilities identified household affordability
challenges in paying bills for these services as well as in the
utility's ability to pay for infrastructure renewal along with costs of
regular operation and maintenance and workforce needs.
III. EPA's Proposed 2020 Financial Capability Assessment
a. Purpose of the Proposed 2020 Financial Capability Assessment
The proposed 2020 FCA advances the ability of communities to more
accurately demonstrate the financial burdens they face and increases
the transparency of EPA's considerations as it endeavors to
consistently apply FCA methodologies across the country. With the
proposed 2020 FCA, EPA intends to allow communities to easily submit
information that may indicate the entire community's capability to fund
CWA projects/programs. Specifically, the proposed 2020 FCA includes
templates and calculations that communities can use when submitting
information for consideration regarding LQI, drinking water costs,
financial models or studies, and other relevant areas. The templates
and calculations include references that direct the community to the
applicable publicly available data sources.
The proposed 2020 FCA sets forth two alternative general approaches
for assessing a community's financial capability to carry out CWA
control measures. The first alternative is the existing 1997 FCA
methodology with expanded consideration of costs, poverty, and impacts
on the population in the service area with incomes in the lowest
quintile. The first alternative may be employed by the community or by
EPA for the community, as it involves use of publicly available
information. Communities with lower cost control measures or an ability
to self-finance the cost of CWA controls may wish to employ the first
alternative due to its simplicity.
The second alternative is the development of a dynamic financial
and rate model that looks at the impacts of rate increases over time on
utility customers, including those with incomes in the lowest quintile.
Communities with more expensive CWA obligations may choose to employ
the second alternative, given its more sophisticated evaluation of
affordability over time. However, if a community chooses the second
alternative, it must conduct the analysis itself as it involves
information known only to the community.
For use in the first alternative, relevant portions of the 1997 FCA
Guidance and the 2014 FCA Framework are included as Appendices to the
FCA Supplement. While the structure of the
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included 1997 FCA Guidance worksheets remains for the first
alternative, the 2020 FCA also includes standardized instructions for
how to define and submit certain additional costs into the portion of
the RI calculation that looks at total CWA costs per household as a
percent of MHI. EPA intends to not only consider MHI when calculating
the impact of costs on a community's households but is proposing to
also consider impacts to households in the lowest quintile. MHI is
considered a key metric because it represents the mid-point of income
in a geographical area determined by the American Community Survey
(ACS). Median is used to express a ``middle'' value in a set of data.
This ``middle'' value is also known as the central tendency. Median is
determined by ranking the data from largest to smallest, and then
identifying the middle so that there are an equal number of data values
larger and smaller than the middle point. The median is generally used
for skewed distributions and is typically used to derive at central
tendency since it is not largely affected by outlier values. However,
EPA recognizes that many communities have many customers that represent
either end of the income spectrum. Some communities have a range of
incomes but also have contiguous areas of population that have
difficulty paying for their water services. For some communities, these
challenges can be shown by looking at the community's LQI along with
its MHI. As such, EPA intends to incorporate LQI as the basis of a key
recommended critical metric when calculating the impact of costs on a
community's households.
Based on stakeholder feedback, EPA is basing its LQI metric on data
that is available in the ACS. The ACS is conducted every year by the
U.S. Census Bureau to provide up-to-date information about the social
and economic conditions of communities. The annual updates include key
socio-demographic information and can be provided to a fine level of
geographic granularity with historic continuity. The ACS can produce
data showing the quintiles of household income (each quintile defines
the household income range for 20% of a community's households). Use of
LQI as an FCA metric meets the following criteria proposed by NAPA:
Readily available from publicly available data sources;
Clearly defined and understood;
Simple, direct, and consistent;
Valid and reliable measures, according to conventional
research standards; and
Applicable for comparative analyses among permittees.
The proposed 2020 FCA can help to ensure that local challenges
related to low-income households are better reflected in CWA
implementation schedules. The types of data provided in Alternative 1
of the 2020 FCA are not exhaustive; and consistent with previous
policy, EPA will consider any relevant financial or demographic
information presented that illustrates the unique or atypical
circumstances faced by a community.
b. Overview of the 2020 FCA
Consideration of affordability requires certain information.
Alternative 1 of the proposed 2020 FCA recommends analyzing both the
first phase (RI) and the second phase (FCI) of the two-phased approach
in the 1997 FCA Guidance as critical metrics and adds two new critical
metrics: The Lowest Quintile Residential Indicator (LQRI) and the
Poverty Indicator (PI). These four critical metrics would be calculated
by EPA or the community and would be considered equally. It should be
emphasized that these four recommended critical metrics might not
present the most complete picture of a community's financial capability
to fund its CWA requirements. However, these metrics do provide a
common basis for financial burden discussions among the community, the
state or tribe, and EPA. Since flexibility is an important aspect of
the CWA, communities are encouraged to submit any additional
documentation (other metrics) for consideration that would create a
more accurate and complete picture of their financial capability.
Alternative 2 of the proposed 2020 FCA recommends analyzing a financial
and rate model in addition to calculating the Poverty Indicator Score.
The proposed 2020 FCA also includes Other Metrics with Standardized
Instructions, as well as Other Metrics with Submission of Information
to be Determined by the Community. Significant consideration will be
given to drinking water costs as well as the cost of meeting CWA
obligations. Consideration of other metrics is permitted under either
Alternative 1 or 2 and may support an implementation schedule that goes
beyond the schedule benchmarks applicable to Alternative 1 in Exhibit
6. However, EPA does not anticipate establishing implementation
schedules that would exceed the useful life of the community's water
infrastructure assets.\11\
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\11\ Based on EPA's experience with water programs, the assumed
useful life of water infrastructure assets for the purpose of
financing is typically 30-40 years.
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Alternative 1: Recommended Critical Metrics With Established Thresholds
and Instructions
Residential Indicator--cost per household as a percentage
of MHI
Financial Capability Indicator--six socioeconomic, debt,
and financial indicators used to benchmark a community's financial
strength
Lowest Quintile Residential Indicator--cost per low-income
household as a percentage of the lowest quintile income
Poverty Indicator--five poverty indicators used to
benchmark the prevalence of poverty throughout the service area
Alternative 2: Recommended Critical Metrics
Financial and Rate Models
Poverty Indicator
Other Metrics With Standardized Instructions
Drinking Water Costs
Potential Bill Impact Relative to Household Size
Customer Assistance Programs
Asset Management Costs
Stormwater Management Costs
Examples of Other Metrics With Submission Information Determined by the
Community
Unemployment Rates
Debt Service Coverage Ratio
Debt to Income Ratio
Percent Population Decline, or Other Population Trends
Locality Specific Information on Household Size, Including the
Size of Households With Incomes In The Lowest Quintile
State or Local Legal Restrictions or Limitations on Property
Taxes, Other Revenue Streams, or Debt Levels
Other Metrics as Determined by the Community
Schedule Development
Additional Considerations: Discharges to Sensitive Areas; Use
Impairment; Public Health; Environmental Justice
Schedule Development for Alternative 1
Schedule Development for Alternative 2
Schedule Development for Hypothetical Communities
The proposed 2020 FCA is available at: https://www.regulations.gov/
, Docket ID No. EPA-HQ-OW-2020-0426. Throughout the document, EPA has
identified specific questions for public comment.
[[Page 58358]]
IV. Request for Public Comment
EPA requests public comment on the proposed 2020 FCA. Specifically,
EPA is requesting comments on the following:
Requests for Comment on Overarching Matters
1. Should EPA's previous FCA documents be consolidated into the
2020 FCA, as proposed, or should EPA continue to use the 1997 FCA
Guidance as the controlling guidance with the 2020 revisions serving as
a supplement?
2. In addition to the data sets that are discussed in this
document, what other data sets are you aware of that meet NAPA's
criteria as identified in the October 2017 report, ``Developing a New
Framework for Community Affordability of Clean Water Services''?
3. What additional resources are publicly available that can be
used to assess financial capability (e.g., the ALICE Essentials Index
\12\)?
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\12\ Asset Limited, Income Constrained, Employed (ALICE) is
measure of poverty that examines a subset of households that earn
above the Federal Poverty Level, but not enough to afford a minimal
household budget. See https://www.unitedforalice.org/.
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4. What additional examples, calculations, or templates would you
like EPA to develop to assist with assessing financial capability?
Requests for Comment on the Proposed FY2020 FCA Supplement
5. EPA invites comment on the appropriateness of using the four
recommended critical metrics to assess financial capability and what
their relative importance in considering financial capability should
be.
6. What supplemental information is relevant to support
implementation schedules that go beyond the proposed benchmarks in
Exhibit 6?
7. Is EPA distinguishing appropriately between critical and other
metrics?
8. EPA is seeking comment on the proposed methodology for
calculating the ratio for lowest quintile household size to median
household size.
9. EPA invites public comment on whether adjusting the LQRI based
on household size is appropriate or if there are other ways to
calculate a residential indicator for LQI households.
10. EPA is seeking comment on whether the same benchmarks for
assessing the MHI Residential Indicator should be used for assessing
the Lowest Quintile Residential Indicator (LQRI), as proposed, or if
different benchmarks should be used.
11. EPA is seeking comment on the list of proposed poverty
indicators and on whether the bracketing of the middle 50% is an
appropriate method to benchmark the proposed poverty indicators.
12. EPA is seeking public comment on the proposed schedule
benchmarks in Exhibit 6.
13. What other resources, in addition to those listed in Section IV
of the proposed 2020 FCA (Resources), are available to assist
communities related to water infrastructure financing?
14. EPA is seeking comment on whether additional detail can be
provided to better understand implementation of Alternative 2.
15. Should drinking water costs be considered as part of scheduling
considerations and are there appropriate benchmarks for considering the
contribution of drinking water costs to household burdens, such as a
specific percentage of income?
Requests for Comment Related to Water Quality Standard Decisions
16. EPA is also considering how the LQRI, PI, and other metrics and
thresholds discussed in this Federal Register document could be used to
support WQS decisions. EPA seeks comment on the use of these same
metrics and thresholds under Alternative 1 for use in WQS decisions
using the proposed expanded matrix in Appendix D. This proposed matrix
provides guidance on how to apply the options and flexibilities of
Alternative 1 in the proposed 2020 FCA to the consideration of economic
impacts to support WQS decisions related to public entities. EPA
intends that the proposed expanded matrix for WQS decisions, along with
the electronic spreadsheet tools for the public sector at https://www.epa.gov/wqs-tech/spreadsheet-tools-evaluate-economic-impacts-public-sector, would replace the worksheets and calculations for the
public sector sections of the 1995 WQS Guidance. This replacement would
be used for determining the degree of economic impact for use in WQS
decisions for the public sector. The proposed 2020 FCA does not revise
the recommended methodology in the private sector sections of the 1995
WQS Guidance. EPA is separately exploring whether there are practical
methodologies available to increase the objectivity of the analyses
recommended to determine the degree of economic impact on private
sector entities when evaluating these same WQS decisions.
Dated: September 4, 2020.
Andrew D. Sawyers,
Director, Office of Wastewater Management, Office of Water.
[FR Doc. 2020-20649 Filed 9-17-20; 8:45 am]
BILLING CODE 6560-50-P