EPA 510-Z-93-001
Thursday
February 18, 1993
Part
Environmental
Protection Agency
40 CFR Part 280
Underground Storage Tanks Containing
Petroleum; Financial Responsibility
Requirements; Final Rule
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Federal Register / Vol. 58, No. 31 / Thursday. February 18. 1993 / Rules and Regulations
9026
ENVIRONMENTAL PROTECTION
AGENCY
40 CFR Part 280
[FRL-4128-9]
RIN2050-AC67
Underground Storage Tanks
Containing Petroleum; Financial
Responsibility Requirements
AGENCY: Environmental Protection
Agency.
ACTION: Final rule.
SUMMARY: The Environmental Protection
Agency (EPA, or the Agency) is
promulgating financial responsibility
requirements applicable to local
governmental owners and operators of'
underground storage tanks containing
petroleum. EPA promulgates these
requirements under the authority of
section 9003 (c) and (d) of the Resource
Conservation and Recovery Act as
amended by the Hazardous and Solid
Waste Amendments of 1984 (HSWA)
and the Superfund Amendments and
Reauthorization Act of 1986 (SARA).
This rule establishes four alternative
mechanisms for use by local
governments to demonstrate financial
responsibility for taking corrective
action and compensating third parties
for bodily injury and property damage
caused by sudden and nonsudden
accidental underground storage tank
releases. The Agency is adding these
local governmental financial assurance
mechanisms to the existing mechanisms
contained in the financial responsibility
rule promulgated October 26,1988.
These additional mechanisms will allow
a greater number of local governmental
entities to comply with the financial
assurance requirements and will result
in a net cost savings to local
governments estimated at approximately
$32 million over a ten year period.
EFFECTIVE DATE: This rule becomes
effective on March 22,1993.
FOR FURTHER INFORMATION CONTACT: The
RCRA/Superfund Hotline at (800) 424-
9346 (toll free) or (703) 412-9810 in
Virginia, or Sammy Ng in EPA's Office
of Underground Storage Tanks at (703)
308-8882.
SUPPLEMENTARY INFORMATION: The
contents of today's preamble are listed
in the following outline:
I. Authority
II. Background
A. Legislative and Regulatory
Overview
l.RCRA Subtitle I
2. October: 26,1988 Rule
3. Discussion of the Financial
Responsibility Requirements far
Governments in the October 26,
1988 Rule
4. The Proposed Rule
B. Key Provisions in Today's Rule
C. Rationale for Agency's Approach
D. Description of the Regulated
Community
HI. Section-by-Section Analysis
A. Applicability
B. Definition of Terms
1. Bond Ratings
2. Investment Grade Bonds
3. General Obligation Bonds
4. Revenue Bonds
5. Substantial Governmental
Relationship
C. Amount and Scope
IV. New Mechanisms for Demonstrating
Financial Responsibility
A. Description of Mechanisms
1. Bond Rating Test
2. Local Government Financial Test
(§280.105)
3. Governmental Guarantee
(§280.106)
4. Maintenance of a Fund Balance
(§280.107)
5. Combinations of Mechanisms
B. Reporting by Owner or Operator
C. Recordkeeping
D. Bankruptcy or Other Incapacity of
the Owner or Operator
V. Economic Impact Analysis
A. Economic Impact Analysis
1. Compliance with Executive Order
12291
• 2. The Affected Community
3. Assumptions and Methodology
Used in the EIA
4. Cost Impacts
5. Environmental Impacts
B. Regulatory Flexibility Act
C. Paperwork Reduction Act
VI. Supporting Documents
I. Authority
These regulations are issued under
the authority of sections 2002, 9001,
9002, 9003, 9004, 9005, 9006, 9007, and
9Q09 of the Solid Waste Disposal Act, as
amended. The principal amendments to
this Act have been under the Resource
Conservation and Recovery Act of 1976,
the Hazardous and Solid Waste
Amendments of 1984 (Pub. L. 98-616)
and the Superfund Amendments and
Reauthorization Act of 1986 (Pub. L. 99-
499) (42 U.S.C. 6912, 6991, 6991a,
6991b, 6991c, 699ld, 6991e, 6991f, and
6991h).
II. Background
This section provides the legislative
and regulatory background for this rule
and summarizes today's additional
mechanisms for financial responsibility
for local government entities.
A. Legislative and Regulatory Overview
This section discusses the statutory
authority for financial responsibility
regulations for UST owners and
operators, the provisions of the financial
responsibility regulations promulgated
on October 26,1988 and the scope of
the financial responsibility regulations
being promulgated today.
1. RCRA Subtitle I
The Hazardous and Solid Waste
Amendments of 1984 (HSWA) extended
and strengthened the provisions of the
Resource Conservation and Recovery
Act (RCRA). HSWA added Subtitle I to
RCRA, establishing provisions for the
development and implementation of a
regulatory program for underground
storage tanks (USTs) containing certain
substances, including petroleum and
other regulated substances (such non-
petroleum regulated substances are
hereinafter referred to as "hazardous
substances"). Section 9003(a) of Subtitle
I requires the EPA Administrator to
promulgate requirements for release
detection, prevention, and correction as
necessary to protect human health and
the environment. These technical
standards were promulgated at 53 FR
37082 (September 23,1988).
The Superfund Amendments and
Reauthorization Act of 1986 (SARA)
amended sections 9003 (c) and (d) of
Subtitle I to mandate that the Agency
establish financial responsibility
requirements for UST owners and
operators to assure the costs of
corrective action and third-party
liability caused by sudden and
nonsudden accidental releases from
USTs. SARA also modified Subtitle I by
specifying the minimum statutory levels
of financial responsibility for petroleum
marketers and the factors that EPA may
consider in setting minimum levels for
non-marketers. The objective of the
financial responsibility requirements is
to ensure that owners and operators can
respond promptly to clean up releases
and to compensate third parties for any
injuries or damages associated with UST
releases.
2. October 26,1988 Rule
The final financial responsibility rule,
promulgated on October 26,1988
applies to owners or operators of
"petroleum UST systems" with the
following exceptions:
(1) Federal or State entities that own
or operate USTs containing petroleum;
and
(2) Owners and operators of tank
systems excluded from the technical
standards.
To cover the potential costs of
corrective action and third-party
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Federal Register / Vol. 58, No. 31 / Thursday, February 18. 1993 / Rules and Regulations
9027
liability claims from sudden and
nonsudden accidental releases from
USTs, the rule requires the following
parties to obtain financial assurance of
at least $1 million per occurrence:
(1) All owners or operators of
petroleum USTs at facilities engaged in
petroleum production, refining, or
marketing; and •
(2) Owners or operators of USTs witn
an average monthly throughput of more
than 10,000 gallons.
Owners or operators of USTs at
facilities not engaged in petroleum
production, refining, or marketing with
an average monthly throughput of
10,000 gallons or less must maintain
financial assurance of at least $500,000
per occurrence. All owners or operators
must maintain an annual aggregate of $1
million or $2 million, depending on the
number of USTs assured. The
responsibility for cleanup and third-
party compensation in the event of UST
releases was established under the
technical standards published in
September 1988. The October 1988
financial responsibility rule made
owners and operators responsible for
complying with the financial
responsibility requirements, but
otherwise imposed no new liability;
rather, the rule was intended to verify
that local government owners or
operators of USTs would be able to meet
their liabilities in the event of an UST
release. It is important to note that
exemption from the financial
responsibility requirements would not
exempt an owner or operator from their
liabilities in the event of an UST release.
UST owners or operators may use the
following mechanisms to satisfy the
requirements: Insurance or risk
retention group coverage, surety bond,
guarantee, letter of credit, financial test
' of self-insurance, trust fund, a State-
required mechanism, or a State fund or
other State assurance. (Under the
October 26,1988 rule, only private
companies reporting to credit reporting
bli ' ' " '""
agencies, publicly-held companies
reporting to the Securities and Exchange
Commission, and public utilities
reporting to specified agencies are
eligible to use the financial test of self-
insurance.) Mechanisms can be used
alone or in combination to cover the
costs of taking corrective action and
compensating third parties as long as a
mechanism or a combination of
mechanisms provides the full amount of
required assurance. The only
combination of mechanisms that is not
allowed is the financial test of self-
insurance and a guarantee where the
financial statements of the owner or
operator and the guarantor are
consolidated.
The October 26,1988 final rule
requires owners or operators to submit
documentation of financial
responsibility to the implementing
agency for three occurrences: (1) After a
known or suspected release occurs, (2)
when a provider becomes incapable of
providing assurance, arid (3) when a
provider revokes a mechanism and the
owner or operator is unable to obtain
alternate coverage. Owners or operators
must also submit documentation of
financial responsibility if requested by
the implementing agency. In addition,
UST owners or operators must notify
the implementing agency of their
methods of demonstrating financial
responsibility upon installation of new
tanks. Owners or operators must also
maintain records of the financial
assurance mechanisms used to satisfy
these requirements on-site or at then-
place of business.
The October 26,1988 rule also
contains provisions that require third-
party providers of financial assurance
.(i.e., sureties, insurance companies, risk
retention groups, guarantors, and
providers of letters of credit) to provide
notice of cancellation with an adequate
time period for the UST owners and
operators to seek alternative coverage
and to determine whether there has
been a release that would trigger the
third-party mechanism. On November 9,
1989, EPA published an interim final
rule that modified the required language
of endorsements required for insurance
policies as they relate to cancellation
(54 FR 47077). , ,
The State program approval objective
for financial responsibility of owners
and operators of petroleum UST systems
was also promulgated October 26,1988.
This objective outlines two general
provisions: (1) The considerations used
to determine whether States' financial
responsibility requirements will be
considered "no less stringent" than the
corresponding Federal requirements
standard, and (2) the standards that
must be met to demonstrate adequate
enforcement of compliance.
government entities have been given
until February 18,1994, one year from
the promulgation of today's rule, to
comply. In the October 1988 final rule,
the Agency stated its intention to
develop a financial test in the interim
that would allow local governments to
demonstrate that they have the requisite
financial strength and stability to pay
the costs associated with UST releases.
After passing this financial self-test,
local government entities will be
allowed to demonstrate financial
responsibility in a manner similar to
private companies that meet the criteria
of the corporate financial test of self-
insurance.
Under the compliance schedule,
Indian tribes are required to comply
with financial responsibility
requirements under the same schedule
as local governments; that is, within^one
year from the promulgation of today's
rule (i.e., before February 18,1994).
3. Discussion of the Financial
Responsibility Requirements for
Governments in the October 26,1988
Rule
Although the final financial
responsibility rule (53 FR 43322,
October 26,1988) exempts those
government entities whose debts and
liabilities are the debts and liabilities of
Federal or State governments, local
government entities are required to
provide financial assurance for USTs
that they own or operate. Under the
Agency's schedule for phased
compliance with the final rule, local
4. The Proposed Rule
The proposed rule was published on
June 18,1990. The Agency received
comments from 23 commenters. Most
supported the development of the new
financial responsibility mechanisms,
stating that these additional
mechanisms allow more local
governments to comply with the
financial assurance requirements, and
that they would be able to do so at lower
cost. Some commenters suggested
changes or additions to the mechanisms
proposed. Where appropriate, the
Agency has adopted these suggestions.
The specific issues raised and the
Agency's responses are addressed in
"Summary of Comments and Responses
on Proposed Additional Financial
Responsibility Mechanisms for Local
Governments Subject to Subtitle I of the
Resource Conservation and Recovery
Act."
One commenter proposed as a new
alternative mechanism that EPA issue
regulations allowing implementing
agencies to redirect funds from Federal-
or State-funded programs to pay for the
expenses associated with corrective
actions. The Agency rejected this
suggestion because it has no statutory
authority to redirect funds from other
State or Federal programs.
B. Key Provisions in Rule
In today's rule, the Agency is
providing additional mechanisms that
will allow local governments to comply
with the financial responsibility
requirements. These mechanisms do not
replace the existing methods; rather,
they supplement them. These
mechanisms are similar in intent to the
corporate guarantee and the financial
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9028 Federal Register / Vol. 58, No. 31 / Thursday. February 18, 1993 / Rules and Regulations
test of self-insurance now allowed as
mechanisms for corporations. Local
governments eligible to use the
mechanisms may use them alone or in
combination with other mechanisms, as
described below.
One commenter questioned the
language indicating that all local
governments "may use" the new
financial assurance mechanisms, since
the criteria associated with using the
mechanisms by definition restricts their
use by certain entities. The Agency
emphasizes that all local governments
may seek to use all mechanisms, but
only those that meat all qualifying
criteria may use a specific mechanism to
demonstrate financial responsibility.
EPA is promulgating four additional
mechanisms for use by local
government entities to demonstrate
financial responsibility:
(l)Bond rating test. Local government
entities with $1 million or more of total
outstanding issues of general obligation
bonds (excluding refunded obligations)
and having investment-grade ratings
would be eligible to demonstrate
financial responsibility. Non-general
purpose local governments (e.g., special
districts and school districts) with $1
million or more of investment-grade
revenue bonds may also use this
mechanism if they do not have the
authority to issue general obligation
bonds. General obligation bonds that are
backed by credit enhancement
mechanisms other than bond insurance
may not be included in the bond rating
test. Revenue bonds that are backed by
any type of credit enhancement
mechanism may not be included in the
bond rating test. Bonds with investment
grade ratings are defined as those having
a Moody's bond rating of Baa or higher
(i.e., Aaa, Aa or A), or a Standard and
Poor's bond rating of BBB or higher (i.e.,
AAA, AA, or A). Passing the bond rating
test will be considered a sufficient
demonstration of financial
responsibility.
(2) Worksheet test. A worksheet test
has been developed for use by local
government entities that do not have
general obligation or revenue bond
ratings or that have less than $1 million
in outstanding issues of investment-
grade-rated general obligation or
revenue bonds. (Governments meeting
the requirements of both the bond rating
test and the worksheet test may use
either mechanism but are assumed to
use the bond rating test as a matter of
administrative convenience.) Local
governmental entities having
outstanding issues of general obligation
or revenue bonds that are rated as less
than investment grade are not eligible to
use the worksheet test. The worksheet
incorporates several financial criteria
designed to measure a local government
entity's financial stability. Passing the
worksheet test will be a sufficient
demonstration of financial
responsibility.
(3) Guarantee. A local government
entity can demonstrate financial
responsibility by obtaining a binding
guarantee from another governmental
entity able to demonstrate financial
responsibility assurance through the
alternative mechanisms. The guarantor
must have the authority to provide a
guarantee to the local government entity
seeking financial assurance. For
example, a town may serve as the
guarantor for a special district, a county
may serve as the guarantor for a school
district, a State may serve as the
guarantor for a county, or a city may act
as a guarantor to a special district (e.g.,
a transportation authority or a
government utility). A guarantee for the
entire aggregate limit for which a local
government must demonstrate financial
responsibility will be a sufficient
. demonstration of financial
responsibility. A guarantee for a lesser
amount may be used in combination
with one or more other allowable
mechanisms to demonstrate financial
responsibility.
(4) Maintenance of a funded balance.
Local government entities may satisfy
the financial responsibility regulations
by developing a self-administered
emergency response fund to finance an
UST corrective action and pay for third-
party damages. A fund balance
established for the entire aggregate limit
for which a local government must
demonstrate financial responsibility
will be a sufficient demonstration of
financial responsibility. A fund balance
established for a lesser amount may be
used in combination with one or more
other allowable mechanisms to
demonstrate financial responsibility.
The October 1988 rule allows the use
of combinations of financial
responsibility mechanisms. This feature
is extended to include the financial self-
test mechanisms being promulgated
today. For example, a local government
entity may use the guarantee or funded
balance mechanisms to satisfy the
deductible amounts of insurance
policies. Local governmental entities
may use the mechanisms being
promulgated today in addition to the
mechanisms allowed by the October
1988 rule: insurance, risk retention
group (RRG) coverage, surety bond,
letter of credit, State-required
mechanisms, or a State fund or other
State assumption of responsibility.
In contrast to the specifications for the
corporate self-test, EPA does not believe
that local governments will use
consolidated financial statements to
support both the worksheet and the
guarantee mechanisms. Local
governments are separate legal and
financial entities from States and from
each other. The situation wherein a
local government will consolidate its
financial statements with a State,-or vice
versa, and use the consolidated
statements to support both the
worksheet and the guarantee, cannot
occur. In addition, most local
governments are independently
chartered. By the nature of the local
government charters, local government
operations that ant consolidated, such as
utility operations accounted for as
enterprise funds, never issue stand-
alone financial statements, because they
have no independent standing. Thus,
there is no potential that the
consolidated entities could first use
their own financial! statements for the
worksheet, and than rely on the
consolidated financial statements for a
guarantee, because they have no
independent financial statements.
Independent authorities (e.g.,
independent school districts) are
independent because they have separate
charters and/or articles oif incorporation;
they operate independently and their
financial statements are never
consolidated with the statements of the
nearby general purpose governments.
To support this rule, tne Agency has
prepared a Background Document,
"Background Document in Support of
Financial Self-Test for Local
Governments Subject to the Financial
Responsibility Requirements of Subtitle
I of the Resource (Conservation and
Recovery Act," that describes in detail
the methodology and analyses used to
evaluate potential financial
responsibility mechanisms.
C. Rationale for Agency's Approach
The Agency had four main goals in
developing the additional alternatives
being promulgated today for local
governments to demonstrate financial
responsibility under Subtitle I. First, the
Agency wanted to recognize
fundamental differences between
governmental entities and private
entities. Second, 'the Agency wanted to
keep the rule as flexible as possible to
allow local governments a variety of
choices in demonstrating financial
responsibility. Thus, the Agency is
promulgating several financial
assurance mechanisms for local
governments. Third, the Agency wanted
to keep the mechanisms as simple as
possible to minimize the administrative
burden on local governments as well as
the implementing agency. Thus, the
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9029
data believed to be readily available to
local governmental entities or that are
consistent with governmental practices
and is maintaining the same approach to
reporting requirements adopted in the
regulations published in the October
1988 rule. Fourth, the Agency wanted
financial responsibility mechanisms
that could realistically be used by local
governments.
In the October 1988 rule, the Agency
provided a mechanism whereby
financially secure corporations can self-
insure. The rule provided two
alternatives for corporations. Under
Alternative I, a firm can self-insure if it
meets four criteria: (1) Tangible net
worth equal to 10 times the sum of its
financial responsibility amounts for
underground storage tanks, its closure,
post-closure care, liability coverage,
and/or corrective action costs for
Subtitle C facilities, and its plugging
and abandonment costs for Class I
Hazardous Waste Injection Wells, (2)
tangible net worth equal to at least $10
million, (3) annual filing of its financial
statements with'the Securities and
Exchange Commission (SEC), the Rural
Electrification Administration (REA),
the Energy Information Administration
(EIA), or Dun & Bradstreet (which must
have assigned a financial strength rating
of 4A or 5A), and (4) annual reports
which, if independently audited, did
not include an adverse auditor's opinion
or a disclaimer of opinion. Under
Alternative n, a corporation can self-
insure if it meets four criteria: (1)
Tangible net worth of at least $10
million, (2) tangible net worth at least.
six times its UST obligation, (3) U.S.
assets equal to at least 90 percent of
total assets, or at least six times its UST
obligations, and (4) net working capital
equal to at least six times the required
amount of UST aggregate coverage, or a
current Standard and Poor's bond rating
of AAA, AA, A, or BBB, or a current
Moody's bond rating of Aaa, Aa, A, or
Baa. In addition, a firm using
Alternative II must either report its
financial information to the SEC, the
EIA, or the REA or obtain a special
auditor's report.
Local government entities, however,
differ in several important
characteristics from corporations, which
makes the application of the corporate
self-test mechanism in the October 1988
rule impractical for local governments.
For example, "general purpose" local
governments (counties, municipalities,
and townships) generally use
accounting systems that do not
recognize assets in a manner similar to
private companies. For example,
municipal buildings and infrastructure
(e.g., streets and utility lines) are not
generally carried as assets on the local
government financial statements. Thus,
a test based on "tangible net worth" is,
by definition, unworkable for many
local governments. (It should be noted,
however, that government-owned
utilities that provide financial data to
the Rural Electrification Administration
or the Energy Information
Administration are allowed to use the
corporate financial test under the
October 1988 rule.) Also, the accounting
standards used by most local
governmental entities are not the same
as the Generally Accepted Accounting
Principals ("GAAP") used by private
entities. Most local governments use
either cash basis accounting (often
mandated by State law) or "modified"
accrual accounting, where the
recognition of revenues may be delayed.
Consequently, a test based on "net
working capital" may be unworkable for
most local governmental entities. In
addition, local governments are not
generally required to report financial
information to a regulatory agency
similar to the Securities and Exchange
Commission. Thus, it is impossible to
incorporate mandatory reporting to an
independent organization into a self-
test.
Nevertheless, the Agency believes that
a mechanism parallel to self-insurance
is particularly appropriate for local
government entities. The Agency has
determined that local government
entities are, in general, more financially
stable than private companies. Most
local governments, unlike private
entities, have the authority to levy taxes
or to independently set rates, which
provide a consistent, reliable source of
income. In contrast to corporations, they
are less likely to dissolve or merge with
other entities which means that they are
less likely to have abrupt changes in
financial structure. They are, by
definition, geographically fixed,
eliminating potential concerns that they
may move and abandon their USTs.
They rarely go bankrupt, suggesting that
they are, as a class, more financially
stable. As discussed in the background
document, the available literature
suggests that even bankruptcy does not
allow local government entities to void
their legal obligations. Additionally,
unlike some private companies, local
governments are generally required to
make their financial data publicly
available.
These factors suggest that a self-test
for municipalities does not necessarily
require the same level of built-in
safeguards as required of private
entities. Assurance that local
government owners and operators will
be financially responsible for their UST-
related obligations, therefore, can be
demonstrated more easily than
assurance for private entities.
Consequently, the primary concern of
the Agency in developing this rule is
that local governments show evidence
of financial stability and prudent
financial management.
D. Description of the Regulated
Community
This section describes the nature of
the local governmental entities that
would be regulated under today's rule,
including a description of their UST
ownership characteristics, a brief
•description of their operation, and an
overview of the considerations the
Agency has used in developing today's
rule.
The Agency estimates that about
62,000 petroleum USTs that are subject
to Subtitle I jurisdiction are owned or
operated by approximately 25,000 local
government entities. Most of these USTs
store petroleum products for purposes
other than retail motor fuel sales. A
local government entity may, for
example, own USTs that store gasoline
to fill police and fire vehicle tanks.
Local government entities include
both general purpose local governments
and special purpose local government
entities. General purpose local
government entities include
municipalities, counties, townships,
towns, villages, parishes, and New
England towns. Special purpose local
governments include entities that
perform a single function or a limited
range of functions. Special purpose
local governments are generally
designated as either public authorities
or special districts such as school
districts, water and sewer authorities,
transit authorities, redevelopment
authorities, irrigation districts, or power
authorities. All local governments, both
general and special purpose, are subject
to this rule and are eligible to use the
new financial assurance mechanisms
described in today's rule. Several
commenters requested an expansion or
clarification of the definition of local
government entities to include local
public transit systems and
redevelopment authorities. The Agency
originally intended these types of local
government entities to be included in
the definition, and has clarified the
definition as requested by the
commenters.
The Agency's research has shown an
extremely low rate of fiscal emergencies
among governmental entities through
the 1970s and 1980s. A1983 study by
the Advisory Council on
Intergovernmental Relations (ACIR)
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9030 Federal Register / Vol. 58, No. 31 / Thursday, February 18, 1993 / Rules and Regulations
found only throe incidents of
bankruptcy among general purpose
governments, only one of which caused
a general purpose governmental body to
void a legally binding agreement. In all
other cases, even local government
entities that entered bankruptcy were
forced to make full restitution, although
sometimes over a stretched-out payment
term. Since 1983, only five additional
general purpose governments are known
to have declared bankruptcy. There has
boon a similarly low rate of bankruptcy
among spedal purpose districts.
Between 1972 and 1989,29 utility
spedal districts, two school districts,
and six other special purpose districts
and hospitals filed for bankruptcy (out
of a total of more than 40,000 school '
districts and special purpose districts).
Although bankruptcy is an extreme
condition, the Agency believes this very
low incidence (0.003 percent per year)
reflects general stability of local
government entities. In contrast, 56,423
(1.3 percent) of the 4,256,243 private
companies in operation filed
bankruptcy petitions in 1982.J This
number increased to 88,278 in 1987.
Combined with the relatively low costs
of UST financial responsibility
obligations (relative to other
environmental obligations and most
governmental activities in general), the
relative stability of local governments is
interpreted by EPA to indicate a general
ability to meet financial obligations
under Subtitle I.
In addition, the Agency's research has
shown relatively few cases where
releases were known to have come from
local government-owned USTs. For
releases that did occur, local
government entities were generally able
to clean up and to pay for the costs of
corrective actions associated with the
releases. Because of the limited data
regarding local government responses to
UST releases, however, the Agency has
relied primarily on data and analyses
regarding the overall financial health of
local governments. One commenter
indicated that cleanups of UST releases
at airports are generally funded from
operations or funds for construction
projects. The Agency interprets this
statement as additional support for
allowing local governments to
demonstrate financial responsibility
based on their internal financial
condition, rather than requiring the use
of third-party mechanisms.
1 "Statistical Abstract of the United States," 109th
Edition, United States Department of Commerce,
Washington, D.C, 1989: and "General Report on
Industrial Organization," 1982 Enterprise Statistics.
Issued October 1986.
m. Section-by-Saction Analysis
A. Applicability
Today's rule would apply to all non-
exempt governmental owners and
operators of underground storage tanks
containing petroleum. 40 CFR
§ 280.90(c) exempted from financial
responsibility requirements State and
Federal government entities whose
debts and liabilities are the debts and
liabilities of a State or the United States.
Although the October 1988 rule
excluded State and Federal
governments, it required local
government entities to demonstrate
financial assurance for USTs that are
owned or operated by the government.
Data available to the Agency in
preparing the Regulatory Impact
Analysis for the October 1988 rule
suggest that local government entities
collectively own approximately 62,000
USTs. Additional analysis of the New
York State tank notification data base
suggests that larger local government
entities are more likely to own USTs
and are more likely to own multiple
USTs, but a specific breakdown of how
many of each type of local government
own USTs is not available from the data
available to EPA. Overall, EPA estimates
that about approximately 25,000 local
governments own USTs.
'Local government entities are created
under State law, and consequently vary
significantly from State to State. All
local government entities recognized
under State law may seek to use the
financial assurance mechanisms being
promulgated today. As recognized by
the Bureau of the Census, local
government entities generally fall into ,
the following categories:
County Governments: Organized
county governments are found
throughout the nation except for
Connecticut, Rhode Island, the District
of Columbia, and limited portions of
other States. In Louisiana, the county
governments are officially designated as
"parish" governments, and the
"borough" goyernments of Alaska
resemble county governments in other
States. In general, county governments
are defined in terms of a geographical
area served, rather than a specific
population.
Municipal Governments: Municipal
governments include active government
units officially designated as cities,
boroughs (except in Alaska), towns
(except in the six New England States
and Minnesota, New York, and
Wisconsin), and villages. This concept
corresponds to the "incorporated
places" that are recognized in Census
Bureau reporting of population and
housing statistics.
Township Governments: Township
governments exuit to serve inhabitants
of areas without i-egard to population
concentrations. This category includes
governments officially designated as
"towns" in the six New England States,
New York, and Wisconsin, some
"plantations" in Maine, and "locations"
in New Hampshire, as well as
governments called townships in other
areas. In Minnesota, the terms "town"
and "township" lire used
interchangeably.
School Districts Governments: Forty-
five States have established public
school systems with sufficient
autonomy and fiscal authority that they
can be classified as independent local
government entities.
Special Purpose Districts: Special
purpose districts are governmental
entities created to perform a single or
limited range of functions (e.g., school
districts, park and recreation districts,
libraries, fire protection districts,
cemeteries, transit districts,
redevelopment authorities, etc.). These
districts may be subdivided into any of
, the following distinct categories: (1)
Local or metropolitan districts; (2)
districts dependent on or independent
of a municipality for their creation or
operation; and (3) districts created by
State enactment or by municipal
resolution. They have sufficient
administrative and fiscal autonomy to
qualify as separate governments.
Indian Tribes: Indian Tribes are
included in the statutory definition of
municipality in KCRA Section 1004(13)
and are, therefore, required to comply
with the financial responsibility
requirements by 'the same compliance
date as other local government entities.
This rule treats Indian Lands as local
government entities and allows them to
use the self-test mechanisms to
demonstrate financial responsibility.
Several commenters requested
exemptions from the UST financial
responsibility requirements for local
governments. Commenters gave the
following reasons for such an
exemption: (1) Local governments, as a
class, have sufficient financial strength
and stability to pay for corrective
actions without the need to demonstrate
financial responsibility; and (2) the
adverse effects on the ability of local
governments to fund emergency services
if required to divert funds to pay for
assurance mechanisms. One commenter,
a small rural town, indicated that it
cannot qualify to self-insure and added
that the financial responsibility
regulations impose financial burdens
with which the town, and presumably
other towns, could not possibly comply.
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EPA believes that commenters may
have failed to distinguish between: (1)
The need for local governments to pay
for costs associated with UST releases,
as required under the technical
standards; and (2) the financial
responsibility regulations, which merely
require that UST owners be able to
demonstrate that they will be able to
meet such costs if they occur. Even if
EPA were to exempt local governments
from the requirement to demonstrate
financial responsibility, such an
exemption would not, under Subtitle I,
relieve them from the legal liability to
pay for the costs of UST releases and to
compensate third parties for damages
caused by releases.
The Agency agrees that most local
government entities do have the
resources and the will to meet financial
responsibilities. This belief underlies
the effort to develop mechanisms by
which local governments can
demonstrate compliance with the
financial responsibility requirements
without the need to obtain insurance or
the use of other third-party mechanisms.
The Agency also agrees with
commenters who noted that some local
governments may not have the resources
to meet their UST-related financial
obligations. Consequently, it would not
be appropriate.to exempt all local
governments from the need to
demonstrate financial responsibility.
Further, EPA believes that exempting all
local governments from the requirement
to demonstrate financial responsibility
would not be consistent with statutory
intent as discussed in 9003(d)(5).
The Agency notes the concern about
the potential impact on local
governmental services. The Agency
believes, however, that the mechanisms
provided will allow any fiscally solvent
local government to demonstrate
financial responsibility and continue to
operate its USTs, and will do so at
minimum cost to the affected local
governments. EPA encourages
governments unable to demonstrate
financial responsibility using the
worksheet, bond rating, or fund balance
mechanisms to seek guarantees from
neighboring jurisdictions or from county
governments. EPA believes that such
entities are better able to determine the
strengths of the government seeking the
guarantee, and to measure how essential
are the services offered, than the Agency
would be in developing a uniform
national standard.
B. Definition of Terms
1. Bond Ratings
A bond rating is an "evaluation of the
credit quality of notes and bonds
usually made by independent rating
services . . . Ratings generally measure
the probability of the timely repayment
of principal and interest of municipal
bonds." 2 In this rule, only ratings made
by Moody's Investors Service and
Standard & Poor's will be considered
eligible for use in demonstrating
financial responsibility.
2. Investment Grade Bonds
As defined by the Comptroller of the
Currency, investment grade bonds are
generally regarded as eligible for bank
investment. In addition, the legal
investment laws of various States may
impose certain ratings or other
standards for obligations eligible for
investment by savings banks, trust
companies, and fiduciaries generally.
For purposes of this rule, investment
grade bonds are considered to include
bonds rated Aaa, Aa, A, and Baa by
Moody's, or AAA, AA, A, and BBB by
Standard and Poor's.3
3. General Obligation Bonds
General obligation (G.O.) bonds, also
' known as "full faith and credit" bonds,
are secured by their issuers' ability to
levy ad valorem taxes or to draw from
other unrestricted revenue sources, such
as sales or income taxes. These bonds
are important mechanisms for financing •
municipal capital improvements such as
schools, streets, and municipal
buildings. The bond issuer's ability to
generate revenues is evaluated by
analyzing factors in four categories:
socioeconomic, finance, debt, and
administration.4
4. Revenue Bonds
A revenue bond is a long-term debt
instrument that is issued to finance a
specific public enterprise and that is
payable solely from enterprise earnings
or from a dedicated tax.5 The Agency
has determined that most revenue bonds
issued by general purpose governments
(i.e., counties, municipalities, and
townships) are issued to fund specific
projects with dedicated revenue streams
2 Moody's Investors Service, Inc.. "Moody's on
Municipals: An Introduction to Issuing Debt," 1989.
p. 75.
3 Both Standard and Poor's and Moody's
recognize groupings within the major bond rating
classes. Moody's signifies higher ranking bonds
within a class with a "1" (e.g., Baal), while
Standard and Poor's uses a +/ — system to designate
higher and lower ranking bonds. This proposed rule
does not consider these groupings. Thus, a Baal
rating is classified as a Baa rating for the purposes
of the test, while an AA+ or AA - rating is
classified as an AA rating.
4 Standard & Poor's Corporation, "Standard &
Poor's Debt Ratings Criteria: Municipal Overview,"
1986.
5 Standard & Poor's Corporation, "Standard &
Poor's Municipal Finance Criteria," 1989.
not necessarily central to the operations
of that government, and that the
evaluation criteria associated with these
revenue bonds may not fully reflect the
socioeconomic, financial, and
administrative condition of a general
purpose government. Instead, the
ratings reflect a more limited set of
criteria pertaining to the specific project
financed. In contrast, the Agency has
determined that revenue bonds issued
by Special districts are generally used to
finance projects central to the
operations of the special districts, so
that the ratings encompass a broader
view of the overall financial condition
of the issuing entities. In this rule, the
Agency allows only special districts and
school districts that do not have the
authority to issue general obligation
debt to use investment-grade ratings on
revenue bonds to demonstrate financial
responsibility.
5. Substantial Governmental
Relationship
The October 26,1988 rule authorized
owners and operators to obtain a
corporate guarantee to meet their
financial responsibility requirements.
The corporate guarantor must: (a) Have
a controlling interest in the owner or
operator or in a specified related firm;
or (b) issue the guarantee as an act
incident to a "substantial business
relationship" with the owner or
operator (§ 280.96). The object of the
corporate guarantee is a valid and
enforceable contract. Additionally, to
insure that State insurance laws will not
impair the enforceability or validity of
the mechanism, a corporate guarantee
may be used only if it is certified for use
by the Attorney General of the State in
which the USTs axe located.
Local governments, however, do not
have "controlling interests" in one
another, and their interactions may not
be of an economic nature constituting a
"substantial business relationship." As
with the corporate guarantee, the
Agency is concerned that local
governmental guarantees be valid and
enforceable, and that they do not
conflict with State insurance laws.
Thus, a municipality using a local
governmental guarantee must certify
that there is a "substantial governmental
relationship" underlying the guarantee.
Such a relationship must include a clear
commonality of interests, such as
common constituencies served,
overlapping geographical jurisdiction,
or mutual impact in the event of an UST
release. In addition, a local government
acting as a guarantor must have the
authority to enter into such agreements.
Examples of governmental guarantees
could include: (1) A guarantee offered
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by a county to an incorporated city
located partially or entirely within the
limits of the county; (2) a guarantee
offered by one county to another if both
counties cover a common aquifer
subject to contamination by UST
releases; (3) a guarantee offered by the
State to a local government within the
State; or (4) a guarantee offered by a
general purpose local government to an
independent school district, water
district, utility district, or other special
district serving the guarantor in whole
or in part. One commenter questioned
what types of publicly owned utilities
would be eligible to receive a guarantee.
Any special district is eligible to receive
a guarantee if it has its own governing
body and an independent accounting
system.
Additional examples of appropriate
intergovernmental relationships for a
governmental guarantee would be joint
operating agreements for emergency
responses across jurisdictional
boundaries, or purchase of non-UST-
ralated services such as water or
education.
One commenter asked three questions
pertaining to activities that constitute a
"substantial governmental
relationship": (1) Whether a
governmental entity may act as a
guarantor for more than one entity; (2)
whether a contractual relationship
(under an intergovernmental pooling
arrangement) of a pool to provide safety
and risk management services in
addition to risk pooling will be
recognized as a "substantial
governmental relationship"; and (3)
what criteria determine that a
relationship is "sufficiently non-
monetary."
The Agency concludes that a local
government may act as guarantor for
multiple entities. A guarantee from a
risk pool, however, is not considered a
governmental guarantee for the
purposes of establishing financial
responsibility. The role of a risk pool is
almost exclusively monetary, similar to
; that of insurance. Issuance of a
guarantee would not change the nature
of that relationship. The Agency
recognizes that participation in a risk
pool provides a means for local
governments to reduce their liability for
large unforeseen events. However, risk
pools have not been approved as a
Federal financial responsibility
mechanism because no comprehensive
yet manageable set of Federal guidelines
could be developed to ensure that all
risk pools would have adequate
oversight to make them comparable to
the other financial responsibility
mechanisms allowed.
The Agency notes that, under
§ 280.100, risk pools can be adopted as
Federal financial responsibility
mechanisms by individual States as
State-required mechanisms. That is, a
State may allow or require local
governments to demonstrate financial
responsibility through participation in a
risk pool if the State can demonstrate to
the Agency that the risk pool would be
at least equivalent to the other financial
responsibility mechanisms allowed.
C. Amount and Scope
The amount and scope of financial
responsibility is not being changed from
the requirements established in the
October 1988 rule. Governmental
entities owning or operating USTs at
facilities with a monthly throughput of
less than 10,000 gallons must
demonstrate financial responsibility in
the amount of $500,000 per occurrence.
Governmental owners and operators
owning or operating one or more USTs
at facilities with a monthly throughput
of 10,000 gallons or more must
demonstrate financial responsibility in
the amount of $1 million. In addition,
owners and operators of USTs must
demonstrate financial responsibility in
the amount of an appropriate annual
aggregate. Owners and operators of 100
or fewer USTs must demonstrate
financial responsibility in the annual
aggregate amount of $1 million, and
owners and operators of more than 100
USTs must demonstrate financial
responsibility in the annual aggregate
amount of $2 million.
One commenter suggested
incorporating a mechanism in the rule
that would allow for reductions in the
required level of assurance when tanks
are replaced with intrinsically safe tanks
or upgraded to be intrinsically safe. The
commenter believed that this proposal
would result in more equitable and less
burdensome requirements for assurance.
The Agency disagrees with the
commenter's suggestion for the reasons
cited in the October 1988 final rule and
the June 1990 proposed rule.
Another commenter indicated that
disclosing the amount of money that
will be paid per release by an assurance
mechanism may adversely affect a local
government's position in litigation or
settlement negotiations. The commenter
recommended deleting this provision
from the financial officer's letter. EPA
believes that the commenter may have
misinterpreted the intent of the
financial officer's letter. The amount
assured, as cited in the financial
officer's letter, is not meant to be a
minimum amount that must be paid in
the event of a release, but rather the
minimum amount that a local
government must be able to pay if
required to meet corrective action costs
and third-party liabilities.. EPA assumes
that governments will use all defenses
and mechanisms to ensure that
payments for third-party liabilities are
fair and equitable. Conversely, the
amount of financial assurance
demonstrated does not limit a local
government's potential liability in the
event of a release. Local governments
are liable for all costs resulting from a
release, regardless of: the amount for .
which they demonstrate financial
responsibility. EPA irequires that an
amount be specified in the financial
officer's letter to ensure that senior
officials of the government are aware of
their potential obligations as UST
owners.
IV. New Mechanisms for Demonstrating
Financial Responsibility
A. Description of New Mechanisms
Today's rule promulgates four
additional financial assurance
mechanisms for use by local
government entities that own or operate
' USTs containing petroleum: A bond
rating test, a worksheet test, a
governmental guarantee, and
.maintenance of a funded balance. These
, -additional mechanisms are described
below. In addition to these mechanisms,
local governments that are owners and
operators of USTs may use any of the
financial responsibility mechanisms
authorized under 40 CFR § 280.94 (i.e.,
insurance, Risk Retention Group (RRG)
coverage, surety bonds, letters of credit,
fully-funded trust funds, State-required
mechanisms, a State fund, or other State
assumption of responsibility). The
Background Document prepared in
conjunction with this rule explains in
more detail the data and methodology
used to develop the new mechanisms
now being finalized.
1. Bond Rating Test (§ 280.104)
In order to pass the bond rating test,
local government entities must have
outstanding issues of general obligation
bonds that are currently rated at least
"investment grade" by Moody's or
Standard & Poor's. Special districts,
such as school districts or airport
authorities, that do not have the
authority to issue general obligation
bonds may substitute investment grade
revenue bonds for general obligation
debt to satisfy the bond rating test. In
both cases, the municipality's total
outstanding obligation must be $1
million or more, excluding refunded
obligations. Investment grade bonds are
those with a current Standard and
Poor's bond rating of AAA, AA, A, or
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BBB, or a current Moody's bond rating
of Aaa, Aa, A, or Baa. If a local
government has multiple outstanding
issues of general obligation or revenue
bonds with different ratings, or if the
ratings assigned to a single class or issue
of bonds by different ratings agencies
differ, the lowest rating must satisfy the
criterion of the test.
If a local government owner or
operator using the bond rating test to
provide financial assurance finds that it
no longer meets the bond rating test
requirements, the local government
owner or operator must obtain
alternative coverage within 150 days of
the change in status.
The Agency is aware that municipal
bonds are often insured by third-party
insurance companies, and that the
rating assigned to such insured bonds is -
established primarily by the credit-
worthiness of the insurer. After
examining the criteria used by the rating
companies to evaluate bond insurance
companies, however, the Agency has
concluded that the provisions for on-
going review and intervention granted
to the bond insurance companies under
the insurance agreements provides a
level of third-party oversight
comparable to that provided directly by
the bond rating companies. For
purposes of this rule, therefore, the
Agency is not distinguishing between
general obligation bonds that are
uninsured or insured by a bond
insurance company.
EPA has not found evidence that
other providers of other methods of
credit enhancement, such as letters of
credit, provide a degree of oversight
equivalent to that provided by bond
insurers. Consequently, ratings that are
supported by means of credit
enhancement other than bond insurance
may not be used to demonstrate
financial responsibility.
The Agency has selected the existence
of investment-grade bond ratings on
general obligation debt as an option for
demonstrating financial responsibility
for several reasons. First, EPA took into
consideration the use of bond ratings as
a standard measure of risk by banks and
other fiduciary entities. As a result of a
1938 agreement issued jointly by the
Comptroller of the Currency, the Federal
Deposit Insurance Corporation, the
Board of Governors of the Federal
Reserve System and the Executive
Committee of the National Association
of Supervisors of State Banks, these
agencies have given municipal bonds in
the first four rating categories (Aaa
through Baa or AAA through BBB)
privileged status as investment
securities. Banks are permitted to hold
only a certain number of low or unrated
bonds, and they must balance such
holdings with higher rated or more
credit-worthy securities. Second, bond
ratings seive as one of the only
independent evaluations of local
government entities' financial health. To
perform their evaluations, the bond
rating companies must consider a
variety of factors that affect both local
government entities' current ability to
pay and the likelihood of continued
ability to pay in the future. In particular,
the costs of environmental obligations
are included in the evaluations. Thus,
the costs of underground storage tanks,
solid waste landfills, hazardous waste
landfills, sewage treatment plants, and
associated environmental liabilities are
factored into the rating analysis." Third,
general obligation bonds are secured by
the full faith and credit of the borrower,
and backed by the issuers' ability to levy
taxes or make legislative appropriations.
The Agency considers this underlying
security equivalent to the requisite level
of financial responsibility intended
under Subtitle I. Fourth, bonds are re-
rated on a periodic basis. Local
governments are required to provide
current financial data annually; failure
to do so can result in removal of the
bond rating. Also, the rating agencies
receive local newspapers from around
the country to monitor local
conditions.7
Today's rule allows the use of insured
issues of general obligation bonds.
Information from bond rating companies
indicates that local governments do not
purchase insurance as a means of
earning an investment grade rating, but
rather to increase the rating from a
lower investment grade (e.g., Baa, Baal,
or A) to the very highest (Aaa). hi
exchange for the cost of the insurance,
the local governments obtain a lower
interest rate for the life of the bond.
Analysis undertaken by Moody's of four
major bond insurers shows that virtually
all of the insured debt would have
earned an investment grade rating
without the insurance, and so would
qualify under the bond rating test.8 to
addition, bond insurers, unlike bond
rating agencies, have a strong financial
6 Linda Reidt Critchfield. EPA Office of
Underground Storage Tanks, memorandum to the
record. "Conversation with Al Medioli, Moody's
Investor Services on August 29,1989," September
15,1989.
'Ibid.
8 Memorandum from Kate Donaldson, James
Dickson, and Tony Bansal, ICF Incorporated, to
Stephanie Bergman, EPA Office of Underground
Storage Tanks, "Municipal Bond Insurance," May
31,1989; memorandum from Kate Donaldson,
James Dickson, and Tony Bansal, ICF Incorporated,
to Stephanie Bergman, EPA Office of Underground
Storage Tanks, "Municipal Bond Insurance
Companies," June 22,1989.
interest in the soundness of the local
governments. If a local government
defaults on a payment, the bond
insurers must meet the payment.
Consequently, bond insurers track the
financial obligations of insured local
governments closely and often have
covenants that allow them to intervene
in local government operations. "
Insurers, for example, may insist on
more conservative fiscal policies to
preserve the financial strength of a
community, which in turn, lowers the
risk and cost associated with the bond
insurance. Although the bond rating of
insured bonds does not directly indicate
a local government's financial
condition, it does demonstrate both that
the government has assured the
insurance company of its ability to meet
its debts, and that a third party has a
strong confidence in the financial health
of the local government.
Two commenters agreed with and
endorsed the methodology of the bond
rating test, stating that the test will serve
as a simple method for demonstrating
financial responsibility and will provide
the Agency with the assurance it seeks
without imposing too great a burden on
the regulated community.
Several commenters suggested that
the Agency expand .the bond rating test
to include revenue bonds and other
sorts of debt instruments as well as
general obligation bonds. The Agency
has researched the criteria used to
assign credit ratings on short-term notes,
certificates of participation, lease rental
debt, and revenue bonds, and examined
how well the credit rating addresses the
financial health and fiscal management
practices of local governments. The
Agency also reviewed the default rates
of these types of securities.
EPA is expanding the bond rating
mechanism to allow non-general
purpose governments (i.e., special
districts and school districts) that do not
have the authority to issue general
obligation bonds to demonstrate
financial responsibility if they have
earned an investment-grade rating on at
least $1 million in outstanding revenue
bond issues not backed by any form of
credit enhancement.
EPA has determined that revenue
bond financing is central to the
operation of most special districts and
that the ratings on revenue bonds issued
by special districts therefore provide an
adequate representation of their
financial strength. Special districts are
created for a specific purpose, such as
to provide airport services to a
community. The revenue stream
underlying the strength of a special
district is the same as the base
underlying its associated revenue
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9034 Federal Register / Vol. 58, No. 31 / Thursday, February 18, 1993 / Rules and Regulations
bonds. Ratings on revenue bonds are,
therefore, appropriate measures of
special districts' financial capabilities.
(This is not the case for a general
purpose government that issues revenue
bonds, such as a city, because the
revenue stream supporting a specific
revenue bond is not equivalent to the
overall tax base supporting the local
government.) In addition, EPA
determined that there has been a low
incidence of default of investment-rated
revenue bonds not enhanced by third-
Earty support—e.g., bond insurance or a
ittor of credit. EPA examined
information on revenue bond defaults
between January 1989 and May 1991.
Over that time period, approximately
ISO issues defaulted. EPA estimates that
no more than five of these issues had
unenhanced investment-grade bond
ratings from Moody's at the time of
default, representing a default rate of
less than 0.1 percent per year of rated
bonds. Eight of the defaulted issues
were backed by letters of credit, and two
were insured by bond insurance
companies.
Because the credit rating for revenue
bonds issued by general purpose
governments (e.g., townships, cities, and
counties) would not measure the
financial health and fiscal management
practices of that typo of government as
a whole, and because revenue bonds are
not usually used to finance projects
central to the operation of a general
purpose government, the Agency has
determined that general purpose
governments with the authority to issue
general obligation debt may not use
revenue bonds to demonstrate financial
responsibility.
Similarly, because the credit rating for
short-term notes, lease rental debt, and
certificates of participation does not
provide sufficient information on the
financial strength of local governments,
local governments may not use these
instruments to demonstrate financial
responsibility.
Two commenters asserted that the
bond rating test is unavailable to many
local governments simply because the
amount of outstanding debt is less than
one million dollars and suggested that
the required amount of outstanding debt
should be decreased. EPA intends the
bond rating mechanism to be used by
local governments that have shown their
capability to sustain debts comparable
in size to the minimum level of
financial assurance as determined by
statute. Governments that are not able to
demonstrate such capability may use
another mechanism to demonstrate
financial responsibility. Based on the
analysis conducted for the proposed
rule, the Agency estimates that
approximately 87 percent of general
obligation bonds are issued for aggregate
amounts greater than $1 million.
One commenter endorsed the bond
rating test, but noted that a
governmental entity will no longer
qualify for the bond rating test if it
reduces its total debt below $1 million.
The commenter suggested that the
amount of unused debt capacity may be
more important than the amount of
debt. Another commenter staled that the
essential factor in the test should not be
the dollar limit outstanding, but rather
the statutory right of the authority to
issue bonds and the credit ratings which
have been established for that particular
government entity on debt which has or
could be issued. Because a local
government entity does not have a
credit rating from Standard and Poor's
or Moody's unless it has outstanding
debt, the commenter urged the Agency
to devise some test, presumably a
worksheet test, to measure credit
worthiness if bond ratings have not been
issued.
The Agency has determined that it is
appropriate to require $1 million in
outstanding debt as part of the bond
rating mechanism. The requirement
ensures that the bond rating used to
demonstrate financial responsibility is
based on a level of outstanding debt
consistent with the amount of financial
responsibility being demonstrated.
Although there may be merit in the
argument that the level of debt capacity
is an indicator of potential financial
abilities, EPA does not believe that
incorporating available debt capacity
would be feasible. First, calculating
levels of available capacity is more
difficult than applying the bond rating
test as written, and is subject to greater
uncertainties. Second, the fact that the
local government has available debt
capacity does not ensure that it will be
able to issue the debt and maintain its
bond rating, particularly if the'amount
of outstanding debt is substantially less
than the amount of required financial
assurance. The Agency notes that excess
bond authority may be used as one part
of one alternative of the fund balance
mechanism.
Because bond rating information is
easily obtainable, the use of bond
ratings as a self-iest mechanism will
impose minimal administrative burden
in determining a local government
entity's eligibility. Many local
government entities, however, do not
currently have general obligation bond
ratings. As of July, 1991 Moody'shad
ratings for a total of 7,653 investment-
rated general obligation bonds issued by
local government entities that were
"investment grade" and were not
insured.9 (Because some local
government entities may have multiple
issues of general obligation bonds, the
number of local governments with rated
bonds may be lower.) Although
Standard & Poor's Kites additional
entities, there is a substantial overlap-
one study found that 94 percent of cities
of 2,500 or more residents with a rating
from Standard & Poor's also had a rating
from Moody's.10 InContrast, there are
more than 80,000 local government
entities in the United States, of which
an estimated 25,000 own USTs. To
provide local governments with as many
compliance choices as possible to meet
the requirement, the Agency has also
developed additional self-test
mechanisms to demonstrate financial
responsibility.
2. Local Government Financial Test
(§ 280.105)
As part of the underground storage
tank requirements proposed on June 18,
1990, EPA included, a local government
financial test that could be used by local
government owners and operators of
USTs to satisfy the financial
responsibility requirements of § 280.93.
The local government financial test, or
"worksheet test", was designed for local
. governments that ainnot use the bond
rating test (§ 280.104) because they have
less than $1 million, in outstanding
investment grade bonds. As described in
the preamble to the proposed rule,
however, local government entities that
have applicable outstanding debt rated
lower than investment grade, even if
this amount is less than $1 million,
cannot use the worksheet test. This
limitation on the use of the worksheet
test applies, therefore, to the general
obligation debt of general purpose local
governments and to outstanding
revenue bonds of those local
government entities that are legally
restricted from issuing general
obligation bonds.
As described in the preamble to the
proposed rule, the Agency designed and
developed the worksheet test to capture
local government variation using an
index of financial strength. The index
assigns a rank to each of the general
purpose governments in the Census of
Governments. After arraying the
governments according to their rank on
the index, the test establishes a cut-off
'BrendaRamos, Moody's Investors Service,
Public Finance Departmnnt, letter to Linda
Critchfield, EPA, July, 1991.
IOCluff, George S., and Famham, Paul G..
"Standard & Poor's vs. Moody's: Which City
Characteristics Influence Bond Ratings?", Quarterly
Review of Economics and Business, Board of
Trustees of the University of Illinois, Volume 24,
No. 3,1984.
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Federal Register / Vol. 58, No. 31 / Thursday, February 18. 1993 / Rules and Regulations 9035
point that, in the Agency's opinion,
excludes that bottom fraction of local
governmental entities that might not be
able to meet their financial obligations
in the event of an UST release. The
procedures used to develop the index
and establish the threshold cut-off are
discussed in the preamble to the
proposed rule, the background
documents to this ralemaking, and in
subsequent sections.
The test was designed to isolate the
fraction of governmental entities that are
in poor financial condition from those
other governments that, in general, have
sufficient resources and flexibility to
respond to an UST release.
Consequently, the Agency is not
establishing the worksheet test as a
precedent for other Agency regulations
affecting local governments, because
other regulations may require either
larger required levels of funds or more
certain cash flows.
Features of the Proposed Local
Government Financial Test
The proposed worksheet test had the
following features:
• Using a worksheet, an eligible local
governmental entity would calculate
nine financial ratios using easily
available financial data. The nine ratios
were:
—Debt service to total revenues,
—Total funds to total expenses,
—Total revenues to total expenses,
—Debt service to population,
—Total revenues to population,
—Total expenses to population,
—Total funds to total revenues,
—Total funds to population, and
—Local revenues to current
expenditures.
• Each of the nine ratios was
compared to the national distribution of
that ratio to calculate a z-score, which
is a measure of how far above or below
the national average the municipality's
ratio lies.
• The individual z-scores for the nine
ratios were then weighted and added to
calculate a total score, or index.
• Governments with a total score that
passed the specified threshold could use
the test as a mechanism for
demonstrating financial responsibility
for UST corrective action and third-
party liability claims. To simplify the
use of the worksheet test, the threshold
value was incorporated into the
calculation of the final score, so that
governments achieving a final score
greater than zero passed the worksheet
test.
Comments on the Proposed Local
Government Financial Test
EPA received several comments on its
proposed financial test for local
governments. The comments focused on
(1) the exclusion of local governments
with less than investment grade debt; (2)
use of the term "self-insurance"; (3)
updating the worksheet test using 1987
Census of Governments data; (4)
deleting specific ratios from the test; (5)
lowering die threshold level; and (6) the
appropriateness of the worksheet test for
non-general purpose local governments.
The substance of the major comments
received is briefly summarized below,
followed by the Agency's rationale for
accepting or rejecting the commenters'
recommendations in the final worksheet
test requirements.
(I) Exclusion of Local Governments
with Less than Investment Grade Debt.
One commenter believed the worksheet
test should be available to all local
governments, even those with
outstanding debt rated below
investment grade. The commenter
reasoned that bond rating entities are
not always accurate and, moreover,
provide ratings that allow investors to
assess a potential investment, a different
purpose than assessing financial
responsibility to respond to an UST
release. The commenter stated that
allowing use of the worksheet test
would recognize these realities without
undercutting the purpose of the test.
For reasons cited in the preamble to
the proposed rule, however, EPA does
not agree that local governments with
bond ratings of less than investment
grade should be eligible to use the
worksheet test. The Agency notes that
(1) failure to earn an investment rating
is costly to local governments, (2) local
governments have the incentive and
ability to work with bond rating
agencies to establish policies and
procedures that would raise the bond
ratings, and (3) the bond rating process
involves a more detailed examination of
local government financial condition
than can be accomplished through a
simple worksheet test.
(2) Use of the Term "Self-insurance."
One commenter stated that State law
might prohibit certain otherwise eligible
government entities from using the
worksheet test. The commenter noted
that New York State law authorizes
specific programs for self-insurance and
that, because they have not been
specially authorized for this purpose,
component school districts cannot use
the worksheet test [or, indeed, the bond
rating test) to demonstrate the ability to
self-insure.
EPA understands that the term "self-
insurance" has specific legal meanings
that may be limiting and has, therefore,
modified the rule to delete references to
"self-insurance." The modifications
clarify that the use of the worksheet test
mechanism is to demonstrate
compliance with the financial
responsibility regulations, and not to
"self-insure."
(3) Updating the Worksheet Test
Using 1987 Census of Governments.
Although not proposing specific
amendments to the worksheet, two
commenters criticized the use of data
from the 1982 Census of Governments
in developing the worksheet test. One
commenter believed that use of decade-
old data could introduce inaccuracies in
the results of the worksheet test. As an
example, the commenter pointed out
that changes in the financial practices of
local governments, such as an increase .
in the size of new debt issues, could
mean that the reality of what makes a
local government financially strong is
different now than it was in 1982.
EPA agrees with the commenter and, ,
in response, has updated the analyses
used to develop the worksheet test using ,
data from the 1987 Census of
Governments, which was not available
when this rule was proposed. As further
described below and in the Background
Document, the new analyses show that
the ratios included in the proposed
worksheet test were highly correlated
with similar factors in the analyses of
both the 1982 and 1987 Census of
Governments data, and that
incorporation of the 1987 data did not
significantly alter the structure of the
worksheet test. In particular, EPA
confirmed that ratios incorporating
population (for example, total revenues
per capita) and fiscal autonomy (e.g.,
local revenues to current expenditures)
are important indicators of the relative
financial strengths of governments. In
addition, EPA has updated the
worksheet to reflect changes in the
means, standard deviations, and weights
associated with each of the ratios.
(4) Deleting Specific Ratios from the
Worksheet Test. One commenter urged
the Agency to delete Factor 5, "local
coverage" (local revenue to current
expenses), from the worksheet test as
inappropriate for use in assessing a local
government's level of financial
responsibility. The commenter argued
that Factor 5 disadvantages those local
governments that rely more heavily on
State funding than others. While this
factor is designed to measure local
autonomy and the ability of local
governments to redirect funds to meet
the cost of UST releases, the commenter
argued that a significant proportion of
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9036 Federal Register / Vol. 58, No. 31 / Thursday, February 18, 1993 / Rules and Regulations
the funds that local governments receive
from States is not tied to specific
purposes and may bo used as the local
government deems appropriate.
EPA believes that, oecause local
governments do not control and cannot
assure the continuance of State or
Federal aid, local governments with a
high dependence on non-local sources
are less assured of the ability to respond
to LIST releases, whether the funds are
dedicated to specific programs or not.
The Agency notes that a local
government may be weak in a particular
variable but still pass the worksheet test.
For example, a government with a high
reliance on intergovernmental aid may
still pass the worksheet test if its overall
financial situation is predominantly
sound as measured by the remaining
variables. The selection of factors was
developed through extensive statistical
analysis of local government financial
conditions. For reasons described
bolow, however, the Agency has
modified the proposed worksheet test to
replace the ratio of local revenues to
current expenditures with the ratio of
local revenues to total revenues, an
alternate ratio representative of "local
coverage".
(5) Lowering the Threshold Level. One
commenter recommended that the
threshold value should be reduced from
15 to a maximum of 10 percent. The
commenter argued that EPA's own
statements in the preamble that local
governments rarely go bankrupt, are not
permitted to void obligations through
bankruptcy, and generally possess the
ability to meet financial obligations
through taxation were inconsistent with
the finding that 15 percent of local
governments should be disqualified
from using the worksheet test to
demonstrate financial responsibility. In
addition, the commenter believed that
the worksheet analysis exaggerated the
actual impacts likely to occur by not
including consideration of incidence of
UST ownership. The commenter
reasoned that small local governments,
the ones that are most likely to rely on
a worksheet test, are much less likely to
own USTs than larger local
governments. Thus, the average impacts
assumed exaggerate actual impacts
likely to occur. The commenter
concluded that these factors suggested
that a 15 percent failure rate was too
stringent, but that a maximum cutoff of
10 percent would recognize the reality
of the financial strength of local
governments.
The Agency notes that costs
associated with clean-ups can range
widely and that different standards
cannot be applied to different owners.
In fact, if standards were based on size
of the local government, proportionately
fewer smaller governments would be
able to demonstrate financial
responsibility because of the more
limited total resources of small local
governments. As shown in the
background document, however, EPA
believes that smaller governments are
more likely to pass the worksheet test
than are their larger counterparts.
Consequently, the Agency believes its
overall approach used to set the
threshold is appropriate.
Two commenters pointed out that the
difference between the 10 and 15
percent cutoffs in the Agency's analysis
was not great Another commenter
stated that the threshold should be
reconsidered or justified because the
commenter did not believe the preamble
or supporting documents contained
evidence that 15 percent of local
government entities are, in fact,
financially unstable and, even if they
are generally unstable, that they will be
incapable of meeting their UST
obligations.
As described below, the Agency has
updated the worksheet test using the
1987 Census of Governments, including
updated means, standard deviations,
and weights for each ratio, as well as a
reevaluation of the threshold level.
Based on its review of the updated
information, the Agency has determined
that a threshold level that allows 90
percent of local governments to
demonstrate financial responsibility
based on the worksheet test represents
a reasonable balance between the
statutory requirement that UST owners
demonstrate financial responsibility and
the demonstrated stability of most local
governments. Consequently, the Agency
agrees with the commenters that a 10
percent threshold offers adequate
safeguards. ,
(6) Appropriateness of the Worksheet
Test for Non-general Purpose Local
Governments. Two commenters stated
that a financial test, such as the
worksheet, designed to measure the
financial strength of general purpose
governments, is unsuitable for special
purpose organizations such as airports,
bridge and toll rpad authorities, and
publicly-owned utilities. Unlike general
purpose governments, one commenter
argued, these so-called "proprietary"
government entities conform to
generally accepted accounting
procedures similar to accounting
systems employed in the private sector,
rather than the modified accrual
accounting terms and criteria
appropriate to measure the success of a
traditional government. Because the
corporate test is similarly inappropriate
for these special-purpose entities, the
commenter requested that the Agency
develop an alternative financial test for
government entities required to use
accrual accounting. The commenter
suggested that the corporate test in 40
CFR 280.95, based on the accrual
method, might be modified to take into
account the substantially greater
financial stability oif publicly-owned
utilities.
The Agency recognizes that specific
data requirements preclude most special
districts from using the worksheet test.
In limited cases, however, some special
districts (e.g., school districts that serve
a specific population) may have the
information necessttry to complete the
worksheet test (e.g., they can measure
population). EPA believes that the new
• mechanisms, particularly with the
inclusion of revenue bonds issued by
special districts using the bond rating
test, will allow most UST-owning
governments to demonstrate financial
responsibility without the need for an
additional financial test targeted
specifically at special districts. .
Update of Worksheet Test Using 1987
Census of Governments ••**'
Although its basic features have not
been modified, the Agency has updated
. the worksheet test using the 1987
Census of Governments. The procedures
used to conduct the new analyses were
the same as for the proposed rule, as
documented in the preamble to the
proposed rule and the background
documents to this rulemaking, and as
summarized below.
Starting with 78 different financial.
ratios and variables commonly used in
financial analysis, the Agency used a
statistical technique called "factor
analysis" to group the variables. Factor
analysis serves two purposes. First, it
identifies underlying characteristics, or
factors, that differentiate between the
members of a population (in this case,
between different counties,
municipalities, and townships). Second,
it tells how much of the difference (the
"percent of variance explained")
between the members of the population
is accounted for by each factor. The
Background Document contains a more
detailed explanation of the statistical
analyses performed, including the factor
analysis.
The factor analysis identified a total
of 15 factors that distinguish between
local government entities. Based on its
review of the results of the factor
analysis, the Agency identified six
factors that (1) captured the variation in
financial performance of local
governments and (2) appeared
appropriate for the UST financial test.
As with the proposed worksheet test,
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9037
the final worksheet test includes the
following six factors: (1) Debt burden.
(2) funds coverage. (3) outlays per
capita, (4) funds per capita, (5) local
coverage, and (6) revenues to expenses.
In selecting the factors and variables to
be included in the worksheet test,
however, the Agency rejected size,
because the Agency did not wish to
exclude financially strong smaller local
government entities simply because of
size.
After selecting the factors to be
represented in the worksheet, it was
necessary to select the specific ratios to
represent the factors. In choosing ratios,
the Agency wished to (1) keep the total
number of ratios to a manageable level,
while (2) retaining as large a number of
specific indicators as feasible. The final
worksheet uses nine ratios, which
include the variables (1) debt service, (2)
total revenues, (3) total expenditures, (4)
population, (5) total funds, and (6) local
revenues. The ratios selected and the
factors that they represent are presented
below.
Factor I—debt burden: debt service to
total revenues. ,
Factor 2—funds coverage: total funds to
total revenues; total funds to total
expenses.
Factor 3—outlays per capita: total
revenues per capita; total expenses
per capita.
Factor 4—funds per capita: total funds
per capita; debt service per capita.
Factor 5—local coverage: local revenues
to total revenues.
Factor 6—revenues to expenses: total
revenues to total expenses.
EPA found that, in general, the same
ratios included in the proposed
worksheet test were important in the
factor analyses of both the 1982 and
1987 Census of Governments data.
There is, however, one change to the
worksheet test ratios as a result of the
updated factor analysis. Factor 5, "local
coverage", is now represented by the
ratio of local revenues to total revenues
rather than the ratio of local revenues to
current expenses. The factor analysis of
1987 Census of Governments data found
that the ratio of local revenues to total
revenues was very highly correlated
with Factor 5, while the ratio of local
revenues to current expenses was
correlated less highly and was also
correlated with several different factors.
The preamble to the proposed rule
provides a detailed description of the
importance of each of these factors. One
other minor addition to the final test is
inclusion of payments for retirement of
debt principal (not just interest
payments) in the calculation of total
expenses. This was inadvertently
omitted from the proposed rule. (EPA
has modified the parameters of the test
to reflect the revised definition of total
expenses.)
Together, these factors provide a
balanced view of the stability and
financial strength of a local government
entity. The Agency does not believe that
any single factor or variable can provide
a sufficient indication of overall
financial stability. Specifically, EPA
does not believe a focus on funds alone,
without adequate safeguards, would
provide as good an indication of the
ability of local government entities to
provide financial assurance for an UST
release.
These factors serve to achieve the
Agency's goal of identifying and
eliminating those local government
entities that have overall financial
characteristics that are in the bottom
fraction of all local government entities,
and that may, therefore, be at sufficient
risk of experiencing financial distress
that would prevent them from meeting
their UST obligations.
As described at proposal, in
developing the worksheet the Agency
determined that performance on the
specific ratios selected to represent the
six factors should be standardized so
that all ratios are placed on an equal
basis. This is done by calculating the "z-
score" for each of the ratios in the test.
The z-score of an individual ratio is
calculated by first subtracting the mean,
and then dividing by the standard
deviation:
(ratio—mean)
fj—
standard deviation
The distribution of the z-scores will
always have a mean of 0 and a standard
deviation of 1, thereby placing each
variable in the index on a common
level. To calculate a single index value,
the z-scores are then weighted and
added together; the weights are based on
the percentage of variance explained by
the underlying factors.
Selection of the Final Threshold Value
Having updated the financial index,
the Agency then examined different
threshold levels to determine a cut-off
for selecting those local governments
that have fiscal characteristics adequate
to demonstrate financial responsibility
to meet UST obligations. As described
in the preamble to the proposed rule,
EPA evaluated the impacts of a $1
million release to determine an
appropriate threshold for allowing local
governments to demonstrate financial
responsibility through the worksheet
test. In selecting a threshold, the Agency
was guided by two important
considerations: (1) most local
governmental entities are expected to be
able to meet their financial obligations
under Subtitle I, so a cut-off threshold
in the lower range (i.e., 1 to 30 percent)
is appropriate, and (2) local
governmental entities on the margin of
the selected threshold should dearly be
able to pay the emergency response and
corrective action costs of an average
UST release.
For purposes of the evaluation, EPA
assumed that the release costs would be
financed by a mortgage-type loan over a
20 year period at an interest rate of 10
percent. This interest rate is meant to be
illustrative; local governments may be
able to borrow at rates lower than 10
percent. Under a mortgage-type loan,
repayment is made in equal annual
installments consisting of both interest
payments and principal repayment. The
annual payment of a $1 million loan
over 20 years at an interest rate of 10
percent is $117,459; the first year's
payment consists of $100,000 interest
and $17,459 principal repayment.
To evaluate whether a debt of $1
million would be too burdensome, the
Agency considered the post-release
performance on the nine ratios used to
develop the index. The Agency paid
specific attention to two financial
parameters that financial institutions
regularly use to evaluate prospective
debtors: Debt service capability and
accumulated funds. The Agency felt that
it is important to consider the potential
debtor's debt servicing capability
because excessive debt would require .
excessive funds for debt servicing,
which could result in a negative cash
flow (expenditures greater than
revenues) for weak debtors. Continuous
negative cash flows increase the risk of
financial instability in the short run and
financial insolvency in the long run. It
is important to consider the amount of
accumulated funds available to a
prospective debtor because a reserve of
accumulated funds provides an extra
"cushion" for those emergencies when
routine cash flows are disrupted as a
result of unforeseen circumstances. As
long as a local government that is on the
margin of the cut-off threshold being
evaluated can demonstrate that it can
service its debts and has a "cushion" of
accumulated funds for emergencies, the
Agency feels comfortable that it will be
able to perform its routine business
when faced with an UST release.
In its evaluation, however, the Agency
did not use a precise yardstick for
evaluating the impacts of a $1 million
release. It is the Agency's belief that
proposing a cut-off threshold that is
applicable to the majority of local
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9038 Federal Register / Vol. 58, No. 31 / Thursday, February 18, 1993 / Rules and Regulations
governments with diverse size,
demographic, and financial
characteristics is more a matter of
informed judgment than one of precise
measurement.
Impacts were evaluated on the bottom
30 percent of all general purpose local
governments in the 1987 Census of
Governments with data sufficient to
calculate the index score (11,487
governments). For each government, the
following adjustments were made to
1987 financial performance in
accordance with the definitions of terms
used in calculating the index:
• Total expenses were increased by
$117,459 (total incremental debt
service);
• Current expenses were increased by
$117,459 (total incremental debt
service);
• Total debt was increased by
$982,451 (loan amount of $1 million
minus first-year principal repayment);
• Total funds were reduced by
$117,459 (total incremental debt
service); and
* Debt service was increased by
$117,459 (total incremental debt
service).
In essence, the evaluation was made as
if the release had been incurred in 1987
and reflected in end-of-year financial
data, with no adjustments made by the
local government to redirect funds or to
increase revenues.
After adjusting the financial values,
each of the nine ratios in the index test
was recalculated. Impacts were
examined by looking at the "marginal"
local governments at each threshold in
one percent increments. That is, to
evaluate the effects of selecting a
threshold of -6.425 (the index value
exceeded by 95 percent of all general
purpose local governments), EPA
examined the 383 local governments
scoring between -6.425 and -6.043
(the index value exceeded by 94 percent
of all local governments). The remainder
of this discussion presents results of the
"post-release" ratios for each of five
different threshold levels: -6.425,
-4.937, -3.990, -3.242, and -2.586.
Details of the results are provided in the
Background Document supporting this
rule.
It should be noted that no attempt was
made to weight the potential impacts in
terms of the likelihood of UST
ownership. That is, although only about
2,764 of the 26,189 general purpose
local governments serving fewer than
2,500 residents are believed to own
USTs, the release costs were imposed on
all local governments." Consequently,
the average impacts shown exaggerate
the actual impacts likely to occur.
(Nevertheless, an individual
government experiencing an UST
release may experience the full effects
assumed in estimating the average
impacts.) Also, the results assume that
the local governments make no efforts to
mitigate the financial impacts, either
through increasing taxes and fees or
reducing other expenditures.
Because the index ranks local
governments in terms of a smooth array,
there is unlikely to be a single value at
which clear differences in performance
appear. Instead, an evaluation of
impacts is likely to show increasing
performance and ability to
accommodate the costs of an UST
release with increasing threshold value.
Evaluation of Threshold of-6.425.
The marginal local governments
meeting a threshold of -6.425 (those
between the fifth and sixth percentiles
on the index test) have an average post-
release fund balance of about $3,052,000
and a median post-release fund balance
of about -$49,000.12-13 About 62
percent of the marginal local
governments have a negative fund
balance, with the median of total funds
per capita equal to —$46. The median
debt service per capita is $167. The
median ratio of local revenues to total
revenues equals 32 percent. For the
median local government, total revenues
are about 47 percent of total
expenditures.
Evaluation of Threshold of -4.937.
With an increase in threshold to —4.937
(corresponding to the 10 percentile
value), the average post-release fund
balance of the marginal local
governments is $1,673,000 and the
median post-release fund balance
increases to —$34,400. The percentage
of local governments with negative cash
balances improves to about 56 percent.
The median ratio of total funds per
capita improves marginally to —$25.
The median annual debt service per
capita decreases to $131. The median
ratio of locally derived revenues to total
revenues increases to 40 percent,
whereas the median ratio of total
" EPA. "Economic Impact Analysis of Additional
Mechanisms for Local Government Entities to
Demonstrate Financial Responsibility for
Underground Storage Tanks," EPA Office of
Underground Storage Tanks, November 1992.
12 A threshold value set at the 5 percentile would
exclude the local governments with index values in
the lowest five percent and would include the
remaining 95 percent. A threshold value set at the
10 percentile would be more stringent—it would
exclude the local governments with index values in
the lowest 10 percent, and allow only those local
governments with index values in the upper 90
percent to pass the worksheet test.
"The median value is the value for which half
of the local governments have a higher value, and
half have a lower value.
revenues to total expenses increases
slightly to about 49 percent.
Evaluation of Threshold of - 3.990.
When the minimum score is changed to
- 3.990 (corresponding to the 15
percentile value), the average post-
release fund balance is $4,180,000 and
the median fund 'balance decreases
slightly to about - $35,000. The
percentage of local governments with
negative fund balances increases
slightly, to about 58 percent, while the
median ratio of funds per capita
improves slightly to -$24. The median-
ratio of debt service per capita decreases
to $127. The median ratio of local
revenues to revenues increases to 47
percent, whereas the median of total
revenues to total expenses decreases
slightly to 48 percent.
Evaluation of Threshold of-3.242.
At a threshold of -3.242
(corresponding to the 20 percentile
value), the average post-release fund
balance is $5,693,000 and the median
post-release fund balance increases to
about -$20,000. The percentage of local
governments with negative fund
balances decreaseis to 55 percent, while
the median fund balance per capita
increases to —$14. The median ratio of
debt service per capita decreases to
$119. The median ratio of local
revenues to total revenues increases to
52 percent, whereas the ratio of total
revenues to total expenses remains
steady at 48 percent.
Evaluation of Threshold at -2.586.
At a threshold of — 2.586
(corresponding to the 25 percentile
value), the average post-release fund
balance is $6,651,000 and the median
post-release fund balance improves to
about —$15,000. The percentage of local
governments with negative fund
balances decreases to 52 percent. The
median ratio of fund balance to
population improves to $10. The
median value of debt service per capita
increases slightly to $123. Local
governments show increasing coverage
of their expenses, including an increase
in the median ratio of local revenues to
total revenues to !57 percent and in the
median ratio of total revenues to total
expenses to about 54 percent.
Analysis, of Impacts on Households.
EPA has considered the impacts of tank
closures that may be caused by the
inability of local governments to
demonstrate financial responsibility.
EPA estimated the impacts on
households of compliance with the
financial responsibility requirements for
the median size, marginal government at
each threshold examined. EPA estimates
that the median "marginal" general
purpose government (by population) at
the 5 percentile threshold serves
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Federal Register / Vol. 58, No. 31 / Thursday, February 18, 1993 / Rules and Regulations 9039
approximately 1,011 residents, or 389
households. EPA's analysis of UST
ownership patterns suggests that
governments of this size own an average
of 1.1 USTs. Based on an average
present value cost per UST closure of
$7,000, the residents would incur an
estimated present value cost of $19.80
per household.14 The present value of
'closure costs are estimated to range from
$18.00 to $54.00 per household for
residents served by median
governments owning one to three USTs,
respectively.
Based on the average number of USTs
owned by the median "marginal"
general purpose local government at the
10 percentile, the costs to governments
required to close their USTs are
estimated to be $15.81 per household.
Costs may range from $14.37 to $43.11
per household for residents served by
median governments owning one to
three USTs, respectively.
Based on the average number of USTs
owned by the median "marginal"
general purpose local government at the
15 percentile, the costs to governments
required to close their USTs are
estimated to be $16.81 per household.
Costs may range from $15.28 to $45.86
per household for residents served by
median governments owning one to
three USTs, respectively.
Based on the average number of USTs
owned by the median "marginal"
general purpose local government at the
20 percentile, the costs to governments
required to close their USTs are
estimated to be $14.95 per household.
Cost may range from $13.59 to $40.78
per household for residents served by
median governments owning one to
three USTs, respectively.
Based on the average number of USTs
owned by the median "marginal"
general purpose local government at the
25 percentile, the costs to governments
required to close their USTs are
estimated to be $13.90 per household.
Costs may range from $12.64 to $37.91
per household for residents served by
median governments owning one to
three USTs, respectively.
These estimates tend to exaggerate the
costs per household, because they use
the total estimated aggregate cost over a
ten-year period. Consequently, they
represent the cost to households if the
entire cost associated with closing USTs
14 As discussed in the EIA, the present value cost
of closure includes the costs of closure associated
with the technical standards (e.g., tank excavation
and removal, product removal, and site
assessment), plus the present value of the
incremental cost of fuel purchased at retail service
stations, minus the present value of the expected
cost of corrective action for UST releases if the
USTs were not closed.
were incurred and levied in a single
year, rather than paid out over time.
Summary. Based on its review, the
Agency has concluded that there are
significant improvements in the "post-
release" financial conditions of
governments as the threshold is
increased to about the 10 percentile,
modest improvements as the threshold
is increased from about the 10
percentile to the 20 percentile, and
further increases beyond the 20
percentile. Because the extent of the
increases from the 10 to the 15
percentile is minor, the Agency has
determined that a threshold level of 10
percent provides adequate safeguards,
and is consistent with statutory intent.
3. Governmental Guarantee (§ 280.106)
In today's rule, EPA is providing for
the use of a guarantee mechanism for
governmental entities. This mechanism,
although not strictly a "self-test"
mechanism, provides local government
entities with a financial assurance
mechanism comparable to the corporate
guarantee allowed for private owners
and operators of USTs. To be eligible to
act as a guarantor, a local government
entity must pass the bond rating or
worksheet test.
The governmental guarantee differs in'
several respects from the current
corporate guarantee. Under the
governmental guarantee, local
governments would be allowed to
choose between a guarantee with or
without a standby trust requirement.
Under the corporate guarantee, firms are
required to use a standby trust. If a local
government chooses the governmental
guarantee without the standby trust
option, it is required to pay for
corrective actions as needed and as
directed by the implementing agency.
Under the standby trust option, local
governments will be required to fund a
separate trust fund to the full amount of
coverage upon discovery of a release.
Again, the Agency's decision to allow
local governments the option of a
guarantee without the standby trust
fund is based on local governments'
history of meeting obligations and on
their ability to consistently raise
revenue through taxation. In addition,
the governmental guarantee requires
that the local governments entering into
the agreement demonstrate a
"substantial governmental
relationship." This parallels the
requirement in the corporate guarantee
for a "substantial business
relationship," while recognizing that the
types of relationships between
governments is fundamentally different
than business relationships and that
they are primarily based on common or
overlapping constituencies.
The requirement of a "substantial
governmental relationship" reflects two
concerns of the Agency. First, EPA
wishes to ensure that the guarantee
contract is founded on a sufficient basis
to be held valid and enforceable...
Second, EPA seeks to avoid conflict
with State insurance laws and
regulations. The existence of a
"substantial governmental relationship"
should provide sufficient nonmonetary
consideration to address these concerns.
One commenter supported the
requirement for a substantial
governmental relationship, stating that
the governmental guarantee mechanism
needs to be based on a substantial
governmental relationship, and that the
relationship should incorporate the full
faith and credit of the guaranteeing
agency.
One commenter asked whether, in
States that allow intergovernmental risk
pooling, the contractual relationship of
a pool to provide safety and risk '
management services in addition to risk
pooling would be recognized as a
"substantial governmental
relationship," thereby allowing existing
pools to act as guarantors to their
members. EPA does not believe that a
risk pool should be allowed to operate
as a guarantor, because the nature of the
relationship is strictly monetary and
does not necessarily involve a
substantial governmental relationship. It
should also be noted that risk pools can
be included as compliance mechanisms
on a state-by-state basis as state-required
mechanisms.
Another commenter claimed that EPA
should explicitly recognize the
relationship between a "joint action
agency" and its member publicly-owned
utilities as a "substantial governmental
relationship", thus allowing these
entities to qualify for use of the
governmental guarantee mechanism.
The commenter reasoned that these
agencies, not-for-profit entities created
by State law to allow publicly-owned
utilities to combine resources for
various purposes, could include the
provision of a guarantee of UST
financial responsibility within then-
operation. EPA has concluded that
because joint action agencies are non-
profit organizations and not
governmental entities, they are not
eligible to act as guarantors.
A guarantee is a promise by one party
(the guarantor) to pay specified.debts or
satisfy the specified obligations of
another party (the principal) in the
event that the principal fails to satisfy
its debts or obligations. In the corporate
guarantee, if the owner or operator fails
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-------
to porform coirecUve action or satisfy
third-party claims, the guarantor agrees
to fund a standby trust from which the
implementing agency will direct the
payment of corrective action costs or
third-party claims.
EPA believes that the guarantee
mechanism would work well for
governments, and is establishing two
possible constructions for such a
mechanism (discussed below). Using
this mechanism, a municipality, for
example, might obtain a guarantee from
the State, a town might obtain a
guarantee from the surrounding county
or parish, or a special district might
obtain the guarantee of the sponsoring
local government entity. Guarantors
must demonstrate that they'are qualified
to provide financial assurance by
satisfying the bond rating test under 40
CFR 280.104, the worksheet test under
40 CFR 280.105, or the fully-funded
fund balance test under 40 CFR 280.107.
Several commenters supported the
Inclusion of the governmental guarantee
mechanism, although some also noted
specific cases where the mechanism
might not be applicable. Two
commenters diet not believe that the
mechanism would be used by certain
classes of government entities, arguing
that special districts would be unable to
obtain guarantees from local
governments and that local governments
would be unable to obtain guarantees
from their State governments.
EPA believes that the guarantee is
likely to be used primarily by
governments witn close and long-
standing ties. The Agency emphasizes
thai the guarantee mechanism was
developed to allow governments with
common interests to cooperate to keep
necessary USTs in operation. The
mechanism is not intended to require
any government to act as a guarantor.
Nevertheless, if even a small number of
agrees with the commenters and has
allowed for use of a governmental
guarantee with or without a stand-by
trust fund.
One commenter stated that
certification by a State Attorney General
was necessary because some States
could presumably prohibit or restrict
the ability of a municipal government to
make such a guarantee. Another
commenter supported the Agency's
decision not to require a State Attorney
General's certificate attesting to the
legality of the governmental guarantee.
The commenter agreed with the Agency
that the added degree of certainty
provided by this requirement was
appropriate in the case of a corporate
. guarantee, but was unnecessary for
guarantees among governmental
entities, and would burden'.
governments are able to qualify using
this mechanism, it will serve the
purpose intended.
Commenters agreed that the guarantor
should not be required to fund a
standby trust, arguing that (1) a standby
trust is not appropriate for local
governments, given their strong history
of meeting their financial obligations
and their ability to raise revenue
consistently, (2) a standby trust was
unnecessary for guarantees among
governmental entities, and would add
unnecessary paperwork and
administrative costs that were contrary
to the Agency's goal of reducing the
burden on local government, and (3) the
governmental guarantee would not
necessarily be similar to a corporate
guarantee because of State-by-State
differences in statutory restrictions. EPA
miUUO9| cum YVVJM*** **fc**M«»* ilKxU
governments with unnecessary
paperwork and costs.
The Agency is riot requiring
certification by the State Attorney
General prior to offering the guarantee.
Local governments have strictly defined
and enforced limitations on their
abilities to enter into contracts. These
limitations are codified hi State law and
constitution and jvary by State. The
Agency believes that these restrictions
imposed on local government entities
should, in general, act as a sufficient
check to prevent local governments
from entering into invalid guarantees,
and that the nature and purpose of local
governments will prevent the issuance
of guarantees unless there is a clear
governmental interest.
Because the Agency wants to avoid
unnecessary paperwork and burden on
the part of local governments, EPA
intends to keep the rule as proposed.
EPA encourages governments wishing to
use the guarantee to seek clarification of
their authority if they are unsure of
whether they may issue guarantees.
EPA solicited comments on whether
passing the fund balance test should
qualify governmental entities to act as
guarantors. The sole commenter on this
issue stated that a government passing
the fund balance test should qualify to
act as a guarantor, assuming that State
statute permitted a governmental entity
to be a guarantor. After further review,
EPA has decided that allowing
governments using the fund balance
mechanism to act as guarantors would
be consistent with the overall approach
taken in the development of the new
mechanisms. The Agency has, therefore,
modified the proposed rule to allow the
fully-funded fund balance mechanism
to serve as the basis for a governmental
guarantee.
Government Guarantee With Standby
Trust
The first alternative governmental
guarantee parallels th» corporate
guarantee, in that it must include a
pledge to fund a standby trust in the
event of failure by the UST owner or
operator to pay corrective action or •
third-party liability claims. In today's
rule, the guarantor must have legal
authority to issue the guarantee. The
Agency anticipates that most guarantees
will be based on a clear and significant
governmental relationship such as
overlapping geographical boundaries,
taxing or service constituencies, or
shared impact from an UST release.
Government Guarantee Without
Standby Trust Requirements
In a governmental guarantee without
a standby trust requirement, the
guarantor agrees to provide funds for
corrective action and third-party
compensation as directed by the
implementing agency on an on-going
basis, up to the limits of the guarantee.
Rather Chan fully funding a standby
trust, the guarantor would make the •
payments directly as funds are required.
The current corporate guarantee
, requires the establishment of a standby
trust, and requires a guarantor to fund
the trust (1) after notification that a
guarantee will be cancelled if a release
has been detected and no alternate
coverage has been obtained, or (2) when
a release has occurred and the owner or
operator has failed to perform corrective
action or payment of a settlement or • •
judgment for third-party liability. The
corporate guarantee requires funding of
a standby trust for several reasons. First,
the issuance of a guarantee is founded
on the existence of a substantial
business relationship; such
relationships are subject to change over
time. Second, the underlying
mechanism used by the guarantor
depends primarily on the existence of
readily liquidated assets, rather than on-
going financial strength. Consequently,
the Agency wishes to insure that the
funds are made available before adverse
events can occur. Third, the Agency
wishes to reduce the potential delay
involved in enforcing first against the
UST owner or operator, and then against
the guarantor for payment.
These concerns are mitigated under
the governmental guarantee. First, the
Agency believes that the governmental
relationships that are likely to lead to
the issuance of guarantees will be
founded on geographical proximity and
service to a common constituency.
These relationships are not subject to
rapid change. Second, the Agency
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Federal Register / Vol. 58, No. 31 / Thursday, February 18, 1993 / Rules and Regulations 9041
responsibility. Numerous commenters
requested that EPA reduce the required
size of a combined emergency response
fund. EPA conducted a limited survey
of nine governments to determine the
prevalence and typical size of
emergency response funds.16 The ..
Agency found that most funds are
relatively small (less than $5 million).
Based on those findings, EPA has
reduced the required size of a combined
emergency response fund to $5 million.
In making this determination, the
Agency considered that, when a local
government draws upon its emergency
response fund, it must replenish the
fund in order to be prepared to meet the
costs of the next emergency that may
arise. It should be noted that local
governments may establish a dedicated
fund equal to their aggregate annual
UST liability if doing so requires
sequestering less money. ,
A combined fund balance of $5 :>
million will equal or exceed five times
the aggregate financial assurance level
for most local government entities,
based on the number of USTs owned
and operated. This requirement is
analogous to the requirement in the
corporate self-test that firms must have
tangible net worth equal to at least ten
times their aggregate financial assurance
level. The fund balance must be
established as an irrevocable fiduciary
or trust account, with proceeds invested
in cash or readily marketable securities.
The fund may be administered by the
treasurer or chief financial officer of the
local government entity as a separate
trust account.
In establishing this option, the
Agency recognizes that States often
permit local governments to administer
fiduciary and trust accounts, such as
pension funds and workers'
compensation funds, while requiring
private companies to establish third-
party trustees or to subscribe to State-
maintained funds. EPA believes the
distinction between local government
entities and private companies reflects
differences in State oversight (e.g., State
requirements that local government
entities submit budgets or financial
statements), differences in purpose (i.e.,
companies exist to make profits,
whereas local government entities are
created to provide a public service), and
differences in financial stability.
The Agency is including this option
to allow municipalities flexibility in
establishing emergency response funds
while ensuring that adequate funds are
recognizes in this rule that local
government entities, as a class, have
greater financial stability than private
corporations. It is, therefore, less critical
to obtain funds immediately to pay for
contingent liabilities (such as payment
of third-party claims) that may not
occur. Third, the Agency recognizes the
difference in purpose between
governmental and private organizations,
specifically the role of local
governments to serve the public. This
service orientation may make local
governments more likely to fulfill their
financial obligations. Consequently, the
Agency has less concern that the
absence of a standby trust will result in
a delay in securing cleanup actions by
local government owners or operators.
With its modified structure, the
mechanism permits a "pay-as-you-go"
approach. These provisions allow a
guarantor to fund corrective action costs
as they are incurred, instead of requiring
the guarantor to fund the standby trust
fully in advance of anticipated
expenditures.
Commenters on this issue agree that
the governmental guarantee provides
adequate safeguards without the need
for creation of a standby trust fund.
4. Maintenance of a Fund Balance
(§ 280.107}
Under this option, the UST owner or
operator would create a dedicated fund
specifically for UST releases or general
catastrophic events. The dedicated fund
must meet the local government's
aggregate financial responsibility
requirements (or such amount needed to
fulfill gaps in financial responsibility
from other mechanisms used in
combination with the funded balance).
Use of the fund balance mechanism
requires local governmental entities to
establish irrevocable trusts pledged to
use for UST response or use in
responding to catastrophic events,
including UST releases.
Control of the fund would continue to
rest with the local government entity.
Control and accounting for these funds
would be administered following the
standards appropriate for other
insurance trusts already maintained by
local government entities, including
pension trusts and worker's
compensation funds.
The fund balances must be held as
cash or investment securities that will
be available in the event of an UST
release and must be irrevocably
dedicated to use for UST response or for
responding to catastrophic events,
including UST releases. As discussed
below, the Agency is providing three
alternatives that may be used in
establishing the fund.
Based on an analysis of Census data
and data on Minnesota cities, the
Agency believes that the fund balance
mechanism is unlikely to be used
widely by general purpose governments,
because few who require an alternative
mechanism to the bond rating and
worksheet tests have adequate funds.15
The fund balance mechanism may prove
more useful for special districts and
school districts that may not be able to
use the worksheet test. The inclusion of
a fund balance mechanism as a financial
assurance option should increase the
flexibility provided owners and
operators in demonstrating financial
assurance. Today EPA is providing the
following three sub-options, any one of
which may be used to demonstrate
financial responsibility.
Fully-Funded Dedicated Fund
Under this alternative, the local
government would establish a separate
fund, dedicated to payment of UST
corrective actions and third-party
liability claims, in the amount of its
aggregate financial responsibility
requirements. The fund balance must be
established as an irrevocable fiduciary
or trust account, with proceeds invested
in cash or readily marketable securities.
This mechanism would be the most
similar to the corporate trust fund
option (§ 280.102 of subpart H) and is
intended to be similar to "trust
accounts" and "insurance accounts"
held by local governments for pensions
and insurance. Although there are
currently no restrictions to local
governments using the trust fund option
under § 280.102, the fully-funded
dedicated fund option would not
require the local government to
establish a third-party trustee for the
fund. Instead, the fund would be
administered by the treasurer or chief
financial officer of the local government
entity as a separate trust account.
Catastrophic Events Contingency Fund
Under this option, a municipality
would be able to use a dedicated fund
used for general emergency response
and third-party liability (e.g., flood
relief, hurricane relief, or other
environmental cleanups) as evidence of
UST financial responsibility, hi the
proposed rule, EPA required that a fund
used to cover both UST costs and other
emergency costs incurred by local
governments be funded in the amount of
$10 million to qualify as a mechanism
for demonstrating financial
15 State Auditor of Minnesota, "Report of the State
Auditor of Minnesota on the Revenues,
Expenditures, and Debt of the Cities in Minnesota
for the Fiscal Year Ended December 1987."
November 1988.
16 Memorandum from James Dickson, Rebecca
Holmes, and William Driscoll, 1CF Incorporated, to
Andrea Osborne, EPA Office of Underground
Storage Tanks. "Local Government Emergency
Response Funds." October 13,1992.
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Federal Register / Vol. 58, No. 31 / Thursday. February 18, 1993 / Rules and Regulations 9043
actions that are incidental and essential
to the conduct of their business.
Because meeting statutory and
regulatory requirements are both
incidental and essential to the operation
of a municipal utility, it would appear
that, in general, the board of directors of
a municipal utility would have the legal
authority to establish an UST trust fund.
Because the specific authorities of
municipal utilities may vary from State
to State, however, and because within a
State, each charter may be unique, it
may be appropriate for the board of a
municipal utility to obtain the advice of
legal counsel before voting to establish
a dedicated fund for UST corrective
actions. The Agency notes, for example,
that public comments on the proposed
rule claim that a New York statute
expressly prohibits the creation of
emergency response funds by school
districts and Boards of Cooperative
Education.
One commenter requested
clarification of the requirement that
dedicated funds cannot be commingled
or otherwise used in normal operations,
presumably because the term "normal
operations" is not defined or described
in the rule or preamble. The commenter
also points out that, while the
commingling requirement appeared in
the preamble, it was not written into the
rule itself.
EPA's intent in allowing local
governments to establish a dedicated
fund for UST corrective actions was to
reduce the burden on and cost to local
governments by not requiring a third-
party trust fund. Whereas a third-party
trust fund was authorized for use by
non-governmental owners and
operators, a third-party requirement for
local governments was not considered
necessary because of the experience of
local governments in establishing and
administering such funds. Nevertheless,
EPA is concerned that funds reserved
for meeting the costs of corrective
actions and third-party liabilities
associated with UST releases be easily
identifiable and readily available.
On the issue of commingling funds,
EPA has found that the investment
options typically available to local
governments offer minimally higher
returns with larger deposits. Moreover,
deposits larger than $100,000 would not
be insured by the Federal Deposit
Insurance Corporation, exposing a
commingled fund to the risk of bank
failure unless alternative insurance were
obtained (e.g., from an agency or State
government). Commingling funds may
not be practical for local governments
that seek to obtain higher returns on
deposits by having a bank's trust
department actively manage their assets,
because the timing of cash needs from
an operational fund and from a trust
fund are so widely divergent that a
prudent manager would select a
different mix of investment instruments
for the two funds, and consequently
would establish separate funds.
Because of the minimum income
gains potentially available through
commingling funds, as well as
insurance and asset management
considerations, EPA has concluded that
the potential gains from commingling
accounts do not outweigh the associated
costs. EPA has modified the language in
the rule to reflect this concern: money
held for the purposes of demonstrating
financial responsibility must be held in
a separate account dedicated either to
UST responses in particular or to
emergency and catastrophic events hi
general.
5. Combinations of Mechanisms
The mechanisms being provided
today may be used by themselves or in
combination with other mechanisms.
Local governments qualifying for use of
the bond rating or worksheet test
mechanisms are not required to obtain
additional evidence of financial
responsibility, but may do so if they so .
choose. A guarantee or dedicated fund
balance may be used to demonstrate
financial responsibility for amounts not
assured by other mechanisms.
B. Reporting by Owner or Operator
Each government demonstrating
financial assurance using the
mechanisms promulgated today must
notify the implementing agency at the
times specified in § 280.110.
C. Recordkeeping
Owners and operators are required to
maintain evidence of all financial
assurance mechanisms used to
demonstrate financial responsibility
under this subpart until the tank has
been properly closed or, if corrective
action is required, until corrective
action has been completed and the tank
has been properly closed as required by
40 CFR Part 280, Subpart G. In general,
the recordkeeping requirements for the
mechanisms being promulgated today
are equivalent to those required for the
mechanisms promulgated in the October
1988 rule. Because local governments
are not uniformly required to submit
data to third-party agencies, however,
local governments using the worksheet
test must maintain a copy of the
underlying financial statements or other
data used to support the use of the
worksheet test. Also, local government
owners and operators must maintain
evidence of the authority that is used to
establish dedicated funds for use in
responding to UST releases. An owner
or operator using the mechanisms
promulgated today is required to
maintain at bis UST site or his office the
following types of evidence for
mechanisms used to demonstrate
financial responsibility:
Bond Rating Test. Each local
government using the bond rating test
must maintain
(1) A letter signed by the chief financial
officer (e.g., comptroller, controller, or
treasurer) certifying the eligibility to
use the bond rating test, and
(2) Originally signed and dated
transmission from Moody's or
Standard & Poor's, showing the
amount, the type of bond and the
bond rating assigned.
Such evidence must be on file on site or
at the place of business no later than
120 days after the close of each fiscal
year.
Worksheet Test. Each local
government using the worksheet test ....
must maintain
(1) A letter signed by the chief financial
officer (e.g., comptroller, controller, or
treasurer) certifying the accuracy of
the calculations and the underlying
data,
(2) A copy of the completed worksheet,
and
(3) A copy of the underlying financial
data (e.g., year-end financial
statements) used to compute the
worksheet.
Such evidence must be on file on site or
at the place of business no later than
120 days after the close of each fiscal
year.
Guarantee. Each local government
using the guarantee must maintain
(1) A letter signed by the chief financial
officer (e.g., comptroller, controller, or
treasurer) certifying the use of the
guarantee,
(2) An originally signed and dated
guarantee contract, showing the
addresses of all tanks for which
financial assurance is guaranteed, the
nature of the guarantee (third-party
liability, corrective action, or both),
and the limits of the guarantee,
(3) A letter signed by the chief financial
officer (e.g., comptroller, controller, or
treasurer) of the guarantor certifying
(1) the eligibility to use the bond
rating test (unless the.guarantor is a
State), (2) the eligibility to use the
worksheet test (unless the guarantor is
a State), or (3) the existence of a
dedicated UST or emergency response
trust fund meeting the requirements
of § 280.107,
(4) For guarantors other than States, a
copy of the documentation supporting
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9044 Federal Register / Vol. 58, No. 31 / Thursday, February 18, 1993 / Rules and Regulations
the bond rating or worksheet test,
including (a) a copy of the originally
signed and dated transmission from
Moody's or Standard & Poor's to the
guarantor, showing the issue size, the
type of bond and the bond rating
assigned, or (b) a copy of the
completed worksheet and underlying
financial data, and
(5) Originally signed duplicates of the
standby trust funds worded as
specified in this rule for guarantees,
surety bonds, or letters of credit (as
necessary).
Such evidence must be on file on site or
at the place of business no later than
120 days after the close of each fiscal
year.
Fund Balance. Each local government
using the fund balance mechanism must
maintain
(1) A letter signed by the chief financial
officer (e.g., comptroller, controller, or
treasurer) certifying the use of the
fund balance mechanism,
(2) Originally-signed letter certification
from the comptroller or treasurer
worded as specified in the rule and
letters or certificates from
municipalities regarding coverage by
municipal funds or other municipal
assurances,
(3) A copy of the authorizing statute or
resolution that clearly restricts use of
the funds to the designated purposes,
(4) A financial statement showing the
balance of cash or liquid investments
in the fund, and
(5) A copy of either (a) the authorized
bond resolution in an amount
equalling or exceeding the unfunded
portion of the fund or (b) State
Attorney General's opinion showing
that such authorization is
unnecessary.
Such evidence must be on file on site or
at the place of business no later than
120 days after the close of each fiscal
year.
One commenter asserted that the
proposed recordkeeping provisions
wore generally reasonable and did not
represent an undue hardship to local
government entities. Another
commenter stated that the
recordkeeping requirements of the
proposed rule would be burdensome.
The commenter indicated that requiring
local government entities to be able to
present evidence of financial capability
upon request would be a suitable
substitute for the proposed
rocordkeeping and reporting
requirements.
The Agency emphasizes that there is
no routine reporting requirement, but
that the need to determine compliance
with the requirements on an annual
basis is considered to be a fundamental
part of the rule. Records are to be
retained by local governments and must
be provided only when (1) a release
occurs, (2) the local government
becomes ineligible for a financial
responsibility mechanism that it is
using, (3) the local government installs
a new tank, or (4) records are requested
by the implementing agency.
D. Bankruptcy or Other Incapacity of
the Owner or Operator
Any owner or operator named as a
debtor in voluntary or involuntary
bankruptcy proceedings (under Title 9
of the U.S. Code) is required to notify
the Regional Administrator or the
implementing agency within 10 days
after commencement of such
proceeding. In addition, any guarantor
or indemnitor is required to notify the
owner or operator by certified mail
within 10 days after commencement of
a voluntary or involuntary proceeding
under Title 9 (Bankruptcy) of the U.S.
Code that names such guarantor or
indemnitor as debtor. Any owner who
demonstrates financial responsibility
using a third-party mechanism will be
deemed to be without the required
financial assurance in the event of a
bankruptcy or incapacity of its provider
of financial assurance, or a suspension
or revocation of the authority of a
provider to issue the mechanism relied
upon (e.g., guarantee, indemnity
contract, surety bond, insurance policy,
risk retention group coverage policy,
letter of credit, or State-required
mechanism). Finally, municipalities are
required to notify the Director of the
implementing agency within 30 days of
being notified that a provider of
financial assurance (e.g., a guarantor)
has declared bankruptcy or is otherwise
incapable to coyer assured costs, unless
they are able to obtain alternative
coverage.
V. Economic Impact Analysis
In conjunction with this rule, the
Agency has performed three impact
analyses: an Economic Impact Analysis,
a Federalism Assessment, and a
Paperwork Reduction Act estimate.
Summaries of these analyses are
presented below:
A. Economic Impact Analysis
This section describes the
methodology and results of an
Economic Impact Analysis of the rule.
EPA estimates that about 2,300 local
governmental entities will be able to
demonstrate financial responsibility
using the mechanisms promulgated
today that would not be able to
demonstrate financial responsibility
using only the mechanisms allowed by
the October 1988 rule. The Agency
estimates that the use of these
mechanisms will result in
approximately 5,700 fewer USTs being
closed because of a lack of financial
assurance. The Agency estimates the
total annualized cost savings to be about
$4.5 million, with a present value of
about $32 million over ten years, in
constant 1987 dollars.
1. Compliance With Executive Order
12291
Executive Order 12291 (46 FR13193,
February 19,1981) requires that a
regulatory agency eixamine the potential
impact of regulations. The regulatory
agency must determine whether a new
regulation will be "major." If it is, the
regulatory agency must conduct a
regulatory impact analysis (RIA). A
major rule is defined as one that is
likely to result in (1) an annual effect on
the economy of $100 million or more;
(2) a major increase in the costs or
prices for consumers, individual
industries, Federal, State, or local
government agencies, or geographic
regions; or (3) significant adverse effects
on competition, employment,
investment, productivity, innovation, or
on the ability of U.S.-based enterprises
to compete with foreign-based
enterprises in domestic or export
markets.
EPA has analyzed the local
government financial responsibility
rule. Based on this analysis, the Agency
has concluded that this regulation will
have an annual effect of less than $100
million. The rule is expected to reduce
costs to the regulated community; these
reductions are estimated to be less than
$100 million on an annual basis.
Accordingly, the regulation being
promulgated today is not a major rule,
as defined by Executive Order 12291.
Nonetheless, the Agency is interested in
the potential economic effects of the
regulation and has developed an
Economic Impact Analysis (EIA) to
examine them. The following four
sections summarize the results of the
EIA: Section 2 describes the regulated
community affected by this regulation;
Section 3 presents some of the methods
and assumptions used to produce the
EIA; Section 4 discusses the regulation's
cost impacts; and Section 5 describes its
environmental impacts.
2. The Affected Community
EPA estimates that approximately
25,000 local government entities own
more than 62,000 petroleum-containing
USTs. For the purpose of this analysis,
the regulated community is divided into
eight categories: very large, large,
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Federal Register / Vol. 58, No. 31 / Thursday, February 18, 1993 / Rules and Regulations 9045
medium, and small general purpose
governments (i.e., cities, counties, and
townships); and very large, large,
medium, and small special purpose
districts (including, for example,
independent school districts and water
districts). General purpose governments
were grouped according to population:
very large governments serve more than
50,000 persons; large governments serve
more than 10,000 and fewer than 50,000
persons; medium governments serve
more than 2,500 and fewer than 10,000
persons; and small governments serve
fewer than 2,500 persons. These
population categories are the same
categories used in other EPA economic
impact analyses, and have been used
here at the suggestion of one
commenter.
For this analysis, school districts were
categorized by estimated population,
assuming that the enrollment of a school
district is one-sixth of the total
population. Other special districts,
which do not always have well-defined
populations, were grouped according to
annual revenues: very large districts
have annual revenues of more than $100
million; large districts have annual
revenues of more than $5 million and
less than $100 million; medium districts
have revenues of more than $200,000
and less than $5 million-, and small
districts have revenues of less than
$200,000.
Table 1 shows the estimated total
number of governments in each
category, the number of UST-owning
governments in each category, and the
number of USTs owned. (A summary of
the method used to develop these
estimates is provided below.)
TABLE 1 .—PROFILE OF LOCAL
GOVERNMENTS
Category
Very large govern-
ments
Large governments
Medium govem-
Small governments
Very large special
districts
Large special dis-
tricts
Medium special
districts
Small special dis-
tricts
Total
Number
of enti-
ties
1,360
4,351
7,054
26,189
862
4,930
12,558
26,480
83,784
Number
of enti-
ties
owning
USTs
1,360
3,870
3,643
2,764
840
4,785
6,617
646
24,525
Total
USTs
owned
13,813
9,580
5,126
2,921
3,148
17,359
9,399
654
62,000
Source: EPA Analysis.
EPA estimates that 1,360 very large
general purpose local governments own
approximately 13,800 USTs, 4,350 large
general purpose governments own
approximately 9,580 USTs,
approximately 7,000 medium general
purpose governments own
approximately 5,100 USTs, and more
than 26,000 small governments
collectively own fewer than 3,000 USTs.
That is, most small governments are not
estimated to own any USTs. EPA
estimates that about 860 very large
districts (including school districts) own
about 3,100 USTs, approximately 4,900
large districts own about 17,000 USTs,
about 12,500 medium districts own
roughly 9,400 USTs, and more than
26,000 small districts own about 650
USTs. All very large local government
entities are assumed to own at least one
UST. The Agency used probability
theory and an estimate of the total
number of USTs owned by all UST-
owning entities to calculate the
percentage of large, medium, and small
government entities that own USTs.
3. Assumptions and Methodology Used
in the EIA
The analysis uses several key
assumptions to estimate the costs and
other impacts of this regulation:
o The baseline used to estimate
incremental costs and economic impacts
of the self-test rule is the cost of
complying with the financial
responsibility rule published on October
26. 1988. EPA assumes that local
government entities will comply using
the options available under the October
1988 rule in the absence of the
alternative mechanisms. Local
governments unable to use the financial
mechanisms available under the
October 1988 rule are assumed to close
their USTs, in compliance with the
regulations.
• Cost impacts were evaluated on an
annualized basis. To develop annual
costs for insurance and UST closure,
EPA calculated the equivalent annual
payment having the same "present
value" as the cost estimates developed
for the UST technical standards
regulations, using a ten-year period and
a real discount rate of 7 percent.
• The estimated number of USTs
owned by local governments is based on
a derived relationship between the
annual revenues of local governments
and the number of USTs owned.
—The 1985 "Summary of State Reports
on Releases From Underground
Storage Tanks" provides data on the
percentage of releases occurring in
places of different populations.
—EPA assumes that release incidents
are not biased towards places of
different size and that the distribution
of release incidents is the same as the
distribution of USTs among local
government entities.
—The analysis assumes that there are
about 62,000 local government USTs,
as estimated in the financial
responsibility rule published in
October 1988.
• The analysis uses budget data
obtained from the 1982 Census of
Governments to develop a relationship
between budget and population and
then between budget and number of
USTs. (EPA used population statistics
and budgets from 1982 to develop
relationships between UST ownership,
population, and budget, because these
data provided information consistent
with the UST ownership data used in
this report. Estimated ownership
patterns were not updated to reflect
1987 data. First, the relationship
between population and UST ownership
was assumed to remain stable from 1982
to 1987. Second, the relationship
between constant-dollar budgets and
UST-ownership was also assumed to
remain stable. Third, the estimates of
total UST ownership are based on 1987
data.)
• All local governments using
insurance or mandatory State assurance
funds to meet financial responsibility .
requirements for corrective action and
compensation of third parties in the
baseline are assumed to continue to use
those mechanisms to comply with the
financial responsibility requirements,
rather than using the mechanisms
promulgated today.
« All other local government entities
that qualify for financial responsibility
using the new mechanisms are assumed
to incur costs ranging from $75 (for the
bond rating test) to $253 (for the
guarantee) per government per year to
develop and maintain the required
records and reports.
« Because local governments that do
not qualify for financial responsibility
under the worksheet test are assumed to
be unable to obtain insurance or
otherwise demonstrate financial
responsibility, the analysis assumes that
they close their UST systems and
purchase fuel from retail petroleum
dealers.
EPA estimated the fraction of local
government entities that will be able to
demonstrate financial assurance under
the promulgated rules by assuming that
governments not able to obtain
insurance and not required to use State
mechanisms will use the least onerous
method for which they qualify:
« Local governments able to obtain
insurance under the baseline are
assumed to do so, rather than use the
mechanisms being promulgated today,
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Federal Register / Vol. 58. No. 31 / Thursday. February 18. 1993 / Rules and^gulations
• .
in order to minimize their exposure to
potentially large UST-related costs.
• Local governments in States with
mandatory assurance programs are
assumed to use them rather than the
mechanisms being promulgated today.
• Local governments with
outstanding issues of investment grade
bonds in amounts greater than $1
million (about 87 percent of all
governments with investment grade
ratings) are assumed to use the bond
rating test. Analysis of data on
Minnesota cities suggest that virtually
all cities with populations of more than
10,000 have investment-rated general
obligation bonds, and that virtually no
dties with populations less than 2,000
have such bonds.
• Local governments not eligible to
use the bond rating test are assumed to
use the worksheet test, if they qualify.
The Agency used the 1987 Census of
Governments to estimate the fraction of
governments with populations less than
200,000 or annual revenues less than
$100 million (i.e., those that may not
qualify to use the bond rating test) that
qualify at the 10 percentile threshold.
• The Agency assumes that local
governments with total fund balances
greater than $4 million that do not
qualify to use the worksheet test will
establish a dedicated fund meeting the
requirements. Data from the 1987
Census of Governments were used to
estimate the percentage of governments
having more than $4 million in funds
that would not qualify under the
worksheet test.
• The Agency assumes that 90
percent of school districts unable to
demonstrate financial responsibility
will obtain guarantees from surrounding
general purpose governments. This
assumption is based on the assumption
that education will be deemed to be of
sufficient importance that the general
purpose governments served by school
districts will act to insure that the USTs
remain in operation.
• The Agency also assumes that half
of all other special districts unable to
otherwise demonstrate financial
responsibility will be able to obtain
guarantees from the general purpose
governments served by the districts.
o All other general purpose
governments and districts not able to
demonstrate financial responsibility are
assumed to close their USTs and
purchase fuel from retail petroleum
stations.
Figure 1 shows the estimated fraction
of local governmen ts using each
financial assurance mechanism under
today's rule. It should be noted that the
assumed availability of guarantees
represents just one of many plausible
outcomes. Other possible outcomes
range from (1) all governments failing to
obtain insurance or qualify using one of
the self-test mechanisms will be able to
continue to operate their USTs, either
by obtaining guarantees or by
transferring ownership of their USTs to
the State or to local governments able to
demonstrate financial responsibility, (2)
some other fraction of all governments,
without regard to purpose, will be able
to obtain guarantees, or (3) no
governments will be able to obtain
guarantees. The EKA discusses the
sensitivity of the results to alternative
assumptions about the availability of
guarantees.
BILLING CODE (S80-40-M
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Figure 1
Estimated Use of Financial Assurance Mechanisms
(Counties, Municipalities, Townships, School Districts, and Special Districts)3
1.6%
3.9%
4.2%
88.5%
Percentage of Governments
State Fund, Insurance,
Risk Retention Group
Fund Balance Mechanism
Bond Rating
Guarantee
0.8%
1.2% 0.0%
2.5%
7.0%
88.5%
Percentage of USTs
Worksheet Test
Closure/Retail
Fuel Purchase
Percentages may not add up to 100 percent due to rounding.
Source: EPA, "Economic Impact and Regulatory Flexibility Analysis of Additional
Mechanisms for Local Government Entities to Demonstrate Financial Responsibility
for Underground Storage Tanks." EPA Office of Underground Storage Tanks, 1992.
I
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—
Number of UST-Owning Governments
Response Under October 1988 Rule
Number of Governments
Demonstrating Financial Responsibility
Number of USTs Covered
By Financial Responsibility
Number of USTs Closed
Annual Cost ($ millions)
Response Under This Rule
Additional Governments
Demonstrating Financial Responsibility
Additional USTs Remaining in Operation
Annual Cost Savings ($ millions)
Summary of Results of
Economic Impact Analysis
General Purpose Governments
Vefy " Very
Large Largs Medium Small Large
1,360 3,870 3.643 2.764 840
1,259 3,452 3,249 2.447 778
12,791 8.546 4,573 2,585 2,915
1,022 1.034 553 336 233
2.2 1.6 1.0 0.4 0.7
--------
101 396 365 283 62
1,022 977 517 298 230
1-0 0.7 0.5 0.1 0.4
Source: EPA, Economic Impact Analysis of Additional Mechanisms for Local Government Entfflp* m I
Underground Storage Tanks
BILUNQ CODE KCO-60-C
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(December, 1992).
Special Districts
Large Medium Small
4,785 6,617 646
4,269 5,902 568
15.485 8,384 575
1,874 1,015 80
2.7 1.8 0.0
- — - - - - - -
509 501 47
1,856 715 47
1.2 0.7 0.0
emonsrate nancial Responsibilrty for
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9050 Federal Register / Vol. 58, No. 31 / Thursday, February 18, 1993 / Rules and Regulations
local governments to retain their USTs.
The study would also look into the
feasibility of alternative methods of
providing fuel (for essential public
services) without requiring the
ownership of USTs by these
governments. In addition, the study
would assess the continued availability
of State financial assistance and
assurance funds and their effects on
local governments that own USTs. EPA
will USD the findings from this study to
help monitor the effects of the UST'
requirements on local governments and
to help assess the need for any further
Agency guidance or action.
It should be noted that UST closures
do not necessarily result in a loss of
availability of fuel. Local governments
have several means of assuring a
continuing fuel supply: Purchase of fuel
from retail outlets, use of above-ground
tanks (where fire codes permit), and
"pooling" of fuel sources with
neighboring governments (local or State)
that are able to demonstrate financial
responsibility. The concern expressed
by local governments is the availability
of fuel for emergency vehicles when
retail stations may be closed. EPA
understands that some local
governments are participating in "card-
lock" arrangements. Under a card-lock
arrangement, participants are issued
magnetic cards that can then unlock the
fuel pump; fuel withdrawal is
monitored and charged to the card
owner. With this arrangement, no
attendant is necessary, and there is 24-
hour accoss to fuel. Some of these
alternatives have the added benefit of
removing the costs and liability of
maintaining USTs from local
governments.
One commenter contended that EPA's
rationale for not developing a regulatory
flexibility analysis for the proposed rule
is flawed, arguing that because the
proposed rule simply amends the
financial responsibility requirement,
which initially imposed a burden on the
regulated community, the benefits of the
proposed rule cannot be accurately
assessed in isolation of these
requirements. As discussed above, the
Agency has used this rule to provide
additional flexibility to local
governments, and particularly small
local governments.
EPA does not, however, consider a
baseline of no financial responsibility
requirement to be a reasonable baseline
for analyzing this rule. After review
with regard to the 1988 financial
responsibility rule, the Agency
determined that although most local
governments have adequate stability
and financial strength to respond to an
UST release, not all local governments
have the resources to meet their UST-
related obligations. Given these
concerns, EPA believes that exempting
all local governments from the financial
responsibility requirement would not be
consistent with statutory intent.
C. Paperwork Reduction Act
The information collection
requirements in this rule have been
approved by the Office of Management
and Budget (OMB) under the Paperwork
Reduction Act, 44 U.S.C. 3501 et seq.
and have been assigned control number
2050-0066. An Information Collection
Request document has been prepared by
EPA (ICR No. 1359.04) and a copy may
be obtained from Sandy Fanner,
Information Policy Branch, EPA, 401M
Street, SW. (PM-223Y), Washington,
D.C. 20460 or by calling (202) 260-2740.
The information Collection requirements
were approved by the Office of
Management and Budget (OMB) under
the Paperwork Reduction Act, 44 U.S.C.
3501 et seq. and assigned OMB control
number 2050-0066. The Agency
estimated the total annual burden on the
regulated community of local
governments to be 28,518 hours. The
Agency estimated the burden on local
government entities for reading the
requirements to be 24,188 hours, the
reporting or disclosure burden to be 218
hours, and the total recordkeeping
burden to be 4,112 hours. The average
burden for reading the requirements was
estimated to be one hour. The average
burden for reporting or disclosure was
estimated to be two hours, while only
0.45 percent of all local government
UST owners and operators were
expected to be required to report each
year. The average annual burden to
maintain records of the alternative
mechanisms was estimated to be 0.17
hours. These burden estimates included
all aspects of the collection effort and
included time for reviewing
instructions, searching existing data
sources, gathering and maintaining the
data needed, and completing and
reviewing the collection of information.
Send comments regarding the burden
estimate or any other aspect of this
collection of information, including
suggestions for reducing this burden, to
Chief, Information Policy Branch, PM-
223Y, U.S. Environmental Protection
Agency, 401M Street, S.W.,
Washington, B.C. 20460; and to the
Office of Information and Regulatory.
Affairs, Office of Management and
Budget, Washington, D.C. 20503,
marked "Attention: Jonathan Gledhill."
VI. Supporting Documents
In addition to supporting material
found in the rulemaking docket, EPA
has prepared the following supporting
documents to support this rule:
EPA, "Background Document in
Support of Financial Self-Test for Local
Governments Subject to the Financial
Responsibility Requirements of Subtitle
I of the Resource Conservation and
Recovery Act," U.S. Environmental.
Protection Agency, Office of
Underground Storage Tanks (November,
1992).
EPA, "Economic Impact Analysis of
Additional Mechanisms for Local
Government Entities to Demonstrate
Financial Responsibility for
Underground Storage Tanks," EPA.
Office of Underground Storage Tanks
(November, 1992).
• EPA, "Response to Comments on the
June 18,1990 Proposed Rule to Provide
Additional Mechanisms for Local
Government Entities to Demonstrate
Financial Responsibility for
Underground Storage Tanks," EPA
Office of Underground Storage Tanks
(November, 1992).
List of Subjects in 443 CFR Part 280
Administrative practice and
procedure, Environmental protection,
Hazardous materials insurance,
•Hazardous substances, Insurance, Oil
pollution, Penalties, Petroleum,
Reporting and recordkeeping
requirements, State program approval,
Surety bonds, Underground storage
tanks, Water pollution control, Water
supply.
Dated: January 15,1993.
William K. Reilly,
Administrator,
For the reasons sot forth in the
preamble, part 280 of title 40 of the
Code of Federal Regulations is amended
as follows:
PART 280—TECHNICAL STANDARDS
AND CORRECTIVE ACTION
REQUIREMENTS FOR OWNERS AND
OPERATORS OF UNDERGROUND
STORAGE TANKS
1. The authority citation for part 280
continues to read as follows:
Authority: 42 U.S.C. 6912, 6991,6991a,
6991b, 6991c, 6991e, 6991f, and 6991h.
2. Section 280.92 is amended by
removing the paragraph designations (a)
through (o) and adding in alphabetical
order three definitions reading as
follows:
§ 280.92 Definition of terms.
*****
Chief Financial Officer, in the case of
localgovernment owners and operators,
means the individual with the overall
authority and responsibility for the
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Federal Register / Vol. 58, No. 31 / Thursday. February 18. 1993 / Rules and Regulations 9051
collection, disbursement, and use of
funds by the local government.
» * • * * *
Local government shall have the
meaning given this term by applicable
state law and includes Indian tribes.
The term is generally intended to
include: (1) Counties, municipalities,
townships, separately chartered and
operated special districts (including
local government public transit systems
and redevelopment authorities), and
independent school districts authorized
as governmental bodies by state charter
or constitution; and (2) Special districts
and independent school districts
established by counties, municipalities,
townships, and other general purpose
governments to provide essential
services.
* * * ' * *
Substantial governmental relationship
means the extent of a governmental
relationship necessary under applicable
state law to make an added guarantee
contract issued incident to that
relationship valid and enforceable. A
guarantee contract is issued "incident to
that relationship" if it arises from a clear
commonality of interest in the event of
an UST release 'Such as coterminous
boundaries, overlapping constituencies,
common ground-water aquifer, or other
relationship other than monetary
compensation that provides a
motivation for the guarantor to provide
a guarantee.
*****
3. §280.94 is' amended by revising
paragraphs (a) and (b) to read as follows:
§ 280.94 Allowable mechanisms and
combinations of mechanisms.
(a) Subject to the limitations of
paragraphs (b) and (c) of this section,
(1) An owner or operator, including a
local government owner or operator,
may use any one or combination of the
mechanisms listed in §§ 280.95 through
280.103 to demonstrate financial
responsibility under this subpart for one
.or more underground storage tanks, and
(2) A local government owner or
operator may use any one or
combination of the mechanisms listed
in §§ 280.104 through 280.107 to
demonstrate financial responsibility
under this subpart for one or more
underground storage tanks.
(b) An owner or operator may use a
guarantee under § 280.96 or surety bond
under § 280.98 to establish financial
responsibility only if the Attorney(s)
General of the state(s) in which the
underground storage tanks are located
has (have) submitted a written statement
to the implementing agency that a
guarantee or surety bond executed as
described in this section is a legally
valid and enforceable obligation in that
state.
* * *. * *
4. The following sections are
redesignated according to the following
table:
Od section no.
§280 104
§280 105
§280.106
§280.107
§280108
§280.109
§280.110
§280.111
6280112
New section no.
§280.106.
§280:109.
§280.110.
§280.111.
§280.112.
§280.113.
§280.114.
§280.115.
§280.116.
5. Newly designated §§ 280.109,
280.110, 280.111, 280.112, 280.114. and
280.115 are revised to read as follows:
§ 280.109 Cancellation or nonrenewal by •
provider of financial assurance.
(a) Except as otherwise provided, a
provider of financial assurance may
cancel or fail to renew an assurance
mechanism by sending a notice of
termination by certified mail to the
owner or operator.
(1) Termination of a local government
guarantee, a guarantee, a surety bond, or
a letter of credit may not occur until 12Q
days after the date on which the owner . •
or operator receives the notice of
termination, as evidenced by the return
receipt.
(2) Termination of insurance or risk
retention coverage, except for non-
payment or misrepresentation by the
insured, or state-funded assurance may
not occur until 60 days after the date on
which the owner or operator receives
the notice of termination, as evidenced
by the return receipt. Termination for
non-payment of premium or
misrepresentation by the insured may
not occur until a minimum of 10 days
after the date on which the owner or
operator receives the notice of
termination, as evidenced by the return
receipt.
(b) If a provider of financial
responsibility cancels or fails to renew
for reasons other than incapacity of the
provider as specified in § 280.114, the
owner or operator must obtain alternate
coverage as specified in this section
within 60 days after receipt of the notice
of termination. If the owner or operator
fails to obtain alternate coverage within
60 days after receipt of the notice of
termination, the owner or operator must
notify the Director of the implementing
agency of such failure and submit:
(1) The name and address of the
provider of financial assurance;
(2) The effective date of termination;
and
(3) The evidence of the financial
assistance mechanism subject to the
termination maintained in accordance
with § 280.107(b).
1280.110 Reporting by owner or operator.
(a) An owner or operator must submit
the appropriate forms listed in
§ 280.111(b) documenting current
evidence of financial responsibility to
the Director of the implementing
agency:
(1) Within 30 days after the owner or
operator identifies a release from an
underground storage tank required to be
reported under § 280.53 or § 280.61;
(2) If the owner or operator fails to
obtain alternate coverage as required by
this subpart, within 30 days after the
. owner or operator receives notice of:
(i) Commencement of a voluntary or -
involuntary proceeding under Title 11
(Bankruptcy), U.S. Code, naming a
provider of financial assurance as a
debtor,
(ii) Suspension or revocation of the
authority of a provider of financial
assurance to issue a financial assurance
mechanism,
(iii) Failure of a guarantor to meet the
requirements of the financial test,
Civ) Other incapacity of a provider of
financial assurance; or
(3) As required by § 280.95(g) and
§280.109(b).
(b) An owner or operator must certify
compliance with the financial
responsibility requirements of this part
as specified in the new tank notification
form when notifying the appropriate
state or local agency of the installation
of a new underground storage tank
under § 280.22.
(c) The Director of the Implementing
Agency may require an owner or
operator to submit evidence of financial
assurance as described in §280.Ill (b)
or other information relevant to
compliance with this subpart at any
time.
(The information requirements in this section
have been approved by the Office of
Management and Budget and assigned OMB
control number 2050-0066).
§280.111 Recordkeeplng.
(a) Owners or operators must
maintain evidence of all financial
assurance mechanisms used to
demonstrate financial responsibility
under this subpart for an underground
storage tank until released from the
requirements of this subpart under
§ 208.113. An owner or operator must,
maintain such evidence at the
underground storage tank site or the
owner's or operator's place of work.
Records maintained off-site must be
made available upon request of the
implementing agency.
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9052 Federal Register / Vol. 58, No. 31 / Thursday, February 18. 1993 / Rules and Regulations
(b) An owner or operator must
maintain die following types of
evidence of financial responsibility:
(1) An owner or operator using an
assurance mechanism specified in
§§ 280.95 through 280.100 or § 280.102
or §5 280.104 through 280.107 must
maintain a copy of the instrument
worded as specified.
(2) An owner or operator using a
financial tost or guarantee, or a local
government financial test or a local
government guarantee supported by .the
local government financial test must
maintain a copy of the chief financial
officer's letter based on year-end
financial statements for the most recent
completed financial reporting year.
Such evidence must be on file no later
than 120 days after the close of the
financial reporting year.
(3) An owner or operator using a
guarantee, surety bond, or letter of
credit must maintain a copy of the
signed standby trust fund agreement
and copies of any amendments to the
agreement.
(4) A local government owner or
operator using a local government
guarantee under § 280.106(d) must
maintain a copy of the signed standby
trust fund agreement and copies of any
amendments to the agreement.
(5) A local government owner or
operator using the local government
bond rating test under § 280.104 must
maintain a copy of its bond rating
published within the last twelve months
by Moody's or Standard & Poor's.
(6) A local government owner or
operator using the local government
guarantee under § 280.106, where the
guarantor's demonstration of financial
responsibility relies on the bond rating
test under § 280.104 must maintain a
copy of the guarantor's bond rating
published within the last twelve months
by Moody's or Standard & Poor's.
(7) An owner or operator using an
insurance policy or risk retention group
coverage must maintain a copy of the
signed insurance policy or risk retention
group coverage policy, with the
endorsement or certificate of insurance
and any amendments to the agreements.
(8) An owner or operator covered by
a state fund or other state assurance
must maintain on file a copy of any
evidence of coverage supplied by or
required by the state under § 280.101(d).
19) An owner or operator using a local
government fund under § 280.107 must
maintain the following documents:
(i) A copy of the state constitutional
provision or local government statute,
charter, ordinance, or order dedicating
the fund, and
(ii) Year-end financial statements for
the most recent completed financial
reporting year showing the amount in
the fund. If the fund is established
under § 280.107(aj(3) using incremental
funding backed by bonding authority,
the financial statements must show the
previous year's balance, the amount of
funding during the year, and the closing
balance in the fund.
(iii) If the fund is established under
§ 280.107(a)(3) using incremental
funding backed by bonding authority,
the owner or operator must also
maintain documentation of the required
bonding authority, including either the
results of a voter referendum (under
§ 280.107(a)(3)(i))i or attestation by the
State Attorney General as specified
under § 280.107(a)(3)(ii).
(10) A local government owner or
operator using the local government
guarantee supported by the local
government fund must maintain a copy
of the guarantor's year-end financial
statements for the most recent
completed financial reporting year
showing the amount of the fund.
(ll)(i) An owner or operator using an
assurance mechanism specified in
§§ 280.95 through 280.107 must
maintain an updated copy of a
certification of financial responsibility
worded as follows, except that
instructions in brackets are to be
replaced with the relevant information
and the brackets deleted:
Certification of Financial Responsibility
[Owner or operator] hereby certifies
that it is in compliance with the
requirements of subpart H of 40 CFR
part 280.
The financial assurance mechanism(s)
used to demonstrate financial
responsibility under subpart H of 40
CFR part 280 is (are) as follows:
[For each mechanism, list the type of
mechanism, name of issuer, mechanism
number (if applicable), amount of
coverage, effective period of coverage
and whether the mechanism covers
"taking corrective action" and/or.
"compensating third parties for bodily
injury and property damage caused by"
either "sudden accidental releases" or
"nonsudden accidental releases" or
"accidental releases."]
[Signature of owner or operator]
[Name of owner or operator]
[Title]
[Date]
[Signature of witness or notary]
[Name of witness or notary]
[Date]
(ii) The owner or operator must
update this certification whenever the
financial assurance mechanism(s) used
to demonstrate financial responsibility
change(s).
(The information requirements in this section
have been approved by the Office of
Management and Budget and assigned OMB
control number 2050-0066.)
f280.112 Drawing on financial aMuranc*
nwchwitonw.
(a) Except as specified in paragraph
(d) of this section, tho Director of the
implementing agency shall require the
guarantor, surety, or institution issuing
a letter of credit to place the amount of
funds stipulated by the Director, up to
the limit of funds provided by the
financial assurance mechanism, into the
standby trust if:
(l)(i) The owner or operator fails to
establish alternate financial assurance
within 60 days after receiving notice of
cancellation of the guarantee, surety
bond, letter of credit, or, as applicable,
other financial assurance mechanism;
and
(ii) The Director determines or
suspects that a release from an
underground storage tank covered by
the mechanism has occurred and so
notifies the owner or operator or the j
owner or operator has notified the
Director pursuant to subparts E or F of
a release from an underground storage
tank covered by the mechanism; or
(2) The conditions of paragraph (b)(l)
or (b)(2) (i) or (ii) of this section are
satisfied.
(b) The Director of the implementing
agency may draw on a standby trust
fund when:
(1) The Director makes a final
determination that a release has
occurred and immediate or long-term
corrective action for the release is
needed, and the owner or operator, after
appropriate notice and opportunity to
comply, has not conducted corrective
action as required under 40 CFR part
280, subpart F; or
(2) The Director has received either:
(i) Certification from the owner or
operator and the third-party liability
claimant(s) and from attorneys
representing the owner or operator and
the third-party liability claimant(s) that
a third-party liability claim should be
paid. The certification must be worded
as follows, except that instructions in
brackets are to be replaced with the
relevant information and the brackets
deleted:
Certification of Valid Claim
The undersigned, as principals and as
legal representatives of [insert: owner or
operator] and [insert: name and address
of third-party claimant], hereby certify
that the claim of bodily injury [and/or]
property damage caused by an
accidental release arising from operating
[owner's or operator's] underground
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Federal Register / Vol. 58, No. 31 / Thursday, February 18, 1993 / Rules and Regulations 9053
storage tank should be paid in the
amount of $[_ _\.
[Signatures]
Owner or Operator
Attorney for Owner or Operator
(Notary)
Date
[Signatures]
Claimant(s)
Attorney(s) for Claimant(s)
(Notary)
Date
or (ii) A valid final court order
establishing a judgment against the
owner or operator for bodily injury or
property damage caused by an
accidental release from an underground
storage tank covered by financial
assurance under this subpart and the
Director determines that the owner or
operator has not satisfied the judgment.
(c) If the Director of the implementing
agency determines that the amount of
corrective action costs and third-party
liability claims eligible for payment
under paragraph (b) of this section may
exceed the balance of the standby trust
fund and the obligation of the provider
of financial assurance, the first priority
for payment shall be corrective action
costs necessary to protect human health
and the environment. The Director shall
pay third-party liability claims in the
order in which the Director receives
certifications under paragraph (b)(2)(i)
of this section, and valid court orders
under paragraph (b)(2)(ii) of this section.
(d) A governmental entity acting as
guarantor under § 280.106(e), the local
government guarantee without standby
trust, shall make payments as directed
by the Director under the circumstances
described in § 280.112 (a), (b), and (c).
§ 280.114 Bankruptcy or other Incapacity
of owner or operator or provider of financial
assurance.
(a) Within 10 days after
commencement of a voluntary or
involuntary proceeding under Title 11
(Bankruptcy), U.S. Code, naming an
owner or operator as debtor, the owner
or operator must notify the Director of
the implementing agency by certified
mail of such commencement and submit
the appropriate forms listed in
§ 280.111(b) documenting current
financial responsibility.
(b) Within 10 days after
commencement of a voluntary or
involuntary proceeding under Title 11
(Bankruptcy), U.S. Code, naming a
guarantor providing financial assurance
as debtor, such guarantor must notify
the owner or operator by certified mail
of such commencement as required
under the terms of the guarantee
specified in § 280.96.
(c) Within 10 days after
commencement of a voluntary or
involuntary proceeding under Title 11
(Bankruptcy), U.S. Code, naming a local
government owner or operator as debtor,
the local government owner or operator
must notify the Director of the
implementing agency by certified mail
of such commencement and submit the
appropriate forms listed in § 280.111(b)
documenting current financial
responsibility.
(d) Within 10 days after
commencement of a voluntary or
involuntary proceeding under Title 11
(Bankruptcy), U.S. Code, naming a
guarantor providing a local government
financial assurance as debtor, such
guarantor must notify the local
government owner or operator by
certified mail of such commencement as
required under the terms of the
guarantee specified in § 280.106.
(e) An owner or operator who obtains
financial assurance by a mechanism
other than the financial test of self-
insurance will be deemed to be without
the required financial assurance in the
event of a bankruptcy or incapacity of
its provider of financial assurance, or a
suspension or revocation of the
authority of the provider of financial
assurance to issue a guarantee,
insurance policy, risk retention group
coverage policy, surety bond, letter of
credit, or state-required mechanism. The
owner or operator must obtain alternate
financial assurance as specified in this
subpart within 30 days after receiving
notice of such an event. If the owner or
operator does not obtain alternate
coverage within 30 days after such
notification, he must notify the Director
of the implementing agency.
(f) Within 30 days after receipt of
notification that a state fund or other
state assurance has become incapable of
paying for assured corrective action or
third-party compensation costs, the
owner or operator must obtain alternate
financial assurance.
§ 280.115 Replenishment of guarantees,
letters of credit, or surety bonds.
(a) If at any time after a standby trust
is funded upon the instruction of the
Director of the implementing agency
with funds drawn from a guarantee,
local government guarantee with
standby trust, letter of credit, or surety
bond, and the amount in the standby
trust is reduced below the full amount
of coverage required, the owner or
operator shall by the anniversary date of
the financial mechanism from which the
funds were drawn:
(1) Replenish the value of financial
assurance to equal the full amount of
coverage required, or
(2) Acquire another financial
assurance mechanism for the amount by
which funds in the standby trust have
been reduced.
(b) For purposes of this section, the
full amount of coverage required is the
amount of coverage to be provided by
§ 280.93 of this subpart. If a
combination of mechanisms was used to
provide the assurance funds which were
drawn upon, replenishment shall occur
by the earliest anniversary date among
the mechanisms.
6. New § 280.104 is added to read as
follows:
S 280.104 Local government bond rating
test.
(a) A general purpose local
government owner or operator and/or
local government serving as a guarantor
may satisfy the requirements of § 280.93
by having a currently outstanding issue
or issues of general obligation bonds of
$1 million or more, excluding refunded
obligations, with a Moody's rating of
Aaa, Aa, A, or Baa, or a Standard &
Poor's rating of AAA, AA, A, or BBB.
Where a local government has multiple
outstanding issues, or where a local
government's bonds are rated by both
Moody's and Standard and Poor's, the
lowest rating must be used to determine
eligibility. Bonds that are backed by
credit enhancement other than
municipal bond insurance may not be
considered in determining the amount
of applicable bonds outstanding.
(b) A local government owner or
operator or local government serving as
a guarantor that is not a general-purpose
local government and does not have the
legal authority to issue general
obligation bonds may satisfy the
requirements of § 280.93 by having a
currently outstanding issue or issues of
revenue bonds of $1 million or more,
excluding refunded issues and by also
having a Moody's rating of Aaa, A, A,
or Baa, or a Standard & Poor's rating of
AAA, AA, A, or BBB as the lowest
rating for any rated revenue bond issued
by the local government. Where bonds
are rated by both Moody's and Standard
& Poor's, the lower rating for each bond
must be used to determine eligibility.
Bonds that are backed by credit
enhancement may not be considered in
determining the amount of applicable
bonds outstanding.
(c) The local government owner or
operator and/or guarantor must
maintain a copy of its bond rating
published within the last 12 months by
Moody's or Standard & Poor's.
(d) To demonstrate that it meets the
local government bond rating test, the
chief financial officer of a general
purpose local government owner or
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9054 Federal Register / Vol. 58, No. 31 / Thursday, February 18, 1993 / Rules and Regulations
operator and/or guarantor must sign a
loiter worded exactly as follows, except
that the instructions in brackets are to
be replaced by the relevant information
and the brackets deleted:
Letter from Chief Financial Officer
I tun the chief financial officer of [insert:
namo and address of local government owner
or operator, or guarantor]. This letter is in
support of the use of the bond rating test to
demonstrate financial responsibility for
[insert: "taking corrective action" and/or
"compensating third parties for bodily injury
and property damage"] caused by [insert:
"sudden accidental releases" and/or
"nonsudden accidental releases"] in the
amount of at least (insert: dollar amount] per
occurrence and [insert: dollar amount]
annual aggregate arising from operating (an]
underground storage tank(s).
Underground storage tanks at the following
facilities are assured by this bond rating test:
[List for each facility: 'the name and address
of the facility where tanks are assured by the
bond rating test].
The details of the issue date, maturity,
outstanding amount, bond rating, and bond
rating agency of all outstanding bond issues
that are being used by [name of local
government owner or operator, or guarantor]
to demonstrate financial responsibility, are as
follows: [complete table]
lews date
Maturity date
Outstanding amount
Bond rating
Rating agency
[Mcod/s or Standard &
Poor-si
The total outstanding obligation of [insert
amount], excluding refunded'bond issues,
exceeds the minimum amount of SI million.'
All outstanding general obligation bonds
issued by this government that have been
rated by Moody's or Standard & Poor's are
rated as at least investment grade (Moody's
Baa or Standard & Poor's BBB) based on the
most recent ratings published within the last
12 months. Neither rating service has
provided notification within the last 12
months of downgrading of bond ratings
below investment grade or of withdrawal of
bond rating other than for repayment of
outstanding bond issues.
1 hereby certify that the wording of this
letter is identical to the wording specified in
40 CFR Part 280.104(d) as such regulations
wore constituted on the date shown
immediately below.
(Date]
(Signature1]
(Name]
[Title]
(e) To demonstrate that it meets the
local government bond rating test, the
chief financial officer of local
government owner or operator and/or
guarantor other than a general purpose
government must sign a letter worded
exactly as follows, except that the
instructions in brackets are to be
replaced by the relevant information
and the brackets deleted:
Letter from Chief Financial Officer •
I am the chief financial officer of [insert:
name and address of local government owner
or operator, or guarantor]. This letter is in
support of the use of the bond rating test to
demonstrate financial responsibility for
[insert: "taking corrective action" and/or
"compensating third parties for bodily injury
and property damage"] caused by [insert:
"sudden accidental releases" and/or
"nonsudden accidental releases") in the
•amount of at least [insert: dollar amount] per
occurrence and [insert: dollar amount]
annual aggregate arising from operating (an)
underground storage tank(s). This local
government is not organized to provide
general governmental services and does not
have the legal authority under state law or
constitutional provisions to issue general
obligation debt.
Underground storage tanks at the following
facilities are assured by this bond rating test:
[List for each facility: the name and address
of the facility where tunks are assured by the
bond rating test].
The details of the issue date, maturity,
outstanding amount, bond rating, and bond
rating agency of all outstanding revenue bond
issues that are being used by [name of local
government owner or operator, or guarantor]
to demonstrate financial responsibility are as
follows: [complete table]
Issue date
Maturity date
Outstanding amount
Bond rating
Rating agency
[Moody's or Standard &
Poor's]
The total outstanding obligation of [insert
amount], excluding refunded bond issues,
exceeds the minimum amount of Si million.
All outstanding revenue bonds issued by this
government that have been rated by Moody's
or Standard & Poor's are rated as at least
investment grade (Moody's Baa or Standard
& Poor's BBB) based on the most recent
ratings published within the last 12 months.
The revenue bonds listed are not backed by
third-party credit enhancement or are
insured by a municipal bond insurance
company. Neither rating service has provided
notification within the last 12 months of
downgrading of bond ratings below
Investment grade or of withdrawal of bond
rating other than for repayment of
outstanding bond issues.
1 hereby certify that the wording of this
U'Uer is identical to the wording specified in
40 CFR Part 280,104(e) as such regulations
WUK* constituted on the date shown
immediately below.
(Datf!
[Name]
[Title]
(f) The Director of the implementing
agency may require reports of financial
condition at any time from the local
government owner or operator, and/or
local government guarantor. If the
Director finds, on the basis of such
reports or other information, that the
local government owner or operator,
and/or guarantor, no longer meets the
local government bond rating test
requirements of § 280.104, the local
government owner or operator must
obtain alternative coverage within 30
days after notification of such a finding.
(g) If a local government owner or
operator using the bond rating test to
provide financial assurance finds that it
no longer meets the bond rating test
requirements, the local government
owner or operator must obtain
alternative coverage within 150 days of
the change in status.
7. New § 280.105 is added to read as
.follows:
§280.105 Local government financial test
(a) A local government owner or
operator may satisfy the requirements of
§ 280.93 by passing the financial test
specified in this section. To be eligible
to use the financial test, the local
government owner or operator must
have the ability and authority to assess
and levy taxes or to freely establish fees
and charges. To pass the local
government financial test, the owner or
operator must meet the criteria of
paragraphs (b)(2) and (b)(3) of this
section based on year-end financial
statements for the latest completed
fiscal year.
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Federal Register / Vol. 58, No. 31 / Thursday, February 18, 1993 / Rules and Regulations 9055
(b)(l) The local government owner or
operator must have the following
information available, as shown in the
year-end financial statements for the
latest completed fiscal year:
(i) Total revenues: Consists of the sum
of general fund operating and non-
operating revenues including net local
taxes, licenses and permits, fines and
forfeitures, revenues from use of money
and property, charges for services,
investment earnings, sales (property,
publications, etc.), intergovernmental
revenues (restricted and unrestricted),
and total revenues from all other
governmental funds including
enterprise, debt service, capital projects,
and special revenues, but excluding
revenues to funds held in a trust or
agency capacity. For purposes of this
test, the calculation of total revenues
shall exclude all transfers between
funds under the direct control of the
local government using the financial test
(interfund transfers), liquidation of
investments, and issuance of debt.
(ii) Total expenditures: Consists of the
sum of general fund operating and non-
operating expenditures including public
safety, public utilities, transportation,
public works, environmental protection,
cultural and recreational, community
development, revenue sharing,
employee benefits and compensation,
office management, planning and
zoning, capital projects, interest
payments on debt, payments for
retirement of debt principal, and total
expenditures from all other
governmental funds including
enterprise, debt service, capital projects,
and special revenues. For purposes of
this test, the calculation of total
expenditures shall exclude all transfers
between funds under the direct control
of the local government using the
financial test (interfund transfers).
(iii) Local revenues: Consists of total
revenues (as defined in paragraph
(b)(l)(i) of this section) minus the sum
of all transfers from other governmental
entities, including all monies received
from Federal, state, or local government
sources.
(iv) Debt service: Consists of the sum
of all interest and principal payments
on all long-term credit obligations and
all interest-bearing short-term credit
obligations. Includes interest and
principal payments on general
obligation bonds, revenue bonds, notes,
mortgages, judgments, and interest
bearing warrants. Excludes payments on
non-interest-bearing short-term
obligations, interfund obligations,
amounts owed in a trust or agency
capacity, and advances and contingent
loans from other governments.
(v) Total funds: Consists of the sum of
cash and investment securities from all
funds, including general, enterprise,
debt service, capital projects, and
special revenue funds, but excluding
employee retirement funds, at the end of
the local government's financial
reporting year. Includes Federal
securities, Federal agency securities,
state and local government securities,
and other securities such as bonds,
notes and mortgages. For purposes of
this test, the calculation of total funds
shall exclude agency funds, private trust
funds, accounts receivable, value of real
property, and other non-security assets.
(vi) Population consists of the number
of people in the area served by the local
government.
(2) The local government's year-end
financial statements, if independently
audited, cannot include an adverse
auditor's opinion or a disclaimer of
opinion. The local government cannot
have outstanding issues of general
obligation or revenue bonds that are
fated as less than investment grade.
(3) The local government owner or
operator must have a letter signed by the
chief financial officer worded as
specified in paragraph (c) of this
section.
(c) To demonstrate that it meets the
financial test under paragraph (b) of this
section, the chief financial officer of the
local government owner or operator,
must sign, within 120 days of the close
of each financial reporting year, as
defined by the twelve-month period for
which financial statements used to
support the financial test are prepared,
a letter worded exactly as follows,
except that the instructions in brackets
are to be replaced by the relevant
information and the brackets deleted:
Letter From Chief Financial Officer
I am the chief financial officer of [insert:
name and address of the owner or operator].
This letter is in support of the use of the local
government financial test to demonstrate
financial responsibility for [insert: "taking
corrective action" and/or "compensating
third parties for bodily injury and property
damage"] caused by [insert: "sudden
accidental releases" and/or "nonsudden
accidental releases"] in the amount of at least
[insert: dollar amount] per occurrence and
[insert: dollar amount] annual aggregate
arising from operating [an] underground
storage tank[s).
Underground storage tanks at the following
facilities are assured by this financial test
[List for each facility: the name and address
of the facility where tanks assured by this
financial test are located. If separate
mechanisms or combinations of mechanisms
are being used to assure any of the tanks at
this facility, list each tank assured by this
financial test by the tank identification
number provided in the notification
submitted pursuant to 40 CFR Part 280.22 or
the corresponding state requirements.]
This owner or operator has not received an
adverse opinion, or a disclaimer of opinion
from an independent auditor on its financial
statements for the latest completed fiscal
year. Any outstanding issues of general
obligation or revenue bonds, if rated, have a
Moody's rating of Aaa, Aa, A, or Baa or a
Standard and Poor's rating of AAA, AA, A,
or BBB; if rated by both firms, the bonds have
a Moody's rating of Aaa, Aa, A, or Baa and
a Standard and Poor's rating of AAA, AA, A,
or BBB.
Worksheet for Municipal Financial Test
Part I: Basic Information
1. Total Revenues
••a. Revenues (dollars)
Value of revenues excludes liquidation of
investments and issuance of debt. Value
includes all general fund operating and
non-operating revenues, as well as all
revenues from all other governmental
funds including enterprise, debt service,^
capital projects, and special revenues, f
but excluding revenues to funds held ini,
a trust or agency capacity.
b. Subtract interfund transfers
(dollars) .
c. Total Revenues (dollars)
2. Total Expenditures
• a. Expenditures (dollars)
Value consists of the sum of general fund
operating and non-operating
expenditures including interest
payments on debt, payments for
retirement of debt principal, and total
expenditures from all other
governmental funds including
enterprise, debt service, capital projects,
and special revenues.
b. Subtract interfund transfers
(dollars)
c. Total Expenditures (dollars)
3. Local Revenues
a. Total Revenues (from Ic) (dollars)
b. Subtract total intergovernmental transfers
(dollars)
c. Local Revenues (dollars)
4. Debt Service
a. Interest and fiscal pharges
(dollars)
b. Add debt retirement (dollars)
c. Total Debt Service (dollars)
5. Total Funds (Dollars)
(Sum of amounts held as cash and
investment securities from all funds,
excluding amounts held for employee
retirement funds, agency funds, and trust
funds)
6. Population (Persons)
Part II: Application of Test
7. Total Revenues to Population
a. Total Revenues (from Ic)
b. Population (from 6)
c. Divide 7a by 7b
d. Subtract 417
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Federal Register / Vol. 58, No. 31 / Thursday. February 18, 1993 / Rules and Regulations
e.DIvido by 5.212 .
f. Multiply by 4.095
8. Total Expanses to Population
a. Total Expanses (from 2c)_
b. Population (from 6)
c. Divide 8a by 8b _ _
d. Subtract 524 .
o. Divide by 5.401
f. Multiply by 4.095
9. Local Rovonuos to Total Revenues
a. Local Revenues (from 3c)
b. Total Revenues (from Ic).
c. Divide 9a by 9b
d. Subtract .695
o. Divide by .205
f. Multiply by 2.840
10. Debt Service to Population
a. Debt Service (from 4d) __
b. Population (from 6)
c. Divide lOa by lOb
d. Subtract 51 .
e, Divide by 1,038 .
f. Multiply by -1.866
11. Debt Service to Total Revenues
a. Debt Service (from 4d)__
b. Total Revenues (from Ic)
c. Divide lla by lib
d. Subtract .068
e, Divide by .259
f. Multiply by -3.533
12. Total Revenues to Total Expenses
a. Total Revenues (from lc)_
b. Total Expenses (from 2c)
c. Divide 12a by 12b
d. Subtract .910 .
e. Divide by .899
f. Multiply by 3.458
13. Funds Balance to Total Revenues
a, Total Funds (from 5)
b. Total Revenues (from lc)___
c. Divide 13a by 13b
d. Subtract .891
c Divide by 9.156
f. Multiply by 3.270
14. Funds Balance to Total Expenses
a. Total Funds (from 5)
b. Total Expenses (from 2c)
c Divide 14a by 14b
d, Subtract .866 .
o. Divide by 6.409
f. Multiply by 3.270
15. Total Funds to Population .
a. Total Funds (from 5}
b. Population (from 6)
c Divide 15a by 15b
d. Subtract 270
e. Divide by 4,548
f Multiply by 1.866
16. Add 7f -f 8f + 9f + lOf -f llf + 12f + 13f
+ 14f * 15f + 4.937.
1 hereby certify that the financial index
sh m-n on line 16 of the worksheet is greater
than zero and that the wording of this letter
is identical to the wording specified in 40
CFR Part 280.105(c) as such regulations were
constituted on the date shown immediately
(Name]
[Title]
(d) If a local government owner or
operator using the'test to provide
financial assurance finds that it no
longer meets the requirements of the
financial test based on the year-end
financial statements, the owner or
operator must obtain alternative
coverage within 150 days of the end of
the year for which financial statements
have been prepared.
(e) The Director of the implementing
agency may require reports of financial
condition at any time from the local
government owner or operator. If the
Director finds, onithe basis of such
reports or other information, that the
local government owner or operator no
longer meets the financial test
requirements of §280.105 (b) and (c),
the owner or operator must obtain
alternate coverage within 30 days after
notification of such a finding.
(f) If the local government owner or
operator fails to obtain alternate
assurance within 150 days of finding
that it no longer meets the requirements
of the financial test based on the year-
end financial statements or within 30
days of notification by the Director of
the implementing agency that it no
longer meets the requirements of the
financial test, the owner or operator
must notify the Director of such failure
within 10 days.
8. New § 280.106 is added to read as
follows:
§280.106 Local government guarantee.
(a) A local government owner or
operator may satisfy the requirements of
§ 280.93 by obtaining a guarantee that
conforms to the requirements of this
section. The guarantor must be either
the state in which the local government
owner or operator is located or a local
government having a "substantial
governmental relationship" with the
owner and operator and issuing th.6
guarantee as an act incident to that
relationship. A local government acting
as the guarantor must:
(1) demonstrate that it meets the bond
rating test requirement of § 280.104 and
deliver a copy oif the chief financial
officer's letter as contained in
§ 280.104(c) to the local government
owner or operator; or
(2) demonstrate that it meets the
worksheet test requirements of
§ 280.105 and deliver a copy of the chief
financial officer's letter as contained in
§ 280.105(c) to the local government
owner or operator; or
(3) demonstrate that it meets the local
government fund requirements of
§ 280.107(a), § 280.107(b), or
§ 280.107(c) and deliver a copy of the
chief financial officer's letter as
contained in § 280.107 to the local
government owner or operator.
(b) If the local government guarantor
is unable to demonstrate financial
assurance under any of §§ 280.104,
280.105, 280.107(a), 280.107(b), or
280.107(c), at the end of the financial
reporting year, the guarantor shall send
by certified mail, before cancellation or
non-renewal of the guarantee, notice to
the owner or operator. The guarantee
will terminate no less than 120 days
after the date the owner or operator
receives the notification, as evidenced
by the return receipt. The owner or
operator must obtain alternative
coverage as specified in § 280.114(c).
(c) "The guarantee agreement must be
worded as specified in paragraph (d) or
(e) of this section, depending on which
of the following alternative guarantee
arrangements is selected:
(1) If, in the default or incapacity of
the owner or operator, the guarantor
guarantees to fund a standby trust as
directed by the Director of the
implementing agency, the guarantee
shall be worded as specified in
paragraph (d) of this section.
(2) If, in the default or incapacity of
the owner or operator, the guarantor
guarantees to make payments as
directed by the Director of the
implementing agency for taking
corrective action or compensating third
parties for bodily injury and property
damage, the guarantee shall be worded
as specified in paragraph (e) of this
section.
(d) If the guarantor is a state, the local
government guarantee with standby
trust must be worded exactly as follows,
except that instructions in brackets are
to be replaced with relevant information
and the brackets deleted:
Local Government Guarantee With Standby
Trust Made by a State
Guarantee made this [date] by [name of
state], herein referred to as guarantor, to [the
state implementing agency] and to any and
all third parties, and obliges, on behalf of
[local government owner or operator].
Recitals
(1) Guarantor is a state.
(2) [Local government owner or operator]
owns or operates the following underground
storage tank(s) covered by this guarantee:
[List the number of tanks at each facility and
the name(s) and address(es) of the
facility(ies) where the tanks are located. If
more than one instrument is used to assure
different tanks at any one facility, for each
tank covered by this instrument, list the tank
identification number provided in the
notification submitted pursuant to 40 CFR
Part 280 or the corresponding state
requirement, and the name and address of
the facility.] This guarantee satisfies 40 CFR
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Federal Register / Vol. 58, No. 31 / Thursday, February 18, 1993 / Rules and Regulations 9O57
Part 280, Subpart H requirements for assuring
funding for [insert: "taking corrective action"
and/or "compensating third parties for bodily
injury and property damage caused by"
either "sudden accidental releases" or
"nonsudden accidental releases" or
"accidental releases"; if coverage is different
for different tanks or locations, indicate the
type of coverage applicable to each tank or
location] arising from operating the above-
identified underground storage tank(s) in the
amount of [insert dollar amount] per
occurrence and [insert dollar amount] annual
aggregate.
(3) Guarantor guarantees to [implementing
agency] and to any and all third parties that:
In the event that [local government owner
or operator] fails to provide alternative
coverage within 60 days after receipt of a
notice of cancellation of this guarantee and
the [Director of the implementing agency] has
determined or suspects that a release has
occurred at an underground storage tank
covered by this guarantee, the guarantor,
upon instructions from the [Director] shall
fund a standby trust fund in accordance with
the provisions of 40 CFR part 280.112, in an
amount not to exceed the coverage limits
specified above.
In the event that the [Director] determines
that [local government owner or operator] has
failed to perform corrective action for
releases arising out of the operation of the
above-identified tank(s) in accordance with
40 CFR part 280,.subpart F, the guarantor
upon written instructions from the [Director]
shall fund a standby trust fund in accordance
with the provisions of 40 CFR part 280.112,
in an amount not to exceed -the coverage
limits specified above.
If [owner or operator] fails to satisfy a
judgment or award based on a determination
of liability for bodily injury or property
damage to third parties caused by ["sudden"
and/or "nonsudden"] accidental releases
arising from the operation of the above-
identified tank(s), or fails to pay an amount
agreed to in settlement of a claim arising
from or alleged to arise from such injury or
damage, the guarantor, upon written
instructions from the [Director], shall fund a
standby trust in accordance with the
provisions of 40 CFR part 280.112 to satisfy
such judgment(s), award(s), or settlement
agreement(s) up to the limits of coverage
specified above.,
(4) Guarantor agrees to notify [owner or
operator] by certified mail of a voluntary or
involuntary proceeding under Title 11
(Bankruptcy), U.S. Code naming guarantor as
debtor, within 10 days after commencement
of the proceeding.
(5) Guarantor agrees to remain bound
under this guarantee notwithstanding any
modification or alteration of any obligation of
[owner or operator] pursuant to 40 CFR part
280.
(6) Guarantor agrees to remain bound
under this guarantee for so long as [local
government owner or operator] must comply
with the applicable financial responsibility
requirements of 40 CFR part 280, Subpart H
for the above identified tank(s), except that
guarantor may cancel this guarantee by
sending notice by certified mail to [owner or
operator], such cancellation to become
effective no earlier than 120 days after receipt
of such notice by (owner or operator], as
evidenced by the return receipt.
(7) The guarantor's obligation does not
apply to any of the following:
(a) Any obligation of [local government
owner or operator] under a workers'
compensation, disability benefits, or
unemployment compensation law or other
similar law;
(b) Bodily injury to an employee of [insert:
local government owner or operator] arising
from, and in the course of, employment by
[insert: local government owner or operator];
(c) Bodily injury or property damage
arising from the ownership, maintenance,
use, or entrustment to others of any aircraft,
motor vehicle, or watercraft;
(d) Property damage to any property
owned, rented, loaded to, in the care,
custody, or control of, or occupied by [insert:
local government owner or operator] that is
not the direct result of a release from a
petroleum underground storage tank;
(e) Bodily damage or property damage for
which [insert owner or operator] is obligated
to pay damages by reason of the assumption
of liability in a contract or agreement other
than a contract or agreement entered into to
meet the requirements of 40 CFR part 280.93.
(8) Guarantor expressly waives notice of
acceptance of this guarantee by [the
implementing agency], by any or all third
parties, or by [local government owner or
operator],
I hereby certify that the wording of this
guarantee is identical to the wording
specified in 40 CFR part 280.106(d) as such
regulations were constituted on the effective
date shown immediately below.
Effective date:
[Name of guarantor]
[Authorized signature for guarantor]
[Name of person signing]
[Title of person signing]
Signature of witness or notary:
If the guarantor is a local government, the
local government guarantee with standby
trust must be worded exactly as follows,
except that instructions in brackets are to be
replaced with relevant information and the
brackets deleted:
Local Government Guarantee With Standby
Trust Made by a Local Government
Guarantee made this [date] by [name of
guaranteeing entity], a local government
organized under the laws of [name of state],
herein referred to as guarantor, to [the state
implementing agency] and to any and all
third parties, and obliges, on behalf of [local
government owner or operator].
Recitals
(1) Guarantor meets or exceeds [select one:
the local government bond rating test
requirements of 40 CFR Part 280.104, the
local government financial test requirements
of 40 CFR Part 280.105, or the local
government fund under 40 CFR Part
280.107(a), 280.107(b), or 280.107(c)].
(2) [Local government owner or operator]
owns or operates the following underground
storage tank(s) covered by this guarantee:
[List the number of tanks at each facility and
the name(s) and address(es) of the
facility(ies) where the tanks are located. If
more than one instrument is used to assure
different tanks at any one facility, for each
tank covered by this instrument, list the tank
identification number provided in the
notification submitted pursuant to 40 CFR
Part 280 or the corresponding state
requirement, and the name and address of
the facility.] This guarantee satisfies 40 CFR
Part 280, Subpart H requirements for assuring
funding for [insert: "taking corrective action"
and/or "compensating third parties for bodily
injury and property damage caused by"
either "sudden accidental releases" or
"nonsudden accidental releases" or
"accidental releases"; if coverage is different
for different tanks or locations, indicate the
type of coverage applicable to each tank or
location] arising from operating the above-
identified underground storage tank(s) in the
amount of [insert dollar amount] per
occurrence and [insert: dollar amount]
annual aggregate.
(3) Incident to our substantial
governmental relationship with [local
government owner or operator], guarantor
guarantees to [implementing agency] and to
any and all third parties that:
In the event that [local government owner
or operator] fails to provide alternative
coverage within 60 days after receipt of a
notice of cancellation of this guarantee and
the [Director of the implementing agency] has
determined or suspects that a release has
occurred at an underground storage tank
covered by this guarantee, the guarantor,
upon instructions from the [Director] shall
fund a standby trust fund in accordance with
the provisions of 40 CFR Part 280.112, in an
amount not to exceed the coverage limits
specified above.
In the event that the [Director] determines
that [local government owner or operator] has
failed to perform corrective action for
releases arising out of the operation of the •
above-identified tank(s) in accordance with
40 CFR Part 280, Subpart F, the guarantor
upon written instructions from the [Director]
shall fund a standby trust fund in accordance
with the provisions of 40 CFR Part 280.112,
in an amount not to exceed the coverage
limits specified above.
If [owner or operator] fails to satisfy a
judgment or award based on a determination
of liability for bodily injury or property .
damage to third parties caused by ["sudden"
and/or "nonsudden"] accidental releases
arising from the operation of the above-
identified tank(s), or fails to pay an amount
agreed to in settlement of a claim arising
from or alleged to arise from such injury or
damage, the guarantor, upon written
instructions from the [Director], shall fund a
standby trust in accordance with the
provisions of 40 CFR Part 280.112 to satisfy
such judgment(s), award(s), or settlement
agreement(s) up to the limits of coverage
specified above.
(4) Guarantor agrees that, if at the end of
any fiscal year before cancellation of this
guarantee, the guarantor fails to meet or
exceed the requirements of the financial
responsibility mechanism specified in
paragraph (1), guarantor shall send within
120 days of such failure, by certified mail,
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9058 Federal Register / Vol. 58, No. 31 / Thursday, February 18. 1993 / Rules and Regulations
notice to [local government owner or
operator], as evidenced by the return receipt.
(5) Guarantor agrees to notify [owner or
operator] by certified mall of a voluntary or
involuntary proceeding under Title 11
(Bankruptcy), U.S. Code naming guarantor as
debtor, within 10 days after commencement
of the proceeding.
(6) Guarantor agrees to remain bound
under this guarantee notwithstanding any
modification or alteration of any obligation of
[owner or operator] pursuant to 40 CFR Part
280.
(7} Guarantor agrees to remain bound
under this guarantee for so long as [local
government owner or operator] must comply
with the applicable financial responsibility
requirements of 40 CFR Part 280, Subpart H
for the above identified tankfs). except that
guarantor may cancel this guarantee by
sending notice by certified mail to [owner or
operator], such cancellation to become
effective no earlier than 120 days after receipt
of such notice by [owner or operator], as
evidenced by the return receipt.
(8) The guarantor's obligation does not
apply to any of the following:
(a) Any obligation of [local government
owner or operator] under a workers'
compensation, disability benefits, or
unemployment compensation law or other
similar law;
(b) Bodily injury to an employee of [insert:
local government owner or operator] arising
from, and in the course of, employment by
[insert: local government owner or operator];
(c) Bodily injury or property damage
arising from the ownership, maintenance,
use, or entrustment to others of any aircraft,
motor vehicle, or watercraft;
(d) Property damage to any property
owned, rented, loaned to, in the care,
custody, or control of, or occupied by [insert:
local government owner or operator] that is
not the direct result of a release from a
petroleum underground storage tank;
(o) Bodily damage or property damage for
which [insert: owner or operator] is obligated
to pay damages by reason of the assumption
of liability in a contract or agreement other
than a contract or agreement entered into to
moot the requirements of 40 CFR Part 280.93.
(9) Guarantor expressly waives notice of
acceptance of this guarantee by [the
implementing agency], by any or all third
parties, or by [local government owner or
operator].
1 hereby certify that the wording of this
guarantee is identical to the wording
specified in 40 CFR Part 280.106(d) as such
regulations were constituted on the effective
date shown immediately below.
Effective date:
[Name of guarantor]
[Authorized signature for guarantor]
(Name of person signing]
[Title of person signing]
Signature of witness or notary:
(e) If the guarantor is a state, the local
government guarantee without standby
trust must be worded exactly as follows,
except that instructions in brackets are
to be replaced with relevant information
and the brackets deleted:
Local Government Guarantee Without
Standby Trust Made by a State
Guarantee made this [date] by [name of
state], herein referred to as guarantor, to [the
state implementing agency] and to any and
all third parties, and obliges, on behalf of
[local government owner or operator].
Recitals
(1) Guarantor is a state.
(2) [Local government owner or operator]
owns or operates the following underground
storage tank(s) covered by this guarantee:
[List the number of tanks at each facility and
the name(s) and address(es) of the
facility(ies) where the tanks are located. If
more than one instrument is used to assure
different tanks at any one facility, for each
tank covered by this instrument, list the tank
identification number provided in the
notification submitted pursuant to 40 CFR
Part 280 or the corresponding state
requirement, and the name and address of
the facility.] This guarantee satisfies 40 CFR
Part 280, Subpart H requirements for assuring
funding for [insert: "taking corrective action"
and/or "compensating third parties for bodily
injury and property damage caused by".
either "sudden accidental releases" or
"nonsudden accidental releases" or
"accidental releases"; if coverage is different
for different tanks or locations, indicate the
type of coverage applicable to each tank or
location] arising from operating the above-
identified underground storage tank(s) in the
amount of [insert: dollar amount] per
occurrence and [insert: dollar amount]
annual aggregate.
(3) Guarantor guarantees to [implementing
agency] and to any and all third parties and
obliges that:
In the event that [local government owner
or operator] fails to provide alternative
coverage within 60 days after receipt of a
notice of cancellation of this guarantee and
the [Director of the implementing agency] has
determined or suspects that a release has
occurred at an underground storage tank
covered by this guarantee, the guarantor,
upon written instructions from the [Director]
shall make funds available to pay for
corrective actions and compensate third
parties for bodily injury and property damage
in an amount nbt to exceed the coverage
limits specified above.
In the event that the [Director] determines
that [local government owner or operator] has
failed to perform corrective action for
releases arising out of the operation of the
above-identified tank(s) in accordance with
40 CFR Part 280, Subpart F, the guarantor
upon written instructions from the [Director]
. shall make funds available to pay for
corrective actions in an amount not to exceed
the coverage limits specified above.
If [owner or operator] fails to satisfy a
judgment or award based on a determination
of liability for bodily injury or property
• damage to third parties caused by ["sudden"
and/or "nonsudden"] accidental releases
arising from the operation of the above-
identified tank(s), or fails to pay an amount
agreed to in settlement of a claim arising
from or alleged to arise from such injury or
damage, the guarantor, upon written
instructions from the [Director], shall make
funds available to compensate third parties
for bodily injury and property damage in an
amount not to exceed the coverage limits
specified above.
(4) Guarantor agrees to notify [owner or
operator] by certified mail of a Voluntary or
involuntary proceeding under Title 11
(Bankruptcy), U.S. Code naming guarantor as
debtor, within 10 days after commencement
of the proceeding.
(5) Guarantor agrees to remain bound
under this guarantee notwithstanding any
modification or alteration of any obligation of
[owner or operator] pursuant to 40 CFR Part
280.
(6) Guarantor agrees to remain bound
under this guarantee for so long as [local
government owner or operator] must comply
with the applicable financial responsibility
requirements of 40 CFR Part 280, Subpart H
for the above identified tank(s), except that
guarantor may cancel this guarantee by
sending notice by certified mail to [owner or
operator], such cancellation to become
effective no earlier than 120 days after receipt
of such notice by [owner or operator], as
evidenced by the return receipt. If notified of
a probable release, the guarantor agrees to
remain bound to the terms of this guarantee
for all charges arising from the release, up to
the coverage limits specified above,
notwithstanding the cancellation of the
guarantee with respect to future releases.
(7) The guarantor's obligation does not
apply to any of the following:
(a) Any obligation of [local government
owner or operator] under a workers'
compensation disability benefits, or
unemployment compensation law or other
similar law;
(b) Bodily injury to an employee of [insert
local government owner or operator] arising
from, and in the course of, employment by
[insert: local government owner or operator];
(c) Bodily injury or property damage
arising from the ownership, maintenance,
use, or entrustment to others of any aircraft,
motor vehicle, or watercraft;
(d) Property damage to any property
owned, rented, loaded to, in the care,
custody, or control of, or occupied by [insert:
local government owner or operator] that is
not the direct result of a release from a
petroleum underground storage tank;
(e) Bodily damage or property damage for
which [insert: owner or operator] is obligated
to pay damages by reason of the assumption
of liability in a contract or agreement other
than a contract or agreement entered into to
meet the requirements of 40 CFR Part 280.93.
(8) Guarantor expressly waives notice of.
acceptance of this guarantee by [the
implementing agency], by any or all third
parties, or by [local government owner or
operator],
I hereby certify that the wording of this
guarantee is identical to the wording
specified in 40 CFR Part 280.106{e) as such
regulations were constituted on the effective
date shown immediately below.
Effective date:
[Name of guarantor]
[Authorized signature for guarantor]
[Name of person signing]
[Title of person signing]
Signature of witness or notary:
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Federal Register / Vol. 58, No. 31 / Thursday. February 18. 1993 / Rules and Regulations 9059
If the guarantor is a local government, the
local government guarantee without standby
trust must be worded exactly as follows,
except that instructions in brackets are to be
replaced with relevant information and the
brackets deleted:
Local Government Guarantee Without
Standby Trust Made by a Local Government
Guarantee made this [date] by [name of
guaranteeing entity], a local government
organized under the laws of [name of state],
herein referred to as guarantor, to [the state
implementing agency] and to any and all
third parties, and obliges, on behalf of [local
government owner or operator].
Recitals
(1) Guarantor meets or exceeds [select one:
the local government bond rating test
requirements of 40 CFR part 280.104, the
local government financial test .requirements
of 40 part CFR 280.105, the local government
fund under 40 CFR part 280.107(a),
280.107(b), or 280.107(c).
(2) [Local government owner or operator]
owns or operates the following underground
storage tank(s) covered by this guarantee:
[List the number of tanks at each facility and
the name(s) and address(es) of the
facility(ies) where the tanks are located. If
more than one instrument is used to assure
different tanks at any one facility, for each
tank covered by this, instrument, list the tank
identification number provided in the
notification submitted pursuant to 40 CFR
Part 280 or the corresponding state
requirement, and the name and address of
the facility.] This guarantee satisfies 40 CFR
part 280, subpart H [requirements for assuring
funding for [insert: "taking corrective action"
and/or "compensating third parties for bodily
injury and property damage caused by"
either "sudden accidental releases" or
"nonsudden accidental releases" or
"accidental releases"; if coverage is different
for different tanks or locations, indicate the
type of coverage applicable to each tank or
location] arising from operating the above-
identified underground storage tank(s) in the
amount of [insert: dollar amount] per
occurrence and [insert: dollar amount]
annual aggregate.
(3) Incident to our substantial
governmental relationship with [local
government owner or operator], guarantor
guarantees to [implementing agency] and to
any and all third parties and obliges that:
In the event that [local government owner
or operator] fails to provide alternative
coverage within 60 days after receipt of a
notice of cancellation of this guarantee and
the [Director of the implementing agency] has
determined or suspects that a release has
occurred at an underground storage tank
covered by this guarantee, the guarantor,
upon written instructions from the [Director]
shall make funds available to pay for
corrective actions and compensate third
parties for bodily injury and property damage
in an amount not to exceed the coverage
limits specified above.
In the event that the [Director] determines
that [local government owner or operator] has
failed to perform corrective action for
releases arising out of the operation of the
above-identified tank(s) in accordance with
40 CFR part 280, Subpart F, the guarantor
upon written instructions fronvthe [Director]
shall make funds available to pay for
corrective actions in an amount not to exceed
the coverage limits specified above.
If [owner or operator] fails to satisfy a
judgment or award based on a determination
of liability for bodily injury or property
damage to third parties caused by ["sudden"
and/or "nonsudden"] accidental releases
arising from the operation of the above-
identified taak(s), or feils to pay an amount
agreed to in settlement of a claim arising
from or alleged to arise from such injury or
damage, the guarantor, upon written
instructions from the [Director], shall make
funds available to compensate third parties
for bodily injury and property damage in an
amount not to exceed the coverage limits
specified above.
(4) Guarantor agrees that if at'the end of
. any fiscal year before cancellation of this
guarantee, the guarantor fails to meet or
exceed the requirements of the financial
responsibility mechanism specified in
paragraph (1), guarantor shall send within
120 days of such failure, by certified mail,
notice to [local government owner or
operator], as evidenced by the return receipt.
(5) Guarantor agrees to notify [owner or
operator] by certified mail of a voluntary or
involuntary proceeding under Title 11
(Bankruptcy), U.S. Code naming guarantor as
debtor, within 10 days after commencement
of the proceeding.
(6) Guarantor agrees to remain bound
under this guarantee notwithstanding any
modification or alteration of any obligation of
[owner or operator] pursuant to 40 CFR part
280.
(7) Guarantor agrees to remain bound
under this guarantee for so long as [local
government owner or operator] must comply
with the applicable financial responsibility
requirements of 40 CFR Part 280, Subpart H
for the above identified tank(s), except that
guarantor may cancel this guarantee by
sending notice by certified mail to [owner or
operator], such cancellation to become
effective no earlier than 120 days after receipt
of such notice by [owner or operator], as
evidenced by the return receipt. If notified of
a probable release, the guarantor agrees to
remain bound to the terms of this guarantee
for all charges arising from the release, up to
the coverage limits specified above,
notwithstanding the cancellation of the
guarantee with respect to future releases.
(8) The guarantor's obligation does not
apply to any of the following:
(a) Any obligation of [local government
owner or operator] under a workers'
compensation disability benefits, or
unemployment compensation law or other
similar law;
(b) Bodily injury to an employee of [insert:
local government owner or operator] arising
from, and ir the course of, employment by
[insert: local government owner or operator];
(c) Bodily injury or property damage
arising from the ownership, maintenance,
use, or entrustment to others of any aircraft,
motor vehicle, or watercraft;
(d) Property damage to any property
owned, rented, loaded to, in the care,
custody, or control of, or occupied by linsert:
local government owner or operator] that is
not the direct result of a release from a
petroleum underground storage tank;
(e) Bodily damage or property damage for
which [insert: owner or operator] is obligated
to pay damages by reason of the assumption
of liability in a contract or agreement other
than a contract or agreement entered into to
meet the requirements of 40 CFR Part 280.93.
(9) Guarantor expressly waives notice of
acceptance of this guarantee by [the
implementing agency], by any or all third
parties, or by [local government owner or
operator],
I hereby certify that the wording of this
guarantee is identical to the wording
specified in 40 CFR Part 280.106(e) as such
regulations were constituted on the effective
date shown immediately below.
Effective date:
[Name of guarantor]
[Authorized signature for guarantor]
[Name of person signing]
[Title of person signing]
Signature of witness or notary:
9. New § 280.107 is added to read as
follows:
§280.107 Local government fund.
A local government owner or operator
may satisfy the requirements of § 280.93
by establishing a dedicated fund
account that conforms to the
requirements of this section. Except as
specified in paragraph (b), a dedicated
fund may not be commingled with other
funds or otherwise used in normal
operations. A dedicated fund will be
considered eligible if it meets one of the
following requirements:
(a) The fund is dedicated by state
constitutional provision, or local
government statute, charter, ordinance,
or order to pay for taking corrective
action and for compensating third
parties for bodily injury and property
damage caused by accidental releases
arising from the operation of petroleum
underground storage tanks and is
funded for the full amount of coverage
required under § 280.93, or funded for
part of the required amount of coverage
and used in combination with other
mechanism(s) that provide .the
remaining coverage; or
(b) The fund is dedicated by state
constitutional provision, or local
government statute, charter, ordinance,
or order as a contingency fund for
general emergencies, including taking
corrective action and compensating
third parties for bodily injury and
property damage caused by accidental
releases arising from the operation of
petroleum underground storage tanks,
and is funded for five times the full
amount of coverage required under
§ 280.93, or funded for part of the
required amount of coverage and used
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9060
Federal Register / Vol. 58, No; 31 / Thursday, February 18. 1993 / Rules and Regulations
In combination with other
mochanism(s) that provide the
remaining coverage. If the fund is
funded for less than five times the
amount of coverage required under
§ 280.93, the amount of financial
responsibility demonstrated by the fund
may not exceed one-fifth the amount in
the fund; or
(c) The fund is dedicated by state
constitutional provision, or local
government statute, charter, ordinance
or order to pay for taking corrective'
action and for compensating third
parties for bodily injury and property
damage caused by accidental releases
arising from the operation of petroleum
underground storage tanks. A payment
is made to the fund once every year for
saven years until the fund is fully-
funded. This seven year period is
hereafter referred to as the "pay-in-
period." The amount of each payment
must be determined by this formula:
TF-CF
Where TF is the total required financial
assurance for the owner or operator, CF
is the current amount in the fund, and
Y is the number of years remaining in
the pay-in-period, and;
(l) Tho local government owner or
operator has available bonding
authority, approved through voter
referendum (if such approval is
necessary prior to the issuance of
bonds), for an amount equal to the
difference between the required amount
of coverage and the amount held in the
dedicated fund. This bonding authority
shall be available for taking corrective
action and for compensating third
parties for bodily injury and property
damage caused by accidental releases
arising from the operation of petroleum
underground storage tanks, or
(2) The local government owner or
operator has a letter signed by the
appropriate state attorney general
stating that the use of the bonding
authority will not increase the local
government's debt beyond the legal debt
ceilings established by the relevant state
laws. The letter must also state that
prior voter approval is not necessary
before use of the bonding authority.
(d) To demonstrate that it meets the
requirements of the local government
fund, the chief financial officer of the
local government owner or operator
and/or guarantor must sign a letter
worded exactly as follows, except that
the instructions in brackets are to be
replaced by the relevant information
and the brackets deleted:
Letter from Chief Financial Officer
I am the chief financial officer of [insert:
name and address of local government owner
OT operator, or guarantor]. This letter is in
support of the use of the local government
fund mechanism to demonstrate financial
responsibility for [insert: "taking corrective
action" and/or "compensating third parties
for bodily injury and property damage")
caused by [insert: "sudden accidental
releases" and/or "nonsudden accidental
releases") in the amount of at least [insert:
dollar amount] per occurrence and [insert:
dollar amount] annual aggregate arising from
operating (an) underground storage tank(s).
Underground storage tanks at the following
facilities are assumed by this local government
fund mechanism: :[List for each facility: the
name and address of the facility where tanks
are assured by the local government fund].
[Insert: "The local government fund is
funded for the full amount of coverage
required under § 280.93, or funded for part of
the required amount of coverage and used in
combination with other mechanism(s) that
provide the,remaining coverage." or "The
local government fund is funded for ten
times the full amount of coverage required
under § 280.93, or funded for part of the
required amount of coverage and used in
combination with other mechanisms(s) that
provide the remaining coverage," or "A
payment is made to the fund once every year
for seven years until the fund is fully-funded
and [name of local government owner or
operator] has available bonding authority,
approved through voter referendum, of an
amount equal to the difference between the
required amount of coverage and the amount
held in the dedicated Irund" or "A payment
is made to the fund once every year for seven
years until the fund is fully-funded and I
have attached a letter signed by the State
Attorney General stating that (1) the use of
the bonding authority will not increase the
local government's debt beyond the legal
debt ceilings established by the relevant state
laws and (2) that prior voter approval is not
necessary before use of the bonding
authority"].
The details of the local government fund
are as follows:
Amount in Fund (market value of fund at
close of last fiscal year): —
[If fund balance is incrementally funded as
specified in § 280.107(c), insert:
Amount added to fund in the most recently
completed fiscal year:
Number of years remaining in the pay-in
period: 1
A copy of the state constitutional
provision, or local government statute,
charter, ordinance or order dedicating the
fund is attached.
I hereby certify that the wording of this
letter is identical to the wording specified in
40 CFR 280.107(d) as such regulations were
constituted on the date shown immediately
below.
[Date]
[Signature]
[Name]
[Title]
[FR Doc. 93-2824 Filed 2-17-93; 8:45 am]
BILLING CODE 65M-SO-P
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