United States
Environmental Protection
Agency
Office of Water
4606
EPA816-R-98-020
October 1998
DRINKING WATER
INFRASTRUCTURE GRANTS
TRIBAL SET-ASIDE
     PROGRAM
   Final Guidelines
        October 1998

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                                                         Final Guidelines - October 1998

TABLE OF CONTENTS

 A.  Introduction                                                                      1
 B.  Background                                                                      1
 C.  General Overview of the Drinking Water Infrastructure Grants Tribal Set                 2
    Aside (DWIG ISA) Program
 D.  Statutory Authority, Controlling Regulations, and OMB Guidelines                       2
      1. Statutory Authority                                                             2
      2. Regulatory Authority                                                          3
      3. Office of Management & Budget (OMB) Guidelines                                3
      4. Other Federal Statutes - Cross-Cutting Federal Authorities                        3
 E.  Specific DWIG ISA Program Issues                                                 3
      1. Available funds and method of distribution                                        3
        a.  Amount of DWIG ISA funds available                                       3
        b.  Method of allotting funds among EPA Regional offices                        3
        c.  Schedule for allotment of funds                                             4
        d.  Potential for additional funds being added to the DWIG ISA                    6
            program
      2. Duration of availability of DWIG ISA funds and the potential for an                  6
        "internal" reallotment of funds within the DWIG ISA program
      3. Potential recipients of  DWIG ISA funds                                          8
        a.  Tribes                                                                   8
        b.  The State of Alaska                                                       8
        c.  The Indian Health Service                                                  8
      4. Water system eligibility factors                                                  8
        a.  Tribally owned vs  non-Tribally  owned systems                                8
        b.  Profit vs non-profit systems                                                 9
        c.  Service population                                                        9
        d.  System location                                                         10
        e.  PWSS regulatory  authority                                                10
        f.   Tribal Primacy for the PWSS program                                      11
        g.  Creation of "New" water systems                                           11
        h.  Newly identified public water systems                                       12

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                                                        Final Guidelines - October 1998
     5.  Eligible uses of DWIG ISA funds
                                                                                  12
        a.   Examples of fundable projects                                            13
        b.   System consolidation                                                    13
        c.   Existing homes that are not currently connected to an existing                 13
            public water system
        d.   Feasibility studies, engineering work, & project management                  13
     6.  Ineligible uses of DWIG ISA funds                                            14
     7.  Technical, financial and managerial capacity of a system                         16
     8.  Reimbursement of expenditures incurred prior to receipt of a DWIG                17
        ISA grant
     9.  Combining DWIG  ISA funds with other sources of money                        18
    10.  Tribal "matching" requirements                                                19
    EPA Regional DWIG ISA Programs                                               19
      1.   Project identification                                                       19
      2.   Project prioritization                                                       19
      3.   Regional outreach & Tribal involvement                                      20
      4.   Unscheduled "emergency" projects                                          20
      5.   Grant management and oversight                                           21
      6.   Reports to EPA Headquarters                                               21
Appendices:
    A.   SDWA Sections Addressing the DWIG ISA Program
    B.   Federal Cross-Cutting Authorities
    C.   Comparison of Major Differences Between the IMS SDS and EPA
        DWINS
    D.   Final Distribution of DWIG ISA Funds - FFY1997 funds
    E.   Final Distribution of DWIG ISA Funds - FFY1998 funds
    F.   Tentative Distribution of DWIG ISA Funds - FFY 1999
    G.   Types of Public Water Systems
    H.   Brief Description of Technical, Financial and Managerial Capacity for
        Public Water Systems

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                                                     Final Guidelines - October 1998

A. INTRODUCTION:

   The purpose of this document is to establish general guidelines for the conduct of the
   new funding program established through the Safe Drinking Water Act (SDWA)
   Amendments of 1996. The program will allow the Environmental Protection Agency
   (EPA) to award Federal grants for infrastructure improvements for public drinking water
   systems that serve Tribes1.

B. BACKGROUND:

   The Safe Drinking Water Act (SDWA) amendments of August 6, 1996 made a number
   of changes to the United States' drinking water program. One of the most significant
   changes to the SDWA was the establishment of a program that authorizes EPA to
   distribute Federal funds among  States and Tribes for needed public drinking water
   system infrastructure improvements.

   The SDWA prescribed different  programs for States and Tribes, and while this
   document is about the Tribal program, a brief discussion about the State programs
   may be  helpful as several sections of the guidelines make reference to the  State
   Revolving Loan Fund program.  The SDWA authorizes EPA to award "capitalization"
   grants to States.  States will use these capitalization grants to establish State Revolving
   Loan Funds (SRFs) from which they will make low interest  loans, and other types of
   assistance, to eligible systems.  These loans will then be repaid to the States and will
   be available for additional loans to other systems. While the SDWA provides for the
   possibility that some Tribes may be able to seek and get loans from the State in which
   the tribal water system is located, the SDWA also authorizes EPA to set aside a
   portion of each year's appropriation and use it to make direct grants (not loans) for
   capital improvements to public water systems that serve Indian Tribes.

   The provision for the Drinking Water SRF Tribal Set-Aside  (DWIG TSA) program is
   contained in Section 1452(i) of the SDWA. In summary, this section says that the
   DWIG TSA program grants may only be used "for public water system expenditures
   referred to in subsection (a)(2)," and will "address the most significant threats to public
   health."  Subsection (a)(2) then directs that financial assistance may be used for public
   water system expenditures which will facilitate compliance with the National Primary
   Drinking Water Regulations (NPDWRs) or will otherwise further the health  protection
   objectives of the  SDWA. The text of the SDWA sections that apply to the DWIG TSA
             Although the SDWA makes reference to both Indian Tribes and Alaska Native
             Villages, for clarity, these guidelines will refer to American Indians and Alaska
             Natives as "Tribes", unless we are quoting the SDWA language.

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                                                     Final Guidelines - October 1998

   program is contained as Appendix A to these guidelines.

C. GENERAL OVERVIEW OF THE DRINKING WATER INFRASTRUCTURE GRANTS
   TRIBAL SET-ASIDE (DWIG TSA) PROGRAM :

   EPA's Office of Ground Water and Drinking Water (OGWDW) has developed an
   allotment formula that will distribute each year's available set-aside funds among the
   nine EPA Regions with Tribal programs. OGWDW will allot  the funds to the EPA
   Regional offices.  In consultation with the Indian Health Service (IHS) and the
   Tribes in their Region,  each EPA Region will be responsible for identifying potential
   projects, for prioritizing those projects, for selecting the ones to receive funding from its
   share of the Set-Aside Program allowance.  The Region's priority  system must ensure
   that funding priority be given to projects that address the most serious public health
   risks, are necessary to ensure compliance with SDWA requirements, and assist
   systems most in need. The EPA Regions will also award and administer the grants.

   There are a number of tools already available to the Regions to help them identify and
   prioritize projects.  These include: the information that Regions have collected through
   their sanitary surveys; data on systems with MCL compliance problems; and system
   projects that have already been identified by the IHS through its Sanitation Facilities
   Deficiency System. Regions may use any combination of the existing tools, or they
   may choose to develop a totally new method of identifying and prioritizing projects.
   Each Region must, however, give the Tribes in their Region an opportunity to
   review and comment on the Regional program as they develop it; and once
   developed, must consult with the IHS and Tribes in their Region regarding
   project selections. While the Regional programs must  be consistent with these
   national guidelines, each Region will have a good deal of flexibility in designing a
   program that works best for the Tribes in their Region.

   After the EPA Regional offices have developed their Regional program and have
   selected the projects to be funded, they will  negotiate and make the grants to
   accomplish the project construction.  The SDWA authorizes EPA to  make the grants to
   Tribes and, in the case of the Tribes in Alaska, to the  State of Alaska for the benefit of
   Alaska Tribes. Tribes may choose to administer the project funds themselves or they
   may request the Indian  Health Service to serve as their agent and administer the
   project funds for them. (The Indian Health Service (IHS) administration is, of course,
   dependent on IHS staff availability.) The EPA Regional Offices will be responsible for
   managing any grant award and for administering and tracking project progress after an
   award; or for transfer of any funds to  IHS via an Interagency Agreement.

D. STATUTORY AUTHORITY, CONTROLLING REGULATIONS & OMB GUIDELINES:

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                                                    Final Guidelines - October 1998

   1.   Statutory Authority:   The statutory authority for the Drinking Water Tribal Set
       Aside grants is the Safe Drinking Water Act, as amended through August 1996.
       Section 1401 - Definitions; and Section 1452 - State Revolving Loan Fund

   2.   Regulatory Authority: EPA has determined that new regulations are not
       required for the conduct of the DWIG TSA program. The following, existing grant
       regulations, apply to the DWIG TSA program.  40CFR Part 31 - Uniform
       Administrative Requirements for Grants and Cooperative Agreements to State and
       Local Governments.

   3.   Office of Management and Budget (OMB) Guidelines : The Office of
       Management and Budget has established a series of "Cost Principles" that federal
       agencies must use in determining allowable costs under federal assistance
       agreements.  The cost principles contained in OMB Circular A-87 - Cost Principles
       for State, Local and Indian Tribal Governments are incorporated by reference in
       the Part 31 regulations and apply to the grants made under the DWIG TSA
       program.

   4.   Other Federal Statutes - Cross-Cutting Federal Authorities:   There are a
       number of Federal laws, executive orders and government-wide policies that apply
       by their own terms to projects and activities receiving Federal financial assistance,
       regardless of whether the SDWA makes them applicable. These "cross-cutting
       Federal authorities" will include environmental  laws such as the National Historic
       Preservation Act and the Wild and Scenic Rivers Act, and social and economic
       policy authorities such as  Executive Orders on Equal Employment Opportunity and
       government-wide debarment and suspension rules. A complete list of these cross-
       cutters is contained in Appendix B.

E. SPECIFIC  DWIG TSA PROGRAM ISSUES:

   1.   Available funds and method of distribution

       a.  Amount of DWIG TSA funds available - The SDWA allows EPA to use up to
          1%%  of the amounts annually appropriated  to carry out Section 1452 of the
          SDWA for grants to Tribes (the DWIG TSA program). EPA's current policy is
          that the maximum 1%% will be set-aside each fiscal year for grants to Tribes.

       b.  Method of allotting funds among EPA Regional offices  - Each of the nine
          EPA Regional offices participating in the DWIG TSA program (EPA's Region
          III office does not encompass any federally recognized Tribes with drinking
          water systems) will receive a share of the 1%% that is set aside for the DWIG
          TSA program. EPA HQ will use a formula  to determine the share that each

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                                               Final Guidelines - October 1998

    Regional office will receive.

    The formula that will be used for the foreseeable future provides, to each of
    the nine Regions, a "base" amount that is equal to 2% of the annual DWIG
    TSA appropriation.  This base will account for 18% of the available DWIG ISA
    funds. The remaining funds (82% of each appropriation) will be allotted to the
    EPA Regions using a formula that assigns a weight of 50% to the Indian
    Health Service's Sanitation Deficiency System (IMS SDS) and a weight of 50%
    to EPA's Drinking Water Infrastructure  Needs Survey (DWINS).

    EPA selected this formula for a number of reasons.  First, we believe that of all
    the "tools" that could be used to allot DWIG TSA funds, the DWINS and the
    IMS SDS are the most appropriate because they are both based on drinking
    water systems (as opposed to the general factors such as population, land
    area, or other environmental factors that are contained in other existing
    formulae).  Further,  the information in both the DWINS and the IMS SDS is
    based on the infrastructure needs of drinking water systems and that is what
    the DWIG TSA funds are intended to address.  Neither tool is "perfect",
    however - both have strengths and weaknesses.  As a result, we believe that
    the distribution formula should be based on the information that is contained in
    both the DWINS and SDS rather  than focusing exclusively on one set of data.
    (Appendix C provides a brief comparison of what EPA believes are the major
    differences between the DWINS and the SDS).  Finally, we believe that
    providing each  Region with a 2% baseline of funding will allow for at least one
    viable project in each Region, each year, and thus allow every Tribe to at least
    have the opportunity to receive a grant from the DWIG TSA funds. Without
    this base, Tribes in several EPA Regional offices would never enjoy this
    opportunity.

    The Final formula allotments for federal fiscal years (FFY) 1997 and 1998, and
    the Tentative formula allotments for FFY  1999 are provided in Appendices D,
    E and F respectively.

c.   Schedule for allotment of funds - EPA HQ will use the formula twice during
    each federal fiscal year. The first calculation will be a tentative allotment and
    will be based on the President's budget request. The budget submission
    historically occurs in late January or early February of each year, and so EPA
    HQ should be able to calculate the tentative allotments in mid to late  February
    of each year. We cannot guarantee that Regional offices will actually receive
    the level of funding  identified in the tentative allotments, however, since they
    are based on the amount of funds that are "requested" from Congress. The
    purpose of the tentative allotments is to provide EPA's Regional offices with a
    planning target on which to base  their potential funding decisions for the

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                                          Final Guidelines - October 1998

coming fiscal year.

When EPA receives its appropriation for the year, typically in late summer or
early fall, EPA HQ will use the formula to calculate the final (actual) allotments
for the year.  We will use the same IMS SDS and DWINS information to
calculate the final allotments as was used to calculate the tentative allotments
for the year, even if more current information has become available.  This
practice will avoid major changes between a Region's tentative and final
allotments, and will  provide them with as much stability as possible between
the planning and execution phases.  If the funds appropriated to EPA are the
same as were requested in the President's budget, the final allotments will be
the same as the tentative allotments.  The only thing that will cause the final
allotments to be different than the tentative allotments is an appropriation that
is different than the requested budget.

IMS SDS'. The IMS currently updates its SDS information every year. This
update currently occurs in December and so new SDS information should be
available shortly before we calculate the tentative allotments each year.  As an
example, IMS SDS information that became available in December 1998 will
be used to calculate the Tentative allotments of the FFY2000 DWIG TSA
funds as the President's budget for FFY 2000 will be released in January or
February of 1999.  The same December 1998 IMS SDS data will be used in
the calculation of the Final FFY 2000 allotments.  IMS  could,  of course, alter
the timing of the compilation  of the SDS information. Should that happen, we
will use the most current SDS data that is available when we calculate the
tentative allotments (i.e., no later than the end of each February).

EPA DWINS: The DWINS is required to be conducted and updated every four
years. The most recent (and first) DWINS was published in January 1997.
We will use the information contained in that report for allotment of the
FFY1997, FFY1998, FFY1999, FFY2000, and FFY2001 DWIG TSA
appropriations. The next DWINS is scheduled to be published in February
2001. Based on that scheduled date, EPA would first be able to use the 2001
DWINS  report for allotment of the FFY2002 DWIG TSA budget request and
appropriation. The February  2001 DWINS report would also be used for
allotment of the FFY2003,  FFY2004, and FFY2005 DWIG TSA funds. As long
as Congress continues to appropriate funds for the DWIG TSA program we
will continue to use the most currently available DWINS information in the

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                                                  Final Guidelines - October 1998

        allotment formula.2

    d.   Potential for additional funds being added to the DWIG TSA program -
        The EPA capitalization grants to States are available to the States for a limited
        time (two years). The SDWA requires that any funds not obligated to States
        within this two-year time frame are to be reallotted among the States that have
        obligated all of their funds. The SDWA also allows EPA to reserve, and
        allocate, 10% of these "reallotment" funds for additional grants to Tribes (i.e.,
        the DWIG TSA  program).  EPA's current policy is that we will take advantage
        of this allowance and that we will reserve the maximum amount allowable
        (10%) of any available reallotment funds for additional grants to Tribes
        through the DWIG TSA program.

        Formula'.   The formula that EPA will use to conduct a reallotment of SRF
        funds will be same formula that was used to originally allot the DWIG TSA
        funds for that year's appropriation. As an example: if there are any FFY1997
        State Revolving Loan Funds that are made available for a reallotment, EPA
        will reallot the DWIG  TSA share of the funds among the  EPA Regional
        Offices, using the formula that was originally used to allot the FFY1997 DWIG
        TSA funds among the Regions.

        Timing: The timing of any reallotment of SRF funds will be established through
        the SRF program. As of the release date of these DWIG TSA guidelines, the
        SRF program had not established guidance on the timing of potential
        reallotments.  It will, however, be the goal of the DWIG TSA program to
        calculate the  distribution of any reallotment within 90 days after the time those
        monies become available to the DWIG TSA program.  As more detailed SRF
        guidance becomes available, the DWIG TSA guidelines will be amended as
        necessary.

2.   Duration of availability of DWIG TSA funds and the potential for an "internal"
    reallotment of funds within the DWIG TSA program.

    While the funds that the US Congress appropriates for the Drinking Water SRF
    program do not expire after any period of time, the SDWA does require that the
    funds intended for the States (SRF funds) be obligated to the States within a 2-
    year time frame.  As mentioned in Section E1d above, any SRF funds not
          EPA has received DWIG TSA funds in the FFY97 and FFY98 appropriations. Any
          discussion of the policy on the DWIG TSA program for FFY99 and beyond is dependent
          on the President continuing to request funds for this program in the annual budget and
          Congress continuing to appropriate funds for this purpose.

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                                               Final Guidelines - October 1998

obligated within that period are to be reallotted by EPA. There is no similar
statutory requirement that the DWIG TSA funds be obligated within a specified
period.

While it will be EPA policy to keep all of the set-aside funds within the DWIG ISA
program, we also believe that it is appropriate to set some time limit on the award
of the funds after they are allotted to EPA's Regional Offices. Therefore, it is
EPA's current policy that the DWIG ISA funds will be available to the EPA
Regional Offices, to which they were originally allotted, during the federal fiscal
year (FFY) in which they were appropriated and during the following two fiscal
years.  For example: funds appropriated in FFY 1999 will be available to the EPA
Regional Offices during FFY1999, FFY2000, and  FFY2001. The exception to this
policy is that the funds appropriated for FFY1997  and FFY1998 will be available to
the EPA Regional offices,  to which they were originally allotted, through FFY2001.
We believe this extension for FFY1997 and FFY1998 funds is appropriate
because national guidelines were not available during FFY1997 and much of
FFY1998, and because Regions will initially need additional time to develop their
Regional programs.

Any fiscal year funds originally allotted to a Region, that are not awarded by that
Region during the above specified period, will be reallotted among those Regions
that have awarded all of funds originally allotted to them for that fiscal year.  For
example: any FFY1999 funds allotted to a Region, that have not been awarded by
that Region by the end of FFY2001 (September 30,  2001), shall be reallotted
among all the Regions that have awarded all of the FFY1999 funds previously
allotted to them. As noted earlier, it is EPA's intention to keep all reallotted funds
within the DWIG ISA program.  The only exception to this would be the unlikely
situation where none of the EPA Regions would have any eligible DWIG TSA
projects remaining to be funded.

Regional Offices do not need to wait for the full time period described above to
expire before returning unneeded funds to EPA HQ.  If a Regional Office realizes
that all of the DWIG TSA needs of the Tribes within  its area have been  satisfied,
and no further eligible projects exist, the Region shall inform EPA HQ as soon as
possible and return any unneeded funds for reallotment.

Formula: Any funds that are available for an internal reallotment, will be reallotted
among the EPA Regional Offices using the same formula that was used to
originally allot the DWIG TSA funds for that year's appropriation. As an example:
if there are any FFY1997 DWIG TSA funds available for a reallotment, EPA will
reallot those funds among the EPA Regional Offices using the formula that was
originally used to allot the  FFY1997 DWIG TSA funds among the Regions.

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                                                   Final Guidelines - October 1998

    Timing:  EPA's current plan is to conduct any necessary internal DWIG TSA
    reallotment within 90 days after the close of each federal fiscal year.  As an
    example, any FFY1997 or FFY1998 DWIG ISA funds that are not awarded by an
    EPA Regional Office by September 30, 2001, will be reallotted between October 1,
    2001 and January 1, 2002.
3.   Potential recipients of DWIG TSA funds

    a.   Tribes - The SDWA gives EPA the authority to award grants to Tribes.  All
        Tribes that are recognized by the Bureau of Indian Affairs as eligible to
        receive services are eligible to receive grants from the DWIG TSA program.
        DWIG TSA funds cannot be awarded to individual water systems (whether
        they are Tribally or non-Tribally owned), or any  individual home owners.
        [After the funds are awarded to the Tribe, however, the Tribe may elect to
        provide some, or all, of the funds to a local government, a Tribal consortium,
        the Indian Health Service, a water system, etc., for the conduct of the project.
        The plan for the Tribe's use of the grant funds should be identified in the grant
        award document. It should also be clear that in such a case, the Tribe is still
        the grant recipient, and is ultimately responsible to EPA for proper
        management of the funds].

    b.   The State of Alaska - The SDWA also gives EPA the authority to award
        grants to the State of Alaska for projects for Alaska Tribes.  Award of funds to
        the State of Alaska for the benefit of Alaska Tribes should only occur when the
        Tribe requests the State to administer the project and the State agrees to
        manage the project on behalf of the Tribe.

    c.   The Indian Health Service - EPA realizes that the Indian Health Service
        (IHS) has been providing financial and engineering support to Tribes for
        drinking water facilities for many years.  EPA also understands that some
        Tribes may request that the IHS design, construct, or administer construction
        of the projects that they will be funding with DWIG TSA program monies.
        Assuming that IHS is able to provide the requested service to the Tribe, there
        are two methods of accessing IHS assistance.  The Tribe may either contract
        with IHS for administration after the Tribe receives grant funds from EPA; or
        the Tribe can request that EPA directly transfer the funds for the entire project
        to IHS through an Interagency Agreement (IAG) and the EPA Regional Office
        can award a grant of IHS services to the Tribe.  While both  methods are
        acceptable, we believe that the latter approach is far more efficient and
        strongly recommend  it as the method of choice.  This approach will reduce the
        administrative burden on the Tribe, lessen paperwork for all parties, and

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                                                  Final Guidelines - October 1998

        provide IMS with access to all of the project funds throughout the conduct of
        the project.

4.   Water system eligibility factors

    a.   Tribally owned vs non-Tribally owned systems - the SDWA specifies that
        the DWIG TSA funds; "shall be used to address the most significant risks to
        public health associated with public water systems that serve Indian Tribes".
        This can include systems owned by a Tribe, or systems owned by someone
        other than a Tribe - as long as the system serves a Tribe.

    b.   Profit vs non-profit systems  - EPA categorizes public water systems into
        three types - 1) community water systems (CWS), 2) nontransient
        noncommunity water systems (NTNCWS),  and 3) transient noncommunity
        water systems (TNCWS).  Appendix G defines each of these three categories.
        Both for-profit  and non-profit CWSs are eligible to receive DWIG TSA grants.
        Only  non-profit systems in the NTNCWS and TNCWS categories are eligible
        to receive DWIG TSA funds. For-profit NTNCWSs and for-profit TNCWSs are
        not eligible to receive DWIG TSA funds.

    c.   Service population - As mentioned above, both Tribally owned and non-
        Tribally owned systems are eligible to have projects funded through the DWIG
        TSA program as long as the system  serves the Tribe.  Many systems do not
        exclusively serve a Tribal population, however.  EPA's definition of what
        constitutes a system that "serves an Indian Tribe" follows:

        Triballv owned water systems - EPA's current policy is that all existing
        community water systems,  and all nonprofit noncommunity water systems,
        owned by a Tribal government will be considered to serve an Indian Tribe and
        will eligible to have projects funded with DWIG TSA funds.

        EPA Regional offices must, however, take  into account, during the grant
        negotiations, whether it is reasonable for the DWIG TSA to fund the entire
        cost of the project.  A significant portion of the water produced by some
        Tribally-owned water systems  serves a non-Tribal population. In such cases,
        the EPA Regional office must resolve whether it  is appropriate for the DWIG
        TSA funds to pay for the entire project, or whether the non-Tribal community
        being served should pay for a  portion of the project. Similarly, a significant
        portion of the water produced by some Tribally owned community and non-
        profit noncommunity water systems is used by a  for-profit entity (whether it's a
        Tribal or non-Tribal entity).  In such cases,  the EPA Region must decide
        whether it's appropriate for DWIG TSA funds to pay for the entire project or

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                                               Final Guidelines - October 1998

    whether the for-profit entity should pay for a share of the project cost. In both
    of the above situations, EPA Regional offices have the responsibility and
    authority to determine the appropriate DWIG TSA funding level.

    Non-Triballv owned water systems - There is no "hard and fast" rule as to
    how much (or what percent) of a system's water must be "served to a Tribal
    population" for a  project to qualify for funding from the DWIG TSA. As with
    the Tribally owned systems that serve a non-Tribal population,  Regions must
    take into account the Tribal proportion of the population to benefit from the
    project.  A system's Tribal population may be a small percentage of the total
    service population, but a particular project may be primarily for the benefit of
    that Tribal population.  If the project is exclusively, or primarily, for the benefit
    of a Tribal population,  then the Region may conclude that the DWIG TSA
    should fund the entire cost of the project.  On the other hand, if the Tribal
    population benefitting from the project is a relatively small  percentage of the
    total  population benefitting from the project, then the Region should conclude
    that it is not appropriate for the DWIG TSA to fund the entire cost of the
    project,  and may conclude that the DWIG TSA should not fund any portion  of
    the project. The EPA Regional offices have the responsibility and authority to
    determine the appropriate DWIG TSA funding level.

    Clearly,  there are systems that should not qualify for DWIG TSA funds even
    though  some small portion of the water that they produce serves an Indian
    population. Almost every  large city in the United States includes some Native
    Americans among its users. We don't believe that Congress intended that
    the DWIG TSA funds be used to support projects for such  systems.

    DWIG TSA funds are limited,  there will be many more needs and projects than
    EPA will have funds  for. EPA must be judicious in its funding decisions and
    ensure that the available DWIG TSA funds are stretched as far as possible in
    achieving the goal of the SDWA in protecting the  health of Native Americans.
    We believe that the EPA Regional offices are in a better position to make
    those difficult decisions than is EPA HQ. As a result, the above policies give
    the EPA Regions a significant amount of authority, and responsibility, in
    determining how much of a project cost should  be funded with DWIG TSA
    monies. We believe this is preferable to establishing rigid national criteria for
    calculating the portion of a project that would be eligible to be funded with
    DWIG TSA funds.

d.  System location - The SDWA does not restrict funding to projects that are
    within reservations or on Tribally-owned land.  The Act only requires that the
    system serve an Indian Tribe.  As such, system location alone is  not a factor in


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                                               Final Guidelines - October 1998

    determining  eligibility.

e.  PWSS regulatory authority - The regulatory authority is not a factor in
    determining eligibility for DWIG TSA funds. The concept of authority to
    establish and enforce drinking water regulations stems from the Public Water
    System Supervision (PWSS) portions of the SDWA. The SDWA treats the
    DWIG TSA and PWSS programs differently.  For example, all Federally
    recognized Tribes are considered eligible Tribes with respect to the DWIG
    TSA program.  This is not true under the PWSS program. As one example,
    the Tribes  in Alaska are subject to the drinking water regulations established
    by the State of Alaska. There are also a few Tribes in other States that follow
    the drinking water regulations established by  a State.  This situation has no
    effect on the eligibility of those Tribes to have projects funded with DWIG TSA
    monies.

f.   Tribal Primacy for the PWSS program - Many federally recognized Tribes
    are eligible to seek and assume authority to operate their own Public Water
    System Supervision (PWSS) programs and, therefore, be the regulatory
    authority for purposes of the PWSS program requirements.  Even though no
    Tribe currently  has received this authority, such a determination will have no
    impact on the DWIG TSA program. PWSS Primacy does not alter a Tribes
    authorities or limitations under the DWIG TSA program.

g.  Creation of "New"  water systems - Currently, EPA's interpretation of the
    SDWA is that funds available under Section 1452 may only be used for
    providing assistance to existing public water systems and are not available for
    the construction of a new public water system. However, EPA believes that
    the SDWA may be interpreted to permit the creation of "new" public water
    systems, in limited circumstances, to solve the public health problems
    intended to be  addressed by the statute, and  on June  12, 1998 proposed, in
    the Federal Register, a policy outlining the Agency's interpretation. [Although
    the FR notice does not specifically reference Tribal water systems or Tribal
    project grants, if adopted, the proposed policy will apply to the DWIG TSA as
    well as State SRF programs.]

    Under the proposed policy, award of a DWIG  TSA grant for creation of a new
    system could only be made if the following conditions are met:

        •   upon completion of the project,  the entity created must meet the
           Federal definition of a community water system;
        •   funding is limited to projects where an actual public health problem
           with serious risks exists;
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                                                   Final Guidelines - October 1998

           •   the project must be limited in scope to the specific geographic area
               affected by health risk;
           •   the project can only be sized to accommodate a reasonable amount
               of growth expected over the life of the facility—growth cannot be a
               substantial portion of the project; and
           •   the system, upon completion, must have adequate technical,
               financial, and managerial  capacity (see Section E7).

        The comment period on the proposed policy closed on July 19.  EPA is
        currently reviewing comments and expects to make a decision by the end of
        FFY1998.  If the proposed policy is adopted, this section of the Guidelines will
        be modified at a later date to reflect the new policy.  Until further notice,
        however, the Agency is operating under the policy that "new" systems are not
        eligible to be created through the use of DWIG ISA funds.

    h.   Newly identified public water systems - EPA realizes that all "public water
        systems" do not consist of the traditional vision of a system (e.g: well/surface
        water source, collection facilities, treatment plant, storage, distribution lines,
        etc.), and EPA has previously interpreted the term "public water system" in
        very broad terms.  Opinions are currently on record that interpret public water
        systems to potentially include entities such as "hand-pumped wells", "water
        vending machines", and "water haulers".

        More recently, the 1996 amendments to the SDWA expanded the definition of
        a "public water system" from entities that provide "piped water for human
        consumption" to those that provide "water for human consumption through
        pipes or other constructed conveyances".  On April 28, 1998 EPA modified its
        Federal drinking water regulations to adopt the new definition, and on May 8,
        1998 published draft guidelines on the subject. These changes further
        broaden the definition of a public water system.

        The result of the statutory and regulatory changes is that there will likely be
        entities that are newly identified  as public water systems.  EPA  also realizes
        that there may have been bonafide public water systems under the prior
        definition that were never properly identified  as such. As noted in the May 8
        draft guidelines mentioned above,  PWSS Primacy agents have the authority
        and responsibility to conduct reviews to identify public water systems. Any
        newly identified systems that "serve Indian Tribes" and meet the criteria
        specified in this section will be eligible to have projects funded with  DWIG
        TSA funds to the same extent as any previously identified public water system.

5.   Eligible uses of DWIG TSA funds


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                                                Final Guidelines - October 1998

A DWIG TSA grant may be made only for public water system projects that, EPA
determines, will: a) facilitate compliance with the National Primary Drinking Water
Regulations (NPDWR) or, b) significantly further the health protection objectives of
the SDWA.  Projects to address existing health standards that have been
exceeded or to prevent future violations of the rules are both eligible for funding.
a.  Examples of fundable projects

    Projects to:

    •   rehabilitate or develop sources (excluding reservoirs, dams, dam
        rehabilitation and water rights) to replace contaminated sources;
    •   install or upgrade treatment facilities if, in the EPA Regional Offices'
        opinion, the project would improve the quality of drinking water to comply
        with primary or secondary standards;
    •   install or upgrade storage facilities, including finished water reservoirs, to
        prevent microbiological contaminants from entering the water system;
    •   install or replace transmission and distribution pipes to prevent
        contamination caused by leaks or breaks in the pipe, or improve water
        pressure to safe levels; and
    •   replace aging infrastructure if the replacement is needed to maintain
        compliance or further the health protection goals of the SDWA.

b.  System consolidation - a project to eliminate an existing public water
    system through consolidation with another existing water system is eligible for
    funding, if the water system to be consolidated is currently contaminated or is
    otherwise posing a risk to the public health of the Tribe.  This includes
    consolidation of systems which are considered to lack adequate technical,
    financial, or managerial capacity (see Section E7) if it is determined that
    consolidation is the best solution to correct the lack of capacity.

c.  Existing homes that are  not currently connected to an existing public
    water system  - a project to connect existing homes - that do not currently
    receive their drinking water from a public water system - to an existing public
    water system is eligible for funding, if  the current source of the drinking water
    available to the homes is  contaminated or is otherwise posing a risk to the
    public health of the Tribe.  (Note that DWIG TSA grants can only be awarded
    to Tribes, not directly to the water system or to the individual home owners).

d.  Feasibility studies, engineering work, and project management  - While
    the  purpose of the DWIG TSA funds is to improve water system infrastructure,

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                                                   Final Guidelines - October 1998

        some preliminary work is typically necessary to reach the stage of an
        infrastructure project.  Often feasibility studies are necessary to identify the
        best and most cost effective solution to an infrastructure need, and
        engineering design work is necessary for almost every construction project.
        Such work is an eligible expense for DWIG TSA funds and may be funded as
        discrete projects. However, Regions must be cautious about the amount of
        such work that is done each year. Regions must not get into a situation where
        they are funding a lot of feasibility and design work that is not going to lead to
        project  awards in the near future. We recommend that each Region establish
        a reasonable limit on the amount or percent of DWIG TSA funds that it will
        allow to be spent on such work each year.

        As described in Section E3, some Tribes may request that the Indian Health
        Service administer a DWIG ISA funded construction  project for the Tribe.  In
        many of those cases, the IHS conducts a feasibility study for the project, and
        does the design and engineering work for the project. When IHS provides any
        of these services, it is an allowable use of DWIG ISA funds for the grant
        recipient to include these costs into the grant application and to provide them
        to IHS for any feasibility studies, engineering work, or administration services
        that they provide to the Tribe in support of the  DWIG TSA project.

        The SDWA provides that: "in the case of a grant for a project under this
        subsection in an Alaska Native village, the Administrator is also authorized to
        make grants to the State of Alaska for the benefit of Native villages.  An
        amount not to exceed 4 percent of the grant amount may be used by the State
        of Alaska for project management."

6.   Ineligible uses of DWIG TSA funds

    The SDWA specifically disallows projects for:

        •   monitoring,
        •   operation &  maintenance, and
        •   land acquisition (unless the land is integral to  the project and is from a
            willing seller).

    In addition to the SDWA limitations, EPA has determined that a number of other
    types of projects are ineligible for funding through the  DWIG TSA program:

        •   Dams, or rehabilitation of dams;
        •   Water rights (except if the water rights are owned by a public water
            system that is being consolidated and the EPA Regional Office has


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                                               Final Guidelines - October 1998

        determined that the consolidation is necessary because the system to be
        consolidated lacks adequate technical, managerial, or financial capacity);
    •   Reservoirs (except for finished water reservoirs and those reservoirs that
        are part of the treatment process and are located on the property where
        the treatment facility is located)',
    •   Projects needed mainly for fire protection;
    •   Projects intended primarily for future growth;
    •   Projects for systems that do not have the technical, managerial, and
        financial capability to ensure compliance with the SDWA and the
        NPDWRs, unless the Tribe/owner of the system agrees to make
        appropriate changes in operation (management, rate structure,
        maintenance, consolidation,  alternative supplies, etc) that will ensure the
        long term  capability of the  system. (See Section E7); and
    •   Projects for systems that are in significant noncompliance with any
        requirement of the NPDWRs, unless the project which is being funded
        will ensure full compliance with the NPDWRs.

Project administration by EPA Regional offices'. Funds cannot be used by EPA
Regions for the administration of their Regional DWIG ISA program.  Resources
and staffing to conduct this administration are provided through EPA's operating
budget.

Other ineligible uses of DWIG TSA funds: There are a number of "non-
infrastructure improvement" activities described in  SDWA sections 1452(g)(2) and
1452(k) that the Act allows to be funded with  State Revolving Loan fund
appropriations. It  is EPA's interpretation that the SDWA does not provide the
same allowance for the DWIG TSA funds.  In brief, both sections (g)(2) and (k)
specifically use language that a "State"  may use funds for these other purposes.
The definition section of the SDWA states that; "for the purposes of section 1452,
the term 'State' means each of the  50 States, the District of Columbia, and the
Commonwealth of Puerto Rico." Indian Tribes were not included in the term
"State" for purposes of section 1452,  and section 1452 is where the Tribal Set-
Aside program is authorized. As a result, we believe that we do not have the
statutory authority to use DWIG TSA  funds for the  purposes described in sections
(g)(2) and (k).  These unallowable activities are identified below:

    Section 1452(g)(2) of the SDWA allows a "State" to use up to 10% of its
    capitalization grant to:

    •   supplement its  Public Water  System  Supervision Program;
    •   administer or provide technical assistance through source water
        protection programs;
    •   develop and implement a capacity development strategy; and

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                                                   Final Guidelines - October 1998

        •  administer an operator certification program.

        Section 1452(k) allows a "State" to use a total of 15% of its capitalization
        grant to:

        •  provide loans to water systems to acquire land or a conservation
           easement;
        •  provide loans to any community water system to implement source water
           protection measures in delineated areas;
        •  provide loans to any community water system to assist them with source
           water petitions;
        •  provide technical or financial assistance to any water system to carry out
           a capacity development strategy;
        •  delineate and assess source water protection areas (FFY1996 and
           FFY1997 funds only); and
        •  establish and implement wellhead protection programs.

    Although the SDWA does not provide for the above activities under the DWIG ISA
    program, EPA recognizes their importance to Tribal water system operation -
    especially system capacity development (including operator training and
    certification), and the various source water protection activities. As a result, in
    FFY 1998, EPA requested, and received, supplemental funding under the Public
    Water System Supervision (PWSS) program to assist Tribes with activities that
    would improve their capacity to manage PWSS programs and assist them in doing
    things that will allow them to secure DWIG TSA funds. EPA also requested
    supplemental funding in its FFY1999 budget. It is EPA's intent to use these funds,
    in part, to assist Tribes with operator training and certification, system capacity
    development, and source water protection activities.

7.   Technical, financial & managerial capacity of a system

    Before a DWIG TSA award is made for a water system project, the EPA Regional
    office making the award will be responsible for determining whether the system
    has adequate technical, financial, and managerial capacity.  (A brief summary of
    what EPA means by technical, financial, and managerial capacity is contained in
    Appendix /-/.) With the one exception explained in the second paragraph of this
    section, EPA Regional offices will have the authority and responsibility to define
    what constitutes adequate capacity.  EPA's policy is that projects for systems
    (either Triballv or non-Triballv owned) that do not have adequate technical,
    financial and managerial capability are not eligible to be funded with DWIG TSA
    monies unless the Tribe or owner of the system agrees to make appropriate
    changes in operation (management,  rate structure, maintenance, consolidation,
    alternative supplies, etc) that will ensure the long term capability of the system and

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                                                  Final Guidelines - October 1998

    the EPA Regional Office is reasonably confident that these changes will occur.

    While each EPA Regional office has the authority to define adequate capacity,
    EPA Headquarters is requiring one mandatory element - that after EPA has
    finalized development of an operator certification program  for Tribes, any system
    to be assisted with DWIG ISA funds must be operated by adequately trained and
    certified operators. EPA Regional offices will not make awards for any systems
    that do not meet this condition. While this requirement will not take effect until
    EPA's national operator certification program is completed, there are a number of
    existing training and operator certification sources currently available to most
    Tribes, and we strongly recommend that all Tribal water system  operators take
    advantage of these opportunities and become certified as  soon as possible.

    As noted in the first paragraph, awards may be made for a system that does  not
    have adequate capacity as long  as the Tribe or owner of the system  agrees to
    ensure that the appropriate improvements or changes are  made. (A few examples
    of potential improvements or changes are provided in Appendix  /-/.) Any
    agreements, commitments, interim milestones, etc, must be clearly identified in the
    assistance award package, and  it should be clear that the  DWIG TSA award will
    be terminated if the agreements  are not satisfied.  For projects for systems that are
    not Tribally owned, the Tribe will need to agree that it will not transfer any funds to
    the system, local government, the project contractor, or otherwise use DWIG TSA
    funds on the project unless it gets a commitment that the system will make all
    necessary changes to improve its capacity. For projects for which a Tribe has
    asked that IMS administer the funds, the EPA Regional office will not transfer any
    funds to IMS unless the Tribe agrees to make all necessary changes. Further, no
    subsequent DWIG TSA award will be made to, or for the benefit of, a Tribe that
    has not satisfied all prior DWIG TSA project agreements and commitments.

8.   Reimbursement of expenditures incurred prior to receipt of a DWIG TSA
    grant.

    There may be instances where a Tribe incurs project costs prior to receipt of a
    DWIG TSA grant.  Regions may be able to use DWIG TSA funds to reimburse a
    Tribe for certain "pre-award costs" as long as a number of conditions are met.

        •  the system is a municipal system (i.e., is owned by a Tribal government,
           or a non-Tribal municipality) - the system cannot be owned by a private
           entity;
        •  the pre-award costs meet the project eligibility criteria outlined in Section
           E5;
        •  the pre-award costs were incurred after August 6, 1996.  This is the date
           that the SDWA was amended (and the DWIG TSA was authorized).   EPA

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                                                  Final Guidelines - October 1998

           cannot pay for any costs that were incurred  before the DWIG TSA was
           created.
        •  negotiations, regarding the project for which the costs were incurred had
           occurred between the Tribe and EPA Region, and both had anticipated
           that the incurred costs were going to be funded with DWIG ISA monies.
           (Regions must be cautious, however, not to commit the Agency to an
           award of funds that it does not have. No commitment can occur before
           the grant is actually awarded.), and
        •  Regions must seek and obtain a deviation to EPA's General Grant
           Regulations (40 CFR Part 31) whenever they elect to allow any pre-award
           costs.

    Not all pre-award costs may be allowed. As an example, the OMB  Cost Principles
    (A-87) note that costs incurred for interest  on borrowed  capital are unallowable
    except in certain limited situations described in A-87.

    Finally, while pre-award costs may be eligible under the above circumstances,
    Regions are not obligated to reimburse Tribes for any costs that are incurred prior
    to a grant award. Any expenses that a Tribe incurs prior to award are incurred at
    the Tribe's risk.

9.   Combining DWIG TSA funds with other sources of money

    EPA knows that there are other sources of financial assistance available to assist
    Tribes with projects to improve their drinking water systems. We also know that
    many times the most expedient way of completing a project will be to combine
    funds from multiple sources - that sufficient funds to complete a project may not
    be available from any single source - and Tribes should explore all potential
    sources of funding. With the one exception explained below,  combining DWIG
    TSA funds with monies from other federal, State, or local loan or grant programs is
    a perfectly acceptable method of funding a Tribal drinking water project.

    The exception referred  to above stems from the SDWA  language in ง1452(i)(1) -
    that DWIG TSA funds; "may be used by the Administrator to make grants to Indian
    Tribes and Alaska Native Villages that have not otherwise received either grants
    from the Administrator under this section or assistance from State loan funds
    established under this section" (emphasis  added). It is EPA's understanding that
    some States will be allowing Tribally-owned water systems to apply for and receive
    funds from their State's SRF program.  While this is another potential source of
    funds for Tribes, the SDWA does limit a Tribe's ability to mix DWIG TSA and State
    SRF funds. The limitation  is that a Tribe may not receive funds from both  the
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                                                      Final Guidelines - October 1998

       DWIG TSA and a State SRF for the same project3. In instances where a Tribe
       would like to use both DWIG TSA and State SRF funds to improve a single water
       system, the two funding sources must be used on separate and discretely different
       projects. (Tribes should be aware that whenever they receive funds from a State
       SRF program, they must comply with all of the State requirements and conditions
       associated with the SRF grant or loan.)

   10. Tribal "matching" requirements

       The SDWA does not require Tribes to provide any match to an EPA DWIG TSA
       grant.  While we encourage Tribes to share in funding of water system projects,
       EPA policy will be that Tribes receiving DWIG TSA grants will not be required to
       provide matching Tribal funds.

F.  EPA REGIONAL DWIG TSA PROGRAMS

   In summary, once EPA Headquarters allots the annual DWIG TSA funds to the EPA
   Regional offices, the Regions will be responsible for management and oversight of the
   grants and  the projects funded by the grants. Each EPA Regional office will develop a
   method of identifying water system projects and prioritizing those  projects.  Regions
   must provide these intended methodologies to the Tribes, and other potentially
   interested parties in their Region, and allow for an adequate opportunity for comment.
   Each year the Regional Offices will use the identification and prioritization  methods to
   rank the projects and select those that they will be able to fund for the year. Each
   Region will then provide the entire list of identified projects (including estimated costs),
   and those that were selected for funding, to the  Tribes and the other interested parties
   within the Region. Regional methodologies can change from year to year, but when
   that occurs, they will need to inform, and seek comment from, the Tribes, and the other
   interested parties.

   1.  Project identification  - Regions have flexibility in deciding how to gather
       information  on potential DWIG TSA projects.   Regions are aware of many Tribal
       system needs as a result of the sanitary surveys that they routinely conduct and
       through the compliance information that exists in the Safe Drinking Water
       Information System (SDWIS). In addition, the Indian Health Service's  (IHS)
       Sanitation Deficiency System (SDS) is an extremely valuable source of potential
       project information.  However, even though  the IHS SDS and  the Region's own
              The SDWA language should not be interpreted to mean that a Tribe is only eligible to
              receive one grant, or only have one project funded, from the DWIG TSA. Some Tribes
              have many systems and it is EPA's interpretation that Congress did not intend that
              Tribes only be allowed to improve one of their systems. Further, some water systems
              may require multiple projects.  Nothing in the above SDWA language should be
              interpreted to mean that EPA can only fund one project per water system.

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                                                   Final Guidelines - October 1998

    information may identify the majority of the potential projects, Tribes may have
    additional projects that they believe may qualify for DWIG TSA funding. Regions
    may want to consider providing a mechanism that will allow other potential projects
    to be included on the list of candidates.

2.   Project prioritization - Regions must develop a quantifiable method of ranking
    all of the identified projects,  and the ranking method must be applied to all the
    potential projects each fiscal year.

    Like project identification, Regions will have flexibility in developing a prioritization
    method for the projects within their Region.  Regions must give priority, however,
    to projects that;

        •  address the most serious risk to human health;
        •  are necessary to ensure compliance with the requirements of the SDWA;
        •  and assist systems most in need on a per household basis.

    Each method  must differentiate the projects according to the severity of the health
    risk to be solved by the project. As examples: acute health risks should  be
    resolved before non-acute risks and known threats should be addressed before
    potential threats.

    Project readiness cannot be a factor in determining a  project's ranking.  Regions
    may, of course "skip-over" a project that is not ready to proceed, but such a project
    should stay on the Region's priority list and be re-ranked and reconsidered in the
    following year's ranking.

3.   Regional outreach and Tribal involvement - As mentioned above, Regions
    must inform Tribes, and other  potentially interested parties, about their project
    identification and prioritization methods, of the ranking of all of the identified
    projects each  year, and of the  estimated amount of DWIG TSA funds to be
    awarded for each project. Because non-Tribally owned systems are eligible to
    have projects funded through the DWIG TSA program, Regions will need to
    explore and identify ways to reach  such systems.  In some instances, such as for
    the Tribes  in Alaska, it may also be appropriate to inform the States of the
    Region's plans.

    Regions also  need to work closely with the local Area Office of the Indian Health
    Service. As mention earlier, the IMS has  been assisting Tribes improve  their
    drinking water facilities for many years and have a project identification and
    funding program of their own.  Even if a Region chooses not to use the IHS's SDS
    in its project identification or ranking methods, it is imperative that the Region
    consult and coordinate with the local IMS Area Office  . Otherwise, confusion

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                                                   Final Guidelines - October 1998

    and possible duplication of effort will occur.

4.   Unscheduled "emergency" projects - It is possible that after a Region uses its
    prioritization method to rank projects for a year, and informs the Tribes of the
    rankings and selections, that an emergency project will occur.  Such projects may
    include those where some type of failure was unanticipated and requires
    immediate attention to protect public health.  In such cases, the Regions have
    authority to fund the emergency project ahead of the selected projects. The
    Region must, of course, inform the Tribe(s) whose project(s) were by-passed of
    the Region's decision and the rationale behind that decision.  The projects that
    were by-passed should  receive the highest priority for the  next available funding.
    Regions should identify, in their priority system, the types of situations that
    constitute emergencies.

5.   Grant management and oversight - Regions will serve  as the Project Officer on
    each of the DWIG TSA  grants and, as such, will be responsible for all of the
    activities traditionally assigned to a Project Officer. The general requirements are
    outlined in "Managing Your Financial Assistance Agreement - Project Officer
    Responsibilities".  Regions will be responsible for developing the oversight criteria
    that will be contained the grant award document, and for all oversight associated
    with the assistance agreement.

6.   Reports to EPA Headquarters  - EPA Regions will be expected to provide EPA
    Headquarters (currently the Office  of Groundwater and Drinking Water) with
    summary information about the grants that are awarded. The reports shall be
    made once per year, within 90 days after the end of the fiscal year. The reports
    shall contain information about both new awards during the past fiscal year, and
    information about projects funded in prior fiscal years.

    At a minimum,  the information on the new awards shall include: the name of the
    Tribe receiving the grant, the name and identification number of the system that
    benefitted from the grant, the purpose of the grant (feasibility study,
    engineering/design, construction, etc), a brief description of the project, the
    amount of the award, the appropriation year of the funds (e.g., FFY97 funds), the
    date of the award, the portion of the project being funded by the DWIG TSA grant,
    other known funds that are being used to fund the project,  and finally whether the
    Tribe requested IMS administration or is administering the  project  itself.

    At a minimum,  the information on the projects awarded in prior years shall include:
    major milestones, such  as start and completion of feasibility studies, design, and
    construction and the dates of each. The report shall also include any changes that
    were made to the award amounts of the assistance agreements.
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                       SAFE DRINKING WATER ACT AMENDMENTS
                            ง1452 -- REVOLVING LOAN FUNDS
        SUBSECTIONS ADDRESSING INDIAN TRIBES & ALASKA NATIVE VILLAGES:

ง1452(i)    Indian Tribes.--

(1) In general.-1 Y2 percent of the amounts appropriated annually to carry out this section may be
   used by the Administrator to make grants to Indian Tribes and Alaska Native villages that have
   not otherwise received either grants from the Administrator under this section or assistance from
   State loan funds established under this section. The grants may only be used for expenditures by
   tribes and villages for public water system expenditures referred to in subsection (a)(2).
   (emphasis added - see section (a)(2) below)

(2) Use of funds.-Funds reserved pursuant to paragraph (1) shall be used to address the most
   significant threats to public health associated with public water systems that serve Indian Tribes,
   as determined by the Administrator in consultation with the Director of the Indian Health Service
   and Indian Tribes.

(3) Alaska native villages.-In the case of a grant for a project under this subsection in  an Alaska
   Native  village, the Administrator is also authorized to make grants to the State of Alaska for the
   benefit of Native villages. An amount not to exceed 4 percent of the grant amount may be used
   by the State of Alaska for project management.

(4) Needs assessment.-The Administrator, in consultation with the Director of the Indian Health
   Service and Indian Tribes, shall,  in accordance with a schedule that is consistent with the needs
   surveys conducted pursuant to subsection (h), prepare surveys and assess the needs of drinking
   water treatment facilities to serve Indian Tribes, including an evaluation of the public water
   systems that pose the most significant threats to public health.
The highlighted sections of section (a) (2) apply to Tribal projects:

ง1452(a)(2) Use of funds - Except as otherwise authorized by this title, amounts deposited in a
State loan fund, including loan repayments and interest earned on such amounts, shall be used only
for providing loans or loan guarantees, or as a source of reserve and security for leveraged loans,
the proceeds of which are deposited in a State loan fund established under paragraph (1), or other
financial assistance authorized under this section to community water systems and nonprofit
noncommunity water systems, other than systems owned by Federal agencies Financial
assistance under this section may be used by a public water system only for expenditures
(not  including monitoring, operation, and maintenance expenditures) of a type or category
which the Administrator has determined, through guidance, will facilitate compliance with
national primary drinking water regulations applicable to the system under section 1412 or
otherwise significantly further the health protection objectives of this title. The funds may
also be used to provide loans to a system referred to in section 1401(4)(B) for the purpose of
providing the treatment described in section 1401(4)(B)(i)(lll). The funds shall not be used for
the acquisition of real property or interests therein, unless the acquisition is integral to a
project authorized by this paragraph and the purchase is from a willing seller. Of the amount
credited to any State loan fund established under this section in any fiscal year, 15 percent shall be
available solely for providing loan assistance to public water systems which regularly serve fewer
than  10,000 persons to the extent such funds can be obligated for eligible projects of public water
systems.
                                                                            Appendix A

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                                                        Final Guidelines - October 1998

                         Federal Cross-Cutting Authorities
Environmental Authorities

•  Archeological and Historic Preservation Act of 1974, Pub. L. 86-523, as amended
•  Clean Air Act, Pub. L. 84-159, as amended
•  Coastal Barrier Resources Act, Pub. L. 97-348
•  Coastal Zone Management Act, Pub. L. 92-583, as amended
•  Endangered Species Act, Pub. L. 93-205, as amended
•  Environmental Justice, Executive Order 12898
•  Floodplain Management,  Executive Order 11988 as amended by Executive Order 12148
•  Protection of Wetlands, Executive Order 11990
•  Farmland Protection Policy Act, Pub. L. 97-98
•  Fish and Wildlife Coordination Act, Pub.  L. 85-624, as amended
•  National Historic Preservation Act of 1966, PL 89-665, as amended
•  Safe Drinking Water Act, Pub. L. 93-523, as amended
•  Wild and Scenic Rivers Act, Pub. L. 90-542, as amended


Economic and Miscellaneous Authorities

•  Demonstration Cities and Metropolitan Development Act of 1966, Pub. L. 89-754, as amended,
   Executive Order 12372
•  Procurement Prohibitions under Section  306 of the Clean Air Act and Section 508 of the Clean
   Water Act, including Executive Order 11738, Administration of the Clean Air Act and the Federal
   Water Pollution Control Act with Respect to Federal Contracts, Grants, or Loans
•  Uniform Relocation and Real Property Acquisition Policies Act, Pub. L. 91-646, as amended
•  Debarment and Suspension, Executive Order 12549


Social Policy Authorities
•  Age Discrimination Act of 1975, Pub. L. 94-135
•  Title VI of the Civil Rights Act of 1964, Pub. L. 88-S524
•  Section 13 of the Federal Water Pollution Control Act Amendments of 1972, Pub. L. 92-500 (the
   Clean Water Act)
•  Section 504 of the Rehabilitation Act of 1973, Pub. L. 93-112 (including Executive Orders 11914
   and 11250)
•  The Drug-Free Workplace Act of 1988, Pub. L. 100-690 (applies only to the capitalization grant
   recipient)
•  Equal Employment Opportunity, Executive Order 11246
•  Women's and Minority Business Enterprise, Executive Orders 11625, 12138 and 12432
•  Section 129 of the Small Business Administration Reauthorization and Amendment Act of 1988,
   Pub. L. 100-590
•  Anti-Lobbying Provisions (40 CFR part 30) [applies only to capitalization grant recipients].
              The Civil Rights Act and related anti-discrimination statutes apply to all the operations of
              the SRF Program.

                                                                             Appendix B

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                                                    Final Guidelines - October 1998
                    Comparison of Major Differences Between
   Indian Health Service Sanitation Deficiency System (Drinking Water Project List)
                                       and
                  EPA Drinking Water Infrastructure Needs Survey
               Analysis by EPA, for EPA Concept Paper associated with
             Drinking Water Tribal Set-Aside Infrastructure Grants Program
EPA Drinking Water Needs Survey
IMS Sanitation Deficiency System
Needs of existing community water
systems.
Needs of American Indian and Alaska Native
homes (excluding HUD funded homes) that
lack safe water supply, (individual homes
included).
Does not account for developing new
water systems.
Considers possibility of new water systems.
Current & future (20-year) needs.
Current needs.
SDWA compliance needs as well as
immediate public health needs.


Needs are modeled projections. Model
was designed to estimate national needs
rather than Tribe, or EPA Region,
specific needs.
Primarily for immediate public health needs.
All SDWA compliance needs not considered
immediate health risk.

Each project need is based on actual site
visit and tribal consultation.
Needs are not associated with specific
projects.
Needs comprised of actual project estimates.
Project feasibility not a factor in Survey.
Project costs and feasibility are factor,  (only
feasible projects are used to determine the
distribution funds appropriated for IMS SDS).
Conducted every 4 years.
Updated annually.

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                                                             Final Guidelines - October 1998
                                                                                Appendix C
                              FORMULA FOR DISTRIBUTION OF
                        DRINKING WATER INFRASTRUCTURE GRANTS
                      TRIBAL SET-ASIDE PROGRAM (DWIG TSA) FUNDS
                     FINAL DISTRIBUTION OF FFY 1997 APPROPRIATION

Actual Funds Available for FFY1997 DWIG TSA Program:
Each Region to Receive 2.0% of Total ($382,500) as a Base Allotment
DWIG TSA Needed to Accommodate "Base" (18.0% of Available)
Available to Allot After Base:
$19,125,000

$ 3,442,500
$15,682,500

EPA
Region
Formula Factors & Calculations
Needs Survey
Needs (D
(Weight -- 50%)
IMS SDS Projs
(Dec 96 List) CD
(Weight -- 50%)
Formula
Percentage
Formula
Allotment

Base
Allotment
TOTAL
REGIONAL
ALLOTMENT
(Base +
Formula)

Region 1
Region 2
Region 4
Region 5
Region 6
Region 7
Region 8
Region 9
Region 10
(incl ANV)
$3,000,000
$2,100,000
$15,600,000
$41,200,000
$38,200,000
$5,700,000
$95,500,000
$320,500,000
$817,500,000
$436,400
$371,750
$3,194,800
$7,788,760
$36,111,012
$2,060,000
$30,502,725
$176,023,094
$101,647,220
0.17%
0.13%
1 .03%
2.63%
6.47%
0.50%
7.82%
36.54%
44.71%
$27,100
$20,400
$161,300
$411,700
$1,014,300
$78,500
$1,227,000
$5,730,400
$7,011,800
$382,500
$382,500
$382,500
$382,500
$382,500
$382,500
$382,500
$382,500
$382,500
$409,600
$402,900
$543,800
$794,200
$1,396,800
$461,000
$1,609,500
$6,112,900
$7,394,300
TOTALS:
$1,339,300,000
$358,135,761
100.00%
$15,682,500
$3,442,500
$19,125,000
   CD  Weeds Survey figures were adjusted to account for Tribally-owned systems that were not credited to the Tribes in the 1995 Survey
   ฎ  December 96 (rather than December 1995) IMS SDS data was used to distribute the FFY1997 funds as the more current data was
       available when EPA first developed the allotment formula. Advisory Group recommended using the December 1996 data.

Example of calculation - using Region 1:

Region receives a "Base Allotment" of $382,500 (as do all 9 Regions).  There is a total of $19,125,000 available
for the DWIG TSA for FFY97.  After  each of the 9 Regions receives its base of $382,500 there is $15,682,500
remaining to distribute.  The share of the $15,682,500 that Region 1 receives is determined by the following
formula:

        [0.5 x (3,000,000 * 1,339,300,000) + 0.5 x (436,400 * 358,135,761) ] x $15,682,500 = $27,100
The Region's total allotment is the sum of the "Base Allotment" plus its "Formula Allotment". For Region 1, this
is $382,500 + $27,100 = $409,600. Each Region's Allotment is calculated in the same manner.

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              Final Guidelines - October 1998



                                 Appendix D
26                          Appendix F

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                                                           Final Guidelines - October 1998
                             FORMULA FOR DISTRIBUTION OF
                       DRINKING WATER INFRASTRUCTURE GRANTS
                     TRIBAL SET-ASIDE PROGRAM (DWIG TSA) FUNDS
                     FINAL DISTRIBUTION OF FFY 1998 APPROPRIATION

Actual Funds Available for FFY1998 DWIG TSA Program:
Each Region to Receive 2.0% of Total ($217,500) as a Base Allotment
DWIG TSA Needed to Accommodate "Base" (18.0% of Available)
Available to Allot After Base:
$10,875,000

$ 1,957,500
$ 8,927,500

EPA
Region
Formula Factors & Calculations
Needs Survey
Needs (D
(Weight -- 50%)
IMS SDS Projs
(Dec 96 List)
(Weight -- 50%)
Formula
Percentage
Formula
Allotment

Base
Allotment
TOTAL
REGIONAL
ALLOTMENT
(Base +
Formula)

Region 1
Region 2
Region 4
Region 5
Region 6
Region 7
Region 8
Region 9
Region 10
(incl ANV)
$3,000,000
$2,100,000
$15,600,000
$41,200,000
$38,200,000
$5,700,000
$95,500,000
$320,500,000
$817,500,000
$436,400
$371,750
$3,194,800
$7,788,760
$36,111,012
$2,060,000
$30,502,725
$176,023,094
$101,647,220
0.17%
0.13%
1 .03%
2.63%
6.47%
0.50%
7.82%
36.54%
44.71%
$15,400
$11,600
$91,700
$234,100
$576,800
$44,600
$697,700
$3,258,500
$3,987,100
$217,500
$217,500
$217,500
$217,500
$217,500
$217,500
$217,500
$217,500
$217,500
$232,900
$229,100
$309,200
$451 ,600
$794,300
$262,100
$915,200
$3,476,000
$4,204,600
TOTALS:
$1,339,300,000
$358,135,761
100.00%
$8,917,500
$1,957,500
$10,875,000
     CD Weeds Survey figures were adjusted to account for Tribally-owned systems that were not credited to the Tribes in the 1995 Survey

Example of calculation - using Region 1:

Region receives a "Base Allotment" of $217,500 (as do all 9 Regions). There is a total of $10,875,000 available
for the DWIG TSA for FFY98.  After each of the 9 Regions receives its base of $217,500 there is $8,917,500
remaining to distribute.  The share of the $8,917,500 that Region 1  receives is determined by the following
formula:

        [0.5 x (3,000,000 + 1,339,300,000) + 0.5 x (436,400 + 358,135,761) ] x $8,917,500 = $15,400

The Region's total allotment is the sum of the "Base Allotment" plus its "Formula Allotment". For Region 1, this
is $217,500 + $15,400 = $232,900. Each Region's Allotment is calculated in the same manner.
                                                                               Appendix E

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                                                          Final Guidelines - October 1998
                             FORMULA FOR DISTRIBUTION OF
                       DRINKING WATER INFRASTRUCTURE GRANTS
                     TRIBAL SET-ASIDE PROGRAM (DWIG TSA) FUNDS
                  TENTATIVE DISTRIBUTION OF FFY 1999 APPROPRIATION
Budget Request for FFY1999 DWIG TSA Program:
Each Region to Receive 2.0% of Total ($232,500) as a Base Allotment
DWIG TSA Needed to Accommodate "Base" (18.0% of Available)
Available to Allot After Base:
$11,625,000

$ 2,092,500
$ 9,532,500

EPA
Region
Formula Factors & Calculations
Needs Survey
Needs (D
(Weight -- 50%)
IMS SDS Projs
(Dec 97 List)
(Weight -- 50%)
Formula
Percentage
Formula
Allotment

Base
Allotment
TOTAL
REGIONAL
ALLOTMENT
(Base +
Formula)

Region 1
Region 2
Region 4
Region 5
Region 6
Region 7
Region 8
Region 9
Region 10
(incl ANV)
$3,000,000
$2,100,000
$15,600,000
$41,200,000
$38,200,000
$5,700,000
$95,500,000
$320,500,000
$817,500,000
$220,000
$348,750
$2,890,000
$9,916,560
$27,383,152
$962,000
$30,983,275
$167,085,687
$101,471,620
0.14%
0.13%
1.01%
2.99%
5.44%
0.35%
8.10%
36.45%
45.39%
$13,800
$12,300
$95,900
$285,100
$518,400
$33,700
$722,600
$3,474,200
$4,326,500
$232,500
$232,500
$232,500
$232,500
$232,500
$232,500
$232,500
$232,500
$232,500
$246,300
$244,800
$328,400
$517,600
$750,900
$266,200
$1,005,100
$3,706,700
$4,559,000
TOTALS:
$1,339,300,000
$341,261,744
100.00%
$9,532,500
$2,092,500
$11,625,000
     CD Weeds Survey figures were adjusted to account for Tribally-owned systems that were not credited to the Tribes in the 1995 Survey

Example of calculation - using Region 1:

Region receives a "Base Allotment" of $232,500 (as do all 9 Regions).  There is a total of $11,625,000 available
for the DWIG TSA for FFY99.  After each of the 9 Regions receives its base of $232,500 there is $9,532,500
remaining to distribute.  The share of the $9,532,500 that Region 1 receives is determined by the following
formula:

        [0.5 x (3,000,000 * 1,339,300,000) + 0.5 x (220,000 * 341,261,744) ] x $9,532,500 = $13,800

The Region's total allotment is the sum of the "Base Allotment" plus its "Formula Allotment". For Region 1, this
is $232,500 + $13,800 = $246,300. Each Region's Allotment is calculated in the same manner.
                                                                               Appendix F

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                                                      Final Guidelines - October 1998

                         Types of Public Water Systems
Public Water System - A system for the provision to the public of water for human
consumption through pipes or, after August 5, 1998, other constructed conveyances, if such
system has at least 15 service connections or regularly serves an average of at least twenty-
five individuals daily at least 60 days out of the years.  Such term  includes any collection,
treatment, storage, and  distribution facilities under control of the operator of such system and
used primarily in connection with such system; and any collection or pretreatment storage
facilities not under such  control which are used primarily  in connection with such system.
Such term does not include any "special irrigation district". A public water system is either a
"community water system" or a "noncommunity water system".
      A "special irrigation district" means an irrigation district in existence prior to
      May 18, 1994 that provides primarily agricultural service through a piped
      water system with only incidental residential or similar use where the system
      or the residential or similar users of the system comply with the exclusion
      provisions found in section 1401(4)(B)(i)(ll) or (III) of the Safe Drinking
      Water Act.
Community Water System - a public water system that serves at least 15 service
connections used by year-round residents or regularly serves at least 25 year-round
residents.

Noncommunitv Water System - a public water system that is not a community water
system. There are two types of noncommunity water systems  - nontransient and transient.

Nontransient Noncommunitv Water System - a noncommunity water system that regularly
serves at least 25 of the same persons, at least 6 months per year.

Transient Noncommunitv Water System - a noncommunity water system that does not
regularly serve at least 25 of the same persons, over 6 months per year.
                                                                        Appendix G

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                                                Final Guidelines - October 1998


  Brief Description of Technical. Financial and Managerial Capacity
                       for Public Water Systems
Technical Capacity refers to: (1) the physical infrastructure of the water system (the
capability of the system components to provide water that meets the requirements of
the SDWA); and (2) the technical  knowledge of the system  personnel and their ability
to use that knowledge to adequately operate the system.

Financial Capacity refers to the ability of the system to maintain sufficient revenues to
cover operation costs and the effective management of those resources in operating
the system. In effect, is the system  financially healthy.

Managerial Capacity refers to such things as ownership accountability; the ability of
management to adequately staff the system with qualified personnel; an understanding
of the regulatory requirements involved in operating a water system; and the ability to
interact well with customers and regulators
The following are potential actions that might be appropriate for a system to take to
improve its capacity.  These are offered as suggestions only:

            develop a source water protection plan,
            develop an infrastructure replacement plan,
            institute a long-term program to provide any needed operation and
            maintenance,
            conduct an analysis of the systems financial health,
            adopt a rate structure, and collect fees, that will provide the system with
            sufficient resources to adequately maintain and operate the system, or
            establish a Tribal utility authority to manage and operate the system.

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              Final Guidelines - October 1998



                                 Appendix H
31                          Appendix G

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