United
Environmental Protection Office of Water EPA816-R-98-006
Agency 4606 July 1998
Guidance on Implementing
the Capacity Development
provisionsof the Safe Drinking
Water Act Amendments of 1996
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TABLE OF CONTENTS
Preface 6
Section 1: Introduction to Technical, Managerial, and 8
Financial Capacity of Water Systems
What is the overall purpose of this guidance document? 8
What is the statutory authority for this guidance document? 8
What is water system capacity? 8
What is water system capacity development? 9
How does the SDWA address capacity development? 9
What are the requirements for State Capacity Development Programs? 9
To which water systems do the SDWA's capacity development provisions apply? 10
What is a public water system (PWS)? 10
What is a community water system (CWS)? 11
What is a nontransient, noncommunity water system (NTNCWS)? 11
What is a transient, noncommunity water system (TNCWS)? 11
What is technical capacity, and how can it be assessed? 11
What is managerial capacity, and how can it be assessed? 12
What is financial capacity, and how can it be assessed? 12
How are technical, managerial, and financial capacity related? 13
Section 2: Guidance on DWSRF Withholding Determinations 16
Related to State Programs For Ensuring that All New CWSs
and NTNCWSs Demonstrate Technical, Managerial, and
Financial Capacity
What is the purpose of this guidance? 16
What is the statutory authority for this guidance? 16
To whom does this guidance apply? 16
How will EPA use this guidance? 16
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What do sections 1420(a) of the SD WA require States to do? 16
What constitutes a "new system"? 16
What must a State document in order for EPA to determine that a 20% withholding from 17
the State's DWSRF allotment is not required?
What is a "basis of authority"? 17
What are some examples of a "basis of authority"? 17
What needs to be documented relative to the "basis of authority"? 17
Can the "basis of authority" for ensuring the demonstration of new system capacity rest at 18
the county or local level?
Who must certify that the State's authority is sufficient to ensure the demonstration of new 18
system capacity?
What is a "control point"? 18
What are some examples of "control points"? 18
What must the plan for program implementation contain? 18
What will the schedule be for fiscal year 1999 withholding under sections 1420(a) and 19
1452(a)(l)(G)(i)7
Will unobligated funds from previous fiscal years be subject to the withholding? 19
What is a "holdback", and what is its purpose? 19
In what situations would the "holdback" apply? 19
For what period does the "holdback" apply? 20
What is a formal "withholding", and under what conditions would it apply? 20
How will formal withholding determinations be made for fiscal years 2000 and beyond? 20
What documentation must a state provide to demonstrate full, ongoing implementation of 21
its new systems program?
Section 3: Guidance on DWSRF Withholding Determinations 25
Related to State Capacity Development Strategies
What is the purpose of this guidance? 25
What is the statutory authority for this guidance? 25
To whom does this guidance apply? 25
How will EPA use this guidance? 25
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What does section 1420(c) of the SDWA as amended require a State to do? 25
What are the elements that a State must consider, solicit public comment, and include as 25
appropriate?
What must a State document to demonstrate that it has met the basic requirements of 26
section 1420(c)?
What are the ongoing reporting requirements under the capacity development strategy 26
provisions?
Will these reports be a factor in DWSRF withholding determinations? 27
What should States that already have capacity development strategies do? 27
What is meant by a history of significant noncompliancel 27
Under what conditions will fiscal year 2001 withholding occur? 27
Will there be a "holdback" associated with the capacity development strategy provision 28
analogous to that associated with the new systems provision?
Under what conditions will fiscal year 2002 withholding occur? 28
Under what conditions will fiscal years 2003 and beyond withholdings occur? 28
What will be the basis of withholding decisions in subsequent fiscal years after a State has 28
demonstrated that it is developing and implementing a capacity development strategy?
Section 4: Guidance on Assessment of Capacity for Purposes 31
of Awarding DWSRF Assistance
What is the purpose of this guidance? 31
What is the statutory authority for this guidance? 31
To whom does this guidance apply? 31
How will EPA use this guidance? 31
What limitations on DWSRF assistance does section 1452(a)(3)(A) impose? 31
Are there any exceptions to the limitations imposed by section 1452(a)(3)(A)? 31
What must a State document to comply with the requirement that DWSRF loan assistance 31
not be available to PWSs that lack technical, managerial, and financial capacity?
What must a State document to comply with the provision that DWSRF assistance can be 32
provided to a system in significant noncompliance only if the use of the assistance will
ensure compliance?
What must a State document to comply with the provision that DWSRF assistance can be 32
provided to a PWS that lacks technical, managerial, and financial capacity if the system
agrees to restructuring changes that the State determines are necessary to ensure system
capacity for long term SDWA compliance?
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TABLES AND FIGURES
Tables
Table 1: Minimum Requirements to avoid DWSRF Withholding Related to 22
Ensuring That All New CWSs and NTNCWSs Demonstrate Technical,
Managerial, and Financial Capacity
Table 2: Potential Authorities and Control Points for Ensuring Technical, 23
Managerial, and Financial Capacity of New Systems
Table 3: DWSRF Withholding for New System Capacity Programs 24
Table 4: Minimum Requirements to Avoid DWSRF Withholding Related to State 29
Capacity Development Strategies
Table 5: DWSRF Withholding for Capacity Development Strategies 30
Table 6: Minimum Requirements for Assessment of Capacity for Purposes of 33
Awarding DWSRF Assistance
Figures
Figure T. Ownership of Systems Serving Population 25-500 14
Ownership of Systems Serving Population > 500
Figure 2: Technical, Managerial, and Financial Capacity 15
Attachments
Attachment 1: Worksheet for Assessing State Programs for Ensuring 34
Demonstration of New System Capacity
Attachment 2: Worksheet for Assessing Proposed State Capacity Development 42
Strategies for Existing Public Water Systems
Attachment 3: Response to Comments Received on Proposed Guidance Published 51
in the Federal Register on February 5, 1998
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PREFACE
The Safe Drinking Water Act (SDWA) as amended in 1996 brings significant
improvements to the national drinking water program. Capacity development is an important
component of the Act's focus on preventing problems in drinking water. The capacity development
provisions offer a framework within which States and water systems can work together to ensure
that systems acquire and maintain the technical, financial, and managerial capacity needed to
achieve the public health protection objectives of the SDWA.
The 1996 Amendments emphasize the technical, managerial, and financial capacity of water
systems. By enhancing and ensuring the technical, financial, and managerial capacity of water
systems, States will promote compliance with national primary drinking water regulations
(NPDWRs) for the long term. To avoid a withholding in its Drinking Water State Revolving Fund
(DWSRF) allotment, each State is required: 1) to ensure that new community water systems and
new nontransient noncommunity water systems demonstrate adequate capacity, and 2) to develop
and implement a strategy to assist existing systems in acquiring and maintaining capacity.
This guidance is the result of a thorough stakeholder consultation process initiated by the
U.S. Environmental Protection Agency (EPA) and its National Drinking Water Advisory Council
(NDWAC). The NDWAC was established by the original Safe Drinking Water Act as a diverse
group of stakeholders to advise the Agency on drinking water issues. In order to most effectively
advise EPA regarding implementation of the capacity development provisions of the SDWA
Amendments of 1996, NDWAC established a Small Systems Working Group. The Small Systems
Working Group met on four occasions between February and July, 1997, each two days in length,
with the purpose of developing recommendations on how EPA should implement the capacity
development provisions of the SDWA Amendments of 1996. The Small Systems Working Group
consisted of 22 members representing small public water systems, environmental and public health
advocacy groups, State drinking water programs, public utility commissions, and other interest
groups. The Small Systems Working Group recommended to NDWAC, which in turn
recommended to EPA, that the Agency publish a combination of guidance and information to
facilitate the implementation of the capacity development provisions of the 1996 SDWA
Amendments. The working group, through the NDWAC, made specific substantive
recommendations regarding the content of the recommended guidance and information.
The draft guidance and information was published for public comment on February 5,
1998. The comment period extended for 60 days, and approximately 50 parties submitted public
comments. EPA has attached a response to all public comments as an appendix to this guidance.
Persons who wish may obtain a copy of all comments submitted may send a written request to
Peter Shanaghan, Small Systems Coordinator, Office of Ground Water and Drinking Water, 401
M Street SW, Washington, DC 20460 or call on 202-260-5813 or on email at
shanaghan.peter@epamail.epa.gov.
The NDWAC recommended information is being published separately as Information for
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States on Implementing the Capacity Development Provisions of the 1996 Safe Drinking Water
Act Amendments. Another NDWAC recommended information document, Information for the
Public on Participating in the Preparation of Capacity Development Strategies, is also being
published separately. Both of these documents may be obtained by calling the Safe Drinking Water
Hotline at 1-800-426-4791.
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Section 1: Introduction to Technical, Managerial, and Financial Capacity of Water Systems
What is the overall purpose of this guidance document?
This guidance establishes national policy regarding implementation of the capacity
development related provisions of the SDWA, as amended.
Sections 2 and 3 of this guidance describe how EPA will assess State capacity development
programs for purposes of determining whether these programs meet the statutory requirements
contained in section 1420 of the Act and therefore whether the Agency is required to withhold
(according to sections 1420 and 1452(a)(l)(G)(i)) up to 20% of a State's share of DWSRF
funding.
Section 4 of this guidance describes what States must document and submit to EPA to
demonstrate compliance with section 1452(a)(3) of the Act. This provision prohibits any
assistance under Section 1452, including direct grants from EPA, to systems lacking the technical,
managerial, and financial capacity for SDWA compliance.
What is the statutory authority for this guidance document?
The authority to produce this guidance is contained in SDWA sections 1420 and 1452.
First, under section 1420(d)(4), the Act directs EPA to publish guidance on legal authorities or
other means for ensuring that all new community water systems and new nontransient,
noncommunity water systems demonstrate adequate technical, managerial, and financial capacity.1
Section 2 of this guidance fulfills this requirement. Second, section 1452(g)(3) requires the
Agency to publish guidance and promulgate regulations as may be necessary to carry out the
provisions of section 1452.2 Section 1452(a)(l)(G)(i)3 requires EPA to withhold a percentage of a
State's DWSRF grant unless the State has met the capacity development requirements of section
1420. The Agency has determined that guidance is necessary to implement the withholding
provision in a fair, rational, and consistent manner.
What is water system capacity?
Water system capacity is the ability to plan for, achieve, and maintain compliance with
applicable drinking water standards. Capacity has three components: technical, managerial, and
financial. Adequate capability in all three areas is necessary for a system to have "capacity."
1 Section 1420(d): FEDERAL ASSISTANCE-^) IN GENERAL ... (4) GUIDANCE FOR NEW
SYSTEMS- Not later than 2 years after the date of enactment of this section, the Administrator shall publish guidance developed in
consultation with the States describing legal authorities and other means to ensure that all new community water systems and new nontransient,
noncommunity water systems demonstrate technical, managerial, and financial capacity with respect to national primary drinking water
Section 1452(g)(3): GUIDANCE AND REGULATIONS.- The Administrator shall publish guidance and
promulgate regulations as may be necessary to carry out the provisions of this section...
3 Section 1452(a)(l)(G)(i): NEW SYSTEM CAPACITY.-Beginning in fiscal year 1999, the Administrator
shall withhold 20% of each capitalization grant made pursuant to this section to a State unless the State has met the
requirements of section 1420(a) (relating to capacity development)...
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What is water system capacity development?
Capacity development is the process of water systems acquiring and maintaining adequate
technical, managerial, and financial capabilities to enable them to consistently provide safe drinking
water. The SDWA's capacity development provisions provide a framework for States and water
systems to work together to ensure that systems acquire and maintain the technical, managerial,
and financial capacity needed to meet the Act's public health protection objectives.
How does the SDWA address capacity development?
The SDWA as amended establishes a focus on capacity development through two major
provisions. First the law requires States to develop and implement programs to ensure that new
systems demonstrate capacity and to assist existing systems in acquiring and maintaining capacity.
States failing to develop and implement such programs will have up to 20% of their DWSRF
allotment withheld.
Second, the law ties a water system's eligibility to receive assistance under Section 1452 to
the system's technical, managerial, and financial capacity. In short, the law prohibits DWSRF
assistance to a system which lacks the technical, managerial, and financial capacity to ensure
compliance with SDWA requirements. The only exception for systems lacking capacity is if they
agree to undertake changes in operations, such as changes in ownership, management, accounting,
rates, etc. These would apply if the State determines that the changes are necessary to ensure that
the system has the technical, managerial, and financial capacity to comply with the SDWA over the
long term. Section 1452(a)(3) establishes the prohibition on assistance to a system lacking the
capacity to ensure SDWA compliance unless the system agrees to restructuring changes to ensure
it has the necessary technical, managerial, and financial capacity to comply with the Act over the
long term.6
What are the requirements for state capacity development programs?
Section 1420 establishes the requirements for State programs. First, under section
1420(a), a State must develop a program to ensure that all new community water systems and new
nontransient noncommunity water systems demonstrate the technical, managerial, and financial
capacity to comply with all national primary drinking water regulations (NPDWRs) in effect, or
6 Section 1452(a)(3): LIMITATION.- (A) IN GENERAL- Except as provided in subparagraph (B), no
assistance under this section shall be provided to a public water system that- (i) does not have the technical,
managerial, and financial capability to ensure compliance with the requirements of this title; or (ii) is in significant
noncompliance with any requirement of a national primary drinking water regulation or variance. (B)
RESTR UCTURING. - A public water system described in subparagraph (A) may receive assistance under this section
if- (i) the use of such assistance will ensure compliance; and (ii) if subparagraph (A)(i) applies to the system, the
owner or operator of the system agrees to undertake feasible and appropriate changes in operation (including
ownership, management, accounting, rates, maintenance, consolidation, alternative water supply, or other
procedures) if the State determines that such measures are necessary to ensure that the system has the technical,
managerial, and financial capability to comply with the requirements of this title over the long term.
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likely to be in effect on the date commencement of operations.7 Second, under section 1420(c), a
State must, by August 6, 2000, be developing and implementing a strategy to assist PWSs in
acquiring and maintaining technical, managerial, and financial capacity.8
Both sections 1420(a) and (c) and section 1452(a)(l)(G)(i) establish DWSRF withholding
requirements for States not meeting the capacity development provisions of section 1420(a) and
(c). States which fail to establish a functional program to ensure that systems commencing
operations after October 1, 1999 demonstrate technical, managerial, and financial capacity will
incur a 20% DWSRF withholding starting in fiscal year 1999. States which fail to develop and
implement a strategy will incur a 10% withholding in fiscal year 2001, 15% withholding in fiscal
year 2002, and 20% withholding for subsequent years.
To which water systems do the SDWA's capacity development provisions apply?
Section 1420(a), the new systems provision, applies to all new CWSs and all new
NTNCWSs.
Section 1420(c), the capacity development strategy provision, applies to all PWSs, but
States must consider which systems they will focus on.
Section 1452(a)(3), the prohibition of assistance to PWSs which lack capacity, applies to
all PWSs eligible for DWSRF assistance, which are CWSs , nonprofit NTNCWS, and nonprofit
TNCWS.
What is public water system (PWS)?
A PWS is a "system for the provision to the public of water for human consumption
through pipes or other constructed conveyances, if such system has at least fifteen service
connections or regularly serves an average of at least twenty-five individuals daily at least 60 days
out of the year." (40 CFR 141.2) This category includes community water systems (CWSs),
nontransient noncommunity water systems (NTNCWSs), and transient community water systems
(TNCWSs). There are approximately 172,000 PWSs nationwide.
7 Section 1420(a): STATE AUTHORITY FOR NEW SYSTEMS.-A State shall receive only 80% of the
allotment that the State is otherwise entitled to receive under section 1452 (relating to State loan funds) unless the
State has obtained the legal authority or other means to ensure that all new community water systems and new
nontransient, noncommunity water systems commencing operation after October 1, 1999, demonstrate technical,
managerial, and financial capacity with respect to each national primary drinking water regulations in effect, or
likely to be in effect, on the date of commencement of operations.
" Section 1420(c)(l): CAPACITY DEVELOPMENT STRATEGY.-Beginning four years after the date of
enactment of this section, a State shall receive only- (A) 90 percent in fiscal year 2001; (B) 85 percent in fiscal year
2002; and (C) 80 percent in each subsequent fiscal year of the allotment that the state is otherwise entitled to receive
under section 1452 (relating to state loan funds), unless the state is developing and implementing a strategy to assist
public water systems in acquiring and maintaining technical, managerial, and financial capacity.
Section 1452(a)(l) (G)(i)\...the Administrator... shall withhold 10 percent for fiscal year 2001, 15 percent for
fiscal year 2002, and 20 percent for fiscal year 2003 if the State has not complied with the provisions of section
1420(c) (relating to capacity development strategies).
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What is a community water system (CWS)?
A CWS is a "public water system which serves at least 15 service connections used by
year-round residents or regularly serves at least 25 year-round residents." (40 CFR 141.2) About
55,000 CWSs serve more than 246 million people.
Slightly more than 86 % of CWSs are "very small" (serving fewer than 500 persons) or
"small" (serving fewer than 3,300 persons). Although a significant majority of CWSs, these
systems serve just over 10 percent of the CWS service population. CWSs can be privately owned
or publicly owned. A substantial number of privately-owned systems are "ancillary systems" they
provide water as an ancillary function of their principal business. An example is mobile home
parks, which provide water as an adjunct to their principal business. Fifty-three percent of CWSs
serving between 25 and 100 persons are ancillary systems. Only 0.1 percent of CWSs serving
more than 10,000 persons are ancillary systems. See Figure 1.
What is a nontransient noncommunity water system (NTNCWS)?
A NTNCWS is "a public water system that is not a community water system and that
regularly serves at least 25 of the same persons over 6 months per year." (40 CFR 141.2)
NTNCWSs are generally commercial or institutional establishments having their own water supply
which serves 25 or more of the same people on a regular basis. Examples include schools,
factories, office and industrial parks, and major shopping centers. Approximately 20,000
NTNCWSs across the nation serve some 6 million people. Over 96 % of NTNCWSs use ground
water as their primary source. Ninety-nine percent of NTNCWSs are "very small" or "small".
Most are privately owned.
What is a transient, noncommunity water system (TNCWS)?
A TNCWS is a "non-community water system that does not regularly serve at least 25 of
the same persons over six months per year." (40 CFR 141.2) TNCWSs are generally commercial
or not-for-profit establishments having their own water supply which serves 25 or more people per
day, but not the same people on a regular basis. Examples include restaurants, roadside stops,
campgrounds, and hotels.
What is technical capacity, and how can it be assessed?3
Technical capacity is the physical and operational ability of a water system to meet SDWA
requirements. Technical capacity refers to the physical infrastructure of the water system,
including the adequacy of source water and the adequacy of treatment, storage, and distribution
infrastructure. It also refers to the ability of system personnel to adequately operate and maintain
the system and to otherwise implement requisite technical knowledge.
A water system's technical capacity can be determined by examining key issues and
Additional information on technical capacity can found within Information for States on Implementing the
Capacity Development Provisions of the Safe Drinking Water Act Amendments of 1996.
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questions, including:
• Source water adequacy. Does the system have a reliable source of drinking water? Is the
source of generally good quality and adequately protected?
• Infrastructure adequacy. Can the system provide water that meets SDWA standards?
What is the condition of its infrastructure, including well(s) or source water intakes,
treatment, storage, and distribution? What is the infrastructure's life expectancy? Does the
system have a capital improvement plan?
• Technical knowledge and implementation. Is the system's operator certified? Does the
operator have sufficient technical knowledge of applicable standards? Can the operator
effectively implement this technical knowledge? Does the operator understand the
system's technical and operational characteristics? Does the system have an effective
operation and maintenance program?
What is managerial capacity, and how can it be assessed?4
Managerial capacity is the ability of a water system to conduct its affairs in a manner
enabling the system to achieve and maintain compliance with SDWA requirements. Managerial
capacity refers to the system's institutional and administrative capabilities.
Managerial capacity can be assessed through key issues and questions, including:
• Ownership accountability. Are the system owner(s) clearly identified? Can they be held
accountable for the system?
• Staffing and organization. Are the system operator(s) and manager(s) clearly identified?
Is the system properly organized and staffed? Do personnel understand the management
aspects of regulatory requirements and system operations? Do they have adequate
expertise to manage water system operations? Do personnel have the necessary licenses
and certifications?
• Effective external linkages. Does the system interact well with customers, regulators, and
other entities? Is the system aware of available external resources, such as technical and
financial assistance?
What is financial capacity, and how can it be assessed?5
Financial capacity is a water system's ability to acquire and manage sufficient financial
resources to allow the system to achieve and maintain compliance with SDWA requirements.
4 Ibid.
5 Ibid.
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Financial capacity can be assessed through key issues and questions, including:
• Revenue sufficiency. Do revenues cover costs? Are water rates and charges adequate to
cover the cost of water?
• Credit worthiness. Is the system financially healthy? Does it have access to capital through
public or private sources?
• Fiscal management and controls. Are adequate books and records maintained? Are
appropriate budgeting, accounting, and financial planning methods used? Does the system
manage its revenues effectively?
How are technical, managerial, and financial capacity related?
Many aspects of water system operations involve more than one kind of capacity.
Infrastructure replacement or improvement, for example, requires technical knowledge,
management planning and oversight, and financial resources. A deficiency in any one area could
disrupt the entire effort. The relationship between the three areas of capacity is illustrated in Figure
2. Additional information on technical, managerial, and financial capacity and how they relate to
one another can be found in Information on Implementing the Capacity Development Provisions of
the Safe Drinking Water Act Amendments of 1996.
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FIGURE 1
Ownership of Systems Serving Population 25 - 500
(Percent of Systems)
Homeowners Association
14.1%
Other Privately Owned
4.8%
Mobile Home Park
27.5%
Investor Owned
17.9%
Other Government
18.6%
Institution
3.8% Other Ancillary Special District
9.8% 3.3%
Ownership of Systems Serving Population > 500
(Percent of Systems)
Special District 6.2%
Mobile Home Park
1.8% Other Privately Owned 3.4%
Homeowners Association 6.8%
Investor Owned
13.0%
Institution 0.1%
Other Ancillary 1.2%
Note: Percentages do not add to 100% due to rounding.
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Managerial Capacity
Technical Capacity
4
Source water
adequacy
Infrastructure
adequacy
(including source,
treatment,
storage,
distribution)
Technical
knowledge and
ability to
impiewfelit it
Ownership accountability
Staffing and organization
Effective external linkages
Short- and Long-term Planning
Financial Capacity
$
Revenue sufficiency
Credit worthiness
Fiscal management and controls
Figure 2
Technical, Managerial, and Financial Capacity
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Section 2: Guidance on DWSRF Withholding Determinations Related to State Programs
For Ensuring that All New CWSs and NTNCWSs Demonstrate Technical, Managerial, and
Financial Capacity
What is the purpose of this guidance?
This guidance establishes national policy regarding implementation of the DWSRF
withholding related to new system capacity under sections 1420(a) and 1452(a)(l)(G)(i) of the
SDWA as amended. This guidance describes how EPA will assess State new system capacity
programs for purposes of determining whether these programs meet the statutory requirements
contained in section 1420(a) and therefore whether the Agency is required to withhold 20%
(according to sections 1420 and 1452(a)(l)(G)(i)) of a State's share of federal DWSRF funding.
What is the statutory authority for this guidance?
Section 1420(d)(4) of the SDWA as amended requires EPA to publish this guidance.
To whom does this guidance apply?
This guidance applies to all States that receive grants to capitalize DWSRF's under Section
1452.
How will EPA use this guidance?
EPA will use this guidance to determine whether or not a State has met the requirements of
section 1420(a). States failing to meet these requirements will incur a withholding of 20% from
their DWSRF allotment for fiscal year 1999 and beyond.
What does section 1420(a) of the SDWA as amended require a State to do?
A State must develop and implement a fully functional program to ensure that all new CWSs
and new NTNCWs commencing operations after October 1, 1999 demonstrate technical,
managerial, and financial capacity to comply with regulations in effect or likely to be in effect on the
date of commencement of operations.
What constitutes a "new system"?
New systems include both CWSs or NTNCWSs being newly constructed as well as systems
which do not currently meet the definition of a PWS but which expand their infrastructure and
thereby grow to become CWSs or NTNCWSs. Systems not currently PWSs and which add
additional users and thereby become CWSs or NTNCWSs without constructing any additional
infrastructure are not "new systems" for purposes of section 1420(a) of the SDWA as amended.
The Agency has considered a number of alternative definitions for "new system". A
definition of "new system" which encompasses only newly constructed systems would overlook
those systems which grow through physical expansion to become PWS's. The Agency believes that
there are a significant number of such systems and that they should be treated as equivalent to
newly constructed systems. On the other hand, a definition of "new system" that encompassed any
system which acquired enough users to qualify it as a PWS would be unreasonable since it would
capture systems such as small businesses which become PWS's simply by virtue of adding a few
new employees, even though they make no physical modification whatsoever to their water system.
What must a State document in order for EPA to determine that 20% withholding from the
State's DWSRF allotment is not required?
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The State must document that it has implemented, or will implement by October 1, 1999, a
fully functional program to ensure that new systems demonstrate technical, managerial, and financial
capacity. The documentation must include:
• A basis of authority for ensuring that all such systems show technical, managerial, and
financial capacity. This could include State regulations, policies, or other implementing
authorities.
• Identification of at least one control point at which the State will execute its authority.
• A plan for program implementation which includes provisions for evaluating and verifying
program implementation in the future.
For a summary of these requirements, please see Table 1.
What is a "basis of authority"?
Section 1420(a) requires a State to show that is has the "legal authority or other means" to
ensure that all new CWSs and NTNCWSs demonstrate technical, managerial, and financial capacity
with respect to NPDWRs in effect, or likely to be in effect, on the date of commencement of
operations. Thus, a "basis of authority" is the legal authority or other means that serve as the legal
basis of the State program. The "basis of authority", by definition, would also include the
implementing authorities (regulations, policies, guidance, etc.) that allow the basic legal authority to
be exercised.
What are some examples of a "basis of authority"?
A basis of authority could include State laws, regulations, policies, or other effective and
demonstrable means. For example, authority granted to the State primacy agency to implement the
federal Safe Drinking Water Act may serve as the basis of authority upon which to develop a fully
functional program to ensure new system capacity. Or, authority granted to a State water resource
management agency, through allocating water rights or controlling land development, may provide
a sufficient basis of authority on which to build a fully functional new system capacity program.
Under either example, the authority should provide the applicable State agency with enforceable
authority to ensure the demonstration of new system capacity, whether through regulations,
policies, guidance, or other implementing authorities. Additional examples of the basis for such
authority are provided in EPA''s Information for States on Implementing the Capacity Development
Provisions of the 1996 Safe Drinking Water Act Amendments of 1996. See Table 2 for examples of
bases of authority.
What needs to be documented relative to the "basis of authority"?
• The State must document the actual implementing authority and underlying statutory
authority to ensure the demonstration of new system capacity.
• The State must specify which agency is responsible for ensuring the demonstration of new
system capacity. This could be the State SDWA primacy agency, or any other designated
agency, but there must be a responsible agency (or combination of agencies with a clearly
defined lead agency).
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• The responsible State agency (or combination of agencies) must possess and demonstrate
the actual authority to ensure that all new CWSs and new NTNCWSs demonstrate the
technical, managerial, and financial capacity to comply with all applicable SDWA
requirements. Collaborative arrangements among agencies for ensuring demonstration of
new system capacity must be documented through memoranda of understanding.
Can the "basis of authority" for ensuring the demonstration of new system capacity rest at
the county or local level?
The State is ultimately responsible for meeting the SDWA's capacity requirements.
Therefore, the State must have the final authority to determine whether a new system has
demonstrated technical, managerial, and financial capacity. However, in some States local
governments may exercise authorities, such as planning and zoning, which help form an effective
basis for a program requiring demonstration of capacity by new systems. EPA encourages States to
work closely with local governments in developing the State's new system capacity program. When
appropriate, local authorities, exercised at the local level, could be an effective component of an
overall State program. However, the State must have the ultimate authority to determine whether
or not a new system has demonstrated capacity. For additional information see Information for
States on Implementing the Capacity Development Provisions of the Safe Drinking Water Act
Amendments of 1996.
Who must certify that the State's authority is sufficient to ensure the demonstration of new
system capacity?
The State Attorney General (or a delegated department attorney) must certify, in writing,
that the state has the legal authority or other means to require demonstration of technical,
managerial, and financial capacity of new systems commencing operation after October 1, 1999 and
that the State's mechanism for implementing this authority is duly enforceable.
What is a "control point"?
A control point is a crux in a new system's development at which a State (or other unit of
government) can exercise its authority to ensure the demonstration of new system capacity.
Although local governments can be an important part of the process, each State shall demonstrate
to EPA that it has one or more clear control points of its own.
A control point or set of control points taken together must allow for review of the entire
scope of the proposed new system development. Generic control points in the new system
development process are described in EPA's Information for States on Implementing the Capacity
Development Provisions of the Safe Drinking Water Act Amendments of 1996.
What are some examples of "control points"?
Please see Table 2 of this document for examples of control points and their associated
bases of authority.
What must the plan for program implementation contain?
The plan for program implementation must show how the State's program will be put into
effect to ensure that new systems commencing operations after October 1, 1999 demonstrate
technical, managerial, and financial capacity. The plan for program implementation must include a
schedule, with major milestones, for adoption and full implementation of necessary regulations,
policies, or other authorities to ensure that new systems commencing operation after October 1,
18
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1999 demonstrate technical, managerial, and financial capacity. EPA strongly encourages states to
consider how they will assess and evaluate the success of their program in the years to come.
What will the schedule be for fiscal year 1999 withholding under sections 1420(a) and
Decisions regarding the new systems capacity related withholding for fiscal year 1999 will
be made by EPA at the time of award of the State's fiscal year 1999 capitalization grant. A State
will avoid a 20% withholding for fiscal year 1999 if, at the time of the grant award during fiscal year
1999, the State has the necessary "basis of authority" (statutory authority or other means) and is in
the process of administrative rulemaking, or is otherwise developing implementing authorities with
a realistic schedule (based upon the state's past performance in rulemaking or development of
implementing authorities) and expectation to have a fully functional program in place by October 1,
1999.
A State will face a "holdback" of 20% of its FY'99 allotment if, at the time of the grant
award during fiscal year 1999, the State lacks a "basis of authority" and/or a realistic schedule for
developing implementing authorities in order to have a fully functional program in place by October
1, 1999.
The 20% holdback will become a permanent withholding of 20% of its FY'99 allotment if
the State has not demonstrated, by September 30, 1999, that it will have a fully functional program
in place on October 1, 1999 to ensure the demonstration of technical, managerial, and financial
capacity by new CWSs and new NTNCWSs commencing operation after October 1, 1999.
Will unobligated funds from previous fiscal years be subject to the withholding?
No, unobligated funds from previous fiscal years will not be subject to withholding.
What is a "holdback", and what is its purpose?
A "holdback" is an informal, potentially temporary withholding of 20% of a State's DWSRF
allotment. Unlike a formal "withholding", a holdback does not entail a permanent loss of 20% of
the DWSRF allotment, nor does it initiate reallotment of those funds under section 1452 of the Act.
Instead, "heldback" funds are made available to the State upon an EPA finding that a State has met,
or will meet, the conditions under sections 1420(a), 1452(a)(l)(G)(i), and this section of the
guidance by the end of fiscal year 1999.
The purpose of the "holdback" is to allow States additional time, before formal withholding
would apply, to assemble the statutory authority and implementing authorities needed to institute a
fully functional program by October 1, 1999.
In what situations would the holdback apply?
The "holdback" would apply in two situations. First, 20% of a State's DWSRF allotment
will be "heldback" if the State lacks the necessary statutory authority to implement a fully functional
program by October 1, 1999. Second, 20% of a State's DWSRF allotment will be "heldback" if the
State has the statutory authority but is uncertain whether rulemaking or implementing authority
could be completed by October 1, 1999.
However, "heldback" funds will be awarded when and if, during FY'99, a State
demonstrates statutory authority and schedule for administrative rulemaking or other
implementing authority to conform with the October 1, 1999 deadline for having a functional
program in place.
19
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For what period does the "holdback" apply?
The "holdback" applies only to fiscal year 1999. The statute would not allow the holdback
concept to be applied in any subsequent fiscal year. Section 1420(a) establishes a definite point in
time, October 1, 1999, after which states must have functioning programs in place to ensure the
demonstration of capacity by any new CWS or new NTNCWS commencing operation. Any state
lacking such a program at that definite point in time will lose 20% of its DWSRF allotment. Both
Sections 1420(a) and 1452(a)(G)(i) make clear that the withholding provision is applicable in
FY'99 and each subsequent fiscal year. Thus, a withholding determination must be made by EPA
each fiscal year. For FY'99, the state has until September 30, 1999 to demonstrate that it will have
a fully functioning program by October 1, 1999. For FY'OO, and subsequent fiscal years, there can
be no holdback, since if there were that would mean that a state would not have in place a fully
functional program for some part of the fiscal year but would still receive 100% of its allotment for
that fiscal year. The law is clear that the fully functional program must be in place on October 1,
1999. If a state implements a fully functional program after October 1, 1999 then the first full
subsequent fiscal year would be the first opportunity for the state to once again receive 100% of its
DWSRF allotment.
What is a formal "withholding", and under what conditions would it apply?
A formal "withholding" means that 20% of a State's DWSRF allotment will be withheld and
reallotted according to section 1452 of the Act.
For a State which fails to demonstrate a fully functional program, which includes statutory
authority and implementing regulations or other authorities by September 30, 1999, 20% of that
State's allotment will be formally withheld.
How will formal withholding determinations be made for fiscal years 2000 and beyond?
Withholding will apply to the specific fiscal year allotment, and withholding determinations
will be based on the program status as of October 1 of the fiscal year in which funds become
available. For example, for fiscal year 2000 funds, withholding decisions will be based on State
program status as of October 1, 1999. This does not mean that regions will actually make the
withholding decisions on October 1. Rather, it means that whenever the capitalization grant is
awarded during the fiscal year, the region will evaluate what the status of the states new system
capacity program was on October 1 of the fiscal year.
A State will face a 20% withholding if it fails to demonstrate a fully functional
program. Also, for States which had demonstrated a fully functional program in the previous fiscal
year, a State will face a 20% withholding for the current fiscal year if it fails to demonstrate full,
ongoing implementation of its new systems program.
The details of the applicable DWSRF withholding are given in table 3 of this
document.
What documentation must a state provide to demonstrate full, ongoing implementation of its
new systems program?
In the fiscal years following a state's initial documentation of a fully functional program a
state must document that it is requiring a demonstration of technical, managerial, and financial
capacity by every new CWS and every new NTNCWS. This documentation of ongoing
implementation of the new systems program may be included with a given years capitalization grant
20
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application or it may be provided in an entirely separate submittal. Documentation could consist of
summary statistics regarding the number of proposed new CWS's and NTNCWS's and the results
of their required capacity demonstrations.
21
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Table 1: Minimum Requirements for Ensuring that All New CWSs and NTNCWSs
Demonstrate Technical, Managerial, and Financial Capacity
Minimum
Requirements
State Responsibility
Basis of Authority
The State must show that it has the "legal authority or other means" to ensure the
demonstration of technical, managerial, and financial capacity by new CWSs and new
NTNCWSs commencing operation after October 1, 1999. The State must demonstrate both
the underlying statutory or other legal authority and the actual implementing authority
(regulations, policies, etc.). The State attorney general must certify that the State has the
legal authority or other means to require demonstration of technical, managerial, and
financial capacity of new systems commencing operation after October 1, 1999 and that the
State's mechanism for implementing this authority is duly enforceable.
Control Points
The State must demonstrate that is has one or more clear control points in the new system
development process at which it can exercise its authority to ensure the demonstration of
capacity by new systems.
Program
Implementation
The State must present a plan for program implementation which includes a realistic
schedule for having in place by October 1, 1999 a fully functional program to ensure that all
new CWSs and new NTNCWSs commencing operation after 10-1-99 demonstrate technical,
managerial, and financial capacity. In each subsequent fiscal year the State must demonstrate
ongoing implementation of a fully functioning program.
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Table 2: Potential Authorities and Control Points for Ensuring the Technical, Managerial,
and Financial Capacity of New Water Systems
A.
Basis of Authority
(Statutory or Other)
State Authority for Drinking Water Quality
State Authority for Economic Regulation of
Public Utilities
State Authority for Water Resource
Management
State Authority for Revolving Loan Funds
State Authority for Planning and Growth
Management
State Enabling Authority for Local
Government
State Authority for Public Safety
Local Governmental Authority for Land-Use,
Planning, and Finances
Federal Rural Utilities Authority
Interstate Authorities and Compacts
State Authorities to Regulate Related
Businesses
B.
Agency Vested with Authority
State drinking water primacy agency
State public utility commissions (PUCs)
State water resource agency
State financial assistance agency
State planning, growth management, or
development agency
Regional planning councils (intrastate)
Secretary of State
(or other State agency)
State financial control agency
State fire marshal
(or other agency)
Municipalities, counties, and special districts
Rural Utilities Service
River basin commissions
Banking regulators
Insurance regulators
c.
Control Points for Ensuring New
System Capacity
Facility plan review and permit*
Operating permit*
Operator certification
Construction requirements for wells
Source water protection plans
System planning requirements
Certificate of convenience and necessity*
Approval of system's investments (ratebase)
Approval of system's financial structure (debt
and equity)
Approval of initial rates and rate design
System planning requirements
Withdrawal and source development permits*
Approval of water rights
System planning requirements
Approval of environmental impact assessment.
Eligibility and approval of grants and loans
Review and approval of plans*
Review and approval of plans
Authorization of local governments and districts
Subdivision and platting regulations
Authorization of local government financing
(public systems)
Permits and approvals related to fire protection
codes
Subdivision, zoning, and land-use approvals*
Construction permits and approvals
Franchise approval*
Local planning approvals
Authorization of local government financing
Approval of grants and loans
Basin withdrawal permits*
Basin planning and resource management
requirements
Loan approval by commercial lenders
Insurance approval by insurers
*principal approval processes for creating a water system.
Table 3: DWSRF Withholding for New Systems Capacity Programs
23
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Year
Fri995Ua*-_--------^ 5
;
Withholding applies to FY
1999 allotment.
Unobligated funds from
previous fiscal years will not
be subject to the withholding.
rrxtttmtowt^^
Withholding will apply to the
specific fiscal year allotment.
Withholding decisions will be
based on the program status
as of October 1 of the fiscal
year funds become available.
For example, for FY 2000
funds, withholding decisions
will be based on State
programs as of October 1,
1999.
Avoid 20% Withholding
• j
If State has statutory authority
and is in the process of
administrative rulemaking, or
is otherwise developing
implementing authorities with
a realistic schedule and
expectation to have a fully
functional program by
October 1, 1999.
20% Holdback
20% Withholding
i
i
If State lacks statutory
authority, or
If State has statutory authority
and is uncertain if rulemaking
(or development of other
implementing authorities)
could be completed by
October 1, 1999.
Heldback funds are awarded
when and if, during FY'99, a
State demonstrates statutory
authority and schedule for
administrative rulemaking or
other implementing authority
to conform with October 1,
1999 requirement.
If State fails to demonstrate a
functional program (statutory
authority and implementing
regulations or other
authorities) by September 30,
1999.
j i
If State demonstrates a fully
functional program (in the
case of previous year
withholding), or
If State demonstrates full
ongoing implementation of
new systems program (if the
State had previously
demonstrated a fully
functional program).
N/A
If State fails to demonstrate a
fully functional program (in
the case of previous year
withholding), or
If State fails to demonstrate
full, ongoing implementation
of its new systems program
(if it had previously
demonstrated a fully
functional program).
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Section 3: Guidance on DWSRF Withholding Determinations Related to State Capacity
Development Strategies
What is the purpose of this guidance?
This guidance establishes national policy regarding implementation of the DWSRF
withholding related to capacity development strategies under sections 1420(c) and 1452(a)(l)(G)(i)
of the SDWA as amended. This guidance describes how EPA will assess whether States have met
the capacity development strategy requirements of section 1420(c) and therefore whether the
Agency is required to withhold a percentage of a State's DWSRF allotment.
What is the statutory authority for this guidance?
The basis for this guidance is the EPA Administrator's authority to issue guidance and
regulations under section 1452(g)(3) as necessary to implement the provisions of section 1452 of
the SDWA. This guidance is necessary to implement the DWSRF withholding provisions of section
1452(a)(l)(G)(i) of the SDWA, as amended.
To whom does this guidance apply?
This guidance applies to all States operating a DWSRF and seeking to avoid a 10%
withholding of their DWSRF allotment in fiscal year 2001, 15% in fiscal year 2002, and 20% in
each subsequent fiscal year.
How will EPA use this guidance?
EPA will use this guidance to determine whether a State has met the requirements outlined
in section 1420(c). States that fail to do so are subject to withholdings of DWSRF allotments
equaling 10% in FY 2001, 15% in FY 2002, and 20% in each subsequent fiscal year.
What does section 1420(c) of the SDWA as amended require a State to do?
In general, the State must be developing and implementing a strategy to assist PWSs in
acquiring and maintaining capacity to comply with the Act by August 6, 2000. Section 1420
requires that States consider, solicit public comment on, and include as appropriate in its capacity
development strategy several listed elements in the Act. Section 1420(c) also contains ongoing
reporting requirements related to capacity development with which States must comply. For a
more detailed discussion of what States must do to comply with section 1420(c), see Table 4 of this
guidance.
What are the elements that a State must consider, solicit public comment on, and include as
appropriate in its capacity development strategy?
Section 1420(c)(2) requires that States, in preparing their capacity development strategies,
consider, solicit public comment on, and include as appropriate the following:
A. The methods or criteria that the State will use to identify and prioritize the
PWSs most in need of improving technical, managerial, and financial
capacity.
B. A description of the institutional, regulatory, financial, tax, or legal factors
at the Federal, State, or local level that encourage or impair capacity
development.
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C. A description of how the State will use the authorities and resources of this
title or other means to assist public water systems in complying with
NPDWRs, encourage the development of partnerships between public
water systems to enhance the technical, managerial, and financial capacity
of the systems, and assist public water systems in the training and
certification of operators.
D. A description of how the State will establish a baseline and measure
improvements in capacity with respect to NPDWRs and State drinking
water law.
E. An identification of the persons that have an interest in and are involved in
the development and implementation of the capacity development strategy
(including all appropriate agencies of Federal, State, and local
governments, private and nonprofit PWSs and PWS customers).
What must a State document to demonstrate that it has met the basic requirements of
§1420(c)?
• A State must certify that it solicited public comments on the five elements listed above as
part of the preparation of its capacity development strategy. The State must describe
relevant public comments and its responses to them.
• The State must describe which of the listed elements (A-E) the State has included or
excluded from its strategy, and why each element was included or excluded.
• The State must describe how the selected elements together can be rationally considered
to constitute a strategy to assist PWSs in acquiring and maintaining technical, managerial,
and financial capacity.
• The State must describe how it will implement its strategy and evaluate its progress
toward improving PWS capacity.
What are the ongoing reporting requirements under the capacity development strategy
provisions?
• Each year, as a stand-alone submittal or as part of the state's capitalization grant
application, the state must provide documentation showing the ongoing implementation of
the capacity development strategy.
• Every 3 years, the State must submit to EPA a list of CWSs and NTNCWSs that have a
history of significant noncompliance and, to the extent practicable, the reasons for their
noncompliance. States submitted their first list in August, 1997. The next list will be due
August 6, 2000. The Agency has interpreted the statutory requirement in section
1420(b)(l) of "periodically update" to mean every 3 years. This interpretation is based
upon consultation with the states and the Agency considers it reasonable given the
requirement for a state report to the governor every 3 years in Section 1420(c)(3).
26
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• By August 6, 2001 the State must report to EPA on the success of its enforcement
mechanisms and initial capacity development efforts in helping CWSs and NTNCWSs
having a history of significant noncompliance improve their capacity.
• Not later than 2 years after a State adopts a capacity development strategy, and every 3
years thereafter, the primacy agency must submit a report to the Governor on the efficacy
of the strategy and progress made toward improving the technical, managerial, and
financial capacity of PWSs in the State. The report shall also be made available to the
public.
Will these reports be a factor in DWSRF withholding determinations?
Yes. Failure to produce any of the reports will constitute a basis for withholding since
these reports, required under sections 1420(b)(3) and (c)(3), are considered part of the capacity
development strategy.
However, EPA will not base withholding determinations on any type of judgements or
inferences drawn from the reports regarding the relative merits or efficacy of a State capacity
development strategy. Further, the statute in section 1420(c)(4) explicitly prohibits EPA from
reviewing decisions of the State regarding any particular PWS, as part of a capacity development
strategy. Such State decisions regarding individual PWSs may not serve as basis for withholding
funds.
What should States that already have capacity development strategies do?
EPA commends States which have already developed and implemented programs and
strategies to improve the technical, managerial, and financial capacity of PWSs. For purposes of
complying with the requirements of section 1420(c), States which have existing strategies must
certify that they considered and solicited public comment on the elements listed in section
1420(c)(2)(A-E). The purpose of this requirement is to solicit public involvement and ideas on the
state strategy in light of the new opportunities for regulatory flexibilities (e.g., variances and
exemptions) and in light of the new resources provided by the 1996 SDWA Amendments to
develop, revise and implement capacity development strategies and technical assistance. If the
State did not consider and solicit public comment on the listed elements at the time the strategy
was developed, it will need to do so prior to October 1, 2000. In addition, the State is still
required to meet the ongoing reporting requirements under sections 1420(b)(3) and (c)(3), listed
above.
What is meant by a history of significant noncompliance?
A "history of significant noncompliance" means being in significant noncompliance (for
any single contaminant or for different contaminants) during any three quarters of the previous 3
years. This definition was developed in consultation with the states at the Winter Meeting of the
Association of State Drinking Water Administrators in February, 1997. It was the definition
utilized for purposes of developing the first required state list which was due to EPA on August 6,
1997.
Under what conditions will fiscal year 2001 withholding occur?
For fiscal year 2001, the withholding determination will be based on the program status as
of October 1, 2000. The withholding will apply to the fiscal year 2001 allotment. Unobligated
funds from previous fiscal years will not be subject to withholding.
27
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A State will avoid a 10% withholding from its DWSRF allotment if the State is developing
and implementing a strategy to assist PWSs in acquiring and maintaining technical, managerial,
and financial capacity. A State will incur a 10% withholding if it is not doing so.
Will there be a "holdback" associated with the capacity development strategy provision
analogous to that associated with the new systems provision?
No. The statute establishes a date certain, August 6, 2000, by which states must be
developing and implementing a capacity development strategy. Since the withholding for failure
to develop and implement a strategy does not begin until FY'Ol (starting October 1, 2000), a
"holdback" would make no sense. If a state is not developing and implementing a strategy on
October 1, 2000, then they have failed to meet the statutory requirement and would have 10%
withheld from their allotment. The state could avoid a withholding the following fiscal year if
they are developing and implementing a strategy on or before October 1, 2001.
Under what conditions will fiscal year 2002 withholding occur?
For fiscal year 2002, the withholding determination will be based on the program status as
of October 1, 2001. The withholding will apply to the fiscal year 2002 allotment.
A State will avoid a 15% withholding of its allotment if it is developing and implementing
a strategy to assist PWSs in acquiring and maintaining technical, managerial, and financial
capacity. A State will incur a 15% withholding if it is not doing so.
Under what conditions will fiscal year 2003 and beyond withholding occur?
For fiscal year 2003 and beyond, the withholding determination will be based on the
program status as of October 1 of the fiscal year. The withholding will apply to the fiscal year
allotment.
A State will avoid a 20% withholding of its allotment if it is developing and implementing
a strategy to assist PWSs in acquiring and maintaining technical, managerial, and financial
capacity. A State will incur a 20% withholding if it is not doing so.
What will be the basis of withholding decisions in subsequent fiscal years after a state has
demonstrated that it is developing and implementing a capacity development strategy?
Once a state has successfully demonstrated that it is developing and implementing a
capacity development strategy, then in subsequent fiscal years it can avoid withholding by
documenting ongoing implementation of the strategy. This documentation may be included with
the capitalization grant application or it may be provided in an entirely separate submittal. Such
documentation may consist of a concise narrative description of the major activities being
conducted and planned for under the states capacity development strategy. See Table 5 for a
summary of DWSRF withholding for capacity development strategies.
28
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Table 4: Meeting the Requirements of Section 1420(c) - Capacity Development Strategy
Requirements
State Responsibility
Consideration of
§1420(c)(2)(A-E)
The State must describe the issues it considered relative to each of the listed elements and
explain why each element was included or excluded from its capacity development strategy.
Public Comment
The State must certify that it solicited public comment on the listed elements. The State must
also describe all relevant public comment and its response.
Capacity
Development
Strategy
The State must show a rational basis for concluding that the chosen elements constitute a
strategy to assist public water systems in acquiring and maintaining capacity.
Strategy
Implementation
The State must describe its current strategy implementation and plans for future
implementation. Each year, as a stand-alone submittal or as part of the state's DWSRF
capitalization grant application, the state must provide documentation showing the ongoing
implementation of the capacity development strategy.
Ongoing Reporting
Requirements
Not later than 2 years after the date on which a State first adopts a capacity development
strategy, and every 3 years thereafter, the head of the State primacy agency shall submit to
the Governor a report on the efficacy of the strategy and progress toward improving the
capacity of public water systems in the State.
Every 3 years, the State must submit to the EPA Administrator a list of CWSs and
NTNCWSs that have a history of significant noncompliance, and to the extent possible, the
reasons for noncompliance.
By 2001, the State must submit to the EPA Administrator a report on the success of
enforcement mechanisms and initial capacity development efforts in helping systems in
significant noncompliance achieve and maintain capacity.
29
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Table 5: DWSRF Withholding for Capacity Development Strategies
Year
Avoid Withholding
Withholding
p Y"7 nm : - !
Withholding will be based on the
program status as of October 1 ,
2000. Withholding applies to F Y
2001 allotment. Unobligated funds
from previous fiscal years will not
be subject to the withholding.
If State is developing and
implementing strategy
EPA will withhold 10% of the
State's allotment if the State is not
developing and implementing a
strategy.
F1P3QD2 :.:r..".".".".".".".".:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.-.:.r:. ,: - , :
Withholding will be based on the
program status as of October 1 ,
2001
If State is developing and
implementing strategy.
EPA will withhold 15% of the
State's allotment if the State is not
developing and implementing a
strategy.
V VTBIfliT'i'Brl hew ftnA : - !
Withholding will be based on the
program status as of October 1 of
the fiscal year.
If State is developing and
implementing
EPA will withhold 20% of the
State's allotment if the State is not
developing and implementing a
strategy.
30
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Section 4: Guidance on Assessment of Capacity for Purposes of Awarding DWSRF
Assistance
What is the purpose of this guidance?
This guidance clarifies what procedures a State must document relative to its assessment
of technical, managerial, and financial capacity of PWSs seeking DWSRF loan assistance.
What is the statutory authority for this guidance?
The basis for this guidance is the EPA Administrator's authority to issue guidance and
regulations under section 1452(g)(3) as necessary to implement the provisions of section 1452 of
the SDWA. Section 1452(a)(3) prohibits DWSRF assistance to PWSs that do not have the
technical, managerial, and financial capacity to comply with SDWA requirements.
To whom does this guidance apply?
This guidance applies to all States which operate a DWSRF program.
How will EPA use this guidance?
EPA will use this guidance to assure that States have in place and utilize procedures to
make certain that, consistent with section 1452(a)(3)(A), systems receiving DWSRF assistance
have the technical, managerial, and financial capacity to ensure compliance with SDWA
requirements and that no system in significant noncompliance with a NPDWR receives assistance
except as provided for in section 1452(a)(3)(B).
What limitations on DWSRF assistance does section 1452(a)(3)(A) impose?
Section 1452(a)(3)(A) imposes two significant limitations on DWSRF assistance to PWSs.
First no assistance may be provided to a PWS that does not have the technical, managerial, and
financial capacity to ensure compliance with the requirements of the SDWA. Second, no
assistance may be provided to a PWS that is in significant noncompliance with any requirement of
a NPDWR.
Are there any exceptions to the limitations imposed by section 1452(a)(3)(A)?
Yes. Section 1452(a)(3)(B) allows systems lacking capacity to receive DWSRF assistance
if the system agrees to undertake feasible and appropriate restructuring (such as changes in rates
or management, consolidation, alternative supply, etc.) if the State determines that such
restructuring is necessary to ensure that the system has the capacity to comply with SDWA
requirements over the long term.
Section 1452(a)(3)(B) also allows a system in significant noncompliance to receive
assistance if the use of the assistance will ensure compliance.
What must a State document to comply with the requirement that DWSRF loan assistance
not be available to PWSs that lack technical, managerial, and financial capacity?
Each State must document the procedure it will use for evaluating the technical,
managerial, and financial capacity of PWSs seeking DWSRF assistance. The procedure must,
under any rational standard of judgement, be designed to objectively assess the technical,
managerial, and financial capacity of water systems for long-term compliance with the
requirements of the SDWA. This documented procedure must be available for public review
before being finalized. Once the procedure is finalized, it must be documented in the State
31
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DWSRF Operating Agreement. For more information on assessment of technical, managerial,
and financial capacity, see Information for States on Implementing the Capacity Development
Provisions of the Safe Drinking Water Act Amendments of 1996.
With each year's capitalization grant application or as a separate and previous submittal,
the State must summarize the results of assessments of system technical, managerial, managerial,
and financial capacity conducted in the preceding year. This information should include summary
statistics on the numbers, types, and sizes of systems assessed and the outcome of the
assessments. It should also include any changes in assessment methodology the State is planning
to make.
What must a State document to comply with the provision that DWSRF assistance can be
provided to a system in significant noncompliance only if the use of the assistance will
ensure compliance?
Each State must document the procedure they will use for assessing whether DWSRF
assistance will ensure compliance of systems in significant noncompliance. This documented
procedure must be available for public review before being finalized. Once the procedure is
finalized, it must be documented in the State's DWSRF Operating Agreement.
With each year's capitalization grant application or as a separate or previous submittal, the
State must provide summary statistics on the numbers, types, and sizes of systems in significant
noncompliance to which the State provided DWSRF assistance in the preceding year. The State
should also summarize any changes in the assessment procedure it plans to make.
What must a State document to comply with the provision that DWSRF assistance can be
provided to a PWS that lacks technical, managerial, and financial capacity if the system
agrees to restructuring changes that the State determines are necessary to ensure system
capacity for long term SDWA compliance?
Each State must document the procedure they will use for assessing what are feasible and
appropriate restructuring changes that would be necessary to ensure that a system has the
technical, managerial, and financial capacity to comply with SDWA requirements over the long
term. This procedure must be available for public review before being finalized. Once the
procedure is finalized, it must be documented in the State's DWSRF Operating Agreement.
With each year's capitalization grant application or as a separate or previous submittal, the
State must provide summary statistics on the numbers, types, and sizes of systems that have been
required to undertake restructuring changes in order to be eligible for DWSRF assistance. The
State should also summarize any changes in the assessment procedure it plans to make.
For a summary of what a State must document to demonstrate that it has complied with
section 1452(a)(3), please see Table 6.
NOTE: No assistance authorized under Section 1452, including direct grants from EPA, may be awarded to
systems that lack capacity, unless such assistance will enable the system to obtain capacity.
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Table 6: Minimum Requirements for Assessment of Capacity for Purposes of Awarding DWSRF
Assistance
Requirements
State Responsibility
Procedure to Assess
Technical, Managerial, and
Financial Capacity for
Purposes of Awarding
DWSRF Assistance
Each State must document the procedure it will use for evaluating the technical,
managerial, and financial capacity of PWSs seeking DWSRF assistance. This
documented procedure must be available for public review before being finalized.
Once the procedure is finalized, it must be documented in the State DWSRF
Operating Agreement.
With each year's capitalization grant application or as a separate and previous
submittal, the State must summarize the results of assessments of system technical,
managerial, managerial, and financial capacity conducted in the preceding year.
This information should include summary statistics on the numbers, types, and sizes
of systems assessed and the outcome of the assessments. It should also include any
changes in assessment methodology the State is planning to make.
Procedure for Assessing
Whether DWSRF Assistance
Will Help to Ensure
Compliance for Systems in
Significant Compliance
Each State must document the procedure they will use for assessing whether
DWSRF assistance will ensure compliance of systems in significant
noncompliance. This documented procedure must be available for public review
before being finalized. Once the procedure is finalized, it must be documented in
the State's DWSRF Operating Agreement.
With each year's capitalization grant application or as a separate or previous
submittal, the State must provide summary statistics on the numbers, types, and
sizes of systems in significant noncompliance to which the State provided DWSRF
assistance in the preceding year. The State should also summarize any changes in
the assessment procedure it plans to make.
Procedure for Assessing What
Constitutes Feasible and
Appropriate Restructuring
Changes Necessary to
Develop Adequate Technical,
Managerial, and Financial
Capacity.
Each State must document the procedure they will use for assessing what are
feasible and appropriate restructuring changes that would be necessary to ensure
that a system has the technical, managerial, and financial capacity to comply with
SDWA requirements over the long term. This procedure must be available for
public review before being finalized. Once the procedure is finalized, it must be
documented in the State's DWSRF Operating Agreement.
With each year's capitalization grant application or as a separate or previous
submittal, the State must provide summary statistics on the numbers, types, and
sizes of systems that have been required to undertake restructuring changes in order
to be eligible for DWSRF assistance. The State should also summarize any
changes in the assessment procedure it plans to make.
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ATTACHMENT 1
Worksheet for Assessing State Programs for
Ensuring Demonstration of New System Capacity
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Assessing Proposed State Programs for
Ensuring Demonstration of New System Capacity
State Reviewed:
Date Completed:
Reviewer:
General Comments:
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Suggestions for Regions
Use this sheet to guide your review of proposed State
programs for new system capacity.
The questions contained within this worksheet focus on
program functionality.
The questions are designed to assist you in evaluating
proposed State programs for purposes of making DWSRF
withholding decisions.
This is not a checklist. Using these questions, you should
be able to identify major strengths and/or weaknesses of
proposed State programs.
In order to avoid a 20 percent Drinking Water State
Revolving Fund (DWSRF) withholding, States must
ensure that all new community water systems (CWSs)
and all new nontransient, noncommunity water systems
(NTNCWSs) commencing operation after October 1,
1999, demonstrate technical, managerial, and financial
capacity.
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Suggestions for States
Use this sheet to help guide your description of your
capacity development program for new systems.
This sheet may help you in developing your capacity
development program for new systems.
The questions contained within this worksheet focus on
program functionality and ensure that the requirements of
the statute and guidance are met.
This is not a checklist. Using these questions, you should
be able to identify major strengths and/or weaknesses of
your proposed program.
In order to avoid a 20 percent Drinking Water State
Revolving Fund (DWSRF) withholding, States must ensure
that all new community water systems (CWSs) and all new
nontransient, noncommunity water systems (NTNCWSs)
commencing operation after October 1,1999, demonstrate
technical, managerial, and financial capacity.
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Basis of Authority
Describe the State's regulations, policies, or other implementing authorities.
Identify the State or sub-State agencies responsible for implementing the regulations,
policies, or other authorities.
What is the statutory basis for these regulations, policies, or other implementing
authorities?
Describe the collaborative arrangements (if any) among the various agencies responsible
for implementing these regulations, policies, or other authorities. Identify the means (e.g.,
memoranda of understanding) used to document the collaborative arrangements among
agencies.
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Control Points
Describe each control point outlined in the State program and identify the agency
responsible for implementing that control point. Make special note of the control point(s)
that permit the State to directly exercise its authority to ensure the demonstration of
capacity in new CWSs and NTNCWSs.
Describe the aspect(s) of capacity (technical, managerial, or financial) evaluated at each of
the control points listed above. Ensure that all aspects of capacity are evaluated.
At each of the control points listed above, what specific action will the State or sub-State
agency take to ensure demonstration of technical, managerial, and financial capacity?
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Plan for Implementation and Periodic Review
How will the State evaluate the implementation and on-going effectiveness of its new
system capacity development program?
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Overall Program Functionality
1. How does the State's proposed program ensure that new systems
commencing operations after October 1, 1999 demonstrate
technical, managerial, and financial capacity?
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ATTACHMENT 2
Worksheet for Assessing Proposed State Capacity Development
Strategies for Existing Public Water Systems
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Assessing Proposed State Capacity Development
Strategies for Existing Public Water Systems
State Reviewed:
Date Completed:
Reviewer:
General Comments:
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Suggestions for Regions
Use this sheet to guide your review of proposed State strategies for
ensuring capacity in public water systems (PWSs).
The questions are designed to assist you in reviewing proposed
State strategies for the purpose of making Drinking Water State
Revolving Fund (DWSRF) withholding decisions.
This is not a checklist. However, using the following questions, you
should be able to assess State compliance with the Capacity
Development provisions of §1420(c) of the Safe Drinking Water
Act (SDWA), as amended in 1996.
In order to avoid a 10 percent DWSRF withholding in 2001, a 15
percent withholding in 2002, and a 20 percent withholding in
subsequent fiscal years, States must develop and implement a
strategy to assist PWSs in acquiring and maintaining technical,
managerial, and financial capacity.
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Suggestions for States
Use this sheet to help guide your description of your capacity
development strategy for existing public water systems (PWSs).
This sheet may help you in developing your capacity development
strategy for existing PWSs.
The questions contained within this worksheet will help you to
ensure that the requirements detailed in both §1420(c) of the Safe
Drinking Water Act (SDWA) and the associated guidance are met.
This is not a checklist. However, using the following questions, you
should be able to identify the major strengths and/or weaknesses of
your proposed capacity development strategy and make appropriate
adjustments.
In order to avoid a 10 percent DWSRF withholding in 2001, a 15
percent withholding in 2002, and a 20 percent withholding in
subsequent fiscal years, States must develop and implement a
strategy to assist PWSs in acquiring and maintaining technical,
managerial, and financial capacity.
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Solicitation and Consideration of Public Comments
1. Describe how the State, in preparing its capacity development
strategy, solicited public comment on the program elements listed in
§1420(c)(2)(A-E) of the SDWA, as amended in 1996.
2. Describe how the State considered public comment on the program
elements.
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Program Elements
1. Describe how the State considered the appropriateness of each
program element listed in §1420(c)(2)(A-E) in deciding whether or
not to include the element in its capacity development strategy.
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Strategy
1. Describe the basis on which the State believes that the program
elements it has chosen, when taken as a whole, constitute a strategy
to assist PWSs in acquiring and maintaining technical, managerial,
and financial capacity.
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Implementation
1. Describe the State's current implementation efforts for its capacity
development strategy.
2. Describe the State's future plans for strategy implementation.
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Future Considerations
1. Listing of systems with a history of significant noncompliance
(§1420(b)(l)).
— States must prepare, update, and submit to the EPA Administrator a
list of community water systems and nontransient, noncommunity
water systems that have a history of significant noncompliance. States
must also, to the extent practicable, provide reasons for the
noncompliance of these systems. Under §1420(b)(3), failure to provide
this report in will serve as a basis for withholding.
Note: A system is considered to have a history of significant noncompliance
if it has violated one or more National Primary Drinking Water
Regulations (NPDWRs) in any three quarters within the last three
years.
2. Report to the EPA Administrator (§ 1420(b)(2)).
— States must submit a report to the EPA Administrator by August 6,
2001, that details the success of enforcement mechanisms and initial
capacity development efforts in helping those PWSs listed as having a
history of significant noncompliance to improve their technical,
managerial, and financial capacity. Under §1420(b)(3), failure to
provide this report in FY 2001 will serve as a basis for withholding.
3. Report to the State Governor (§ 1420(c)(3)).
— Not later than two years after a State develops a capacity development
strategy, and every three years thereafter, each State's primacy agency
must submit a report to the State's Governor and to the public that
details the efficacy of the State's capacity development strategy and
that outlines the progress made towards improving the technical,
managerial, and financial capacity of PWSs in the State. Under
§1420(c)(l), failure to provide this report in will serve as a basis for
withholding.
Note: EPA encourages States to include the methodology they plan to use to
assess the efficacy of their capacity development strategy as part of their
strategy. The inclusion of assessment methodology is not mandatory and
will not be a basis for withholding DWSRF funding in FY 2001.
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ATTACHMENT 3
Response to Comments Received on Proposed Guidance
Published in the Federal Register on February 5, 1998
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Response to Comments
Capacity Development Guidance
Introduction
Many commentors were concerned with whether an appropriate balance could be struck between
providing State flexibility while ensuring national program accountability in implementation.
They stressed the need for EPA to acknowledge State program diversity in capacity development,
and that only limited or no oversight by EPA would be necessary.
The Agency recognizes, respects, and encourages diversity in state capacity development
programs. The guidance is designed to foster and facilitate the development of capacity
development programs that are diverse in approach and which address the unique needs and
circumstances of different states. However, while the law clearly contemplates such flexibility, it
also clearly establishes what states must do regarding capacity development if they wish to avoid a
capacity development related withholding from their DWSRF. The guidance provides a simple,
objective framework for EPA to use in assessing whether or not a state has done what the law
requires in order to avoid a capacity development related DWSRF withholding.
EPA has no desire or intention to expand oversight of state capacity development
programs beyond what is necessary for purposes of making DWSRF withholding decisions.
Many commentors suggested that EPA needed to more clearly define and describe the role of
guidance vis-a-vis regulation.
The purpose of this guidance is to explain how EPA interprets the capacity development
provisions of SOW A, as amended, and, specifically, what States must do to avoid mandatory
withholding of DWSRF funding under those provisions. Unlike regulation, guidance does not
generally establish binding requirements apart from the statute it addresses. However, in the
context of a statute that mandates grant withholding under certain circumstances, guidance
interpreting those provisions effectively establishes conditions for the receipt of those funds and
thus can have a mandatory effect similar to a regulation. Thus, in the context of a guidance that
interprets a statute that mandates withholding of funds under certain conditions, there may not
be a significant difference in operational effect between a regulation and a guidance which
outlines how the agency will implement the mandatory withholding.
Some commentors were concerned that EPA misrepresented the stakeholder process which
contributed to this guidance. Another commentor claimed that States were inadequately
represented.
The Agency believes that its description of the stakeholder process which was published,
on February 5, 1998, as part of the preamble to the draft guidance is accurate and does not
misrepresent that process. Of the 22 members of the NOW AC Small Systems Working Group,
only 2 submitted minority opinions to the full NDWAC. These minority opinions expressed the
belief that EPA lacked the statutory authority to issue guidance related to capacity development
strategies. The full NDWAC considered these minority opinions but voted overwhelmingly to
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support the Working Groups majority recommendations.
The Agency believes that states were adequately represented on the Working Group. Of
the 22 members, 5 represented state drinking water programs (4 were senior officials from state
drinking water programs and 1 represented the Association of State Drinking Water Program
Administrators).
Many commentors requested clarification on definitions of technical, managerial, and
financial capacity and what is meant by "foreseeable future " in the definition of capacity.
The final guidance provides more detailed definitions of technical, managerial, and
financial capacity. The Working Group generally felt, and EPA believes, that in defining and
considering water system capacity, a long-term view is essential. For example, the SDWA
establishes requirements for promulgation of a number of significant regulations over the next
several years and sets up a process to continually identify and evaluate additional contaminants
for possible regulation. Thus it is reasonable to consider the ability of a system to address
additional, new regulatory requirements beyond those already in place when considering that
systems capacity. Such an assessment is useful even if the details of future regulatory
requirements are not yet known. If a system appears to have little or no ability to address any
future additional regulatory requirements, then it may be appropriate to begin assisting that
system in developing additional capabilities.
New Systems Guidance
Many of the commentors indicated that the definition of "new system " is unclear or
ambiguous.
The final guidance clarifies the definition of "new system". New systems include both
CWSs or NTNCWSs being newly constructed as well as systems which do not currently meet
the definition of a PWS but expand their infrastructure and thereby grow to become CWSs or
NTNCWSs. Systems not currently PWSs and which add additional users and thereby become
CWSs or NTNCWSs without constructing any additional infrastructure are not "new systems"
for purposes of section 1420(a) of the SDWA as amended.
The Agency has considered a number of alternative definitions for "new system". A
definition of "new system" which encompasses only newly constructed systems would overlook
those systems which grow through physical expansion to become PWS's. The Agency believes
that there are a significant number of such systems and that they should be treated as equivalent
to newly constructed systems. On the other hand, a definition of "new system" that
encompassed any system which acquired enough users to qualify it as a PWS would be
unreasonable since it would capture systems such as small businesses which become PWS's
simply by virtue of adding a few new employees, even though they make no physical
modification whatsoever to their water system.
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Many commentors expressed concern or sought clarification regarding the basis for holdback
or withholding decisions starting in FY'99.
A "holdback" is an informal, potentially temporary withholding of 20% of a State's
DWSRF allotment. Unlike a formal "withholding", a holdback does not entail a permanent loss
of 20% of the DWSRF allotment, nor does it initiate reallotment of those funds under section
1452 of the Act .The purpose of the "holdback" is to allow States additional time, before
formal withholding would apply, to assemble the statutory authority and implementing
authorities needed to institute a fully functional program by October 1, 1999.
Based upon the comments received, the Agency is including a number of significant
changes in the final guidance. First, for any given fiscal year the withholding will apply to that
years allotment only. Unobligated funds from previous fiscal years will not be subject to
withholding. Second, for FY'99, the agency will not holdback funds from a state having the
statutory authority for new systems but is in the process of rulemaking or otherwise developing
implementing authorities (so long as the process for developing these implementing authorities
is on a realistic schedule and the state expects to have a fully functional program by 10-1-99).
Third, the Agency is clarifying that in FY'OO and beyond, the withholding decision will be based
on the state program status on October 1 of the fiscal year.
A few commentors questioned the authority of EPA to use "control points" for purposes of
making withholding determinations.
The statute is clear that states must have a program which achieves a specific result as of
a date certain. That result is requiring demonstration of technical, financial, and managerial
capacity by all new community water systems and new nontrasient noncommunity water
systems commencing operation after October 1, 1999. By asking the state to describe its
control points, EPA is merely asking how the state plans to meet the statutory requirement. If
the state fails to meet the statutory requirement, EPA must withhold 20% of the states DWSRF
allotment. EPA will not judge the relative merits or likely efficacy of a states chosen control
points, so long as the control points can be rationally judged to potentially achieve the
statutorily required endpoint.
Several commentors express concern relative to "turnaround time. " Will there be sufficient
time to address issues which arise during EPA review in time to receive 100% of monies.
The Agency strongly encourages states to work closely with their EPA Regional office
starting early in the development of their new systems program. States can receive 100% of
their allotment in FY'99 if they have the legal authority and a realistic (based on past
performance) schedule for rulemaking or otherwise developing implementing authorities such
that they expect to have a fully functional program in place by October 1, 1999.
Commentors requested that EPA allow states to grandfather existing authorities versus
requiring extensive regulatory, statutory, etc. revisions.
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States can use any existing authorities that might be appropriate to build a program.
The statute focuses on the outcome states must achieve; new systems commencing operation
after October 1, 1999 mut be required to demonstrate capacity. If existing authority can
accomplish this end result then it can certainly be used.
A number of comments from states and regions were received with opinions on whether
requiring a statement of some type from the state Attorney General regarding the states legal
authority for new systems should be required.
The Agency has carefully considered this issue and has concluded that an Attorney
General's statement will be required. Such a decision is consistent with long standing Agency
policy and practice relative to requirements for states to demonstrate legal authorities. Because
the Attorney General is responsible for the entire body of state law, he/she is in the best position
to certify that the authority being claimed is in fact available to be exercised. Therefore, the
guidance requires that the State Attorney General (or a delegated department attorney) must
certify, in writing, that the state has the statutory authority to require demonstration of
technical, managerial, and financial capacity of new systems commencing operation after
October 1, 1999 and that the State's mechanism for implementing this authority is duly
enforceable.
A couple ofcommentors ask the basis for EPA assessing ongoing implementation in future
years.
The withholding determination related to the new systems program must be made each
year. Once a state has demonstrated a functional program, future years assessment is necessary
to ensure ongoing implementation of the program. In the fiscal years following a state's initial
documentation of a fully functional program a state must document that it is requiring a
demonstration of technical, managerial, and financial capacity by every new CWS and every
new NTNCWS. This documentation of ongoing implementation of the new systems program
may be included with a given year's capitalization grant application or it may be provided in an
entirely separate submittal. Documentation could consist of summary statistics regarding the
number of proposed new CWS's and NTNCWS's and the results of their required capacity
demonstrations.
The concept of "future capacity" raised a number of concerns from commentators.
The law requires only that systems be required to demonstrate capacity with respect to
regulations in effect or likely to be in effect on the date of commencement of operations.
However, the Agency strongly encourages states to consider system capacity in the context of
the foreseeable future. EPA believes, that in defining and considering water system capacity, a
long-term view is essential. For example, the SDWA establishes requirements for promulgation
of a number of significant regulations over the next several years and sets up a process to
continually identify and evaluate additional contaminants for possible regulation. Thus it is
reasonable to consider the ability of a new system to address additional, new regulatory
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requirements beyond those already in place when considering that systems capacity. Such an
assessment is useful even if the details of future regulatory requirements are not yet known. If a
new system appears to have little or no ability to address any future additional regulatory
requirements, then it may be appropriate to work with the developer of the system to ensure
that the system will have the capacity it needs for the long term.
Some commentors expressed concern about proposed requirements for program evaluation.
The Agency has deleted the proposed requirements for program evaluation. However,
the Agency continues to strongly encourage states to consider how they will assess and evaluate
the success of their program in the years to come.
Capacity Development Strategy Guidance
Many commentors stated their belief that EPA does not have statutory authority to issue
guidance related to capacity development strategies.
The basis for this guidance is the EPA Administrator's authority to issue guidance and
regulations under section 1452(g)(3) as necessary to implement the provisions of section 1452
of the SDWA. This guidance is necessary to implement the DWSRF withholding provisions of
section 1452(a)(l)(G)(i) of the SDWA, as amended. This guidance establishes national policy
regarding implementation of the DWSRF withholding related to capacity development strategies
under sections 1420(c) and 1452(a)(l)(G)(i) of the SDWA as amended. This guidance
describes how EPA will assess whether States have met the capacity development strategy
requirements of section 1420(c) and therefore whether the Agency is required to withhold a
percentage of a State's DWSRF allotment.
Many commentors expressed concern regarding the proposed scope of EPA review of state
strategies.
The Agency believes that it has proposed the narrowest and most limited review possible
which is still consistent with the requirements of the statute. Section 1420 requires that States
develop and implement a strategy to assist public water systems in acquiring and maintaining
technical, managerial, and financial capacity. In preparing the strategy, the statute requires that
states consider, solicit public comment on, and include as appropriate several listed elements in
the Act. Section 1420(c) also contains ongoing reporting requirements related to capacity
development with which States must comply. The Agency's proposed review of state capacity
development strategies is narrowly focused on ensuring that these statutory requirements are
met.
Several commentors suggested that the proposed requirement that States proactively solicit
public comment and provide their response to all significant comments seemed overly
prescriptive.
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The Agency agrees that the terms "proactively" and "significant" may be subjective and
therefore has deleted them. The requirement now reads "a state must certify that it solicited
public comments...The state must describe relevant public comments...".
Some commentors suggested that use of the term "rational basis " was unclear and overly
subjective.
The Agency does not agree with the assertion that a "rational basis" test is subjective.
The guidance merely states that the state must describe how the selected elements together can
be rationally considered to constitute a strategy to assist PWSs in acquiring and maintaining
technical, managerial, and financial capacity. Section 1420(c)(l) clearly establishes the
requirement that a state develop and implement a strategy to assist PWSs in acquiring and
maintaining capacity. The guidance simply asks states to describe a rational basis on which
their proposed strategy meets the statutory requirement. The Agency does not propose to, in
any way, review the relative merits or potential efficacy of a state strategy. The Agency needs
only to have a rational basis on which to conclude that the state has in fact met the statutory
requirement and therefore the Agency is not required to withhold a percentage of the states
DWSRF allotment.
Some commentors suggested that EPA define federal factors which may encourage or impair
capacity development, so as to save States the effort of having to do so.
The Agency believes that only individual states are capable of defining the federal factors
they find to encourage or impair capacity development. Information for States on
Implementing the Capacity Development Provisions of the 1996 SDWA Amendments
provides some ideas on the types of issues at the federal, state, and local level that might be
considered.
A number of commentors stressed that capacity development strategies should not be required
to cover every public water system in the State, and that the State should have the flexibility to
focus on which public water systems are most in need of assistance.
The statute simply requires that a state develop and implement a strategy to assist public
water systems in acquiring and maintaining technical, managerial, and financial capacity. The
statute further requires that in preparing the strategy, the state must consider, solicit public
comment on, and include as appropriate the methods or criteria that the state will use to identify
and prioritize the public water systems most in need of improving capacity. The Agency
believes that state strategies should be capable of addressing all types of public water systems
but that the state need not attempt to develop a strategy which addresses every individual
system. Rather, the state should identify and prioritize those specific systems or classes of
systems most in need of improving their technical, managerial, and financial capacity.
Some commentors stated that the strategy should only be required to solve existing compliance
problems, and not prevent future compliance problems, while others suggested that States
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should go beyond merely looking at systems with a history of significant noncompliance (SNC).
As noted earlier the statute simply requires states to develop and implement a strategy to
assist PWSs in acquiring and maintaining capacity. There is no statutory requirement regarding
which systems a strategy must address. States are free to focus their attention and resources
where they believe it will yield the greatest return. However, the Agency strongly believes that
the capacity development strategy offers states a very powerful tool to help prevent
noncompliance. Prevention of noncompliance is a major theme of the 1996 SDWA
amendments and is reflected in numerous provisions of the law. Public health protection is
much better served by preventing noncompliance than by waiting for it to occur and then trying
to correct it.
Some commentors inquired as to what action a State should take against a system which lacks
some element of capacity.
The Agency believes strongly that capacity development programs should seek to build
and enhance the underlying institutional capabilities of systems. Systems which appear to have
limited capacity should receive a high priority for technical and other assistance to help them
assess how best to acquire and maintain the capacity they need. The Agency notes that the
statute speaks of "acquiring and maintaining" capacity. Clearly Congress understood that
adequate system capacity is a dynamic concept and that capacity is not a simple matter of
"having it" or "not having it".
A number of commentors expressed concern regarding the proposed requirements for
documentation of the strategy and documentation of ongoing strategy implementation.
The Agency has simplified and streamlined the strategy documentation and reporting
requirements. Documentation regarding the strategy itself may be provided as a stand-alone
submittal or as part of the states capitalization grant application. Similarly, documentation
regarding ongoing strategy implementation may be provided as a stand-alone submittal or as
part of the states capitalization grant application.
Some commentors expressed concern over the contents and role of EPA review of the report to
the governor and the reports to the Administrator required under section 1420.
For purposes of DWSRF withholding determinations, EPA's review of these reports will
only extend to whether or not the reports have been prepared and submitted as required by the
statute. Failure to produce any of the reports will constitute a basis for withholding since these
reports, required under sections 1420(b)(3) and (c)(3), are considered part of the capacity
development strategy.
However, EPA will not base withholding determinations on any type of judgements or
inferences drawn from the reports regarding the relative merits or efficacy of a State capacity
development strategy. Further, the statute in section 1420(c)(4) explicitly prohibits EPA from
reviewing decisions of the State regarding any particular PWS, as part of a capacity
development strategy. Such State decisions regarding individual PWSs may not serve as basis
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for withholding funds.
There are three major reports required. Every 3 years, the State must submit to EPA a
list of CWSs and NTNCWSs that have a history of significant noncompliance and, to the extent
practicable, the reasons for their noncompliance. States submitted their first list in August,
1997. The next list will be due August 6, 2000. The Agency has interpreted the statutory
requirement in section 1420(b)(l) of "periodically update" to mean every 3 years. This
interpretation is based upon consultation with the states and the Agency considers it reasonable
given the requirement for a state report to the governor every 3 years in Section 1420(c)(3).
By August 6, 2001 the State must report to EPA on the success of its enforcement
mechanisms and initial capacity development efforts in helping CWSs and NTNCWSs having a
history of significant noncompliance improve their capacity.
Not later than 2 years after a State adopts a capacity development strategy, and every 3
years thereafter, the primacy agency must submit a report to the Governor on the efficacy of the
strategy and progress made toward improving the technical, managerial, and financial capacity
of PWSs in the State. The report shall also be made available to the public.
A number ofcommentors questioned the definition of "history of significant noncompliance ".
A "history of significant noncompliance" means being in significant noncompliance (for
any single contaminant or for different contaminants) during any three quarters of the previous 3
years. This definition was developed in consultation with the states at the Winter Meeting of
the Association of State Drinking Water Administrators in February, 1997. It was the definition
utilized for purposes of developing the first required state list which was due to EPA on August
6, 1997. The Agency believes the definition has proven effective and useful and we expect to
retain it.
Assessment for SRF
A number ofcommentors expressed concern relating to the documentation and reporting
requirements associated with the limitations on DWSRF assistance imposed by Section
1452(a)(3)(A).
Section 1452(a)(3)(A) imposes two significant limitations on DWSRF assistance to
PWSs. First no assistance may be provided to a PWS that does not have the technical,
managerial, and financial capacity to ensure compliance with the requirements of the SDWA.
Second, no assistance may be provided to a PWS that is in significant noncompliance with any
requirement of a NPDWR. Section 1452(a)(3)(B) allows systems lacking capacity to receive
DWSRF assistance if the system agrees to undertake feasible and appropriate restructuring (such
as changes in rates or management, consolidation, alternative supply, etc.) if the State determines
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that such restructuring is necessary to ensure that the system has the capacity to comply with
SDWA requirements over the long term. Section 1452(a)(3)(B) also allows a system in
significant noncompliance to receive assistance if the use of the assistance will ensure
compliance.
In order to ensure that this provision is implemented, the Agency believes it is necessary
to require states to document the procedures they will use to make the necessary judgements
about systems. The Agency also believes that to ensure ongoing implementation of these
provisions states should be required to report each year on the numbers of systems to which
these procedures were applied and the outcomes of the assessments.
A number of commentors expressed concern about whether SNC-listed PWSs could be funded
for projects unrelated to the cause ofSNC as long as an enforceable agreement was in place to
address SNC issue.
The Agency believes that sufficient flexibility exists in the statute and guidance to allow
states to make special case-by-case determinations.
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