Prepared by
The Office of Air and Radiation
The Office of Program Management Operations
January 1989
EPA
440/
1989.1
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TOE AIR RESOURCES STUDY
AN ANALYSIS OF THE SECTION 105
GRANT PROGRAM
PREPARED BY
THE NATIONAL EVALUATION STAFF
OFFICE OF PROGRAM ^PiNAGEMEN^ OPERATIONS
January, 1989
in
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EPA Headquarters Library
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
JAN 271989
OFFICE OF
AIR AND RADIATION
FOREWORD
The Air Resources Study lias been prepared by'this office to provide a
comprehensive evaluation of the Section 105 grants program. This program
is now more than 25 years old and has resulted in-the provision of some
$4.8 billion in Federal, state and local funds to support air quality
planning and management throughout the country.
This study provides a detailed analysis of how EHV allocates, manages
and accounts for these annually appropriated grant funds. These adminis-
trative and management processes have become complex over the years and
this study recommends actions to be taken to help streamline this over-
sight and strengthen the joint Federal and.state and local partnership in
effectively managing these funds. The study also analyzes the current and
projected demand for additional funding and mates recommendations on how
the increasing resource requirements for the 1990s might be met.
We hope you win find this Air Resources Study an informative and
useful report. My office looks forward to working with you in further
implementing the various recommendations contained in this study.
Don Clay, ActirigAssistant Administrator
for Aw^and Radiation
January 1989
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THE AIR RESOURCES STUDY
TABLE OF CONTENTS
i. Executive Sunmary I
ii. Introduction 1
I. Brief History of Mr Grants Funding 5
II. What Section 105 Funds Have Accomplished
introduction 13
Indicators of Change ' • 13
Section 105 Expenditures and Accomplishments 19
III. EPA's Budget and Section 105 Grants Process '
Purpose 31
Process for Setting National Priorities • 31
Development of the Budget - 32
Budget Review and Appropriation by Congress 34
Development of the Operating Plan and Grants Guidance 35
Provision of Regional Guidance 36
Allocations of Funds to the Regions 38
Grant Negotiations 47
Program Evaluation and Performance Resolution 52
Grantee Financial Integrity 59
IV. Critique of the Air Grants Process with Suggestions for
Improvement
Purpose „ . • " 65
Regional Office Organization " 65
Determination Program Priorities 66
Allocation of Grant Funds ' 71
Negotiation of Assistance Agreements and Work Programs 73
Program Evaluation and Performance Resolution - 79
Enhancing Grantee Performance 84
Exemplary Regional Office Practices and Procedures 87
V. Assuring Financial Integrity
Background 91
Adequacy of Negotiated Wbrkplans 93
Assurance of Maintenance of Effort 94
Adequacy of Programmatic and Fiscal Oversight 104
vi. The Future of the Section 105 Program
Future Air Program Resource Needs ' 109
Estimates of Need . 109
Demands from Other Media Programs 110
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TABLE OF CONTENTS (Cont.)
VII.
VIII,
IX.
Funding the Future: Restructuring of Program Priorities
Funding the Future: additional Approaches.
Reexamining Intergovernmental Roles
Pursuit of Additional Funding
Existing Permit Fee Requirements
Permit Fee Task Force
Progress^ in Fee Programs-
TasK Force" Findings
• Other Fee Provisions
Public-Private Partnerships
User Fee Proposals
Economic Incentives and Disincentives
Other Media Approaches
Managing for the Future
Multi-Year Planning
Cost Analysis of Actions
National Grants Information System
Other Revisions
Special Appropriations
•Modifications to Administrative/Statutory
Provisions
Summary and Reconmendations
Summary
Recommendat ions
Appendices
A. Section 105 of the Clean Air Act
B. One Budget/Grant' Year's Life cycle: FY 1990
C. Regional Office/Grantee LOE Practices, Procedures
and Schedule
D. Draft 1974 Allocation Rationale
Acknowledgements
113
118
•118
119
120
121
122
125
126
126
127
128
129
129
130
132
133
134
134
135
137
140
150
151
155
159
164
KDTE: For purposes of the Federal Managers' Financial
Integrity Act this draft study is categorized
as accessible unit number 2000.
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LIST OF FIGURES
FIGURE.
1. Factors Affecting the Section 105 Programs 2
2*. Ever-Increasing Responsibilities . 8
3. Federal vs. Ndnfederal 105 Contributions 1971-1987 10
4. 105 Contributions by % 10
5. actual Dollars vs. 1972 and 1982 'adjusted' Dollars (1971-1987) 11
6. Selected Indicators of Growth (1970-1987) , 14
7. Changes in Emissions and Ambient Levels (1977-1986) 15
8. Pollutant Emissions Prevented (1970-1986) 16
9. Reduction of the Number of Areas Not Meeting NAAQS: (1978-1987) 17
10. Population Affected by AQ Levels Above the NAAQS: (1984-1986) 18
11. Comparison of Costs By Program Element (105 Only): 1984-1987 20
12. Number of'Monitoring Sites (1977-1987) 22
13. 105-Related Enforcement and Compliance Activity 24
14. Compliance Status*as of June 1988 25
15. Areas Required to Implement Inspection/Maintenance. Programs 27
16. Matpr vehicle Tampering Rates (1978-1987) 27
17. Air Toxics Programs at-the State/Local Level: 1983-1988
18. The Four Overlapping Phases of the Budget Process 32
19. Section 105 Allocation Schemes (1971-1988) 40
20. Location of 1/2 of 1% States and Indian Tribes - FY 1987 44
21. Special 105 Assistance (LOE) to Grantees (1975-1988) ' 46
22. Variations in Grant and Fiscal Years (FY 1986) 50
23. Regional Approaches for Evaluating Grantee Performance 53
24. Regional Approaches for Improving Grantee Performance (FY 1987) 56
25. Statutory and Administrative Requirements Affecting 105 60
26. Selected Air Activities Federal Outside the 105 Program 78
27. Sample Reporting Requirements for One Grant Year 80
28. Air Pollution Training Institute Funding 86
29. Summary of Major DIG Criticisms by EPA Regional Office 92
30. Listing of Agencies Receiving Above a 60% Federal Share (FY 1986) 96
31. State 105 Percentage vs. Total 105 Program Expenditures: (FY 1987) 97
32. Five Titles Of S. 1894 111
33. Estimate of Other Selected Media Activities' Impacts on Air (1984) 112
34. Region and Recipient Disinvestments and Non-105 Activities 115
35. Progress on State Permit Fee Systems (1977-1987) 123
36. Air Permit and Emission Fees: Sources of State Revenues 124
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USED IN THIS REPORT
AA - Assistant Administrator - . •
AAM - Annual Arithmetic Mean
ftGM - Annual Geometric Mean ' ...
APCA — Air Pollution and Hazardous Waste control Association
APTI - Air Pollution Training Institute
AQ - Air Quality
ARS - Air Resources Study • ,
AT - Air Toxics
BACT - Best Available control Technology
CAA(A) - Clean Air Act (Amendments)
CDS - Compliance Data System '
CFT. - Continuing Eligibility Level
GEM - Continuous Emissions Monitoring
CFCs - Chlorofluorocarbons
CFR - code of Federal Regulations
CO - Carbon Monoxide
CTGs - Control Technology Guidance Documents
DAA - Deputy Assistant Administrator
DD - Division Director
D/R - Demolition and Renovation (Asbestos)
EERs - Emergency Episode Reports
EPA - U.S. Environmental Protection Agency
FIP - Federal Implementation Plan
FSR - Financial Status Report
FY - Fiscal Year . -
GAD - Grants Administration Division
HAP - Hazardous Air Pollutant
HEW - U.S. Department of Health, Education and Welfare
HRPS - High Risk Point Sources
HUD - U.S. Department of Housing and Urban Development
I/M - Motor Vehicle Emissions Inspection and Maintenance
LAER - Lowest Achievable Emission Rate
LOE - Level of Effort
M($) - Millions of Dollars
MDE - Maintenance of Effort
M3A - Maximum Quarterly Average
M¥DPs - Multi-Year Development Plans
l^AQS - National Ambient Air Quality Standards
NAAS - National Air Audit System
NAMS - National Air Monitoring System
NESHAPs - National Emission Standards for Hazardous Air Pollutants
NOX/N02 - Nitrogen Oxides/Nitrogen Dioxide
MOV - Notice of Violation
NSPS - New Source Performance Standards
NSR - New Source Review
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03 - Ozone
OAQPS - Office of Air Quality Planning and Standards (EPA)
OAR - Office of Air and Radiation (EPA)
OC - Office of the Comptroller (Em)
OQC - Office of the General Counsel (EPA)
OIG - Office of the Inspector General (EPA)
OMB - Office of Management and Budget
OHO - Office of Program Management Operations (EPA)
ORC - Office of the Regional Counsel (EPA)
OSWER ' - Office of "Solid Waste and Emergency Response (EPA)
Pb - Lead
PBAB - Performance-Based Assistance Policy
PIP - Productivity Improvement Project
PM10 ~ Particulate Matter (10 Micrograms Per Cubic Meter)
POIWs - Publicly-Owned Treatment Warks
PSD - Prevention of Significant Deterioration
PTA - Pass-Through Agency
QA - Quality Assurance
QAPgP - Quality Assurance Program Plan
RA - Regional Administrator
RCRA - Resource Conservation and Recovery Act
R/D - Research and Development
RO - Regional Office
RPTS - Regional Priority Tracking System
S. - Senate bill
SARA - Superfund Amendments and Reauthorization Act
SCAOMD - south Coast Air Quality Management District
SEA - State-EPA Agreement
SIP - State Implementation Plan
SEAMS - State and Local Air Monitoring System
SO2 - Sulfur Dioxide
SPMS - Strategic Planning and Management System
STAPPA/ - State and Territorial Air Pollution Program Administrators/
ALAPCO Association of Local Air Pollution Control Officials
SV - Significant Violators
TCMS - Transportation Control Measures
TSCA - Toxic Substances Control Act
TSDFs - Treatment, storage and Disposal Facilities
TSP - Total Suspended Particulates
UST - Underground Storage Tank
VOC - Volatile Organic Compound
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PERSONS RESPONSIBLE FOR PRODUCTION OF.
THE AIR RESOURCES STUDY
STUDY OVERSIGHT AND DIRECTION
W. Ray CunningJiain, Director, Office of Program Management Operations (OEMD)
Paul Rasmussen, Director, National Evaluation Staff USES), OPMO
Jerry Kurtzweg, Director, Budget staff, OPMO
STUDY STAFF
William Houck, Project Manager and Principal Author, OPM9/NES
Paul Rasmussen, staff Director, OPMO/NES
Peter Copier, QPMD/TSIES
Denise Nelson, Region IX (Rotational)
Joyce Grabsch, OPMO/Budget Staff .
WORD PROCESSING AND PRODUCTION!
Cherie Becton, Principal Clerical Support, OHVD
Roberta Lane, OPMD
Earline Huff, OPMD
Pat Leno, OPIVD
CTIHER
Jerry Kurtzweg, Senior Budget Officer, OFMD
Gregory Glann, Office of Air Quality Planning and Standards (OAQPS)
David Foster, OPMD
Richard Mitchell, Grants Administration Division (GAD)
Donald Smith, OAQPS
Kristin McNamara, Office of Administration and Resource Management (OARM)
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EXECUTIVE SUW1ARY
Since the first Clean Air Act (CAA) was passed in 1963 the
Environmental Protection Agency (EPA), and its predecessor agency, the
Department of Health, Education.and Welfare, have allocated under Section-
105 of the act, some $1.3 billion in grants to help control and reduce air
pollution. This Federal funding has been matched with a total of some $3.5
billion by state and local air quality agencies throughout the country.
The resulting total of- $4.8 billion represents all funding derived from
Section 105 of the Act between 1963 and 1987.
This Air Resources Study is an examination of how and why these grant
funds are being spent. • This study examines the history of the Section 105
funding, what this funding has bought,-what pollution control improvements
have been achieved during this period of time, how these funds have been
allocated and managed, what emerging issues and trends could impact this
grant program and, finally, what are the potential funding requirements and
alternatives for meeting these requirements in the 1990s.
This study has been prepared by the Office of -Program Management
Operations (OPMJ) within the Office of the Assistant Administrator for Air
and Radiation (OAR). Information .and data for this study .were obtained
from OAR's program offices, EPA's Regional Offices and various representa-
tive state and local air pollution control agencies. Both cooperation and
support have been provided by the State and Territorial Air Pollution
Program Administrators (STAPPA) and the Association of Local Air Pollution
Control Officials (AIAPCO) throughout the various phases of study. A major
portion"of the study is based upon extensive interviews conducted during
the fall of 1987. These interviews included both Regional Office Section
105 grant managers and officials of the various state and local agencies.
.The following sections summarize the basic information and analysis
contained in each of the study's six chapters. The study's recommenda-
tions, contained in Chapter 7, are presented at the end of this Executive
Summary- • -
CHAtrTia< 1 - BRIEF HISTORY OF AIR GRANTS FUNDING
o In the 25 year period between 1963-1987 a total of some $4.8
billion has been'expended under-the Section 105 program. State
and local agencies have contributed approximately $3.5 billion
and EPA has awarded some $1.3 billion in Federal funds. The
: . Federal portion has averaged about 38% for this period, state
and local contributions have increased by about 3% per year.
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-II-
The useful buying power of Section 105 funds has continued to
decline even when adjusting for inflation. Not adjusting for
inflation, about $1.16 was spent per person nationally in 1986.
When adjusted for inflation this figure dips to $1.02 per capita.
The maintenance of effort (MDE) concept (annual maintenance of a
grantee's level of contributed support) was first, introduced in
the 1963 CAA. Subsequent amendments established'Federal and state
percentage funding shares pursuant to the nature of the activity.
The 1970 CAA Amendments raised the maximum Federal funding percen-
tage share to three-quarters of the cost of establishing and
developing an air pollution program for grantees responsible for a
State Implementation Plan (SIP) and three-fifths of the cost
for maintaining an established air pollution control program.
State and local air program responsibilities have continued to
expand beyond the requirements contained in the 1977 Act. Part
of this is due to continued nonattainment of National Ambient Air
Standards (NAAQS) •beyond statutory deadlines for criteria pollutants
and to the emergence of unforeseen air pollution problems like air
toxics, acid deposition, indoor air pollution and cross-media
transfers. Criteria pollutants are those pollutants for which NAAQS
have been promulgated. These include: sulfur dioxide, nitrogen
dioxide, carbon monoxide, ozone, particulates, and lead.
[QN 1Q5 ACCCMPLISHMBNTTS
Since the enactment of the 1970 CAA, the nation's population has
increased by over 40 million, the gross national product has more
than quadrupled, overall hourly manufacturing output has risen by
nearly 60% and the number of motor vehicles has increased by some
75 million. During the same time period, the overall volume of the
pollution for the six criteria pollutants has decreased by over 70
million tons. Another 115 million tons of pollution have been
prevented.
Only indirect correlations can be made between Section 105
expenditures, the outputs achieved, and the amount of air pollution
reduced, or prevented, since numerous other factors can intervene to
effect air quality. Nevertheless, much of this gain is attributable
to the development and operation of state and local air pollution
control programs funded under Section 105.
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-III-
From 1978 to 1987 areas not meeting the health-related NAAQS for
sulfur dioxide (S02) had declined by 45%, for carbon monoxide (CO)
down by 33%, for ozone ( 03) by 44% and, nitrogen dioxide (M^) by
67%. However, results are mixed if total population exposure is
examined with the gains in reducing CO and 03 having been reversed
in recent years.
EPA receives ambient data from a nationwide monitoring network
consisting of over 4700 monitors. In 1987, approximately 22
percent of total state and local Section 105 resources were
utilized to deliver this data and maintain this network.
State and local agencies expended approximately 28% of all their
Section 105 resources for planning and administrative activities.
These included the revision of SIPs.
Over the last five years some 150,000 source inspections have been
conducted as part of state and local agencies' compliance and en-
forcement efforts. Currently, over 40,000 Class A, New source
Performance standards (NSPS) and non-transitory National Emission
' standard for Hazardous"Air Pollutants (NESHAPS) sources are
considered for high-priority enforcement by EPA each year.. These
constitute only a small percentage of all the sources actually
subject, to state and local agency review, state and-local agencies
expended approximately 31% of their total Section 105 • resources in
related compliance, and enforcement activities. .
.State and local agencies reviewed or issued nearly 20,000 permits
for Prevention of Significant Deterioration (PSD) sources, Part D
nonattainment sources and other major and minor sources in 1987.
This activity .constituted about 11% of their total Section 105
resources. These permits represent only a portion of all the
permitting activity state and local agencies undertake.
Section 105 funds have been used to initiate motor vehicle
inspections and. maintenance programs (I/M) and anti-tampering and
anti-fuel switching programs. Over 35% of the nation's .motor
vehicles are covered, representing about 50 million vehicles and
100 million people. Combined with other aspects of the Federal
•motor vehicle control program, these actions have resulted in a 39%
reduction- in volatile, organic compounds (VDC) from highway vehicles
from 1978 through 1986.
The number of state and local air toxics programs have nearly
tripled since 1983 under the continued financial support of Section
105 funds.
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-IV-
CHAPTER 3 - A DESCRIPTION OF THE BUDGET AMD GRANTS PROCESS
o Fran the initial formulation of program priorities to the receipt
of the final financial status report, the life of one budget and
grant year cycle covers over three years. The budget process has
four phases which span this period.
o The - formulation of annual operating program priorities beginss-well
before.. EPA's annual Spring planning ..meeting. The. Air Program must'
annually compete with other media programs within EPA for its share
of the Agency resources requested in the annual budget submittal.
o The OAR request, including the grants portion, is subject to the
Office of Management and Budget (OMB) and Congressional scrutiny
and modification each year. There is no assurance that the Section
105 funding level will remain the same or will increase annually.
OAR must continually defend its budget request and must show that
its assistance to state and local agencies is productive and
responds to changing national priorities.
f
o The-CAA allows EPA a certain amount of flexibility in allocating-
funds to meet its various mandates,- and the Agency's,changing air
management priorities. Over the years OAR has attempted to
maintain a balance between providing funds for an adequate, state"
and local air quality infrastructure, and for the support of
important new national air pollution control program initiatives'.
This has not occurred without controversy.
o Since 1985 the Air Program has relied upon an approach of
distinguishing base activities (regular, on-going programs)
versus high priority activities, (major, usually pollution
specific emphasis areas). These funds are then redistributed
both programnatically and geographically. Current controversies
surrounding program priorities and inter-Regional funding
redistributions have been sparked by either a decline, or a flat
level of grant funding combined with increased responsibilities.
To contain this controversy, the Assistant Administrator (AA) for
OAR in 1986 developed a set of principles to govern the allocation
and use of Section 105 funds. These principles outlined a
disinvestments approach, defined the relative percentages to be
allocated between base and high priority activities, and placed a
limit on the percentage of funding that could be redistributed
among Regions.
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Each Regional Office differs slightly in now it allocates its grant
funds to its individual grantees within these grant principles.
While Headquarters allows the Regions to have some latitude in
making-their agency-by-agency determinations, the national
allocation scheme and the Assistant Administrator's goals largely
influence the allocation rationale employed by the Regions.
However, Regions still adjust their areas of emphasis depending
upon: grantee -applicability, Regional priorities, and prior
grantee performance.
The.Regions must also account for statutory limitations on the
assistance award amount and'percentage contribution—i.e., minimum
(one half of one percent) and-maximum (ten percent) percentages of
the total national allocation available to each grantee. Other
allocation considerations include increasing requests from Indian
Tribal governments. "
Variations in Regional approaches to negotiation have'diminished
over the last several years particularly in areas of negotiating
timetables, sharing'information with grantees and determining
required work program contents. . . -
Pursuant to 40 CFR 35.130 of the state and local.assistance-
regulations, the grant work program serves as the basis for the
management and evaluation of performance under the award. As such,
the* workprogram should specify work-years, amounts and sources of
funding for each program element, committed outputs, schedules for
completion, and responsible agencies. Outputs should be measurable
and compatible :with EPA information systems. Work programs should
also reflect past grantee performance.
Requirements and guidance for the evaluation of grantee performance
are contained in 40 CFR 150. Each Regional Office in "consulta-
tion with its recipients, has developed a process and'plan for
evaluation of recipient performance. Normally, Regional Office
evaluation includes at least one on-site review per year, specific
performance measures and grantee reporting requirements. The
Regions may resolve performance problems through negotiation but
also have corrective actions at their disposal.
CHAPTER 4 ~ CRITIQUE
IMPROVEMENT
Regional Office Organization
PROCESS WITH SUGGESTIONS FOR
Senior "Regional management involvement in grants issues is not only
important to encourage grantee productivity but also to improve
Regional Office staff communication and enhance morale.
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-VI-
Priority Setting
o The* interpersonal, negotiation and technical stalls of the Regions'
air grants staff has much to do with the degree of grantee
cooperation and productivity.
o There is general agreement on broad program priorities among. EPA
Headquarters, Regional Offices, and state and local agencies.
Differences arise on the- degree of emphasis afforded carpeting
priorities and any discontinuity in sustaining a financial .
commitment to them. Priority-setting has largely been influenced
by the extent of the problem and prevailing popular and legislative
perceptions.
o OAR has made extensive efforts to: (a) better explain the priority-
setting and allocation process to Regions and state and local
.agencies: and (b) more intimately involve the Regions in discus-
sions of workload allocations, the development of operating and
grants guidance, and the inclusion of Regional priorities through
the use of the lead. Region concept. Most state and local agencies
now feel the overall grants process is open and provides
opportunities for their input.
o The Air Program currently, faces the dilemma of needing to meet
both' base and high priority requirements. The easiest disin-
vestments have already been achieved. In some further instances
redistribution of funds to high priority activities may tlireaten
the Air Program infrastructure. The continued struggle to balance
base and high priority needs raises the question of the appropriate
focus of the Section 105 program.
o One of the most crucial concerns of state and local agencies is
program continuity and certainty of funding. Grantees have urged
that CRR adopt a more formalized multi-year approach to planning
and programming in order to promote more program centainity.
Allocation of
The Section 105 allocation rationale used by OAR was initially
based on an approach developed in 1974. In ensuing years,
increases in funding have been allocated on the basis of
individual activity rationales and proportional distribution
factors. Several of the factors used in the 1974 scheme are
either applicative or in need of revision. Furthermore, some of
the purposes for which earlier funding increases had been allocated
have now been accomplished. These factors, plus the changing
picture of air pollution problems of the 1990s, indicate that QAR's
current 105 allocation approach may be outdated.
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February 1989
FACT_SHEEJ
&TP RESOORCES STUDY
The Air Resources Study provides a critical examination of the Clean
Air Act's Section 105 air grant program and other resource issues effecting
the Federal support for air pollution control agencies.
The study examines the history of Section 105 funding, what the
funding has purchased, what air quality improvements have been achieved
since the programs inception, how grant funds have been allocated and
managed, what emerging issues and trends are impacting the grant program
and, finally, the potential funding requirements of the 1990s and the
alternatives for meeting them are discussed. "'
The Section 105 air grants have grown to be a $100 million dollar a
year program. In the 25 year period between 1963-1987 a total of some $4.3
billion has been expended - $1.3 billion in Federal funds and $3.5 billion
in state and local funds.
The Section 105 program has been largely responsible for the esta-
blishment of a nationwide air pollution control infrastructure. This
includes: the establishment and maintenance of air pollution control
programs in nearly 200 agencies at the state and local level employing
approximately 7500 persons; operation and maintenance of a nationwide air
monitoring network of nearly 4500 monitors; inspections of over 40,000
major industrial sources of air pollution; and motor vehicle emission
control programs in areas covering 40% of the nations population.
The Air Resources Study was prepared by the Office of Program
Management Operations within the Office of the Assistant Administrator for
Air and Radiation. Information and data were obtained from EPA's program
offices, Regional Offices and various representative state and local air
pollution control agencies. A major portion of the study was based upon
extensive interviews conducted during the fall of 1987 with both Regional
Office Section 105 grant managers and with officials of the various state
and local agencies.
The Study resulted in various conclusions and recommendations,
including: the need to reexamine the proper focus of the program and the
appropriate Federal and non-Federal roles; pursuit of additional funding,
including approaches currently available such as permit fees; establish-
ment of a clearinghouse on permit fees and alternative financing
mechanisms; reexamination of the rationale for the national allocation of
Section 105 grants; integration of a multi-year approach to air program
planning; and numerous other management improvements intended to streamline
internal operations and encourage improved grantee performance.
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-VII-
Grant Negotiations
o The expedited schedule for the development and dissemination of
operating arid grants guidance has facilitated grant negotiations
and, combined. with the advent of the Performance Based Assistance
Policy (PBAP) , has resulted in more definitive grantee work plans
over the last several. years. .
o Depending upon the Regional Office, variances in grant periods can
complicate grant negotiations and oversight of "performance. To
better assure EPA priorities' are met some Regions have formalized
'the supplemental release of funds on a schedule where EPA and
grantee grant periods converge. In Regions relying upon the State-
EPA Agreement process, delays in negotiation and resolution in one
media area may delay the entire award.
o A grantee requires at least a minimum of two months to negotiate
an acceptable work plan with EPA. Receipt of late supplemental
guidance is problematic and not in keeping with the principles of
the PBAP. To increase productivity, approximately half of the
Regions now use or will soon convert to, a personal computer-based-
format for the development and review of grantee workplans.
o While -EPA Headquarters outlines broad grants policies, procedures
and requirements , it . is the Regional Offices which affectively
manage the grant program and provide guidance to recipients on -what
specifically needs to be accomplished. With these considerations
in mind,. EPA has produced grants guidance intended to foster
uniform and equitable treatment of grantees including: the
withholding of funds, the openness of the grants process, and the
escalation and resolution of grant negotiation and performance
disputes. .
o Not all 105 activity costs are necessarily detailed in the work
program. Regional Offices tend to place greater emphasis and need
for grantee specificity in the high priority areas. Regions tend
to be more concerned with having outputs accomplished than in
documenting how grants are actually spent, some grantees are
' reluctant to include a descriptions of all their air quality
activity in their Section 105 work programs for fear that this
could lead more extensive EPA oversight of their programs 1
Evaluation and Performance Resolution
o While the Office of the Inspector General (OIG) criticized some
Regional Offices for their inconsistency in their evaluation of
grantee performance, this occurred prior to the implementation of
PBAP. Over the last several years, the PBAP and the section 105
audits have fostered a more uniform approach among the Regions in
the evaluation of grantee performance.
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-VIII-
o Some grantees have indicated that EFA grants tracking has enhanced
. their own efforts to better manage their programs. Other grantees
complained that EPA reporting requirements were becoming increas-
ingly burdensome. In general, EPA's reporting;requirements were
found to be not unreasonable considering the., importance of the
topics, past grantee performance;- and continuing-problems of•
nonattainment.
o The chief vehicles for Regional evaluation"of sgrantee performance
are the quarterly status reports" and the mid-year on-site grantee
evaluations. Many Regions utilize the results of the mid-year
review to influence their grant negotiations for the upcoming
grant-year.
o Only a few Regions coordinate and interrelate national air program
audits with Section 105 grant evaluations since they feel these
evaluations focus on different aspects of the grantees' program
operations.
o Despite a perception by some that trie..PBAE'constrains a Region's
ability to influence grantee, performance.,, most* Regions still employ
a variety of approaches to "do'so'.. These! include: limitations on
the use of carry-over funds; ad justed"schedules of. award; supple-
mental awards; set-asides;- perfbrmance^based allocations; and
evaluations of federal promulgation.liability.
Enhancing Grantee Performance
o ^Incentives have not been pursued with great zeal because they are
viewed primarily in terms of increased funding which has not been
available. While reduced reporting and oversight and disinvest-
ments flexibility can also be exercised, the flat level of Section
105 grant appropriations discourages any formalized financial
approach to grantee incentives at this time.
o Grant recipients appear to be more receptive to EFA requirements
when accompanied by adequate resources and technical assistance.
The cost of addressing current inadequacies in air pollution
control training alone has been estimated to'be about $2.5 million.
In FY 1989, Congress appropriated $700,000 in training funds. EPA
is expanding its information clearinghouse and other technical
assistance functions.
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-IX-
CHAKL'ER 5 - ASSURING GRftNTP^- FINANCIAL INTEGRITY
.
o In 1987 the DIG audited, five Regions on the adequacy of their
Section 105 grants management:and administration; TheX)IG audits
were critical of the Regions in several areas. These included:
(a) their ability to assure that grantees met. their requirements;
(b) the adequacy of their programmatic oversight and evaluation;
and (c) the adequacy of the grantees' fiscal reporting and
accountability. •
o In concert with the Regions/ OAR and the Grants Administration
Division (GAD) formed a task force to examine these OIG concerns
and other administrative/financial issues identified in the Air
Resources Study interviews. This effort produced a series of
• discussion papers which recommended various corrective actions.
Issues covered included: recurrent expenditures and equipment
costs, nonselective reductions, state and local contributions to
the MDE, MDE certification and verification, annual on-site
evaluation and adequate financial review.
o The continuance of the MDE requirement was strongly supported by
grantees and Regional Offices. However, certain administrative
modifications to the MDE provisions have been suggested.
o Responsibility for, and the adequacy of, grantee financial review
or audit remains a topic for further discussion between OAR, GAD
and the OIG. Ways to more effectively use limited audit resources
for Air Program purposes need to identified.
o Virtually every Region has strengthened its operating practices
and has clarified its policies and procedures in those areas of
concern to the OIG. Some of the more noteworthy actions include:
the addition of an auditor to the Regional Grants staff, training
sessions on financial integrity requirements for grantee financial
officers, and joint Regional Air and Grants staff reviews and site
visits. "
CHAPTER 6 - THE FUTURE OF THE SECTION 105 • PROGRAM
Future Resource Requirements
o EPA and state and local agencies will have to look beyond the
provisions of the Section 105 program in order to adequately
respond to the-needs of the 1990s. Preliminary estimates of
future need vary, but significant increases in work years and
other resources over current levels are expected to be required
by both EPA and by state and local agencies in implementing the
requirements of any new clean air legislation.
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-X-
Fundino the Future
o Apart from, and in addition to, receiving increased Section 105
appropriations, there are: three major approaches that could be used
by EPA and state and local agencies to reconcile resource require-
• ments with program demands in the 1990s: (1) continue periodic
restructuring of program priorities-and disinvestments, (2) pursue
additional funding alternatives, (3) redefine programmatic roles
and financial responsibilities.
o While virtually no- Region has completely disinvested a required
activity, concern was expressed that further grant disinvestments
could seriously jeopardize the integrity of air program operations.
If further disinvestments by EPA occur, state and local agencies
will have to assume increased funding responsibility. If state and
local agencies cannot assume these responsibilities then these
activities will go undone.
o Various alternatives for determining program priorities and the
• allocation of funds have been .proposed and merit examination by
G5\R. One such alternative is an Air Branch Chiefs' four-step
proposal which recommends: (1) joint EPA-STAFFA/AIAPC0 development
of a grantee workload display system; (2) ranking of program
priorities with CAA mandated activities taking precedence; < 3}
institution of a grant activity costs tracking system; and (4) .
integration of these elements to distribute the available grant
funds.
o MDst state and local agencies have yet to make full use of the
existing permit fee provisions successfully applied in several
states, and required under Section 110 (a){2)(K) of the Act. A
preliminary analysis of the estimated costs to state and local
agencies for permitting applicable Section 110 (a)(2)(K) sources
yields an estimate of over $50 million. An estimate of the total
funds devoted to such permitting activity indicates just over $31
million supports this work, approximately $12 million of which is
Federal Section 105 funding. Section 105 funds going to this area
could conceivably be freed for other purposes if grantees
recovered these costs.
o An EPA Permit Fee Task Force, formed in June, 1987, concluded that
expanded guidance on section 110 (a)(2)(K) national permit fee
requirements was advisable and should be produced in consultation
with STAPPA/AlAPCO. The task force also recomnended that any
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-XI-
guidance should: focus on -the bottom line of cost recovery (permit
issuance and implementation), allow maximum, state and local
flexibility in fee system structuring, encourage collected fees to
go to the respective air agencies and utilize the. withholding of
105 funds as a- sanction for, non-implementation of the permit fee
requirement only as a last resort. The task force also found that
permit fees do not necessarily serve'as-an impediment to economic
and business development.
Grantees are not limited to the Section 110(a)(2)(K) fee
provisions; Certain state and local agencies have been quite
progressive in establishing permit and, other user-fee systems
covering smaller stationary, sources and nontraditional sources
like asbestos.
EPA has examined.numerous other user-fee'proposals which ••"
potentially could cover the air pollution control costs of the
area regulated. These include VOC, NO^and-SC^, and air toxics
emissions fees. Other potential areas of resource support include
tax incentives and disinventives, like control- technology equipment
tax breaks, or a technology-forcing-emissions tax. Ml of these
options, however, would necessitate actions by parties external to
ERA.. .. • • • " .
In some instances k industry has taken a cooperative role in
contributing to research on air pollution problem characterization.
and oh control strategy development, as in the Denver Brown Cloud
Mr Toxics Study. v
Another area of potential change.in funding air program needs
involves the redefinition of relative Federal and non-Federal
programmatic and financial roles and responsibilities. Much of
this has to do with what should be the focus of the Section 105
program: base activities emerging problem areas, provision of
technical assistance, or a combination of purposes. These
questions can really only be answered in a wider public forum •
involving the EEA, Congress and state and local governments.
Much of the difficulty in knowing what program areas to emphasize •
is due to an absence of knowledge of how funds are currently being
expended. An analysis of the costs of operating state and local
105 air programs, the results of which had not been completed in
time for inclusion in this study, would assist in providing insight
on the range of costs of state and local activity. Grantees feel
this analysis will reinforce the position that they are overworked
and underfunded. EPA. would like to use the analysis to better
define overall costs in order to determine where further disin-
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-XII-
vestments, if necessary, should occur. However, without complete
and reliable survey results, neither EPA nor the grantees will be
. able to confidently assess: (a) what constitutes a base or core
activity; (b) whether or not enough funds are available to do both
base and high priority activities; (c) to what degree the Air
Program infrastructure is truly threatened; and (d) what level of
resource support- may actually be necessary.
Future Management and Policy Considerations.
o There are several management and policy actions that could be
considered in order to enhance air program effectiveness. Actions
that CftR could take within current management of the Section 105
program are: (a) better match anticipated program support needs to
realistic resource strategies and projections; (b) integrate a
longer range outlook into the ongoing planning, budgeting and
execution cycle; and (c) refine and improve systems for grants
accomplishments tracking.
Actions which involve decisions beyond QAR's immediate. influence are:
(a) promote with Congress the desirability of providing funds on a. multi-
year basis; and (b) consider various statutory modifications to the
Section 105. provisions of the Act dealing with grants allotment and
management.
7 - SUMMARY MID REXXM4EICIAI10NS
POLICY
EPA, state and local agencies and Congress should determine the
appropriate focus of the Section 105 program for the future,
and in so doing reexamine and define the appropriate Federal,
state and local programmatic and financial support roles and
responsibilities.
Action Items;
- Prepare discussion paper evaluating the options for utilizing
Section 105 funds.
- convene a high level work group to examine and recommend
appropriate Federal and non-Federal an programmatic roles and
^financial responsibilities into the future.
- Consult on policy alternatives with groups outside EPA.
- Issue a policy clarifying applicable Section 105 program
expenses.
- Draft CAA amendments based upon new policy direction, as needed.
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-XIII-
The Air Program should examine and promote other approaches to the
traditional command and control approach of "doing business."
Action Items;
- Encourage and publicize cooperative public-private air quality
projects such as the Denver Air Toxics "Brown Cloud" Study.
FUM3ING
EPA and state and local agencies need to pursue additional funding
and develop funding mechanisms to supplement the Section 105
grants program. In so doing they should fully utilize existing
permit fee provisions. • -
Action Items;
- Establish an'OAR clearinghouse on permit fee information.
- Request Congress to mandate 110(a)(2) (k) permit requirement in
new CAA reauthorization. • . •
- Provide information on other revenue-generating, or cost-saving
options, such as the pooling of shared equipment-resources,
inproved data management and innovative personnel practices.
EPA should study the feasibility of possible legislative revisions
to Section 105 to gain additional funding for: (1) equipment
needs, (2) expanded training, and (3) Indian Tribe support.
EPA should also consider requiring all grantees which are not now
doing so to match Section 105 funding with at least minimum 40%
non-Federal contribution. Any changes need to phased in gradually.
The one half of one percent minimum funding level requirement
should be retained. The maximum level of funding support to any
one grantee should be reexamined with the possibility of lowering
it from the current 10%.
EPA, in consultation with state and local agencies, should
reexamine the basis for the national allocation of Section 105
funds and update it as appropriate.
Action Items;
- Allocation criteria and data base should be updated.
- Work group should examine results and determine if modification
options to current allocation scheme are warranted.
- Any new allocation scheme should be phased-in.
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-XEV-
EPA should integrate a more strategic, multi-year perspective into
its ongoing Air Program planning, programming ana budgeting process
including the state and local assistance element. EPA should also
better assess the costs of implementing new activities on state and
local agencies.
Action Items:
\
- The QAQPS strategic planning sessions should be used as a first
step'towards similar multi-year strategic planning by other OAR
program offices.
- Section 105 grants should be negotiated and managed on a multi-
year, possibly three year, basis. Implementation of this
recommendation would require close cooperation with state and
local agencies and SlAPPA/AlAFCO.
- The implementation costs of each new OAR program activity should
be assessed on a multi-year basis. Resource demands and avail-
ability should be reconciled through the establishment of
realistic 'implementation schedules.
- ERA should urge Congress to consider multi-year appropriations.
Within the current Section 105 program, EPA should ijrplement
various administrative and management improvements intended to
streamline the internal management of the process, and encourage
.improved grantee performance.
fiction Items:
- Encourage increased involvement of Regional Office senior
management in Section 105 issues.
- Continue to examine grants management issues in the Assistant
Administrator's Regional Review trips.
- Continue to hold annual grant coordinators national meetings.
- Issue a Section 105 grants reference manual.
- Continue to obtain early Regional Office input on the operating
and grants guidance.
- Promote rotations and exchanges of air program personnel between
the various levels of government.
- Continue efforts to improve EPA and grantee communications on
grants management.
- Continue efforts to improve grantee •performance in managing the
105 program through mid-year evaluations, provision of
performance incentives, and other similar efforts.
- Emphasize EFA technical assistance and technology transfer to
state and local grantees.
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-XV-
- Develop closer coordination between Regional Office grant
evaluations and national air audits.
- Encourage each Region and the Program Offices to undertake a
pilot program to streamline oversight and reporting requirements
with the expectation that a-nationwide streamlining of grant
oversight can be.accomplished.
- Review, on periodic basis, OAR's Withholding and Escrow Policy. .
- Develop and expand the use of interactive computers for Section
• 105 management.
EPA, with the cooperation of state and local agencies, needs to
improve its management information and data base systems to enable
more effective decision making on resource utilization.
Action Items;
- Complete the EFA/ST3VPPA-AIAPCO survey on the costs of operating
. State and Local Air Programs.
- Complete the Automation of the current grant obligations tracking
system.
- Improve and integrate current Regional tracking systems for
overall grants accomplishments by major activity area, and
integrate this information as a component of the Regional
Priority Tracking system,
- Develop a discussion paper on the desirability of developing
state and local workload allocation models at the Regional Office
level.
EPA must continue its efforts to inprove and maintain grantee
financial integrity and accountability and strengthen Regional
capability for adequate programmatic/fiscal oversight.
Action Items!
- Conduct workshops for state and local financial officers on
fiscal requirements.-
- Hire Regional Office auditors/accountants who can help oversee
Section 105 grants.
- Conduct joint-Air and Grants Division site visits to grantees.
- Agree on auditing responsibilities between OAR and OIG.
- Continue joint OAR/GAD efforts to implement maintenance of effort
guidance and pursue legislative changes to current MDE
requirements.
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INTRODUCTION
There are two major reasons why this is a particularly appropriate
time in the 25 year history of the air management program to examine
Section 105 funding. The first among these reasons is the national
priority to reduce the current Federal budget deficit. This important
goal has exerted strong pressures to either reduce Federal domestic
program funding or to hold these programs at the previous fiscal year's
level. For the Section 105 program, this has meant a flat level of
Federal funding appropriated for state and local air pollution control
activities in the three year period f rom FY 1986 through FY 1988. .In FY
1989, however, Congress appropriated $101.5 million in Section 105 funds
an increase of $6.5 million over the previous year's level. While this
recent increase in funding is helpful, it does not fully offset the erosion
in real buying power that annual inflation has had on state and local
agencies in previous years nor does it approach actual air program funding
needs.
At the same time that Federal support has been- essentially static,
programmatic responsibilities to manage air quality at .the state and local
levels have increased. These responsibilities include such major acti-
vities as: Part C PSD requirements, delegations for NSPS and NESHAPS, post
- 1987 00/03 SIP development, emissions trading options, PM10 Nk^QS, and
the air toxics program.: The push and pull of static Federal resources and
increasing program requirements have led state and local air quality
officials to seek additional non-Federal funding, and/or cut back on some
of their programs. These twin pressures have developed to a point where
basic questions must be asked about how section 105 funds should be used,
how funding can be more effectively managed, and what are the future .
funding requirements for effective air quality management.
There are other major reasons for the Air Resources Study. For
several years, senior management within EPA have been interested in
documenting the specific products of the Section 105 program and its con-
tribution to the effective control of air pollution. In addition, there
are both Congressional and Office of Management and Budget (OMB) interest
in which specific program elements are supported by Section 105 grants and
what impact recent funding levels have had on the effectiveness of state
and local air management programs. State and local interest in the study
has focused on the relative distribution of these funds among various
program elements and the need for national consistency from EPA in the
management of these funds. Finally, the EPA's, Office of the Inspector
General (OIG) completed an audit of Regional Office management of the
Section 105 program in 1987 and raised a number of issues related to
improving the management and accountability of the program. This study -.
addresses all of these issues raised from both inside and outside EPA (see
Figure 1). . •
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-2-
Rgure 1 FACTORS AFFECTING SECTION 105
High PrforfflM
ve. Infrastructure
Mora Efficient
Management
of 105
Gramm -.
Rudman
Competing
Expectotfone
of Prograrne
IMPACTS
ON 105
Growth of
Non-105
Activities
f
Emerging
Prebleme
Lock of
Updated CAM
No 105 Growth/
Marginal Growth
In Nonfederal $
Performance—
Baaed Aaalatonce
Policy
Poet-87
Nonottoinment
This study has been prepared by the Office of Program Management
Operations within the Office of the Assistant Administrator for Air and
Radiation (OAR). Information and data for this study were obtained from
OAR's program offices, EPA's Regional Offices and various state and local
air pollution control agencies. Both cooperation and support have been
provided by State and Territorial Air Pollution Program Administrators
(STAPPA) and the Association of Local Air Pollution Control Officials
(ALAPCO) throughout the various phases of the study. A major portion of
this study is based upon extensive interviews conducted during the fall of
1987. These interviews included both Regional Office section 105 grant
managers and officials of various state and local agencies.
' . *
The study is divided into seven chapters. Chapter 1 provides a brief
history of Clean Air Act (CAA) legislation and the growth of the Section
105 air grants program. This includes a discussion of the purposes and
role of Section 105 in establishing and promoting state and local air
pollution control programs. It also discusses the growth of air quality
programs responsibilities under Section 105.
Chapter 2 discusses what section 105 funding buys. This includes an
examination of what these funds purchase at the state and local level and
how they are used. The chapter also analyzes various indicators of
progress, including trends in air quality emissions, reductions in various
pollutants, population exposure, and other indicators of Section 105
program accomplishments'.
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-3-
Chapter 3 describes EPA's budget and grants process. This includes:
the establishment of annual national priorities, the development of
operating and grants guidance, the Performance-Based Assistance Policy, the
provision of Regional guidance and grant allocations to states; the
evaluation of grantee performance, and finally the. assurance of grantee
financial integrity. Special issues that-are examined in this chapter-
include: a discussion of the minimum allocation level, of Section 105 funds
to a grantee; funds for Indian Tribes; a discussion of planning versus
maintenance funding percentages; and the pass-through of funding to local
agencies.
Chapter 4 provides a critique of the grants process and describes
exemplary Regional practices in administering the Section 105 program. The
critique of the grants process is based on.extensive interviews with each
Regional Office, various program offices, and state and local agencies. It
provides a discussion and suggestions for improvement in such areas as:
Regional Office-grants management organization, air priority setting,
grants negotiation, program evaluation and grantee financial integrity.
The chapter concludes with a brief discussion highlighting model practices
and procedures.used by various Regions and their grantees.
Chapter 5 provides a detailed discussion of grantee financial
integrity issues raised by the (OIG) audits. Corrective actions taken by
the Regional Offices and EPA Headquarters are discussed. Areas needing
additional clarification are identified.-
Chapter 6 discusses emerging policy issues that will shape the future
of program support for air quality planning and management. A current
concern that will likely increase in the future is the growth of air acti-
vities funded outside of the Section 105 Program and the definition of an
applicable Section 105 expense. Multi-media impacts on air control -
programs and funding resources are also discussed. Future funding needs
are discussed in the context of the potential impact of new Clean Air Act
Amendments (CAAA) currently under consideration by Congress. The con-
tinuing use of disinvestments to establish priorities and distribute
funding among air control program elements and the need to maintain a basic
program of core activities, will also be discussed. Finally, alternative
funding sources for the air program, including a discussion of permit fee
programs, are noted.
Chapter 7 presents the study's conclusions and recommendations. These
cover recent developments and suggested actions for improved grant program
effectiveness, as well as, possible options to support air program activity
in the future. The study's recommendations are grouped into tliree cate-
ories: (1) policy determinations; (2) funding initiatives; and (3)
management and productivity improvements.
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-4-
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CHAPTER 1
BRIEF HISTORY OF AIR GRANTS FUNDING
Air Quality Activity
Prior to the major (CAAA) of the 1960s and 1970 's, air pollution
control was considered to be primarily a local issue. In the absence of
institutionalized control programs, air pollution problems were dealt with
in the courts through the doctrine of nuisance. Local control programs
eventually developed where there were strong perceptions 'of industrial soot
and flyash problems. The first municipal ordinances were enacted in
Chicago and Cleveland in 1881 and in" the early 1900 's Albany County, New
York became the first county with an air pollution control program.
The states and the Federal government were relative newcomers to air
pollution control. The first comprehensive state legislation for air
pollution prevention was instituted in Oregon in 1952. Other states —
including Massachusetts, New Jersey, California, Florida, Hawaii, and
Idaho — passed legislation during that decade. Nine additional states-
carried out air pollution control activities under general public health
statutes. By the end of the 1960's, all. states had legislative authority .
for air pollution control. •
Federal legislation prior to 1970 did establish grant funding to air-
pollution control agencies, although it did not provide for Federal con-
trols or national standards. While Federal clean air legislation in 1955
provided1 some opportunities and incentives for the training of state
and local employees in air pollution methods under Section 103 , it was the
CAA of 1963 that provided the initial authority for Federal grants to
state and local public agencies through the Department of Health,
Education and Welfare (HEW) .
1963 Cl^an Air Act:
In 1963, a Presidential "Special Message on Health" requested grants-
in-aid to develop, establish and improve state and local air pollution
control programs. These grants were provided in Section 105 of the CAA
of 1963, which included an authorization that resulted in appropriations of
over $60 million between for the period from 1964 through 1966. The
funding was supplied for up to two-thirds of the cost of planning ,
developing , establishing or improving state and local air agencies. The
focus of the 1963 Act was the establishment of a state and local process,
of technical methods to inventory and monitor pollution sources, and to
enforce existing statutes. The 1963 Act also introduced the concept of
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-6-
the annual maintenance of a state appropriation level in order to retain
eligibility to receive the Federal award. In the air program this is known
as the maintenance of effort or continuing eligibility level.
1966 and 1967 Clean Air Act Amendments
The CAAA of 1966 gave the HEW authority to make grants for up to one
half the cost of maintaining existing air. pollution programs. The 1967
CAAA, in addition to reaffirming the previous authorities, added specific
authorizations to enable state and local agencies to plan for air pollution
control programs. . The provisions for two-thirds federal support for
development and one-half for maintenance provisions were retained and
incentives for up to three-quarters federal support for multi-jurisdic-
tional and interstate agencies were added. The 1967 statute provided for
states to enact ambient air quality standards, develop comprehensive
strategies to implement them, and establish air quality control regions.
However, while the state standards and plans were to be submitted to HEW,
there were no provisions for attainment deadlines or for the review of new
sources of pollution. Enforcement was left to the states.
1970 and 1977 Clean Air Act Amendments
In 1970 the EPA was created and assumed air quality management
responsibilities from HEW. The Federal government's role was expanded to
one of being more of an active participant with responsibility to set
uniform national standards for the protection of public health.and welfare,
and to take action when state and local agencies would not.
In contrast to the rather generic responsibilities required of state
and local governments under preceding legislation, the 1970 and 1977 CAAA
were much more prescriptive about what grantees had to do and the conse-
sequences for not doing so.
Section 110 of the 1970 Act enumerated the grantees' responsibilities
for the submittal of State Implementation Plans (SIPs). A SIP was to
contain a control strategy demonstration with sufficient enforceable
measures to meet the applicable National Ambient Air Quality Standards
(NAAQS) within specific deadlines. 'Further, state and local agency respon-
sibilities included: preconstruction review responsibilities for major
new air pollution sources through the adoption of New Source Performance
Standards (NSPS), development of transportation control plans; and the
adoption of National Emission Standards for Hazardous Air Pollutants
(NESHAPs). A dual Federal/state enforcement provision was also added, as
were provisions for citizen suits. Also Section 110(c) of the 1970 Act
provided that in the event a state should fail to submit an adequate SIP,
the Federal government could promulgate a Federal Implementation Plan (FIP)
to meet the national standards.
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-7-
In support of these new program requirements, the 1970 Act also raised
the allowable Federal funding percentage share for all grantees responsible
for producing or implementing a SIP to three-quarters for development and
two-thirds for maintenance activity. The 1970 amendments changed the focus
of the.. 105.program from.support for plan and process development, to.one of
control strategy development and,implementation and- support for operation
of an established air pollution control program. The 1970 CAA. was also a
significant landmark-in Federal, state and local relationships and respon-
sibilities. As state, programs matured-and their responsibilities grew., the
state role increased while the role of' many of the local agencies-
diminished. ......
New legislation in 1977 added further major requirements for state and
local agencies. These included permitting of new sources seeking to locate
in clean areas; maintenance of these areas' PSD 'increments'; and Part D
requirements specifying the basis for approval of 1979 and 1982 ozone,
carbon monoxide, and nitrogen oxide SIPs. The latter included some new and
diverse programs and requirements for nonattainment areas such as air
pollution control technology determinations, additional new source review
provisions, and demonstrated progress in maintaining any emissions
reductions achieved.
The requirements for SIPs and the'enactment of reasonably available
control technology regulations required a significant resource investment
by state agencies, so did new enforcement, air quality monitoring, and
quality assurance requirements. Broad intergovernmental consultation
responsibilities for plan development, designating nonattainment status,
development of"transportation control measures, and motor vehicle inspec-
tion/maintenance (I/M) requirements were also required. Anxious to retain
state primacy over their air programs, states accepted delegation of PSD,
NSPS and NESHAP programs in increasing numbers.
The 1977 Act also put pressure on states and locals to attain
standards by meeting predetermined deadlines or face funding assistance
limitations. These limitations included: the suspension of new source
review construction permits, limitations on highway and sewage construC7
tion grant funding, and the suspension of Section 105 grant awards.
Increased Section 105 appropriations, however, served as a more positive
inducement. By 1977, Federal grants increased to nearly $65 million.
Section 105 was modified to foster a more equitable and uniform approach in
the development of state programs by limiting the maximum percentage of the
total allocation that any one state could receive to 10%, and by assuring a
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-8-
mininoim percentage that each state could attempt to qualify for (one half
of 1% of the total national allocation) each year.1 state and local
program responsibilities have continued to rise. • An examination of EPA's
Annual Operating Guidance and Annual Grants Guidance documents indicates
that numerous responsibilities have been added to state and local agencies
agendas over the-last several years' (see Figure 2).
Figure 2
EVER-INCREASING
RESPONSIBILITIES
DEAL W/ EMERGING PROBLEMS
AND CONTINUED NONATTA1NMENT
INTERMEDIA STAGED
09 DEPLETION VBfflJUTY
AIR TOXICS PM10
RADON ASBESTOS
INDOOR AIR UYDPt
TSDFa URBAN SOUP
SEWAGE SLUDGE
COAL CONVERSION
POST-07 ATTAINMENT
GLOBAL WARMING
FUEL SWITCHING
ACID DEPOSITION
1987
t
DEAL WITH CRITERIA POLLUTANTS
502
Pb
TCM*
ANTI-TAMPERING
NAMS/5LAMS
NSPS
PSD
SMELIfcHS
OA
N02 09 COTSP
CDS
OEM
SIGNIF. VWLTR,
CTC«
N5R
Port DSP*
NESHAP*
ESTABUSH INFRASTRUCTURE
DATA SYSTEMS
EMISSION INVENTORIES
HtKMUIINC
MODELING
HUMAN RESOURCES
LABS
UONTTOWNC
1963
1. Section 105, as it appears in the 1977 Act, is replicated in ?*ppendix
A. In addition to Section 105, Section 106 of the Act contains
funding provisions for agencies designated to do air quality planning
for interstate air quality control regions designated pursuant to
Section 107. Awards to such agencies are generally made under the
auspices of the Section 105 program.
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Changes in Section 105
4 t
Despite, these increases in finding, on an aggregated national,basis,
state and local governments have always assumed the greater percentage
•4- share of the cost of air pollution control. Figure 3 shows state and local
program budgets since 1965 along with Federal Section 105 contributions.
While Federal funds have averaged about 37-38% of the expenditures over the
last 20 years or so, their percentage share has generally been declining •
since 1979. ; In 1987, Federal Section 105-grants constituted approximately
a one-third of the overall air program contribution. However, when large
states such as California; Texas and Florida (and others which have
substantial non-Federal sources of revenue) are discounted, the Federal/
non-Federal ratio more closely approaches a 40/60 split (see Figure 4).
An examination of recent State Section 105 air program budgets shows
considerable variation in non-Federal 105 support generally when the
state-contributed 105 portion is compared to that of the state's overall
105 program. This is discussed in more detail in Chapters 4 and 6.
The impact of Federal Section 105 support generally has 'been
diminished ;oyer time by the affects of inflation. Figure 5 conpares actual
Section 105 appropriation levels to levels adjusted to 1972 dollars and,
starting in 1982, to 1982 dollars. .The 1972 conparison covers the period
incorporating the passage and start-up funding for the CAA, as well as the
period when inflation ravaged the value of the dollar. The trend indi-
. cates that as the. level of Section 105 funds rose actual buying power
declined. Even if'the less volatile post-inflation period of 1982 is used
as a base the useful buying power of Section 105 funds has continued to
decline. Not adjusting for inflation, about $1.16 was spent per U.S.
citizen in 1987. When adjusted for inflation, the average per capita
figure actually decreases to $1.02. In recent years state and local
Section 105-related contributions have increased by only about 3% per
year. This is largely due to the Act's maintenance of effort provision
and the need to accommodate employment benefits.
In ensuing sections, the trends of increased state and local
responsibilities (including those^added in the past few years) and of
stable funding support are discussed. Their impacts on state and local
operations, and the Federal-state relationship for the 1990s and beyond,
will be examined.
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300
Figure 3
CONTRIBUTIONS TO 105: FEDERAL and NONFEDERAL
1971 - 1987
300
71 72 73 74 73 78 77 78 79 80 8t 82 83 84 85 M 87
FEDERAL FUNDS
NONFEDERAL FUNDS
Figure 4-
105 CONTRIBUTIONS BY %
1971 - 1987
71 72 73 74 73 76 77 78 79 80 81 82 83 84 85 80 87
FISCAL YEAR
% ffi NONFEDERAL %
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*$ JO
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-13-
CHAPTER 2
Introduction
What has the expenditure of over $3 billion in Federal, state and
local funds since 1970, via tlie Section 105 program, accomplished? A
recognition of the cumulative accomplishments of the program tends to be
subsumed for several reasons. Progress achieved over the years is often
overshadowed by continued nonattainment problems and the emergence of
newer and potentially more ominous health and air pollution hazards. For
example, recent widespread increases in the number of exceedances of the
ozone standard detract from the noteworthy progress achieved since 1978.
Often too, as evidenced by the Comparative Risk Study, attention tends to
drift away from areas where early successes have been achieved and to
environmental problems currently in the public spotlight whether or not,
based upon actual risJc, such a shift in concern is warranted.
Another factor is that air program achievements are usually described
in vague terms since, presently, only indirect correlations are drawn.
between funds expended, outputs achieved and pollution reduced. The
correlation is necessarily indirect since a multitude of factors other than
the expenditure of funds serve to impact air quality gains. For example,
- the assessment does not account for the tremendous impact of the Federal
Motor Vehicle Emission Control Program, nor for wider economic forces or
changes in meteorology. • .
Nonetheless, by looking at some of the major products of the Section
105 effort and the concurrent reductions in pollution, an overview of the
program's notable achievements can be gained. Given the reduction or
prevention of 400 billion pounds of air pollution since 1970, what would
our air quality be like today, in ,the absence of the intergovernmental
efforts enabled by the Section 105 program?
Indicators of Change
*• " . - '
Growth and Air Quality
Since Congress passed the CAA in 1970, the nation's population has
increased by over 40 million, the gross national product has more than
quadrupled, overall hourly manufacturing output has. risen by nearly 60%,
and the number of motor vehicles has increased by some 75 million (see
Figure 6).
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-14-
1
Figure 6
Selected Indicators <
(1970-1987)
'
| Resident U.S. Population (millions)
Number of MDtor Vehicles (millions)
i Number of Vehicle Miles Traveled
j (millions)
Gross National Product ($ billions)
Manufacturing Output Per Hour (77 index)
1
if Growt
1970
203
108
1.12
1015
80.8
h
1987
243
183
1.85
4235*
126*
% Increase •
20
70
65
317
56
* (1986 figures)
Despite this increase in national growth, the overall volume of
pollution for the six criteria pollutants has decreased by over 70 million
metric tons during approximately the. same time period. As much as an
additional 115 million metric tons of pollution have been prevented. Much
of this gain is attributable to the development and operation of state and
local air pollution control programs funded under Section 105. From 1965
through 1987, Section 105 grants and corresponding contributions from state
and local governments totaled over $4.5 billion dollars.
In the following section indicators of .change resulting from these
expenditures are described. These include: changes in ambient and
emission levels of pollutants, the number of exceedances, the degree of
population exposure, the extent of the air quality infrastructure
established, and selected programmatic accomplishments.
Improvements in Overall ftmbient concentrations and the Level of
Bnissions
While millions of persons continue to breath air that is still in
violation of healthful'national ambient air quality standards, considerable
progress has been made. Overall ten-year changes in emissions and ambient
levels are shown in Figure 7.
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Changes
Figure 7
in Bnissions and Ambient Levels
1977 - 1986
Pollutant
TSP
S02
CO
03b
Pb
MM
AAM
8hr
Max. Ihr
AAM
M3A.
» of Sites
Nationwide
1435
302a
182
242
111
82
% Emissions
Level Reduction
*,
25
. 21
26
19
8
94
% Ambient
Reduction
23
37
32
21'
14
87
Source: USEHV, National Air Quality and Enissions Trends Report, 1986.
a - Measured at continuous emissions monitoring sites nationwide
b - Includes monitor calibration changes in 1978-1979
Abbreviations: AGM - Annual geometric mean
AAM - Annual arithmetic mean
MQA. - Maximum quarterly average
The reduction in the total volume of pollution is even more dramatic
if recent emission levels are compared, not just to 1970 levels, but to
what levels would have been had there been no controls whatsoever
instituted from 1970 onwards (see Figure 8).
Changes in Nbnattainment Areas
Changes in the number of areas exceeding the national ambient air
quality standard for the period of 1978-1987 for five of the criteria
pollutants are shown in Figure 9.
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^
to,
cot
iZ:
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,-17-
Figure 9
Progress In The Reduction Of The Number Of "Areas1 Not
Meeting National Ambient Air Quality Standards (NAAQS):
: 1978-1987
March 1978
June 1981
February 1982 .
March 1984
July 1984
September 1985
December 1986
December 1987
Notes: (1) Art
Total
Sulfur
Dioxide
Primary/
Secondary
Nonattain-
msnt Arp.ajj
101 (NA/NA)
95 (89/6)
70 (63/7)
66 (59/7)
65 (57/8)
60 (54/6)
64 (51/16)
66 (50/16)
• Total Total
Carbon Total Nitrogen
Monoxide Ozone Dioxide
Nbnattain- Nbnattain- Nonattain-
ment Areas ment Areas menL Areas
190 607
163
•"152
146
145
142
129
1273
5082
473
425
393
368
349
3413
12
12
11
5
4
4
4
4
as counted are normally counties but can be smaller
isdictions ; above numbers include both entire -counties •
portions of counties. -
(2) S
between 1978 and 1981.
(3) Most recent data available indicates increases in omissions,
ambient levels and nonattainment areas for CO and 03 primarily
due to increased growth and over-optimistic estimates of
control strategy and rule effectiveness.
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Popuiation Exposure
Reductions in the amount of the total population living in areas with
air quality levels above the 1NRAQS, for a recent threeryear period for the
criteria'pollutants, are shown in Figure 10. The table illustrates how
total population exposure has increased for carbon monoxide and nitrogen
dioxide. While not reflected in the data, areas have been added- to the
ozone nonattainment list. This underscores-the point that despite
noticeable gains in the reduction of. pollution since-1977, much of the
nation is still nonattainment for at least two pollutants and further
Federal, state and local efforts remain essential.
Figure 10
NUMBER OF PERSONS LIVING IN COUNTIES
W/ AQ LEVELS ABOVE THE NMQS: 1984-1986
TCP
S02
KS3 1984
CO N02
POLLUTANT
EEl 1985
03
1986
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Section 105 Expenditures and Acconplishments at the State/Local Level
The extensive air pollution control infrastructure established and
supported at the state and local' levels by section 105 air- grants is'
largely responsible for the achievement and maintenance of the air quality
improvements noted earlier. Since 1970, over $1.2 billion in Federal 105
grants and a corresponding $2;1 bill-ion in state and local funds have
enabled: the employment, training and support of thousands of state'and
local personnel; the developnent of plans to prevent further air pollution1
and maintain air quality in 55 states, territories and the District of
Columbia; the purchase-of equipment and the establishment of a nationwide
monitoring network; the permitting, inspection and compliance assurance
of over 40,000 industrial sources of Federal concern annually; and, the
control of excess emissions of approximately 35% of the nation's motor
vehicle, population. The following discussion highlights some of the more
prominent areas of air program activity funded with Section 105 grants
and notes the programmatic progress achieved as *a result.
Rcn-ahi ishment of an Air Program Infrastructure
Currently, 50 states, 4 territories, the District of Columbia' the
Commonwealth of Puerto Rico, and approximately 197 municipal, county, •
regional or multi-regional agencies carry out air pollution control
activities.2 Of all of these, 176 receive Federal 105 support .including
nearly 50 pass-through agencies.
The number of state and local employees funded in part with Section
105 funds peaked-at 8,200 (4,388 state, 3,812 local) in 1978. This figure
declined to 6,470 (3,882 state, 2,588 local) in 1984. This overall
reduction can be partially attributed to the attrition of local agencies,
and state and local agency budgetary constraints. Current employment
data are inexact but range from just under 7,000 to over 8,000, assuming
full agency staffing.^ EPA's workload model estimates the current state
and local staffing level to be about 7,200 persons. An estimate of total
positions for those agencies listed in the American Pollution Control
Association (APCA) directory totals over 8,000 but when multiplied by a
vacancy rate of 7-13% would yield an amount closer to the 7,200 figure.
2. See Journal of the Air Pollution and Hazardous Waste Control
Association; 'Agency Directory*; April 1988.
3. Information obtained from Roger Westman, (STAPPA/ALAPCO) March 1988.
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-20-
ram Activities
Section 105 funding is devoted primarily to the support of five major,
broadly-defined categories of activity: monitoring, planning, enforcement,
permitting and administration. Figure 11 shows the relative percentages
of air program support devoted to these categories (and other selected high
priority areas) for 1984 versus 1987. -This information was obtained from
an.analysis of 17 agency grant applications-from 1984 and' from-a sample of
17 different agencies used' in the 1987 pilot survey of the costs of state•
and local air activities. In the following sections major programmatic
accomplishments occurring within these categories are noted.
Rgure 11
COMPARISON OF COSTS
BY PROGRAM ELEMENT *
1984 - 1987
LEGEND
100
1228 MONITORING
KN ADMINISTRATION
r^\ PERMrTTtNG
[7>1 PLANNING
Y77X NEW PROGRAMS/
^^ OTHER
* SECTION 105 ACTMT1ES
ONLYJ MAY NOT TOTAL
fOO% DUE TO ROUNDING
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-21-
Establishment and Maintenance of a National Air Monitoring Network
Ambient air quality monitoring provides the basis for determining
whether air pollution problems exist and-helps to characterize the nature
of the problems. Section 110 of the Act requires ambient air quality
monitoring as part of a SIP.
. A strategy was adopted in 1977 to form the basis of revisions to state
and local ambient air quality monitoring networks and air monitoring regu-
lation. Two types of air monitoring stations were defined as the result of
the strategy: State and Local Air Monitoring Stations (SLAMS) and National
Air Monitoring Stations (NAMS). The SLAMS network consists of fixed • •
monitoring stations that meet the needs of state and local air pollution
control agencies. Ttie total number of monitoring instruments in the SLAMS
network is approximately 4,720. TJie NAMS network is a subset of the SLAMS
network and emphasizes monitoring in areas of highest air pollution concen-
trations and population. The total number of NAMS monitors is 1^256. NAMS
are located in urban areas and oversight is provided by EPA Headquarters.
SLAMS oversight is provided by EPA Regional Offices.
State and local agencies must submit a summary of all data collected
from SLAMS sites to EPA on an annual basis. Data collected from NAMS sites
must be submitted to EPA quarterly. Based on "the EPA regulations, state
and local agencies must also report a daily air quality index to the
general public in urban areas with more than 200,000 population. •
Figure 12^ shows changes in the number of monitors from 1977 to 1987
and the projected 1988 monitors. With the advent of the NAMS/SLAMS
requirements of the 1977 CAAA the overall monitoring network has been
reduced to about one half of its original size. The monitors-were located
using uniform network design and setting criteria to utilize standard
quality assurance procedures and to assure an adequate level of coverage
for the criteria pollutants at that time. In 1987 approxijTately 22% of
total state and local 105 resources were utilized to deliver the ambient
data and maintain the network.
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-22-
Figure 12
Number of Monitoring Sites
Pollutant
1977
1982
' SLAMS NAMS
.
1987
SLAMS NAMS
1988; (Estimate)
SLAMS NftMS
PM10
I
j 583
I
I
j 485
I
271
TSP
SO2 (total)
CO
03 .*
ND2 (total)
Pb
Subtotal
TOM,
3987
-
2382
470
542
1558
542
. .
_. r, ,.
9481
1860
406
325
392
245
250
3478
4832
642
222
114
215
59
102
1354
....
1445
315
330
393
168
243
3487
4742
573
179
.118
217
58
110
1255
'
1539
317
336
390
166
238
3471
, 3
182
120
225
62
111
974
4445
(b) Planning Activities to Support State and. Local Programs
Planning activities include SIP revisions (including control strategy
and regulation development), evaluation of air quality data to determine
attainment status, development and maintenance of emission inventories,
air.quality modeling, planning and development of new programs, and
coordination with other agencies.
Grant funds are allocated to the states to develop SIPs for the
purpose of meeting the requirements of the CAA. Among the several
requirements, the states must prepare a plan to iinplement: (1) attainment
and maintenance of national standards, (2) PSD, (3) review NSR, (4) NSPS,
(5) MESHAPS, and (6) visibility protection. The tangible benefits from
these plans are not solely achieved through the development of the
regulations and procedures included in the plan, but in concert with
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-23-
the implementation and enforcanent of the provisions. T3ie plan alone,
therefore, is not an end to which benefits can be directly related and
measured. Instead, resources allocated to plan development must be
evaluated-over the long-term by assessing the overall effectiveness of
the control agency program in meeting the primary objectives of,the Act.
Section 107 of-.the 1977 amendments to the Act required states, to
submit formal designations of attainment status of NAAQS. As noted
earlier, Figure 9 indicates the gains achieved in reducing the number
of nonattainment areas .for five of the six criteria pollutants for the
period from March 1978 to December 1987.
Special modeling studies and the evaluation'of ambient air quality
data are performed to identify new nonattainment areas and to measure
progress toward attainment in existing nonattainment areas. Bnission
inventories must be updated and evaluated in terms of accuracy' Ambient
air quality modeling is also essential in reviewing modeling results .
submitted by sources or contractors in support of new source permit
applications or proposed changes to state and .local regulations.
Approximately 28% of total grantee, resources were estimated to be
used to cover both. planning and administration activities in 1987.
(c) Stationary Source Biforcement and Compliance Activity
State and local agencies' stationary sources compliance and
enforcement programs are designed to ensure compliance with air emission
standards by stationary sources of air pollution, including such major
facilities as power plants, steel mills, smelters, and refineries. In
addition to ensuring compliance with emission limitations contained in
SIPs, agencies are delegated responsibility for ensuring that sources
comply with new NSPSs and NESHAPs.
A major component of an enforcement program is compliance monitoring.
The compliance monitoring of stationary sources is conducted primarily by
state and local agencies. Compliance monitoring includes a broad range of
activities including surveillance, on-site inspections, and reporting and
maintenance of compliance data. Of these activities, the most important is
on-site inspections.
A second major component of an enforcement program is violation
resolution. Depending upon the nature of the violation, the agency may
initiate an administrative action which orders immediate compliance or
the agency may place the noncomplying source on a legally-enforceable
compliance schedule. Hie agency may assess administrative penalties if it
has the authority. Another option is to initiate a judicial action that
may require the noncomplying source to pay civil penalties and be placed on
a court-ordered compliance schedule.
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Figure 13 displays tne primary compliance monitoring and enforcanent
activity levels for stationary sources of air pollution conducted by EPA
and state air quality agencies. The primary activity levels are the number
of sources issued an administrative order, and the number referred to
courts for civil action.. High priority enforcement categories are Class A
(major) SIP, NSPS*and nontransitory NESHAPs sources. Over the last five
years, sources in .these-.categories have annually totaled 40,000 and this is
only a small percentage- of all sources which are subject to state and local
review. . .
Over 150,000 total inspections for 105-related sources have occurred
in this five year period. Also of high priority is the asbestos demolition
and renovation (D&R) NESHAP program. It was not included in Figure 17
since accurate data was not available at the time. However, for fiscal
years 1986 and 1987, EPA and state and local agencies annually conducted
approximately 15,000 D&R site inspections and issued approximately 1,000
enforcement actions.
Inspections
State
EPA
Admin. Orders
State
EPA
Civil Referrals
State
EPA
FY 1983
32,160
1,996
199
33
32
60
Figure 13
FY- 1984 FY 1985
40,295
3,360
362
120
62
96
41,637
3,, 370
782
127
337
66
FY 1986
41,757
3,469
1,104
143
270
86
FY 1987
40,489
2,939
1,098
186
425
75
Figure- 14 indicates the compliance status of sources as of June 1988.
These figures are based on information submitted to EPA's Compliance Data
System (CDS) by state and local agencies.
Approximately 31% of state and local resources were devoted to
compliance activity in FY 1987.
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Figure 14
Compliance Status
As Of June 1988
Number of Sources
In Compliance #
Meeting Schedule , #
In Violation #
Unknown #
CLASS A
33,402
30,744
92.0
561
1.7
1,224
3.7
873
2.6
CLASS-A1*
17,440
'15,785
90.5
395
2.2
799
4.5
461
2.6-
NSPS
5,243
4,663
88.9
81
1.5
210
4.0
289 '
5.5
NESHAP
5,923
3,581'
60.4'
70
• 1.1
1,028
17.35
1,244
21.0
""A" SIP Sources - Sources with potential uncontrolled emissions,
while operating at design capacity,.equal to or greater than 100 metric
per year of any regulated air pollutant. *
* "Al" SIP Sources - A subset of Class A, these are sources with
actual or potential controlled emissions, while operating-at design
capacity, equal to or greater than 100 metric per year of any regulated
air pollutant.
In Compliance - Those sources which are meeting all applicable
requirements.
In Violation - Those sources which are not in compliance with one or
more emission limitation and which are not in compliance with enforceable
compliance schedules.
Meeting Schedule - Sources not in compliance with one or more emission
limitations but which are in compliance'with the enforceable compliance
schedule. (While this category generally consists of violating sources, it
includes sources on delayed compliance orders which, because of Section. •
ll3(d)(ll), could be alleged to be in compliance with the applicable SIP. ,
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(d) Permitting of Stationary .Sources
Permits are issued to ensure that new or modified sources install the
necessary control equipment to meet standards that are generally more
stringent than standards for existing sources. The requirements for new
sources vary depending upon whether the source is an attainment area or a-
nonattainment area.
Some agencies issue a permit to construct- followed by. a permit to
operate. While some, however, issue a combined construction/operating
permit and then charge a fee for processing the application and for
renewing the operating permit. Operating permits are renewed periodi- ,
cally, generally every one to five years. State and/or local agencies
reviewed or issued nearly 20,000 permits for PSD Sources, Part D (non-
attainment area) sources and other major and minor sources in 1987. This
number constitutes a small percentage of all the sources permitted by
state and local agencies. PSD sources generally are located in pristine
areas. NSPS and NESHAPs requirements apply in all areas.
By 1987, approximately 94% of the current NSPS and 95% of the current
NESHAPs had been delegated to states.
Approximately 11% of all grantee 105 resources went to cover 105
related permitting" activity in FY 1987.
(e) Program Accomplishments in Control of Mobile Source Pollution
The Federal mobile source control program, which addresses
approximately 50% of air pollution emissions, has six major elements.
These are: new vehicle/engine certification; selective enforcement audit;
recall program; emissions warranties; fuels/tampering enforcement; and
inspection/maintenance. While gains from the mobile source control
program are primarily due to Federal actions, programs like anti-fuel
switching and tampering and inspection/maintenance activities are often
initiated and supported by the Section 105 state and local assistance
program.
Currently there are I/M programs covering 64 urbanized areas and 33
states. Four I/M programs were started prior to 1981 and 12 more were
started in 1981-83, with 22 additional programs have been started since
then. One new program is scheduled for start-up during 1988 and two more
are currently being considered by state legislatures. These programs
impact more than 50 million vehicles and affect more than 100 million
people. Figure 15 shows those areas of the nation required to implement
I/M programs.
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Rgure 15 *
Areas Required to Implement
Inspection/Maintenance Programs
* Rhode Island's !/M program Is not required as part of fts
attainment demonstration and.no emission reduction credit
is claimed for ft in the State's SIP.
'Figure 1 6
TAMPERING RATES
20
10
..... FUB.SWTOWORAT1
1978 1979 19SO .1861 1062 1983 196*
SMVCYVCAH
19SS 1988 1987
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Currently, there are 45 state and local tampering and fuel-switching
programs in place. The first program was started in 1975, 17 were added in
1982-85, 11 were added in 1986, 9 were added in 1987, and 6 were added in
1988. These programs are critical given that tampering and misfueling of
vehicles causes significant increases in pollutant emissions, and cir-
cumvents the mobile source emission control program as well. Figure 16
depicts,, tampering/misfuel ing rates, from 1978 through 1987.
In addition to supporting the I/M startup costs, EPA has provided
Section 105 grant funds to state and local,governments to supplement other-
aspects of the I/M programs. The funds are used primarily to support the
following activities: staffing needs, equipment, surveys, training, and
public awareness. Combined with other aspects of the Federal motor
vehicle control program, I/M, anti-tamper ing and anti-fuel switching
activities have resulted in nearly a 40% reduction in violative organic
compounds from highway vehicles from the period of 1978 through 1986.
(f) Emerging Program-Areas
In addition to revising strategies, to deal with continued nonattain-
ment problems for-criteria pollutants such as ozone, new programs continue
to be developed in.response-to emerging.problems. These problems include:
acid transport and deposition, which may require additional reductions in
sulfur dioxide emissions beyond levels prescribed for attainment of the
ambient standard; protection of visibility in sensitive areas, which may
require, additional.control of particulate matter in some areas; exposure.
to indoor air pollutants, which may be more of a health Jiazard than normal
outdoor exposure; and toxic air pollutants, which have been receiving
increased Federal, state and local attention in the last five years.
Assessment of the exact inpact on state and local agency operations of
these problems as yet to be done but the added burden is considered to be
enormous.
In the absence of a Federal mandate in many of these areas some state
and local governments have taken the initiative by committing their own
funds to assess and contain these problems. Air toxics is a good example.
EPA's primary approach for controlling toxic air pollutants was established
under Section 112 (NESHAPs) of the 1977 Act. Subsequently, EPA acknow-
ledged that these efforts alone were not sufficient to address these
problems. In June 1985, EPA announced its strategy for the control of both
routine and accidental releases of toxic air pollutants. The national air
toxics strategy takes a two-pronged approach to the complex and diverse air
toxics problem. The first of these is the continued development of the
NESHAPs program; the second consists of several important activities to be
performed at the state and local level.
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EPA's goal is to establish state and local agencies' roles in: l) ac-
cepting delegation and enforcing NESHAPs; 2) identifying, evaluating, and
mitigating (as necessary) point sources of local concerns not addressed by
NESHAPs; 3) addressing urban problems arising from complex multi-source,
multi-pollutant interactions; and 4) enhancing program capabilities to
conduct applicable activities in the first three areas-and to facilitate
implementation of other programs specific to the needs of each state or
community.
To achieve this goal the amount of Section 105 grant funds .targeted
to air toxics activity rose from $3.0 million in 1985 and $6.3 million in
1986, to $10.5 million in 1987. About $6.5 million of the .air toxics
grants are being focused on building state, and local air toxics capabili-
ties each year. This enhancement activity is the principal means to
accomplish the overall goal. In general, this activity consists of setting
grant priorities that: 1) promote the development of state and local
programs that are responsive to both local air toxics concerns and to
national priorities; 2} provide technical support to build necessary state
and local capabilities; and 3) monitor the evolution of air toxics programs
and measure their effectiveness.
During 1987, progress was made toward meeting this goal. Multi-year
development plans (MYDPs) were encouraged to develop and conduct.the above-
mentioned activities related to the national strategy. These plans contain
specific performance milestones established as part of grant negotiation.
In response, EPA' has now received 70 MYDPs from 48 states and 22 local
agencies. In all, the amount of state and local program developrnent has
more than doubled since 1983 (see Figure 17). In FY 1989, EPA will
continue to stress the implementation of previously accepted commitments,
the adoption of new MYDP milestones by state and local agencies, and the
integration of air toxics activities with ongoing particulate matter/ozone
state implementation plan activities.
The monitoring and assessment of the magnitude of current exposures to
air toxics in metropolitan areas is primarily a state and local responsi-
bility. For 1987 and 1988, $750,000 was directed toward support of these
special analyses. Initially, 30 areas with populations over one million
people have been targeted for some level of assessment. These efforts may
include ambient monitoring, source/emission inventory analyses, and risk
assessment. For example, 19 toxic air quality sampling sites in 18 urban
areas are now collecting data as part of EPA's Urban Toxic Air Pollutant
Sampling Program. In addition, analyses are being performed to further
evaluate the seriousness of the urban air toxics problem in five selected
cities. A data base analysis software package is being evaluated for use
by state and local agencies for such purposes.
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For 1986 through 1988, $400,000 of Section 105 funds were targeted
to implement certain national High Risk Point Source (HRPS) initiatives.
Initial evaluation of the initiatives program suggests that it has been
quite successful in accomplishing additional control. Approximately 70%
of the cases resulted in more control. The program has also been popular
with participating agencies. Fourteen of the 15 state and local agencies
surveyed considered, the program beneficial.
Figure 17
DEVELOPMENT OF AIR TOXICS PROGRAMS
AT THE STATE/LOCAL LEVEL: 1983-1988
s-
- 3
1983
YEAR
1988
ES3 NO PROGRAM . 5S3 DEVELOPING EZJ POLICY EZ3 REGULATION
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CHAPIER 3
EPA'S BUDGET AND SECTICW 105 GRANTS PRfTTRSR
Purpose: . - .
This chapter discusses the annual budget development process and the-
subsequent development of policy guidance for the use -of annually
appropriated Section 105 grant funds. It is within this budget and grants"
development process that the demands of increased air program responsibi-
lities and costs are reconciled with limited resources and competing
priorities. --...-•'.
The chapter presents a generic 'cradle to grave' description of the
grants process from the formulation of national program priorities to the
final financial accounting of a completed grant "year. The elements dis- .-
cussed are: the setting of national priorities including the development
of operating and grants guidance; the allocation of grant funds to the
Regions and.from.the Regions to its grantees; the negotiation of grantee
agreements and-the development- of workplans; and Regional oversight and
evaluation of grantee performance. This comprehensive description is
provided in order- to fully outline the variety of factors affecting the
annual award of Section. 105 grants to state and. local recipients.
A General Description of the Process for Setting National Priorities
. To understand and appreciate the complexities of decisions affecting
the use of grants, it is first necessary to describe the EPA's planning,
budgeting and management process of which assistance to state and local
agencies is an integral component. It is within the budget process where
national priorities affecting air grant program expenditures are formally
initiated. ,
The Section 105 Air Grants process is a part of QAR's and budget
development cycle. This budget/grants process encompasses actions carried,
out by various EPA offices, both within Headquarters and the Regions. For
descriptive purposes, the process can be divided into four principal
phases. These are:
o Formulation of request for inclusion in the President's budget;
o Congressional budget review and appropriation;
o Development of operating plan and grants guidance; and
o Implementation and oversight of state and local grant agreements.
Inherent to the overall process is the continual feedback and
adjustment of the EPA's priorities and programs.
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Develoanent of the Budget
At EEA, budgeting for air grants, similar to other Agency resources,
is a cyclical activity that begins well over two years prior to the start
of a particular fiscal year in question and continues through the obli-
gation and expenditure, of funds. Due to the length and complexity of the
process, EFA must work concurrently on as many as, three .annual cycles at
once—'a-new cycle beginning before-the-preceding one-has been completed
(see-Figure 18).4
In January of each year'the President submits a proposed budget for
the upcoming fiscal year which begins on October l. EPA's portion
represents more than a year's work and reflects extensive consultation
within the Agency and with the CMB. ERA begins the formal budget
development process in February of the preceding year and submits a
proposed budget to CMB in early September.
Flgum 18 THE FOUR OVERLAPPING PHASES OF THE BUDGET PROCESS
FEB OCT OCT OCT OCT OCT
BUDGET FORMULATION
PLAN DEVELOPMENT •
CONGRESSIONAL REVIEW
BUDGET EXECUTION
FY3
FY2
nr 1
4. Appendix B outlines in more detail the life cycle of one grant
year, in this case FY 1990, starting at the stage when that year's
priorities are first formulated (late 1987), through to the point when
a final accounting of the use of the funds is submitted (early 1991).
From cradle to grave, this process may cover nearly 40 months.
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Two Regional Offices are designated as the lead and the back-up
Regions to represent all of the Regions' input to the development and
review of OAR's budget and grant proposals. Recently, OAR took steps to
obtain earlier input on its national program and grant priorities from
both state and local agencies and the EPA Regional Offices. -For fiscal
year 1990 for exanple, several months in advance of the formal February
initiation of the budget process, OAR held informal consultations with
STAPPA-AOPCO.
ETA's.Soring Planning Meeting ..."
Since 1985, senior Agency managers have held a three-day Spring
planning meeting, an integral part of EPA's overall strategic planning
process, to discuss plans and priorities for the coming budget development
cycle. The exact format and direction of these meetings has varied each
year. In FY 1990 for example, each program was asked.to identify three
to five priorities for inclusion in an Administrator's priority list.
Recently, additional analyses in support of the planning meeting decision,
such as the Regional Ranking of Environmental Priorities and the compara-
tive Analysis of Risk, have lent further credence to the high priority
attached to air quality issues relative to other environmental concerns.
1 >
External Review -
After the April meeting, usually in May, the Administrator and the
Assistant Administrators (also known as national program managers) usually
meet with external groups, such as STAPPA-ALAPCO and the state-EEA ,
Coimrittee, to discuss the results of the Agency sessions and to obtain
further state input. After additional reviews with' the program offices,
the Administrator issues a refined Agency Priority List which provides •
advance notice to Headquarters, Regional Offices and states on where
enpirasis will be placed and as a focus for subsequent Agency budget
guidance, and plan activities.
OAR Prioritv-^settina
OAR's own internal process for priority-setting for the Spring
planning meeting and the subsequent discussions with the Administrator,
involves numerous actors: the Assistant Administrator (AA), Deputy
Assistant Administrator, Program Office Directors, Regional Office
Division Directors, and Office of Program Management Operations (OPMO)
staff. Detailed proposals for priority activities generally originate
at the staff level of the program offices.
The AA considers the elements of the various program offices'
submissions in light of their relative priority and the likelihood of
available funds. The AA must then decide oh the. air and radiation
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priorities for the upcoming fiscal year, including air grants funding, and
defend this request, relative to other Agency priorities, throughout the
remainder of the EPA budget process. The interactive process of request,
passback and appeal continues throughout each level of the budget process.
OMB's Role
After internal Agency budget decisions have, been, made,, the air and
radiation program budget,; including~the Section 105 state and local
assistance portion, is submitted to CMS, usually on September l. While
EPA interaction with OMB on the Section 105 portion of the budget has
generally been routine, CMB may still raise issues on Section 105
assistance such as overall program effectiveness or funding alternatives.
OMB reviews the EPA budget and makes passback recommendations to the
AA and the EPA Comptroller's Office. When CMB concurs on the OAR/Section
105 request it is included in the Administration budget which the President
submits to the Congress in early January.
Budget Review and Appropriation by Congress
Congressional review of the EPA portion of the President's budget
begins in late January or early February. While the focus of the review
remains with the Appropriations Committees, many additional committees and
subcommittees may be involved throughout the budget review phase. EPA
managers are responsible for preparing back-up and briefing materials for
Congress, briefing Congressional staff, and testifying at committee and
subcommittee hearings.^ Representatives of state and local air pollution
control agencies may also testify at these hearings on the air grant
request, as well as other parts of EPA's budget. Oversight hearings
usually occur in March or April.
Normally when subcommittee and committee reviews are completed, an
appropriations bill is approved by the House Appropriations Conmittee in
May and sent to the House floor for approval, and then to the Senate in
June. Since air pollution control involves politically sensitive areas,
occasionally Section 105 matters are taken to the House floor.6
5. These Committees or Subcommittees include: Senate Appropriations
Committee; Senate committee on Environment and Public Works; House
Appropriations Committee/Subcommittee on HUD and Independent Agencies;
and House Energy and Commerce Committee/Subcommittee on Health and
Environment and Subcommittee on Oversight and Investigation.
6. For example, the possibility of CAA sanctions for areas that could not
meet the 1982 attainment deadline led to additional House prohibitions
on EPA appropriations in June of 1983.
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By September, a joint budget resolution should have been passed,
followed by a HDD/Independent Agencies' appropriations bill which would
then be sent to the White House for the President's signature. The EPA
Comptroller' then receives a warrant from the Treasury Department and
approved 'apportionments . from CMB.\ The -Comptroller; then releases -Advices
of Allowance to OAR and the Regions. The Regions can then award Section
105 funds to those grantees with approved grant agreements. . . '
For the past several years, however, Congress and the President have
not been able to reconcile their budgetary differences prior to the
beginning of the new fiscal year. In these cases, the Agency faces the
cessation of its operations. Under a continuing resolution, the President
authorizes interim authority for the Agency to incur a designated percent-
age of obligations and to release a limited amount of assistance funds.7
In these situations the EPA Regional Offices, depending upon their
recipients' needs and sound management practices, determine how to award
this constrained level of assistance.
Develoonent .of the Operating Plan and Grants
As EPA begins -one Federal fiscal year in October, it concurrently
initiates a planning process for the following fiscal .year. One of the
major elements of this process is the- development of the Agency's annual
operating guidance. The.. operating guidance builds upon the results of the
Agency's annual Spring planning session. It reflects QAR's priority
activities and serves as the. principal guide for the negotiation of grantee
work programs and the allocation of grants.
The air and radiation portion of the operating guidance is assembled
by OFMD, in consultation with the program offices and with input from the
Regional Offices and representatives from state and local agencies. OPMO
initiates the operating guidance process by distributing a draft guidance
package in mid-October to the program, Regional Offices, and to STAPPA/
AlAPCO. Contained in this package are the Deputy Administrator's call
letter, the priority activities list, an overall operating and grants
guidance development schedule, and a draft outline of the operating
guidance. . - "
7. For example, in FY 1986 the Agency was authorized by the President to
continue operations for 45 days into the fiscal year at 12.5%, or 1/8
of the Agency's FY-1985 resource levels.
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Between Nbvember and February OPMD distributes draft operating
guidance and a list of grants priorities to the OAR program offices.
Regional Offices and STAPPA-ALAPCO. Following these consultations, by
March 1, the Deputy Administrator conducts a final review of the. operating
guidance prior to its release-and distribution. By mid-March a final draft
of the grants .guidance and Regional allocation is distributed for review by
the Regional Offices and.STAPPA-AIAPCO, with comments due by April. The,
final detailed grants guidance and regional allocation is*generally
released by early April. All supplementary program'guidance from the
program offices to the grant1 recipients must be given to the Regions by the
first week of April.
While this schedule has generally been adhered to over the last
several years, the potential for disruption and delay is ever present. For
example, cutbacks in funding due to the Gramm-Rudman-Hollings budget defi-
cit initiative delayed the release of the final FY 1987 grants guidance and
allocation for four months. Because the operating and grants guidance are
necessarily prepared six months before the Agency receives the approval of
its appropriation from congress, any changes Congress may make in the
budget, particularly decreases or redistributions, can be problematic for.
the Programs, Regions and grantees. The timeliness of the issuance of
program guidance is also a concern. In the past, guidance on air toxics
and continuous emission monitoring have been released well after the
issuance of the allocation memorandum. Late-guidance complicates
Regional-State relations and.may necessitate the renegotiation of grant
agreements.
Provision of Regional Guidance
Recipients
As Regions receive the draft and final versions of the operating
and grants, guidance they forward this information to their state and local
agencies. Regional Offices also begin their internal process for drafting
their own Regional guidance and determining grantee allotments. This
generally begins around January or February each year.
Headquarters and the Regional Offices have found that the guidance is
most effective if all of the appropriate air elements (e.g., enforcement,
monitoring, toxics, etc.) are involved in its formulation and review. For
example, OAR has recently taken steps for FY 1989 to more effectively
integrate the Compliance Program's own guidance and expectations into the
formal guidance process.
The Regions normally involve all of their appropriate air elements in
the formulation of Regional guidance as well as the review of grantee
workplans and assessments of grantee performance. Some Regions do this •
informally while others utilize formal division-level review groups.
Usually the Air Management Division compiles the various offices' input and
integrates it into .the Regional guidance.
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Regional guidance and consultation with grantees may take one of
several forms. Many Regional Offices have found it advantageous to hold
early Spring meetings (April or May) with their state air and/or environ-
mental agency directors to discuss the operating and grants guidance,
grant priorities, planning targets and allocation rationale. States have
appreciated this greater degree of openness.8
Many Regional Offices now also prepare a formal Regional guidance
document or narrative statement of priorities. The Regional guidance
typically includes: an interpretation and elaboration of the national
operating guidance as it applies to individual states within the Region;
applicable Strategic Planning and Management System (SEWS)9 commitments;
additional grantee-specific guidance outlining Regional priorities; current
or prior year activities which must be com- pleted; other-problems, issues,
or matters the grantee should consider or address during the preparation of
the workplan; and any special needs or areas eligible for discretionary
support. - • - '
Grant Principles and Policy Considerations "...•*.
Hie Performance-Based Assistance Policy (PBAP), .jointly developed by
EPA and a committee of state environmental directors ,i was issued, on May 31,
1985 in order to provide greater uniformity to the process of developing •
and managing Agency assistance agreements. The' PBAP outlined mutual
expectations and responsibilities' for the negotiation, assessment and
reward of grantee performance. The PE5VP directed that the national
priorities identified in the Agency's annual guidance be aggressively
negotiated and quantifiably addressed in each' grantee's work program and k
that overall grantee performance be tracked to'ensure their accomplishment.
To effectuate this requirement, OAR targeted specific grant funds as
high priority activities in FY 1986. Since additional funding was not
forthcoming, a redistribution of a finite level of grant funds and a .
selective disinvestment of certain established activities became necessary.
State and local agencies proposed to the AA that funding for high-priority
activities and the increasing costs of core program operations be balanced
against the potential savings of completed activities and disinvestments.
The- need for openness in the grants process was reiterated by a
March 26, 1987 memorandum -from the Director of. OPMO to the Regional
Air Division Directors. See also STAPPA-AIAPCO memo to J. Craig
Potter, January 22, 1988.
The SPMS is an internal EPA management accountability and performance
system utilized by Headquarters and Regional Offices to set goals,
objectives, commitments and measure progress obtained in EPA
operations. It is directly influenced by the operating and grants
guidance requirements and as such is also of significance to grantees.
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The AA responded by developing a set of principles for the allocation
and use of Section 105 grant funds. These included:
- A continuation of EPA support for activities that constitute
the foundation or infrastructure of the air program (e.g.,
inspections, enforcement, monitoring, etc.);
- The.-retention of,EPA flexibility to adjust, grants to. address high
priority-activities, within certain limitations; and
- The acceleration of-the process of priority-setting and
allocation of grants with greater and more timely involvement .
of the Regional Offices .and state/locals prior to the signing
of the appropriation bills into law.
It was further agreed that approximately 8% of the national
allocation could be targeted to annual priority activities and this would
be subject to a maximum 3% reduction per Region due to any redistributions
occurring.
While air and radiation responsibilities have continued to rise,
funding levels, have remained the same or decreased each year. This has
severely tested the feasibility of strictly adhering to these allocation
principles. The* process and criteria for the allocation of grant funds
has become the subject of heightened controversy and debate. This lias
also caused OAR, STAPFA-AEAFCO, and participating state and local agencies
to initiate a study of the costs of operating state and local air agency
programs referred to in.the previous chapter. The study is intended to:
better define how much is being spent on what activities, understand more
quantitatively the resource impact of new programs, and assist in the
identification of further disinvestment opportunities.
The Allocation of Funds to the Regions
The -flexibility provided by the Act in allocating Section 105 grant
funds has allowed EPA to consider more equitable and effective methods for
meeting the various and changing mandates of the Act and the Agency's air
management priorities. Historically, the national air program has been one
of rapidly changing requirements and priorities with various approaches to
allocation having been considered. Over the last 15 years allocation
schemes have attempted to maintain a balance between: (a) providing an
adequate financial infrastructure for state and local air control agencies;
and (b) supporting important new EPA program initiatives.
IVbst EPA'media programs apply a well defined, rather simple mathe-
matical formula to allocate and distribute appropriated funds to the
Regions and individual states. OAR employs a somewhat different approach
due to the dynamic nature and history of the program. The CAA stipulated
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tliat no state may receive more than 10% of the appropriation and that a
minimum allocation of one-naif of one percent of the appropriation should
be made available to each state. The Act recomnended three factors
(population, actual and potential air pollution problems, and financial
need) be considered in establishing regulations-to award funds to
grantees. The Act did not define or suggest relative weights.
Figure 19 concisely -summarizes the variety of factors- that have-
influenced Section 105 allocation decisions within Headquarters since 1971.
The table lists the allocation year or years, the annual amount allocated,
the allocation scheme or rationale used, the policy factors affecting the
allocation scheme, and the priority funding areas.
Regional Approaches to Allocation to Grantees
After receipt of the Headquarter*s annual grant allocation to the
Regional Offices, each Region provides its grantees with an indication of
their anticipated planning-targets for the coming fiscal year. The
planning target represents the amount of- financial assistance which the
Region recommends the state consider in developing its application and work
program.
With the advent of the. PBAP and subsequent guidance from OAR,1^ the
allocation and negotiation process has tended to be more open with Regions
fully explaining their approach for determining any proposed funding levels
to their grantees.
While Headquarters allows the Regions to have full latitude in making
their agency-by-agency funding determinations, the national allocation
scheme and the individual program offices' goals largely influence the
allocation rationale employed by the Regions. However •, Regions still
adjust the areas of emphasis for their grantees based upon the appli-
cability of each high priority activity, any Regional environmental
exigencies, grantee prior performance, etc. The Regions may also find it
necessary to periodically revise their allocation rationales.
Generally, all Regions follow an approach of distinguishing base and
high priority funding categories and dollars for their grantees. Only one
Region does not differentiate its funds this way, preferring instead to
have its grantees address high priority work as part of their ongoing base
grant award. While the Regions place most of their emphasis on high
10. See "Unilateral EPA Decisions on Use of Air Grant Msnies," J. Potter
to RAs, Nov. 3, 1986; and "Open Process on Regional Distribution and
Use of Air Grant Funds," W.R. Cunningham to Regional DDs, March 26,
1987.
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Figure 19
Sactlon 105 Allocation SeKamaa Sine a 1971
1971.1973
1974
f 34 M to
50.8 M
$51 M
Allocation Schema
Historic funding level* and
policy- factor*.
Grant negotiation mutt* based
upon:
t) state population
2} number of manufacturing companies
3) number of motor vehicle*
4) capital expenditure* lor
manufacturing equipment
5} number of priority I region*
6) number of PSD araM
7} number of I/M area*
Policy Fae1nr«
Resource need* projected for
1970/71 SlPa and by sute population
and number of sources.
Same a» above phi*
Implementation of SIP
activities.
Priorit
Emission inventories
and SIP development
SIP Implementation
1975-77 $ 51.5 to 90% same a* FV74 with 10%
156.5 M distributed on the number
of metropolitan areas required
to develop .maintenance programs *
Given Increased funding base level Increases are
allocated proportionately while high priority
activities are dlstrtbutatively according to •
specific factors -
Maintenance programs.
SIP replanning
1978-79
1980
$ 75 to Zero based budgeting (ZBB) used for 20%
$ 80 M of funds; Increase over existing base tor
all grantee* with additional 10 % to
complei nonattainment problems
$ 82.8 M Allocation Increase based on national '
priorities and tasks
Survey to establish relative needs In base activities;
Increase* allocated according to review of. national
priorities and development and u*e of specific
allocation rationale and quantatlve (actors
Increase In funds allocated to national priorities
using specific regional quantitative (actors
CAAA 1977 responsibilities
Pb SIP development. N£
corridor data collection,
Region 8 Indian Tribes. I/M
$ 11 M for national priorities
including 1982 ozone/CO SIPs
and vu
1981
1982
1983
1984
1985'
1988
1987
1988
S 87.7 M Same as above with specific
factors for distribution of
annual allocation
I 87.7 M 1981 levels maintained
$ 84.7 M Regions distributed 97% of
FY-1982'levels In same
proportion to absorb a
S 3 M reduction
I 87.7 M Allocations return to FY 82 levels.
S90.7M Allocation follows FY 82 levels
with $ 3 M addition devoted
to state acid rain programs.
$95.7 M Reinstated practice of Identifying
specific priorities employing
individualized allocation rationale
* 95 M $ 7.25 M targeted and redistributed
for new and changing priorities
$ 93.3. M 2% general grant reduction due to Granun-
Rudman; done proportionally to eflect
state/local grantees equally
For purchase of MAMS/SLAMS monitoring equipment.
population of urban non-attainment areas used:
proportional distribution of S4.9.M lor PSD
and ambient monitoring facilities
Beginning of status quo § 105 funding levels
One-time Congressional action to limit
perceived forward funding capability within
$105 program; Proportional distribution
of cut*
Regional allocations frozen
Inter-raglonal allocations used.
additional awards reserved for
staled high priority activity
EPA Performance-Based Grants
Policy issued, resume regional reprogramming
and reallocatlon practice- lor high priority activities
Gramm-ftudman required 4.3 % budget reduction
to be applied equally across all Regions
After consutatlon with STAPPAMOPCO
agreement was reached to limit redistribution*
to 8% of appropriations for this and future years
Decrease due to regional redistribution limited
to 5% maximum for any one region \
Criteria for cuts Included:
- eonsulation with STAPPA/ALAPCO
- limit environmental Impacts
• minimize effects on regional
grant allocations made
- minimize effects on slate/local
core activities.
- no additional Interregional redistributions
J 12 M for ozone SIPs.
anil-tampering & misfualing
1982 SIP elements
Follow up'worK on post-1982*
ozone/CO policy - '"
Post-1982 SIP efforts'
Slate acid rain program
development
S 12 M < 5 new «• 7
reprogramrned) for priorities
of air toxics, asbestos d/r.
stack height SIPs. PM10 monitor
purchase, anti-iampering; also
do Class B VOC inventory
S 7.S M for air toxics
and ozone strategies
Ozone. CO, PM10.S02
air toxics
Source: 'Air Grant Allocations'; August 17, 1987; Draft Paper by Greg GJahn; OAQPS.
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priority activity, base funds are still very much subject to negotiation.
Grantees have indicated that identifying a base funding level allows them
to plan and staff their programs with a greater degree of confidence and
consistency. ^ ^
Each Regional Office differs in how it determines its allocation of.
grait funds' to its individual recipients. Discussion of several different
approaches follows. . ,
Example 1 • • . . -
Upon its receipt of the annual grant priorities and allocation memo
from the Assistant Administrator, this Region takes its total Regional
allocation and deducts that portion or percentage to be attributed for .
.special purposes and any agreed-upon national level-of-effort contracts
including any support for STAFPA-ALAPCO. The remaining balance is the •
amount available for distribution to the grantees for base and-high
priority activities. No other funding is to be held in reserve for -.
competition among grantees. * .
The Region tnen takes each grantee's traditional percentage of the
Region's total available funding (which has been developed over time using
the historical allocation criteria), and multiplies this times the balance
to allocate funds per grantee for their base and existing priority
activities. . -
The Region then examines the annual allocation memo content and
determines if each of the redistributive high priorities indicated will
take place within the Region during that fiscal year. The Regional Office
eliminates from high priority consideration any activities that will not be
conducted by any of the Region's states. For those activities to be
conducted, the Regional Office differentiates whether this activity occurs
as either a base or a redistributed high priority activity. This step is
necessary since it is possible that an EFA high.priority activity maybe
already being carried out as part of a grantee's base program.
After determining its applicable high priority activities, the
Regional Office distributes the high priority funding amount allocated to
it by the AA's annual allocation-memo. Since it is normally the case that
there is not enough high, priority funds available to perform all high
priority activities at their optimum level some of these activities must be
reduced, eliminated, or further disinvestments must be extracted from base
activities. The Region distributes the funds within each high priority
category by grantee, according to a variety of factors including: the
population affected, number of sources agency need and capability, overall
equity, and other appropriate considerations. The Region provides an
explanation of its allocation approach during early meetings with State
Directors and staff prior to the initiation of the formal grant
negotiations.
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Example 2
Another Region allocates its portion of the grant funds on the basis
of a combination of traditional and pure performance-based approaches.
Cfrice the Region receives its Regional allocation from Headquarters, several
adjustments are made. These include: an apportionment of funds for Indian
Tribes, a set aside to cover the costs of anticipated-federal promulgation
activity; and funds for national-level contract assistance activity agreed
upon by all the Region's grantees (e.g., support for S1APPA-AIAPCO and the
purchase of equipment filters).
The Region makes several more adjustments to effectuate the
performance aspects of its allocation approach and to allocate the funds
. for national high priority activities designated by Headquarters. It
apportions 10% of the total Regional allocation for redistribution among
grantees based on state workload needs in designated major program areas
where increased demands or inadequacies are apparent. A maximum percentage
limitation is placed on the amount of funds that may be reduced from any
of the states? total allocations, however.
The Region also apportions another 5% of the Regional total for
allocation to grantees on a performance-criteria basis for several priority
areas. Performance funds are targeted to grantees, on the basis of their
historical funding percentages. Grantees must then meet a series of
qualitative and quantitative measures of performance with the degree of
achievement tied to the award of a particular percentage of the grantee's
targeted funds. Any undistributed portion of the performance allocation
is returned to the Region for redistribution.
The Region also places a limitation on the percentage of funds that
may be carried over. Previous year's funds in excess of this limitation
are pooled and then redistributed to aill the grantees on a proportional
basis for the following fiscal year.
This Region must accommodate grantees with fiscal and grant periods
which vary from that of EPA. To do so, the Region has a two-stage
allocation. The first stage is in July to coincide with the start of the
state fiscal year and generally covers base program activities. The second
is in JSfovember or December and addresses national high priority activities
and any other necessary adjustments. This staged allocation is necessary
because the development of grantee workplans and applications occurs prior
to the finalization of EPA's Operating Guidance in March. Regional
guidance to the states in this instance is sent in January rather than
April.
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The Region considers any recommended allocation targets and the
annual allocation amount released by Headquarters in its April guidance
memorandum. The Region apportions 95% of the total Regional allocation
for base activities among its grantees on a historical basis.
When new fiscal .year funds are received in November or December the
Region initiates, its second phase allocation, awarding the remaining 5'h of
the funds (or the percentage equal to the high priority amount identified
in the Headquarters annual allocation memo) along with any carry over, to
the grantees to address the new national high priority performance
activities.
Proposals received from states are viewed and approved based upon
conformarice with the performance-based allocations. Proposals which
address legitimate•emergencies and shortfalls are also:reviewed and acted
upon at this time. The' Region's grantees play a unique role in this aspect
of the allocation process. A committee.of representatives from the
Region's four state agencies and two major local agencies reviews- each of
the grantee proposals for use of the high priority funds. The contirittee
ranks those projects according to their relative merit and benefit to the
region. While the Region retains and occasionally 'exercises its veto
power, the committee's selections generally coincide.with national
priorities.
Other Considerations in the Allocation of Funds to Grantees
In addressing base program and national -priority .objectives during the
allocation of grant funds there are several additional factors each Region
must consider: statutory limitations on assistance award amounts and
percentages, special grantees, and special assistance and contract support.
Tnese are discussed below. .
(a) Maximum and Minimum Amounts Allowed for Grantees
Section 105 (c) states that not more than 10% nor less than one-half
of 1% of the total annual national Section 105 allocation shall be granted
for air pollution control programs in any one state. While this obviously.
puts a cap on the total amount of assistance the more populated and
problem-plagued states can receive the primary concern of this provision is
that EPA must make available to the smaller grantees at least one-half of
1% of the total national allocation.
While this 1/2 of 1% is a minimum allotment it is not an automatic
entitlement. In order to qualify for this level of. funding the state must:
(1)' submit-an approvable grant workplan indicating that all of the funds
applied for will be utilized for legitimate Section 105 purposes by the
grantee; and (2) meet the requirements for the non-Federal percentage
contribution contained in 105(a) and maintenance of effort in 105(b).
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Whether a state is a one-half of 1% recipient cannot be determined until
its assistance agreement and award amount are approved. If a state has an
agreement approved for the receipt of less than one-half of 1% then the
balance of the one-half of 1% allotment can be redistributed by the Region
to the other grantees or for other appropriate purposes. When funding is
limited and a grantee, which, formerly had not utilized its full oner-half .of
!%• allotment, applies for arid receives the "full amount', this- has the*af feet •
of reducing the 105 allocations of the other grantees.
(b) Indian Tribes
Several Regions also award'grant support to Indian Tribal governments
to carry out air pollution control efforts on their tribal lands. Re-^
cently the number of Tribal requests for assistance have been increasing.
Locations of one-half of 1% grantees and Tribal recipients are shown in
Figure 20. Indian tribal Section 105 grants have generally focused on
training, monitoring support, and other preliminary air.program developnent
activities.
Figure 20
LOCATION OF 1/2* OF 1 % STATES
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In November 1984 EPA issued a policy for administering environmental
programs on Tribal lands. The principal tenet of the policy is the
recognition of Indian self-government and the establishment of an EPA -
Tribal governments relationship. ERA'S Office of Federal Activities
coordinates the Agency's Indian Policy for all of the media programs,
including CRR.
Prior to the issuance of EPA's Indian Policy, all .Section 105 support
was provided for training to assist various Tribal governments in air
quality monitoring.and enforcement. Since 1985, 11 tribal air pollution
agencies have demonstrated adequate authority to develop air quality .
programs and have been awarded air program grants, in FY 1988 the total
amount of Section 105 Indian funding, awarded for both training and air
program development, was $731,000.
Since Federal law or Tribal laws'control Indian reservations, state
law is generally inapplicable to Indians on Indian reservations.
Accordingly, SIPs are not enforceable against Indians on Indian lands.
Nevertheless, states are free to work out cooperative agreements with
tribes. The State of M3ntana, for example, has conducted extensive air
program evaluation and has provided technical support to Indian tribes.
(c). Special Assistance
Grant recipients may also use a portion of their allocated grant funds
for special assistance activity provided by EPA in the form of interagency
agreements, university, and other training grants and level of effort (IDE)
contractual assistance. This has been particularly helpful for recipients
faced with unfamiliar air pollution problems without the appropriate staff
expertise, and insufficient.time or resources.to carry out the needed work.
From 1979 through 1987, nearly $50 million, or. about 5% of that
period's total allocation, had been obligated through the special
contractor support mechanism, support levels were greatest in the years
immediately after passage of the CAAA of 1977. Recent levels have been
lower and can fluctuate depending upon the certainty of the priorities to
be carried out (see Figure 21). . - •
The mechanism for this assistance is through national IDE contracts
maintained by OftQPS and administered through EPA certified project
officers in the Regions and Headquarter's program offices. National LOE
contractors offer ready accessibility and state of the art expertise. •
During grantee negotiations the Regional Offices will consult with
their grantees on the nature and degree of contract assistance required.
EPA and the recipient may agree on the work, the recipient may request it
or EPA may unilaterally identify the need for contractual assistance to do
the work.
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-46-
FTgure 21
SPECIAL 105 ASSISTANCE (LOE) TO GRANTEES
1975 - 1988
7-
«•
5
4
3
2
1
0
T
T
197S 1976 1977 1978
T
I
I
1070 1980 1961 1982 1983 1984 1985
FISCAL YEAR
1986 1987 1988
(1988 wt)
Funding of an LOE contract item is done through direct transfer of a
portion of the recipient's Section 105 grant to EPA or through a, special
Section 105 set aside account maintained by the Regional Office. A
recipient may select a contractor's support through the Regional Office by
submitting a request for services in the form of a task order. After
detailing the number of hours of assistance required or the scope of
services, the LOE request can be processed in a short time span.
In the past, EFA has also unilaterally targeted a portion of the
overall Section 105 allocation for use in support of national LOE con-
tracts intended to benefit all grant recipients. These included: group
rate purchase of sampler filter paper, support to the S3APRV-ALAFCO
Secretariat, codification of SIPs, emissions and compliance data handling,
acid rain sampling, special toxics monitoring, and special ozone studies.
In many cases, state and local agencies were able to achieve significant
economies of scale on equipment purchases made under national IDE
contracts.
However, as grant funds have grown more scarce, state and local
agencies have questioned this EFA practice.' Currently these funds are no
longer unilaterally held back by Regional Offices. As part of its grant
agreement each recipient must now identify its contractual projects and the
amount of grant funds to go to the national LOE effort. Grantees may also
request transfers of funds during the grant period, of course. Appendix C
summarizes how each Region handles its LOE assistance with its grantees
and a typical schedule for the targeting of such activities.
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-47-
Grant Negotiations
Negotiated Section 105 assistance agreements must address national
environmental goals while promoting and sustaining effective state and.
local programs, since there, will always be disagreement on the-best way to
achieve this, grant negotiations will remain one of the more controversial
aspects of the Section 105 grant .management process. .
As we noted earlier, the FEAP, .effective in FY 1986, was jointly • ..
developed by EPA and the States to provide a more consistent Agency-wide
approach to administering assistance agreements, including their
negotiation, oversight and resolution. The policy retains considerable
flexibility for Regions to tailor assistance agreements unique to each."
grantee. .
Just as each Region's environmental concerns, Region-specific
guidance, and allocation schemes vary, so do their approaches to grant
negotiation. Hie variations have grown less distinct over the last several
years, particularly in the areas of negotiation schedules, sharing infor-'
nation with grantees, and required work program elements. This section
discusses these aspects of the negotiation process as well as: work
program format, assistance limitations, State-EPA Agreements (SEAs) and
consolidated grants, varying grantee budget periods and treatment of local
pass-through agencies. .. -.
Schedules
With the exception of those situations where grantees are on different
award years and those Regions utilizing the SEA process, the schedule for .
negotiation, submission and approval of assistance agreements and grant
workplans is relatively uniform. Regions forward final operating guidance
in March and Regional guidance and grantee planning targets in April or .
May. Early May meetings occur to discuss the upcoming requirements with
detailed negotiations beginning in June. Consultation occurs throughout
the period of July and August, when grantees submit draft workplans. The
Regions generally approve workplans in August or September. "-.
Negotiations Approach
. While negotiation schedules may be relatively uniform, negotiation
styles vary according to a variety of factors. These include: historical
Federal-state relationships, variance in Federal and state priorities,
management personalities, staff capabilities, past grantee performance, and
perceived EFA funding leverage vis-a-vis the grantee's contribution. These
factors tend to: (a) influence the degree of prescription each Region
feels is necessary in negotiating with its grantees, and (b) moderate the
influence that guidance developed at the national level will have on
negotiations.
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-48-
Since the advent of the FBAP, the majority of Regional Offices are
seen as being more accessible in work plan negotiation. Nevertheless,
while the more timely receipt of operating and grants guidance and a
greater precision in expectations / corrmitments and outputs may facilitate
grantee tracking and evaluation, this cannot eliminate all potential
disagreement in the negotiation process.
After. ERV and grantee senior management discuss the'annual guidance
and priorities, agreeing on specific program objectives, their staffs'
proceed in drafting the details of the grant work plan. Some Regional
Offices use their Regional guidance to fashion either a generic work
program, a narrative or a priority list common to all grantees,^and then
add sections specific to each grantee's situation. This product is then
transmitted to the grantee via hard copy or on a computer disk. The
grantee can then review and modify this product according to its priorities
and concerns and return it to the Regional Office.
Grant Work Programs ••
Section 35.130 of the October 12, 1982 State and Local Assistance
Regulations states that the work program or work plan, as part of the
application for financial assistance, is the basis for the management and
evaluation of performance under the assistance award. The work program
should focus-on what products are to be accomplished and not simply on how
the grantees' air program operates.
The work program must specify: the work years and amount and source
of funding estijnated to be needed for each program element (including
state match and level of effort); outputs committed to under each program
element, including any outputs required under an authorization or dele-
gation agreement; a schedule for accomplishment of the outputs; and an
identification of the agency responsible for each of the elements and
outputs. Outputs should be measurable commitments, reflective to the.
extent possible of real environmental results, and expressed in terms
compatible with EFA information systems. Work programs should also
reflect.a grantee's past performance.
While all grantees meet the minimum work program content requirements,
there is a wide variance in work program formats and their level of detail
both within and among all the Regions. Some Regions provide their grantees
with relatively standardized formats to fill out each year, reserving some
portion for grantee specific information. Other Regions are content with
different grantee formats as long as the necessary information is included
and the requirements are met. Many grantees use their work program formats
as internal management documents in an approach consistent with their
overall state operating procedures.
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-49-
Pursuant to changes brought about by the October 12, 1982 regulations,
and with the effectuation of the FBAP, grantees were also requested to.
describe in their work program the full range of air activities they carry
out aside from those funded with Section 105 funds.
Performance Conditions •'••.•
During the negotiation process the Region may identify certain
circumstances, which require that some limitation be placed upon the
grantee's receipt.of a portion of its total allotment. These circumstances
may include; fulfillment of previous unmet conmitments, likelihood of
refusal of a required activity, fulfillment of predetermined performance
criteria,; prolonged past poor performance, or inability to.assume respon-
sibility for a required activity. In these cases, the Region will first
attempt to negotiate a resolution of the performance issue. If a resolu-
tion cannot be reached, the Regional Office informs the grantee of the
nature of the limitation. Approaches to grant limitations may include the
following techniques: -
(a) set aside - withholding that portion of the Section 105
allocation for use by ERV or a DOE contractor for an activity
that is required by litigation or statute that the grantee
refuses -or is unable to do, and for which EPA. is likely to
have liability to promulgate; •
(b) scheduled disbursement - scheduling the release of funds targeted
to a,required activity but-only after the grantee accomplishes
certain objectives or conditions;
(c) performance award - allocation after demonstrated performance
according to predetermined criteria where the quantitative award
level is tied directly to quantitative or qualitative measures of
performance;
(d) grant conditions - usually, formal grant conditions are used to
highlight the necessity of meeting general administrative or
fiscal requirements associated with the receipt of federal
assistance.
Substituted Activities
Pursuant to the PEAP, if a grantee declines to commit to a high
priority activity in deference to another area or activity which it
determines will produce greater environmental benefits, then this activity
may be appropriately substituted with Regional concurrence. The appro-
priate mix of national, state or local priorities will vary from work
program to work program according to the unique features of each-grantee's
air program. Regions exercise their judgement in negotiating what combi-
• nation of .activities will provide the greatest environmental benefit with
those resources available after addressing EPA's national priorities.
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-50-
Mecrotiations and the^ State-EFA Agreement;
Some Regions and their grantees manage their environmental programs
according to a SEA approach, which stresses a formal consolidation of
assistance activity across all environmental media programs. Under the
SEA approach. Section 105 is but one of as many as eight assistance
programs whose processes must be coordinated to produce a timely, inte-
grated assistance work program. For those few Regions where the air
grants process is subordinate, to the SEA, delays- in one media program's
negotiation potentially may delay the award of funds for the others.'
Therefore, under the> SEA approach, each program has an added degree of
pressure to resolve its negotiations. , Additionally, personnel from offices
other than Air can directly influence air negotiations.
Varvtncf State and Local Budcret Periods
The State and Local Assistance regulations (40 CFR 35.135) allow a
grantee to choose their budget period in consultation with and subject to
the approval of the Regional Administrator. Of'the 50'states, the
District of Columbia .and two territories, only four, states operate on the.
same grant year and budget year schedule as EPA. Forty-one states and
territories operate on a different fiscal-year than EPA but operate their'
Section 105 grant program on the basis of EFA's October through September
schedule. Eight states have different fiscal years and grant periods (July
through June) necessitating that the Region accommodate their schedule (see
Figure 22). This means that the issuance of operating and Regional grant
Rgurv 22
VARIATION IN STATE AND FEDERAL GRANT AND FISCAL YEARS
FT 1986
G3 STATES ON OCTOBER WANT YD« AND FISCAL YEAR
D STATES ON OCTOBER GRANT YEAR AND OffFEROfT FY
O SHOES ON JULY GRANT YEW AND FISCAL YEAR
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-Si-
guidance to states and locals,, the negotiation and review of individual
grantee work plans, and the tracking and documentation of grantee
performance must be accommodated at different times for different grantees
during the course of the Federal fiscal year.
Pass-Through of Grants
The enactment of the 1970 amendments. to the C7A established' the major
framework for the SIP process/ States were given the primary responsi-
bility for the implementation of most of the regulatory requirements of the
Act". " since that time, the states, have increasingly played the major role
in both planning and carrying out the majority of air pollution control
activities, including the.principal recipient role in the air grants
process. . State responsibilities were reemphasized and expanded in the 1977
amendments of the Act. In most Regions, EPA involvement with grantees in
implementing the Act and managing the grants process centers on the state
air agency as the primary responsible entity. However, local agencies
still play a significant and important role, as evidenced by the 1977- Act
amendments and with the emergence of many of the newer environmental
problems which are particularly evident at the community scale.
Rib significant irarease in the number of air quality agencies has.
occurred in.the past decade and none are anticipated.. One possible
exception is the expected increase in the number of .Indian Tribal
governments receiving air grant support. Other limited exceptions may
include the increased involvement of certain "local agencies in imple-
menting mandatory automobile inspection/maintenance programs and the
support of local agencies in certain areas where a state is not willing,
capable, or best suited to carry out a major regulatory program.
Numerous states and several Regions have developed and are employing
mechanisms for the pass-through of air grant funds from the state to the
local agencies in lieu of a direct EPA grant. This has been done to
increase coordination within a state and improve the efficiency of the
entire grants, process. Currently, approximately 72 local agencies and
Indian Tribes receive direct grant funding from EPA under Section 105.
Additionally, nearly 50 other agencies receive pass-through funding.
Regardless of the funding mechanisms employed by a Region for support of
local agencies (direct or indirect), it is critical to the effective use
of limited grant funds that the responsibilities of the Region, the state,
and the local agencies be clearly defined and documented in the grant work
plans and/or the state/local agreements required by the air grant
regulations.
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Proaram Evaluation and Performance Resolution
Reional Approaches to Grant E
Requirements and guidance for the evaluation of recipient program
performance are contained in the Agency's Regulations on State and Local
Assistance (40 CFR-35-. 150) , the EPA Policy on Oversight of Delegated
Programs (April 4,1984), and the National Air Audit System guidance.
Pursuant to these requirements, each Regional Office, in consultation
with the grant applicants, has developed a process for evaluating the
recipients' performance. The Region includes a plan and schedule for the
evaluation of performance in the assistance agreement. The plan outlines
the scope of the review and the areas to be focused upon by the Regional
Office. The plan should identify at least one on-site review per year,
detailed performance measures (specific measurable outputs of ' acceptable
quality) due at particular milestones, and grantee reporting requirements
to EPA.
The Regional Office evaluates recipient performance and progress-
towards completion of the outputs contained in the. approved, workplan
according to the schedule in the assistance agreement. The Regional Office
may also examine other aspects of a grantee's program-; (procedures; pro-
cesses, policies) to identify problems and their solutions. The Region
provides the findings of its evaluations to the recipient and includes them
in an official assistance file. If "the evaluation reveals that the
recipient is not achieving one or more of the provisions of the assistance
agreement, the Region first attempts to resolve the situation through
negotiation. If agreement is not reached, the Region may pursue additional
corrective action and may impose any of the sanctions in 40 CFR Part 30
and, for grants awarded on or after October l, 1988, 40 CFR Part 31.
Tracking Progress
Each Region's evaluation process varies but common to most all
Regional Office is: (a) the tracking of a recipient's programmatic
progress on a quarterly basis, and (b) a formal evaluation of performance
conducted during a mid-year or end-of-year review on-site with the grantee
(see Figure 23).
Regions and grantees usually use the work plan section containing the
commitments, outputs and milestones as the basis for quarterly tracking.
Regional Offices tend to focus their attention primarily on high priority
items and areas where grantee performance has been lagging. Grantees
submit quarterly progress reports which are then reviewed against the
workplan commitments and the Region's working knowledge of the grantee's
-------
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progress. Many Regions send 'tickler'letters and status reports reminding
grantees of upcoming outputs due or comnitments missed. Hie PBAP indicates
that states (also meaning all similar interstate and local grantees). are
responsible for notifying EFA in a timely manner of problems they
experience in trying to accomplish their outputs. Similarly, EPA is
responsible for promptly notifying grantees of their inability to supply
any promised.support.
In addition to tracking grantee performance quarterly, the majority of.
Regions conduct formal mid-year or end-of-year on-site evaluations with
their grantees. This evaluation is agreed-upon as part of.the assistance
.agreement and grantees are usually prepared in advance for this review.
The evaluation is usually preceded by an internal EFA. staff review to brief
the evaluation team and involves the Air Division Director, Branch Chiefs,
EPA state project officer, grant coordinator and representative staff from
other air office elements such as enforcement, monitoring and planning.
Representatives from the grants and financial management divisions often
attend these meetings, as well.
On-Site-Eva liiat-inn
Depending upon senior management's degree of involvement and the
availability of resources, the evaluation team may consist of- the Director:,
Branch Chief, project manager and other air office element staff. This
team will usually visit eaclxgrantee for a period of two to four days. The
team will review accomplishment of commitment outputs and cover areas such
as: compliance status and data files, SIP accomplishments, rule adoption,
delegated program status, etc. The review usually focuses on high priority
objectives.
The review is meant to be as constructive as possible. Areas where
further EPA assistance is required may be identified.' The Regional Office
follows-up the evaluation with a letter outlining its findings and identi-
fying corrective actions the grantee must take prior to the close of the
grant period. Some Regions will incorporate the results-of a mid-year
review into the discussion of the subsequent fiscal year's assistance
agreement since those negotiations may be occurring concurrently.
Regional Offices also conduct an end-of-the-year evaluation which
usually takes the form of a written report documenting overall progress on
any necessary correction noted by the mid-year assessment. This is also
forwarded to the grantee. A notice of the availability of the evaluation
results is to be made available to the public pursuant to 40 CFR 56.7.
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Mational Air Audits
Regional Offices also conduct program audits of state and local
agencies as part of the National Air Audit System (NAAS). National air .
audits were initiated' in FY 1984 to identify obstacles to state or local
agency effectiveness and to help EPA. more appropriately refine its national
program. The audit system was developed jointly by representatives.from
state and local governments and EPA, and initially covered the program
areas of air quality planning, new source review, compliance assurance, air
monitoring, and motor vehicle inspection and maintenance. The publication
of national NAAS guidance by Headquarters and the conduct of the audits
occurs no more frequently than biennially.
The audits are conducted on-site at state or local agency offices by .
teams composed primarily of Regional Office personnel. The audit usually
includes: a preliminary meeting with key agency staff to discuss audit
goals and procedures; a discussion of the individual audit area question-
naires with the applicable personnel; a review of agency files to verify
implementation and documentation; and an exit interview with the state or
local agency management to discuss the preliminary results.
Individual state or local agency audit reports are then drafted by
Regional, staff and reviewed by the audited agency. The Regional Office-
makes any necessary changes and returns the final to the audited Agency.
The audited agencies are expected to initiate actions necessary to address
the problems identified in the audits. EPA uses the individual state
reports as a basis to prepare a national report and to review and adjust
its priorities and resources to better support state and local needs, and
achieve national environmental goals. Some Regions do use the occasion of
annual grant negotiations with their grantees to follow-up on the
deficiencies identified in their national air audits.
Performance Resolution
When a Regional Office's evaluation uncovers a performance problem
and determines its cause, ETA and the grantee must act on those findings
and take corrective action. Regional Offices generally assume a con-
structive, cooperature posture in working with grantees to establish
remedial strategies. The quality of EPA grantee staff relationships is
an extremely important determinant in the resolution of performance
issues. Short of the imposition of sanctions, Regional Offices may take
such corrective actions as: providing technical assistance, training or
additional resources, increasing the number and/or frequency of reporting
and oversight requirements, requesting a shift of state resources, or
otherwise renegotiating the assistance agreement (see Figure 24).
-------
Figure 24
REGIONAL APPROACHES TO IMPROVING.
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-------
-58-
One of the major intentions of the PEAP was to establish a construc-
tive approach to the resolution of performance problems. -It established
procedures for the escalation and resolution of disputes involving grant
negotiations and performance in an attempt to avoid the imposition of
sanctions.. OAR issued more detailed procedural guidance implementing
the.PBAP resolution provisions on December 1, 1987. The procedures
emphasize-the resolution of-grant disputes at the lowest-possible level.
If necessary, the disputed .issue is raised through the management- hierarchy
of both the grantee, and the Regional Office until the matter can be
resolved. If not resolved, the Regional Administrator contacts the state
Environmental Director or other appropriate official, in an attempt to
reach agreement on the corrective action and to discuss any contemplated
sanctions. The Regional Administrator may also advise the AA and, if
necessary, the Governor.
As with corrective action, any decision to impose a sanction is based
on the Region's particular experience with a given grantee. The Regional
Administrator determines'when a problem'may be significant enough to
warrant such action and the appropriate type of sanction to apply.
Sanction options available to EPA are detailed in the agency's General
Regulation for Assistance Programs (40 CFR Part 30) and include: stopr
work actions, suspension or termination of agreement for'cause, agreement
annulment-, other appropriate judicial or administrative actions, restric-'
tive disbursement schedules both for current and conditioned future award
years, and withholding of payment.
The AA also issued OAR's Policy and Procedures for Withholding Grant
Fund's on June 19, 1987. The policy covers several major withholding
situations: recovering funds already awarded, withholding grant awards for
past performance, withholding funds for failure to accept a high priority
activity, and withholding funds for failure to accept a Regional priority.
The Regional Offices prefer not to have to impose sanctions and generally
apply those which only defer that portion of funds for the activities in
question until the matter is resolved.
The Region must also see that the responsibility for any state
environmental program dealing with national requirements continues after
the imposition of a sanction, and must take steps to see that crucial
program operations are sustained and required outputs completed. Under
Part 35.155, this may entail the withholding of funds from a grantee to
cover EPA's costs for having to carry^-out a Federal program required by
law in the absence of an acceptable state program in that state.
Under 40 CFR 30 Subpart L, and for grants awarded on or after
October 1, 1988, 40 CFR 31 Subpart F, formal procedures for resolution of
disputes concerning assistance agreements and review of the imposition of
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-59-
grant sanctions are detailed. These procedures provide the opportunity for
a grantee to document the grounds for any objections to the imposition of a
sanction, and for EPA to review its decision and address the state's
objections on the basis of a written record.
Performgnce Incentives: •
Pursuant to the PBAP, when a grantee fulfills-their commitments or
demonstrates exemplary performance, EPA should take steps to acknowledge
these achievements at the conclusion of the evaluation or the assistance
agreement period. One of the most effective mechanisms available to EPA
to do this is through publicizing state or local program success. Those
successful grantee actions which should serve as model practices are often
highlighted by Regional Offices..
EPA can also institute other rewards for grantee achievements as
appropriate and available. These include reduction of grantee oversight,
reporting and inspection to-the minimum necessary for effective national
program management, and the offering of financial incentives such as
supplemental funding or greater flexibility in project funding-.
Grantee^ Financial Integrity: Statutory and Administrative Requirements
In order to receive or continue to receive Section 105 air grants all
recipients must satisfy certain statutory and administrative requirements.
All recipients must maintain financial management systems that consistently
apply, accepted accounting principles, and practices that ensure accurate,
complete, and current accounting of their financial transactions. Adequate
records and supporting documentation must be maintained showing the source
and use of all funds, and actual versus budgeted object class amounts.
Records must be accessible to EPA for audit purposes. Organization-wide
audits must be conducted at least every other year and a systematic
approach to resolving audit findings must be in place. All recipients must
periodically report- their progress and are required to supply financial
status reports which close-out-the award for each grant period.
These requirements are detailed in the provisions contained in EPA's
General Regulation for Assistance Programs (40 CFR 30); and Section 311(a)
and (b) of the 1977 CAAA. The more prominent provisions are briefly
outlined in Figure 25 on the following page.
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-60-
Figure 25
Selected Statutory and Administrative Requirements
Affecting the Section 105 Air Grant- Program *
Citation
CAA, Section 311 (a), (b)
40 CFR 30 410
412
501
502.
505(a),(b)
510
525
Subpart H
I
J-
40 CFR 35 205
210(a);(b)
215
Content
(a) Record-keeping for audit
purposes
(b). EPA and Comptroller access for
audit purposes
Allowable costs (CMB Circular A-87)
Proper use of direct/indirect cost
rates
Record keeping and retention require-
ments ;. .
EF7V access to records
(a) Progress reporting
(b) Financial status reporting (SF-26.9)
Sound financial management system
based on accepted accounting principles
Treatment of program income
Grant closeout
Nbncompliance measures
Deviations
Maximum Federal share:
(a) Annual maintenance of effort
(b) Nbnsupplanting of non-Federal
dollars
Limitations:
(a) Ability to develop a comprehensive
SIP
(b) Intergovernmental consultation
(c) Public hearing on disapproval,
termination or annulment
* Does not reflect changes of new 40 CFR 31
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In addition to general administrative requirements for grants
assistance EPA and its recipients are subject to statutory and regulatory
provisions specific to the Section 105 air grants program. These are
contained in Sect ion. 105 of the CAA and are, detailed in the Agency's
regulations. for State and 'Local Assistance* in 40 CFR- 35. Other regulations
dealing with financial .assistance are covered 40 CFR 32 (Grants Disbarment
and Suspension), 40 CFR 45 (Training), and 40 CFR 46 (Fellowships).. A new,
40 CFR 31, effective October 1, 1988, superseded certain EPA general
assistance regulations contained -in 40 CFR Parts' 30 and 33.
<~>f Effort *
It was the intent of Congress that sound air pollution control
programs be established and maintained by state and local governments
and that states should progressively assume more programmatic and fiscal
responsibility for this -effort. To assure this,: Congress included
requirements that the non-Federal financial level of effort be continually,
maintained or exceeded, and that Federal funds not supplant non-Federal "••'
funds which would otherwise be used. Congress also, recognized ttiat some
flexibility should be afforded recipients in meeting these requirements
.because of changing economic circumstances and occurrences in costs, and
that none of these provisions should penalize the recipients.
•
The MDE requirement contained in Section 105 (b) , and further
discussed in. 40 CFR 35.105 and 205, requires that a, recipient not decrease
its annual nori- federal level of recurrent expenditures . from the preceding
fiscal year's level. Recurrent expenditures are defined as those expenses
associated with a continuing environmental program. All expenditures,
except those for equipment purchases with a unit acquisition cost of
$5,000 or more, are considered recurrent unless justified by the applicant
as unique and approved as such by. the Regional Administrator in the
assistance award.
If a grant recipient inappropriately decreases its annual non-Federal
level of recurrent expenditures, the Administrator is directed not to award
the grant to the recipient for that year.11 The only time a reduction in
a grantees MDE is allowable is when the Administrator, after notice and
opportunity for a public hearing, determines that a reduction of the
grantee's matching contribution for the non-Federal level of effort is
attributable to a nonselective reduction in expenditures of all executive
branch agencies of the applicable unit of government.
11. See "Clarification of Section 105 Maintenance of Effort Requirements";
OEMD and GAD; September 12, 1988.
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Status Reortin
Regional Offices must assure that their grantees' assistance levels
and project expenditures are documented in final, end-of-year grantee
financial status'" reports. An end-of-year FSR is required no later than
90 days after the close of the applicable grant period. In. its final FSR
the. recipient must settle its. financial account for any funds., which are
unexpended ,. payable, to EPA or disallowed.'- Use "of program income must~also'
be resolved. A FSR is not considered final until all obligations are
liquidated. While FSRs purport to account for all grantee transactions,
FSR amounts are not absolutely verifiable without a detailed financial
review or audit. .
Auditing
Responsibilities and procedures for audit of recipients of EPA
financial assistance are spelled. out in Chapter 38 of ERA'S February 10,
1986 Assistance Administration Manual.
EEA is authorized to audit the- financially assisted activities of any
of its recipient organizations. While it is Federal, policy to place major.
reliance on; a recipient's own audits- (as long as they are carried out in
accordance with- applicable; Federal audit standards) EPA may request any
additional audits it feels are necessary to assure a grantee's financial-
integrity. The award official may request an audit as a prerequisite to
making an award of assistance, during the active project period, following
its completion, or for continuing program grants such as Section 105 —
following an annual budget period.
The Office of the Assistant Inspector General for Audits provides,
arranges and/or monitors the audit of EPA's financial assistance.
activities. EPA award officials must submit requests for audit of state
or local government recipients directly to their Divisional Office of the
Inspector General (DIG) . The OIG determines overall audit priority on the
basis of available resources and apparent need. Regional Administrators
and Assistant Administrators are the principal action officials for audit
matters. They must work with the OIG in conducting, responding to, and
resolving audit matters including the collection of disallowances from
recipients.
Recipients are responsible for having an A-128 organization-wide
("single agency") audit conducted at least every other year. Tiiese audits
must be independent, i.e. , the auditors must be separate and independent of
the recipient organization being audited. An organization-wide audit is a
broad audit of a recipient organization that covers all Federally -assisted
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projects and activities. The A-128 is intended to minimize Federal
presence while satisfying individual and collective audit requirements
of all Federal agencies. However, its depth and scope are not adequate
to track special terms and conditions characteristic of a continuing
environmental program nor does it providerthe level of detail necessary
for examining specific accounting transactions and funding use. More
detailed audits may be necessary. The DIG may also monitor the adequacy
of the A-128 'single agency* audits.
.The Grants or Financial Management Division of EPA Regional Offices
also conducts financial and compliance audits. These determine whether
the financial statement of the audited recipient fairly reflects the true
financial position and results of financial operations; whether the
recipient has complied with applicable laws and regulations; and whether
claimed costs are allowable.. Direct cost rates, internal control and
procurement systems may also be audited. The Regional Air Management and
Grants Administration Division may also conduct joint or concurrent
evaluations of, grantee programnetic and fiscal performance interrelating
the results of each to form a comprehensive assessment and approach for
resolution of deficiencies.
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CHAPTER 4
l
CRITICAL REVIEW OF TOE 105 PROCESS WITH SUGGESTIONS FOR IMPROVEMENT
Purpose
Whereas Chapter 3 provided a description of how the 105 grant process
operates this chapter provides a critique of the present program-and pro-
cess based upon extensive interviews held with each Regional Office, the
primary program offices, and approximately 20 state and local agencies.
General findings and suggestions for improvements are also incorporated.
The discussion is organized around six areas: (a) Regional Office organi-
zation, (b) priority-setting, (c) grant negotiations and work programs, (d)
allocation of funds, (e) program evaluation and grantee performance
resolution; and finally, (f) a brief discussion highlighting noteworthy
practices and procedures carried out by the Regions and their grantees.
Regional Office Organization
. Some Regions have reorganized their air program operations within
the last several years. As part of that reorganization, numerous Regions
strengthened their grants management and oversight functions reflecting the
increased attention being devoted to productivity and fiscal integrity.
The functional arrangement of Regional air grant operations has been
shaped by a variety of, factors. .These include: the volume and proximity
of grantees, the presence of local agencies, the degree of reliance upon
the State-EEA Agreement process, and senior air management preferaice.
Generally, those Regions with a greater number of grantees have project
officers or grants coordinators for each of their grantees. These person-
nel usually serve in an 'umbrella' capacity coordinating, informing and
consulting with Regional technical staff and Grants Administration on
grantee operations. Several of the smaller Regions rely upon a grants
coordinator within the Air Program to work with individual grantee project
officers, air technical staff and Grants Administration staff. 'For those
few Regions relying primarily upon the SEA approach, the roles of other
offices in the management and administration of grants and grant issues,
namely the Grants Administration Division and. the Policy and Management
Office, are more pronounced.
Regional grants'coordinators and project officers have stressed the
importance of senior Regional management involvement to encourage not only
grantee productivity but improve horizontal and vertical staff communica-
tion and enhance morale. In general, we found that the most productive
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Regional grant programs were those where senior management took an active
interest in grants issues and viewed grant program requirements as
strategic leverage in accomplishing air program objectives. Grants may
play less of a role in influencing grantee performance in some Regions,
however, since the balance of the Federal-state relationship may be
dependent upon larger factors (i.e., the degree of self-sufficiency of
the state or local program).
Above all we- found that"the interpersonal, negotiation-and technical
skills of the Regions' air grants staff had much to do with the degree of
grantee cooperation and productivity. Both Regional and state and local
personnel interviewed echoed this observation. All Regions strive to avoid
and resolve grants disputes at the lowest possible level, of course.
Determination of Program Priorities
Generally speaking, ERA'S priority-setting has largely been influenced
by considerations of the extent of various environmental problems and
prevailing popular and legislative perceptions. Correspondingly, indivi-
dual media and program offices promote those program areas with high
visibility and the potential to sustain continuing levels of resource
support.
However, in 1986 EPA embarked.upon a comparative analysis of. overall
environmental and human health risks associated with over 30 types of
problems. The analysis showed that the relative order, of risk did not
coincide with how the Agency was expending its resources and that several
air pollution problems ranking high in risk were not receiving funding
support commensurate with that risk.12
For the Air program, constraints on funding, and the absence of a
clear legislative mandate for emerging areas, have limited the ability to
target state and local assistance funds to all of the highest risk program
areas. Within present statutory limitations, however, the Air program has
targeted funds to the highest priority problems according to the largest
extent of the population affected by the greatest degree of risk. .
There is general agreement on broad program priorities among
Headquarters, the Regions, and state and local agencies. Differences that
arise center on the degree of emphasis afforded each competing priority
and a discontinuity in sustaining a financial conmitment to them. This
discontinuity often occurs because there is inadequate funding for an
expanding list of priorities that may vary from year to year.
12. See "Unfinished Business: A Comparative Assessment of Environmental
Problems", Overview Report; February 1987; U. S. Environmental
Protection Agency.
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Reaional Critique of the Priority Setting "Process
While Headquarters can only do so much in pursuing additional' funding
or updated .legislation, it has made extensive efforts to better explain the
myths* realities and complexities of the priority-setting and allocation
process to Regions and to state and local agencies. When the Air Resources
Study interviews first began over a year ago, many respondents indicated
they did not understand how national priorities were set' or how to
influence, them. .Some indicated they, misunderstood the Agency's spring
planning meeting to be the initial step in the discussion-and formulation
of priorities rather than the media programs' affirmation of them for the
Administrator." OAR's internal priority-setting'process actually begins
well-before the Administrator's annual Spring planning meeting.-
Headquarters has also taken steps to more intimately involve the
Regions in discussions on workload allocations, development "of operating '
and grants guidance, and the inclusion of Regional priorities. While
Regions have- indicated that there are more formal opportunities for their
input, some feel'their role is confined to consultation and not of direct
influence. This criticism is applied.to much of the Agency's decision- *
making, and reflects the inherent organizational tension created by EPA's
highly decentralized Regional Office and centralized Headquarters' policy-
making office structures. While there is" validity to the Regional
criticisms, program offices maintain that ultimately one decision point ' •
must be responsible for issues affecting the entire, country. This
"tension" can be anticipated to continue particularly in times of
competing priorities and limited resources.
From Headquarters standpoint the lead region concept has 'facilitated*
Regional input in the area of budgeting and grants. Working with one
representative entity has been much simpler administratively than dealing
with ten:- Some Regions noted weaknesses in the approach, -however. They '
were not critical of the particular Regional Office in the lead but rather
the overall effect of further delimiting an individual Region's direct
influence. It was observed, however, that a Region's influence was
proportional to its activism and that the lead region approach did not
constrain any Region from making its point. Nevertheless, several Regional
Offices felt that a majority Regional Office position was always needed in
order to alter Headquarters thinking. It was observed that being the lead
region for grants was, at times, a resource intensive task. One suggestion
was that the Regions and OAR consider providing additional or pooled FTE
compensation for a lead region involved in a particularly demanding program
area.
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Views on Prograinnatic Bnphasis
In addition to concerns about the process for priority-setting, .
Regional Offices had specific criticisms about programmatic areas of
enphasis and the subsequent-targeting of Section 105 funds. For example,
several Regions conmented that the Mr Program is constantly in a reactive.
node rather than a preventive none. Biphasis-and resources tend to be
concentrated on correcting nonattainment problems and not on prevention or'
maintenance. Criticisms pointed to slippage in .the NSR program, considera-
tion of PSD as a possible disinvestment, and. a redirection of resources.
needed for the tightening of current SIP regulations to other priorities.
Several Regions perceived an inherent bias in allocation decisions towards
large urban nonattainment areas. As a result, 'clean' areas experiencing
growth may be more likely to slip into nonattainment status.. Some state
and local agencies commented that areas like growth and land use planning,
indirect source review and other preventive and maintenance strategies,
receive no consideration in allocation decisions. As a result, some
grantees direct a portion of their non-105 resources to support these
activities'. .
It was apparent in .some Regions that, given limited funds, by
necessity among the- first areas considered to be cut or deferred were
maintenance, and prevention activities. EPA has'taken some recent steps
in this area, however (e.g., by bolstering its new source review efforts).
Several Regions indicated that a problem like PM^Q, which occurs in
some but not all of the Regions, was not being given adequate consideration
because it was not a national issue. Since those criticisms were first
raised; PMiQ activities have been funded in five of the Regions. However,
questions remain as to whether differing state and local requirements could
be better met with a more extensive regional tailoring of a portion of the
national allocation priorities.
It was also suggested that program priorities and targeting of
resources reflect those programs with the largest environmental payoff.
Scsne Regions were already doing inter- and intra-program analyses of
conparative risk at their own levels in order to better determine how to
allocate Regional resources, given current constraints.
Concerns About Changing Role and Purpose of the Section 105 Program'
Regions were not only concerned with how section 105 priorities were
set but also with how the overall identity and purpose of the Section 105
program might be changing, given the change in fiscal circumstances and the
potential shifts in Federal and state responsibilities. The Air Program
has accepted the concept of an offset equation - that additional work and
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increased operating costs must be offset by increased funds or disinvest-
ments, but the Air Program was still perceived by Regions and grantees as
sending dual signals that both the base program activities and all high
priority activities need to be accomplished.
The disinvestments initially suggested were seen as a having been
achieved or. falling far short of freeing up the necessary amount of funds
to enable a.meaningful undertaking of new responsibilities. Further
changes have given the Regional Office some additional flexibility but have-
raised questions as to whether the expanded redistribution of funds to high
priority activities threatens air program "infrastructure" activities. As
a result some Regions, which had argued for flexibility, have demonstrated
a reluctance to allow a withdrawal from activities which they consider
essential to ongoing program operations. Grantees, likewise, have demon- '
strated an opposition to suggestions for disinvesting in areas which are
highly visible, popular or mandated at the state or local level.
Various limitations to the disinvestments approach have been pointed
out. For example: (a), program offices, while recognizing the heed for
disinvestment, have still insisted that all their requirements be met;, (b)
disinvestments are not.allowed across major program areas (i.e., from
enforcement into planning) thereby severely constraining the utility of the
approach; (c) there-is no-overall Headquarters coordination of the
disinvestments approach;. (d) there is no logical comparison of suggested
disinvestment cost savings to the costs of new activities; (e) the easiest
cuts have been made making further choices extremely difficult; and (f)
there are unnecessary distinctions made between-certain "base" and
"priority" activities (in areas like ozone) which distort allocation
decisions.
Hie whole issue of redistribution has prompted some within the Mr
Program to raise fundamental questions as to what the Section 105 program
should focus on and what it can accomplish. Should it focus on maintenance
of the base? On promoting high priority objectives? On providing techni-
cal assistance or enforcing existing requirements, etc.? Many respondents
expressed a hope that the joint EPVSTAPPA-AIAPCO analysis of the costs of
state and local air operations could provide additional insight to help
answer these questions.
Grant Recipient^Critiques of Priority Setting
We found variation in state and local agency reactions to the
disinvestments concept. While some of the state and local agencies
interviewed felt that EPA needed to be more precise in defining specific
programs, others favored wide latitude in negotiations with their Region.
MDSt felt that disinvestments needed to be redistributed across and not
siirply within program element areas.
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We also found that when EPA and the grant recipient failed to agree on
certain technical and policy issues emanating from new responsibilities, or
from current problems like continuing widespread ozone nonattainment , this
policy dispute was transmitted into the grants arena negatively creating
additional tension in grant negotiations.
Some grant recipients felt that provisions for consideration of state
substituted' control strategies and measures -were not taken seriously by
EPA: Some respondents , including 'some Regional Of f ice staff, still feel
the 'priority-setting process, is too heavily EPA oriented.
State and local agencies indicated that, generally, 105 funds
directed to high national priorities have only been at a threshold level
and have not been adequate to support the development of a substantial
control program. "They also indicated a reluctance to commit significant
state and local funds to activities which did not have a clear national
mandate, or to which EPA had not defined its program direction. Several
agencies complained that high priority funds and supplemental grants were
used to spark a- state's involvement in one grant year but EPA priorities
would change the next leaving the state with- this- effort solely as its
responsibility.
r
Many of the state and local agencies interviewed also did not
understand" how the process for setting national priorities transpires.
While most agencies agreed that national priorities paralleled their own,
some exceptions were noted.. In the western portion of the country, a view
was expressed tliat there is bias towards large urban areas ozone non-
attainment problems at the expense of pristine and developing areas, and
problems more prevalent in the west like PM^Q and carbon monoxide.
Most all state and local agencies felt the overall grants process was
more open, with more opportunities for their input, and a greater EPA
receptiveness to their views.
Most , but not all , recipients rely upon ST^iPPA-AIAPCO to represent
their views- on national air issues. Pursuant to the Federal Advisory
Committee Act, EPA always avails itself to a variety and balance of. views.
For example, several grantees, while welcoming the mechanism of the State-
EPA Committee, felt it could be better utilized. -They felt the Committee
members need to be equipped with more detailed briefing materials, on a
more timely basis, so that more meaningful discussions can be held with the
States prior to consultations with EPA. State and local air agencies must
also make a concerted effort to see their views are adequately transmitted
through their state administrative hierarchy to the Committee.
Some states noted that, with the EPA's lack of a specific mandate for
a national control program in emerging areas like air toxics, the Air Pro-
gram has turned more towards the provision of technical assistance and
guidance, and the encouragement of state and local agency initiatives and
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participation in information clearinghouses. Several agencies also
suggested that if states were being asked to be the proving ground in
emerging areas then they should have a greater partnership role in
consulting on the development and conduct of EPA's research agenda.
One of the most crucial concerns of state and local agencies is „
program continuity and the certainty of funding. Respondents remarked that
EPA *s marginal redistributions at the national level can have more profound
impacts at the recipient level, particularly in smaller agencies. Most
agencies cannot hire or retrain personnel or shift resources as rapidly as
EPA' Headquarters envisions.. Grantees indicated that it may take an addi-
tional one to two years before grantees are in a position to adequately
respond to a modification in national priorities or a redistribution of
resources. To overcome this problem, respondents liave urged that OAR adopt
a more formalized multi-year approach to the planning and programming of
.its activities. This issue is discussed in more detail in an ensuing
chapter. -
Allocation Of Grant Funds '
In the past, the allocation of grant funds, particularly Headquarters
allocation to the Regions, has been one of the more controversial and least
understood of all grants topics. In the last several years, C&R has taken
numerous administrative steps to not only more fully explain allocation
decisions but to more actively involve Regional Offices and grantees in the
development of.priorities and distribution factors.
* *
Both before and after the advent of the PBAP, the Air Program
differentiated its national Section 105 allocation according to base and
high priority funding, redistributing the funds accordingly.13 In previous
years redistribution has not been a significant problem since it lias
'occurred in years of a net funding increase. Recently with a decreasing
or stable level of funding, redistribution has meant: (a) taking from the
base amount to fund high priorities, or (b) annually shifting dollars
within a high priority on the basis of a change in strategic or geographic
emphasis. TJiis has resulted in some Regions experiencing a net loss of
grant funds and exacerbated the problems perceived with the current
approach.
Even minor adjustments of dollars can cause some difficulty. For
example, one year Regional allotments were announced with rounded totals.
One Region proceeded to inform grantees of their target allotments based
on this'rounded total. When the actual total was finalized it was slightly
less than the original target. The Region then had to go back and inform
its grantees of the necessary reduction, many of which were already
operating at the margin. l
13. See August 3, 1984, G. Emison to J. Hidinger; and July 11, 1984
H. Laing to J. Cannon memoranda.
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Allocation Scheme
Allocation of funds is not an easy task as the Regions themselves
have discovered. Several Regions noted that they had recently reexamined
their own grantee, allocation schemes and had encountered, difficulties in "
reconciling the results of a logical analysis with pragmatic considerations
of grantee equity, need, and performance. , Criticisms of.'the-allocation
outcome depend on whether the Regional Office or~the.grantee sees itself .as.
a winner1 or loser. There will be winners and'losers in any readjustment of
the-allocation scheme (given the same level of funding) and the outcome of
any readjustment is uncertain. As a result, Regional Offices have shown a
reluctance to tamper with the status quo.
Headquarters faces these same dilemmas. The 1974 scheme was logical
for its time period (see Appendix D) but the validity of several of the
factors used in the 1974 rationale has diminished and several others are .
duplicative. Nevertheless several Regions maintained that, to confi-
dently reflect the air quality conditions of the 1990s, a comprehensive.
reanalysis of the allocation rationale was necessary. Increases in recent
years have been allocated on the basis of individualized rationales and
quantitative distribution factors. Some Regions have noted that the .
current allocation approach:
o does not adequately account for multi-regional scale, though
not nationwide, problems;
o targets funds to the most populated areas at the expanse of
growing areas or "threshold" attainment areas and not on the
basis of the problem in the Region as a whole; and
o does not target funds on the basis of the degree of grantees'
capability to produce results transferable to other less well-
equipped agencies.
Despite a lack of consensus on this issue, some Regions have
recommended that the allocation scheme reflect more Regional Office input,
be updated regularly, and have any resulting changes gradually phased-in.
Some Regional Offices are also concerned with statutorily imposed factors
affecting Regional allocations to grantees. These include: limitations on
the maximum and minimum allowable percentages of the total national grant
allocation available to any one grantee; maximum allowable Federal funding
percentages for planning versus maintenance types of activities; and funds
for Indian Tribal governments.
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Maxiinum and Minimum Percentages for Grantee Allotments
Ten percent of the national allocation is the maximum amount allowable
to any one state. None of the larger states receive more-than 6% of the
total national appropriation. While some of these states could request up ,
to the 10% level, awarding any one ,of them such an amount' would cause
immediate disruption to the other grantees. These larger states generally .
fund their programs at a much higher non-Federal.funding percentage than do
the rest. If the statute was modified to reduce the maximum percentage
available to any one grantee to 5%, then two or three states would be
affected. At a maximum. 4% level, eight states would be affected.
As we noted earlier, the statute requires that at least one-half of 1%
of the overall Congressional appropriation for state and local assistance
be made available to each state for application purposes. When funding is
limited and a grantee which had formerly not utilized its full one-half of
1% allotment now applies and qualifies for its full allotment, this has the
effect of reducing the 'funds available for allocation to other grantees.
This "natural" reduction to the other grantees can occur independent of a-
Region's policy decisions on allocation of its overall allotment. Since
1985, the number of states not utilizing-their full minimum allotment has
decreased from six to three. "
Still the one-half of 1% is not an entitlement. Hie grantee's .
assistance application must merit the funds and" must be appropriately
matched. EPA also has the authority to reduce a state*grant below the ••
one-half'of l% level if the state's work program is inconsistent with the
priorities detailed in EPA's guidance.14-
Negotiation of Assistance Agreements And Work Programs
Schedule
Most all respondents indicated that the expedited schedule for the
development and dissemination of operating and grants guidance has been a ,
noticeable improvement in facilitating grant negotiations. However, since
development and release of operating and grants guidance precedes
Congressional mark-up and appropriation by several months, any further
acceleration of the guidance would increase the possibility that its
content would not match the eventual appropriation's purposes. This would
necessitate additional renegotiations and adjustments.
14. See OGC memo to OPMD, "Reduction of the State of Vermont's Air Program
Grant," September 19, 1986.
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A grantee requires at least a minimum of two full months (from the
receipt of the annual grants guidance and allocation memo) to negotiate a
work plan acceptable to it and to EPA. Grantees cited the receipt of late
supplemental guidance (post-April 1} from Headquarters program offices,
(including items emanating from SFMS requirements) as problematic to grant
negotiations, particularly to grantees on different fiscal years, and not
in keeping with the principles laid out by the PBAP. Regional Offices were
placed in a-difficult negotiatory stance with their grantees when air
toxics and continuous emission monitoring guidance was released late in
FY"1986. However, this was primarily attributable to a late Congressional
mark-rup and .appropriation. .
There is now a relatively predictable, uniform schedule for disse-
mination of guidance, conduct of negotiations, and signing of grant
agreements, nationwide. Exceptions'to a timely process are: major delays
in receipt of the Congressional appropriation, delays resulting from
significant EPA-grantee work .program disputes, and where a grantee is on
a different grant period than EPA.
Hie acceleration of the operating and grants guidance has had only
a minimal iirpact on Regions with grantees on different grant periods.
Depending upon the Regional Office, variances in EPA and grantee grant
periods can complicate grant negotiations and oversight of performance.
Regions which accommodate the grantee's grant period must split their
fiscal year allocations, and must anticipate or work' on the basis of a draft
of the operating and grants guidance. Some Regions, to better assure EPA
high priorities will be.met, have, formalized the supplemental release of
funds at the point at which EPA'and, grantees grant periods can converge.
While varying fiscal or grant years do'not appear to be a major problem,
there is great .potential for complication in the negotiation, funding and
tracking of necessary program commitments. A Regional Office's oversight
capability, particularly of larger grantees, is diminished when required
to work "between years" with anticipated or draft requirements which may
continually need to be revised.
Several Regions' grant negotiations are subordinate to the state-EEA
agreement process which uses a consolidated assistance agreement.
Depending upon the Region, delays in negotiation and resolution in one
media can delay the entire award. In the case of a potentially lengthy
delay, the Regional Administrator may allow unilateral media awards to be
made.
Balance of Views in Negotiation
Reflecting the ijnpact of the PBAP, negotiations between Regions aid
grantees have been more cooperative. This includes the mechanics of the
process, explanation of and comment on allocation rationales, and
negotiation of realistic outputs. Some Regions view the PBAP as having
simply reinforced and legitimized their approach to grantee negotiations.
-------
Despite the PBAP and the Section 301 Regional consistency guidance,
the tenor of negotiations varies both across Regions and within Regions',
from grantee to grantee. This is due to a variety of factors such as:
historical state-Federal relationships, past grantee performance, per-
ceived 'federal funding leverage, personalities, and staff capabilities.
The FBAP recognized -that air quality control program approaches vary
widely and left latitude for flexible interpretation and application.
While EPA Headquarters outlines broad grants policies, procedures and
requirements, it is the Regional Offices, by necessity, which .effectively
manage the grant program and provide guidance to recipients on what needs
to be accomplished. . •
With these considerations in mind, EPA has produced grant guidance
intended to foster uniform and equitable treatment of grantees, including
the withholding of grant funds and the escalation and resolution of grant
negotiation and performance disputes.15 This guidance complements grant
regulations and grant requirements currently in place.16
Resolution of Differences
The Regional Offices prefer to resolve'grant work program negotiation
disputes at the lowest possible level. Only a small percentage of the
total amount of grant dollars available are ever subject to dispute
(usually less than l to 3% per Region).
* . •
Some states indicated their influence on grants and program priority •
matters was greater now than three or four years ago. Other recipients,
and some Regional Office staff, still feel the negotiation process is top
EPA-oriented particularly in light of the decreasing percentage that the
Federal 105 contribution constitutes. While a certain amount of natural
intergovernmental tension can be expected in areas where priorities and'
recontnended approaches may vary, a lack of Federal direction in some
program areas, combined with a changing balance in relative percentage
contribution, exacerbates this situation. On the other hand numerous
respondents, including grantees, also Garmented that EPA had every right
to expect results oriented performance from its grantees since Section 105
is not an entitlement program and.the environmental priorities of the
grantees normally parallel those of EPA.
15. See "Procedures for Resolving Grant Negotiation Issues"; J. Craig
Potter to Regional Administrators; December 1, 1987.
16. EPA Grant Assistance Regulations, 40 CFR Parts 30, 31, 33 and 35.
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While state and Federal priorities are usually parallel, grantees
oppose any Regional practice of requiring them to implement an air
program activity which is neither required by the C?A nor contained in
the operating guidance. Grantees also opposed what they described as an
occasional EFA practice of inducing grantee participation in a new acti-
vity, with a supplemental award and subsequently incorporating that as
part of the grantee's annual performance requirement, without providing
sustained funding. They pointed out that this-has contributed to their
desire and practice of excluding, funds-they devote to those air activities
outside the 105 assistance agreement which are not clearly within the
authority of the present C?iA. Grantees have been critical of EPA's
insistence that nonfederal funds be devoted to a program or activity for
which the Agency's direction, policy, intent, and authority, are not
clearly defined or are uncertain.
Grant Work Programs
While there are still inadequacies, the advent' of the PBAP has
brought overall improvements to Section 105 work-program content with more
specific, realistic, and measurable outputs and agreed-upon milestones.
The weakest work programs were those which were heavy in objectives and-
process description and light on actual outputs and commitments.
While some Regions produce a standardized narrative of annual
requirements pertaining to all their grantees, most.Regions accommodate
their grantees' own work program formats. As noted earlier, many agencies
utilize their work program formats as their internal management documents
reflecting a longstanding or uniform state agency administrative approach.
Work program development is one area where Regional Offices and
grantees have been or may be able to increase their productivity by saving
time and resources. Some ROs compose a schematic of a state's 105 program
for the year and transmit this via flexible computer disk to the grantee.
The grantee amends it and returns the disk to the Region. Subsequent
transmittals and discussions may occur. The work program document is
eventually agreed upon and easily produced. Approximately half of the
Regional Offices now use or will soon convert to a computer-based format..
The remainder of Regional Offices, subject to automatic data processing
budgetary limitations, have been encouraged to convert to this format as
soon as practicable.
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-77-
In the past many work programs accounted for only a portion of the
entire grant award.' Only priority activities were discussed and little
documentation was provided on base activities. This contributed to a
perception that Section 105 was an entitlement program and not a perfor-
mance program. Presently, Regional Offices and grantees are making better
efforts to see that the work program describes specific tasks, projects or '
programs related to.all funds- in-the grant award. Nevertheless, for •
economy's sake. Regional .Offices, tend to focus their attention regarding
funding accountability on national high priority activities; activities
associated with litigation and promulgation; Regional priorities and the
previous year's unmet commitments.
In the assistance agreement thev anticipated level of overall
expenditures is often differentiated by. object class. The majority of
costs '(75-80%) in work programs are estimated to be attributable to ;
personnel and fringe benefits. Many grantees are now accounting for their
costs by time and activity in order to satisfy their own internal state or
local fiscal management requirements. Several grantees viewed this as a
valuable exercise since it provides useful management information-on
resource expenditures and improves their internal management.
Many Regional Offices indicated that their primary concern was that
required outputs be accomplished. How the grantees spent their funds was
of secondary importance. Regions wished to avoid having to micro-manage
Section 105 grant funds. However, numerous Regions indicated that when
grantees fail to accomplish required outputs a primary explanation is that
not enough time and resources are available. Many Regions are thus caught
in a paradoxical situation - not wishing to micro-manage on one hand but
unable to confidently pursue specific disinvestments or reprograntning clue
to a lack of insightful information on the other. Many respondents hoped
that the survey of the costs of operating state and local air agencies
could provide much of the detailed information that Regions normally forego
•requesting from their grantees. The timeliness of the completion of this
survey and the assessments of the results are still in question, however.
Part of the reluctance shown by Headquarters.and the Regions to
identify specific activity costs is due to an underlying belief that the
program or activity might be seriously underfunded by EPA (that EPA is
asking too much be done with too little funding), or by an underlying fear
that grantees will abuse the opportunity to overestimate the actual costs
of carrying out air program activities and unjustifiably receive more 105
funds. This, of course, would constitute a supplanting of non-Federal
funds with Federal funds - a situation specifically prohibited by the Act
and the grant assistance regulations.
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Grantees also exhibited some trepidation about including a
description of their overall air program activity with their Section 105
work program, the PBAP and EF&'s October 12, 1982 grant regulations urge
inclusion of the description of all activity even if dollars need only be
identified for those activities supported by Section 105 funding. Several
Regions regularly request this information of their grantees but have not
received an overwhelming response. Initial responses to the survey of
recipient agency 105 program costs have been a bit more enlightening (see
Figure 26). Nevertheless, grantees fear that EPA will require them to
include all their air activity funds in their maintenance of effort level
thereby reducing their ..flexibility and,enabling EFA to redirect their
funding.
EPA. maintains that it must document what activities can and cannot be
accomplished given, the limited amount of funding available. To better make
a case for additional resources or to properly target resources or to
identify additional needed statutory authority, the Air Program finds it
is essential to know what other air activity is being carried out and how
this further burdens state and local agencies.
Figure 26
A SELECTED UST OF ACTIVITIES CONSIDERED
iY SOME GRANTEES TO BE OUTSIDE THE 105 PROGRAM
ACTIVITY
* Mr toxfce monitoring
* Air toxics enforcement
• Stage II
* Selected oftr qualify planning
* Antl-toinpering
* Woodbumfng
• Open buming/vfefeiftx
* Aefaeetoe echool program
• Note
• High altitude * alternative fueto
* Public Information
• Complaint handling
* T5P monftodng
• Private monitoring
* Alr/RCRA support
* Superfund air monitoring
AGENCY
NJ. Rl
Nil, Rl
NJ
NJ. Lone RCG
Tampa
Tampa* Lone
Colorado
Tampa
Colorado
Tampa .
NJ
Tampa
NY
Alabama, NY
NY
Source: State and Local Air AdMon PBot Sumy ;1987.
AetMUe* Ihted ore for FY 1986. Certain of thw* aetMHw
4Ael
IUQ
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Proaram Evaluation and Performance Resolution
While the OIG criticized some Regional Offices for their inconsis- .
tency in evaluation of grantee performance (e.g., tracking-only high
'priority items, no annual on-site visits, vague commitments, failure to
follow-up and rectify previous performance problems, etc.) this occurred
prior to the institution of the PBAP in FY 1986.
Over the last several years the PBAP and the OIG audits of selected
Regional Office's management of the Section 105 grants program have
fostered a more uniform approach among the Regions in evaluation of
grantee performance. These developments.have also encouraged the submittal
of work programs with more specific outputs and,milestones which, in turn,
facilitate program tracking and evaluation.
Most Regional Offices rely upon quarterly grantee progress reports
and on-site mid year evaluations for the bulk of their 'oversight. The
Regions often use the work program section containing grantee commitments,
measures, outputs and schedules as its tracking document. There is a treiid
among Regions to utilize computer-based quarterly tracking status - reports.
These are periodically forwarded to grantees as reminders of completed,
missed or upcoming products. Some grantees have indicated, that EPA's
. tracking'has enhanced their own efforts to better manage their programs.
Grantee reaction on the burden of EPA reporting requirements was varied,
however. Some felt there were too many reporting requirements.while others
noted that their Region had made a conscious effort to reduce any
unnecessary reporting and oversight.
Several respondents felt EPA should conduct less oversight and
provide more technical assistance. They indicated that added EPA invest^.
ment in technical assistance and training would make EPA requirements more
palatable and reduce the need, depending upon the grantee's record of
performance, for extensive oversight. .
Examples of grantee reporting requirements to EPA are shown in Figure
27. Grantees must report on various program office requirements on a
quarterly, monthly,, semi-annual or annual basis. We examined the perfor-
mance workload of what could be considered to be an average grantee. The
reporting required of the grantee numbered over 450 separate occurrences.
While some of these are perfunctory updates (some compliance data system,
or CDS, entries, for example) this figure represents approximately two
reports per working day of the year. This points out not only the
reporting demands grantees face but the complexities of managing an
ever-burgeoning Air Program. While there is some inconsistency in
application of reporting requiranents nationwide, EPA does riot view its
requirements as being unreasonable given the importance of. some of the
reporting areast the past performance of certain grantees, and'continuing
problems of nonattainment. ' .
-------
, Figure 27
Sample of Reporting Requirements for One Grant Year
Request NSPS delegation
Submit new NSPS/NESHAP
NSPS/PSD determination
NESHAP Reg determination
Permit processing status
CDS: construct./start up
CEM waivers/exemptions
CDS: BACT/LAER rpts.
NESHAP permit applie.
COS inspection schedule*
VOC warkpIan
EPA inspection agreement
CDS: stack test/CEM cert.
CDS: scheduled tests
CDS: inspections
Report citizen complaints
CDSt compli. status- all
CDSt comp. •tack/CEM tst.
CDS: enf/prmt schd status
EPA ref.complaints status
CDS update
Workplan progress dates
State plan of action
CDS: en*, statistics
CDS: fines, fed-fac,
stk tsts, notif
CDS: list of all NOVs
CDS: violations
Sign. viol.- no actn
Enf. action plans
Investig. in progress
CDS: enf actn initiated
CDS: enf actn completed
All enf actn completed
SVi in comp/on schd
All variance*
CDS: update CEM inventory
Qrtly emissions, rpts
Sum. rpti EERs-CEMs
CDS: CEM rptg
NESHAPs vinyl chlr. rpt.
Demo/reno revisions
CDS: NESHAP d/r info
EPA ref. .invest, status
Public amp lye asbest. wk.
Asbestos remvl notif
List potentl HAP sources
Finalize HAP sources
Initial strategy devlpmt
Air toxics (AT) NSR
AT Emsn Invntry
High Risk strtgy devlpmt
M
e
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
K
X
X
X
X
X
X
X
X
X
x,
X
X
X
X
X
-------
Hi-r«k pt source ret/eval
SLAMS revieWcert/QA
Air quality data P/A
ExceedancM- pub. no tie*
Acid depee. monitrg.
Acid rain P«"9''»- rpt
Source eon-firm.
PMlO sampler rpt
PM10 NAMS/SLAMS r«v«n rpt
PMtO SIP workplin
NEDS updat»/r«liab. rpt. ,
Visibility strtgy/plan
Up*«t /malfune. rpt
analysis, plan, sources
Qptcl seanr stats
Unannouncd audits X/M
v«h. I/M status
Fuel inspection program
Anti tamprg Q's
Midyear grant corrsctns
Revsns to QAPgP
LOG voucher
Cash transactns rpt
Final FS*
List o* proprty/yr. inv.
Class B rpt./strgy/e.i.
03 source update/strtgy
Start 03 emissns tracking
M * monthly
Q • quarterly
B * biannually
A « annually
O * other
x,
X
*
X
x
x
K
X
X
X
X
X
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-82-
The mid-year, on-site evaluation is usually the chief vehicle tliat
Regions rely upon to assess grantee performance and take any corrective
action. Usually the site visit is preceded by a Regional staff meeting
involving air and grants elements where the grantee's overall performance
is discussed and deficient areas identified. While Regions tend to place
greater emphasis on assessing progress in high priority activities, routine
program operations are-also assessed. The FBAP states tliat all grant
dollars should be treated equally and' are* subject" to performance expecta-
tions. Some recipients mistakenly assumed that since an activity was1 not
noted as"being of high priority it was necessarily less important in terms
of accountability.
Not all Regions conduct mid-year on-site evaluations. Those Regions
which do not tend have the most number of grantees. These Regions attempt
to conduct a continual grantee oversight through ongoing tracking and
continual EKV project officer contact. Depending upon proximity, Regional
staff will meet quarterly or more frequently with their grantees. All
Regions produce an end-of-year evaluation of their grantees' performance.
These usually take the form of written reports which document overall
progress and any corrective actions taken to. address mid-year problems.
Regional Offices vary in how they take' advantage of mid-year
evaluations and relate these to their'overall approach to planning and
evaluation: For example, only a' few Regions coordinate and interrelate
NAAs with Section -105 grant evaluations since they feel these evaluations
focus on different aspects of the grantees' program operations: NAAs
tend to focus on the qualitative aspects of major program areas while grant
evaluations generally focus on particular outputs. These two activities
generally occur on different schedules. However, several Regional Offices
indicated tliat they include certain of the identified NAAs deficiencies as
grant work program items to be corrected in the following year. NAAs
activity has recently been slowed with the delay in receipt of NAAs
guidance from Headquarters. Nevertheless, most Regional Offices who
conduct mid-year evaluations will take advantage of their occurrence to
influence grant negotiations for the next fiscal year.
It was also apparent that over the last five years, because of
increasing responsibilities and limited growth in funding, Regional. Offices
often have reduced emphasis, on grantee performance evaluation, tracking and
accountability in order to obtain needed disinvestments. The OIG audits,
however, may have encouraged a reversal of this trend.
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Corrective Action
As we noted earlier, Regional Offices generally'wish to avoid having •
to impose corrective action and instead resolve performance problems at the
lowest possible staff level. While a work program is viewed by most
Regional Offices as a contract like document, Regional Offices generally
exercise discretion and flexibility before initiating any corrective
action. * .
A few Regional Offices view any withholding of grants as counter-
productive and reflect this in their approach to negotiations. Conse-
quently grants do not serve to leverage grantee performance in these
Regions. During grant negotiations most Regions pursue a course of
conditioning a subsequent year's award to correct a current year's problem
if negotiation and technical assistance prove unproductive.
Some Regional Offices view the FBAP's escalation procedures as overly
time-consuming and restrictive. Despite the perceived limitations of the
PBAP, most" Regional Offices still employ a variety of mechanisms to
influence,-encourage, reward or sustain grantee performance. These
include: •
• o varying degrees of flexibility and constraint, in carry-over, of.
unexpended funds;^
o adjusted schedule of award;
o supplemental awards; . "
o valuations of Federal promulgation liability; • ,
o use of IDE contract assistance;
o forward funding;
o set asides; and
• o performance and workload allocations.
17. Regional Office practices on the use of carry-over funds are subject
to guidance issued by EPA's Office of the Comptroller. See
Comptroller Policy Announcement No.88-09, "Disposition of Unobligated
Balances of Assistance Awards"; May"6, 1988.
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-84-
Some Regions now anticipate a grantee's unwillingness or inability
to carry-out certain required activities. They set aside the appropriate
funds for use by the grantee upon its acceptance of the activity or for use
by EPA or its contractor if there is a continued failure of the grantee to
conmit to the required activity. Tolerances among Regional Offices for
the correction of grantee non-performance vary from one to two years,
depending upon the severity of the issue. One Region awards a small
portion of its grantees' allocations on an' after-the-^fact,assessment of
their performance, according to explicit evaluation criteria spelled out-
in advance. While this approach is still developing .and may contain some
inherent subjectivity, it comes closest to a pure performance based
rationale for the award of funds.
Enhancing Grantee Performance .
Performance Incentives
Incentives have not been pursued with great, zeal because they are
viewed primarily in terms of increased funding. Given the number of
carpeting priorities, surplus funds are presently not available at any
level that would enable a financial incentive scheme to be viable.
Grantees may also show a reluctance to accept supplemental funding because
they do not* wish to get Locked into a program activity which they view as a
pilot or exploratory effort that EPA may not fully commit to but may expect
the grantee to continue. However, we found most Regions have made it
explicitly clear when an activity is of a supplemental nature.
Incentives may also be provided in other forms, of course. These
include: reduced reporting, reduced oversight, and flexibility in
disinvestments. However, the demands of program and Regional Offices in
light of continuing nonattainment problems,, past grantee performance plus
executive, and legislative branch budget pressures thus far have
discouraged any formalized OAR-wide approach to grantee incentives.
Provision of Technical Assistance
Performance enhancements need not be limited to financial rewards or
flexible progranmatic requirements. Interview respondents.also indicated
that grant recipients were more receptive to EPA requirements when accom-
panied by adequate resources and technical assistance. The Administrator's
Task Force on Technology Transfer and Training reiterated this point.18
The task force also noted that as environmental improvement programs have
18. See "Final Report of the Administrator's Task Force on Technology
Transfer and Training", December 2, 1987.
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-85-
matured more direct responsibility lias been shifting to Regional Offices
and to State and Local agencies. The task force urged that EPA look
beyond its traditional focus on regulation and enforcement and place a
renewed emphasis on training, technical assistance, and technology
transfer.
In a'recent report on training needs for Section 105 recipients19,
STAPFA-ALAPCO indicated training is a crucial form of Federal support
that state and local agencies cannot entirely provide for themselves due
to a lack of'resources and developed dependency on EPA's earlier CAA
training efforts. Accordingly without Federal assistance, state and local
agencies have found it difficult to prepare newly hired personnel for
competent performance and to keep experienced technical and- scientific
personnel abreast of regulatory revisions and newly adopted requirements.
Section 103 of the CAA, requires EPA to provide and promote training
on the causes, effects, extent, prevention and control of air pollution.
This training has been offered gratis for personnel of air pollution
control agencies, and at a reasonable fee for public and other nonprofit
entities. In the early 1970Ts, EPA initiated manpower development and
academic training programs for state and• local .agency capacity building.
Through its Air Pollution Training Institute (APTI) and University Area
Training Centers, EPA also offered special short courses and self-study
courses.
Over the years, however, funding for EPA's training program lias
declined from a high of $1.8 million in FY 1972 to zero funds in FY 1988
(see Figure 28). Training assistance could normally be expected to
diminish as state and local programs mature. Additional complex air
pollution problems have emerged, however, compounding the need for a wider
dissemination of information, knowledge and improved skills to state and
local personnel. These problems include: continued 03 and CO nonattain-
ment PM10' ai-r toxics, acid deposition, stratospheric ozone depletion,
indoor air, and cross-media pollution.
The APTI has identified a number of existing courses which need
revision to more appropriately reflect changed regulations, procedures and
advancements in technology. These include: introductory air pollution
control courses, courses on dispersion modeling, field enforcement, source
sampling for particulates and gases, atmospheric sampling, microscopy,
hazardous waste incineration, quality assurance for emission measurements,
monitoring site selection, etc. The cost for addressing current inadequa-
cies has been estimated to be approximately $2.5 million.
19. See "Training Needs for State and Local Air Pollution Control
Programs"; STAPPA-ALAPCO; April 20, 1988.
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Rgure 28
AIR POLLUTION TRAINING INSTITUTE FUNDING
UUJONS or ootuws
CCNOROSCNAL FUNDS
B»AFUMB-
FBCN.TOR
STAPPA-ALAPCO has also called for the development of a national level
state and local technical coordination program utilizing information
clearinghouses and technical workshops. The Air Program has already been
providing a considerable degree of technology transfer and training assis-
tance for some time but has not identified a formal structured approach to
do so. However, the Air Program's FY 198.9 budget submission specifically
outlines state and local program capacity building and technology transfer
assistance requests. OftR anticipates receiving $700,000 for state and
local training assistance in FY 1989.
Utilization of EPA Stgff Expertise
In the past, EPA has employed the use of Intergovernmental Personnel
Act (IPA) and state assignee programs whereby EPA and other qualified
personnel would be temporarily assigned to a state or local agency to
provide direct on-staff expertise. As resources have tightened, use of
this mechanism has dwindled. Since FY 1982, less than 50 EPA Headquarters
and Regional Office personnel, involved in air program activity, have
worked at the state or local level. These persons have brought to these
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ageneies the benefits of their expertise and have returned with a broadened
outlook of intergovernmental air program operations. During the course of
the ARS interviews, numerous respondents, particularly state and-local air
agency directors and staff, indicated that some form of a revitalized state
assignee or personnel exchange program should be promoted and expanded to
help transfer knowledge and improve intergovernmental understanding. One
Region and its state and.local agencies have expanded their efforts in
this area by exchanging Regional office and state and local personnel in
key positions for a period of- several months to a year.
Exemplary Regional Office Practices and Procedures
Mr Resources Study interviews conducted during the fair of 1987,
documented numerous exemplary Regional approaches to managing various
aspects of the Section 105 program. There are different geographic and
environmental circumstances and challenges facing each EPA Regional Office
in managing the Section 105 program. As a result, there are inherently
different Regional approaches striving for efficient management of the
grant program.- These examples from across the country may prove useful in
assisting other EFA Regional Offices to adopt similar approaches in their
grants management efforts. All key aspects of the grant management.
process, from providing effective grants guidance to insuring .grantee
financial integrity, are represented in this listing of exemplary
practices. . • •,
. The Regions currently carrying out these practices are noted in
parentheses. - • . . '
(a) Grants Guidance
b Issuance of a manual for both internal and external use covering
Regional Office organization, policies and procedures for the
administration of the section 105 air grant program (II, III, IV,
X)
(b) Allocation
o Documentation to grantees of the justification of how the Region
allocates grant funds to them (II-VII, X); the opportunity for
grantees to .comment on alternative allocation scenarios for all
grantees within the Region (IV, X); and Regional reexamination and
periodic update of its allocation assumptions and factors (I, VII,
X)
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o Regional assurance that national air program priorities are
addressed by use of a two step (base and high priority) allocation
procedure which reconciles the variable grant periods of its
grantees with the release of EPA's annual operating and grants
guidance (VI, X)
o Use of a committee of grant, recipients to advise and select with
the Region the appropriate*programs-to be funded with high
priority dollars. These-programs are judged to provide the
greatest air quality benefits for the Region as' a whole (xj
(c) Negotiation
o Use of early spring pre-negotiation meetings between the Regional
Office Air .division director and state and local air directors to
discuss issues, priorities and funding targets, etc. {virtually
all Regional Offices)
o Grantees detail the amount of resources needed, the-resources
available and the resulting shortfall for each objective for tlie
coming year allowing for more realistic planning and negotiation
of. workplans between themselves and EPA (II)
(d) Work Programs
o' Composition of standardized grantee work program (with allowances
' made for tailoring grantee specific activities and requirements)
using a personal computer"based, spreadsheet format and a computer
disk for transmittal and interactive editing (I, III, IV)
o Encouragement of grantees to include a description of all of their
air program activity within their Section 105 work programs (IV,
VI, X)
(e) Tracking and Evaluation
o Provision to grantees of a detailed summary of air grant program
reporting requirements for the year at the same time that Regional
grants guidance and the target allotments are issued (I, IV)
o Compilation of grantee reporting requirements on a personal
computer based tracking form which is then regularly forwarded
to grantees, along with "tickler" letters to document outputs tliat
are submitted, missed or upcoming (I, VI)
o Formalized grantee performance review involving the Regional air
program senior management (I, V, VIII, X)
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-89-
o Internal management tracking system for air branch chiefs covering
air grants status (I, VIII)
o Linking program deficiencies identified in national air audit
system evaluations to mandatory air grant performance conditions
for the ensuing grant period (IV, X) specifically attempting to
time and coordinate grant evaluations with NAAS audits {VII)
(f) Improving Performance
o Selected use of explicit criteria linking objective measures of
• performance to corresponding levels of 'earned' grant funds -
essentially a pure application of the PBAP (V)
o. Judicious use of the adjusted schedule of award approach to
encourage grantee assumption of responsibilities and grantee
performance (I, VI)
(g) Grantee Support
o All of the Region's grantees contribute at least 40% of their air
program funding (II-VT, IX); Region keeps abreast of its grantees'
permit fee activity (VI, X)
(h) Grantee Financial Integrity
o Well integrated working relationship between Regional program and
fiscal staff (I, III, V, VIII); fiscal staff accompanies program
' staff on grantee site evaluations (III, VIII); fiscal/grants office
has trained accountant-auditor as part of its staff (III)
o Region's fiscal staff conducts workshops on proper fiscal and
grants administrative procedures for state and local agency
financial officers; formally reviews new grant and fiscal
requirements with its air grantees (I)
CftR plans on continually compiling and disseminating information on
exemplary Regional Office and recipient grants management practices
throughout the year, as well as during the air grant coordinators' annual
meeting.
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CHAPTER 5
ASSURING FINANCIAL INTEGRITY
Background
Each recipient of Federal Section 105 grant assistance is obligated to
maintain a sound financial management system which will allow a verifiable
accounting of the proper use of these funds. This chapter discusses the
fiscal accountability aspects of the Section 105 program.. As such, it
focuses on concerns raised in audits recently conducted by the DIG of
selected Regional Offices' administration and management of their section
105 grants. ,
The OIG initiated an audit of the Section 105 Air Grant Program in
late 1984, at the request of a former AA for Air and Radiation. The AA's
request was made after reviewing the results of a major OIG audit of the
Water Program and reports by the GAD and OIG, suggesting that certain air
grantees.may not have been meeting their LOE requirements for the con-
tinued receipt of Section 105 funds. The OIG, after reviewing background
documentation, which included a June 1985 OPMD state and local Air
Resources Study, performed a pilot audit of Region VII and subsequently
performed audits of four additional Regional Offices (II, III, TV and IX).
The OIG focused its examination on the adequacy of Regional Office
administration in three areas: (a) iitplanenting EPA policies, procedures
and controls for the award, monitoring and evaluation of the grants; (b)
ensuring compliance with grantee maintenance of effort* requirements; and ."
(c) assessing the accuracy, completeness and reliability of grantee
financial status reports. . •
Basically the OIG audits found that certain Regional Offices were
having difficulty assuring that their grantees were meeting. their required
MDEs (appropriate amount of funds contributed by a recipient in order to
receive its Federal award). ' A variety of grantee practices, both inten-
tional and unintentional, were identified as causing grantee failure to
meet the MDE. The OIG also felt that the then current approaches used by -
Regional for.grant tracking and reporting did not enable an accurate
assessment of the performance and accounting integrity of their grantees,
without having to have a detailed audit performed. The OIG also criticized
the vagueness of many grant workplan commitments, and the lack of relation-
ship between commitments, expenditures and output. Figure 29 provides a
general summary of the major OIG findings.20
20. A more detailed summary of the OIG and results is contained in an
April 17, 1987 memorandum from OFM3 to the Regional Air Grant
Coordinators.
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Figure 29
Summary of Major OIG Criticisms
By EEA Regional Office
\
OIG Criticism Region
II III IV VII IX
Failure'of..Regional Off ice to x x x x x
ensure that grantees continue to
meet their maintenance of effort
Inadequacy of Regional Office's • x x x x x
monitoring and evaluation of
grantee performance
Lack of maintenance of basic - - x
accounting (disbursement)
controls
Questionable validity of grant x - x
awards
In May 1987, OAR and GAD jointly formed a task force to address
numerous concerns surrounding the administration of the Section 105 air
grant program/ including those raised by the OIG audits. Representatives
from the Air and Grants Offices in all ten Regions also comprised the task
force. The task, force produced a series of papers which examined numerous
air grants administration issues and posed possible solutions.
On September 1, 1987, auditors from the OIG met with representatives
from the Office of Air and Radiation (OAR), Grants Administration Division
(GAD) and the Office of the General counsel (OGC). The outcome of the OIG
audits of five Regions' administration of the Section 105 air grants
program was discussed, as well as other issues the groiq> felt merited
national attention.
At that time OAR also summarized the status of the ARS. The ARS had
also identified the same national issues raised by the OIG audits. These
issues were examined more thoroughly' in a series of interviews held with
the ten Regional Offices, Headquarters program offices and selected state
and local grantees.
As a result of these discussions OAR and GAD have issued additional
guidance and clarification on key provisions of one"major area of concern
covering numerous inconsistencies — the proper interpretation and applica-
tion of the maintenance of effort requirements. The discussion which
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follows outlines the major issues highlighted by the 'DIG audits and the air
resources interviews, and describes the corrective actions taken or the
remaining problems and suggestions for their resolution.
i " .-
Adequacy of Negotiated Wbrkplans - •
The OIG identified instances where certain grantees' work plans
lacked specificity as to expected outputs and where some grantees failed to
complete-agreed upon commitments. The audits also noted where a Region had
not taken action to rectify these situations..
The ARS examined each Region's approach to the negotiation of grantee
cooperative agreements and work-plans, as well as the mechanisms used to
assure grantee performance. It must be noted, that the OIG audits and
criticisms pertained to the fiscal years prior to 1986 when the Air Program
first adopted the Agency's May 31, 1985 PBAP. •
The PBAP was specifically designed to improve overall grantee and EPA
performance by clearly defining each party's negotiation protocol and per-
formance expectations. The PBAP placed increased emphasis on negotiation
o'f realistic work plans containing firm commitments,: and measurable outputs
according to a specific schedule. Every Region had either made changes to
anbrace the PBAP, or demonstrated how it had reinforced its current prac-
tices that conformed to PBAP principles. Virtually every Region felt tliat
adoption of the PBAP had fostered unproved grantee work plans. As a
result, these work plans better articulated performance expectations and
made the evaluation of performance much more straight forward.
Regions pointed out that the quantification of some workplan tasks and
outputs was necessarily imprecise since the degree to which these activi-
ties could'occur would not be ascertainable at-the. time the grant agreement
was being negotiated. There were, a few instances where certain grantees'
work plans were still somewhat objective oriented rather than output
oriented. For these problem situations the Regions expressed a strong
desire to exchange information on the approaches each was using- in order to
continually improve the negotiation process and work plan contents of their
grantees. To this end, the Regional Offices continue to exchange wliat
they feel to be exemplary work plans.
In addition to this Regional exchange of information, the Air Program
also held a Regional Air Grant Coordinators' meeting and technical workshop
in March 1988. Ways to further improve the negotiation, developnient,
contents and accountability of grantee agreements and workplans were
discussed.
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Qne suggestion, the utility of adopting a standardized grantee
workplan format for use.nationwide, was raised as a possible method to
ensure national consistency. This was opposed, however, for practical
reasons since many grantees use formats which conform to their own state
administrative requirements and needs. Regional Offices felt they could
deal with varying formats as long as the information needed by EFft was
clearly identified.
There was. a. consensus.'tliat the'provisions of the FBAP* had addressed
the OIG's concerns regarding work plan adequacy. As we noted earlier, we
have found that overall grantee work plan quality and specificity has
improved noticeably in the last two years. Of course, Regional Offices
must continue to press for clear, specific, and measurable work plans aid
this will likely be a continuing topic of interest at annual Regional Grant
Coordinators meetings.
Assurance of Maintenance Of Effort
A majority of the overall OIG criticisms were related to the second
major category of concern - assurances that grantees were meeting their
maintenance of effort (MDE) requirements.2-'- Essentially the MDE provision
requires that the grant recipient not decrease its annual non-Federal level
of recurring expenditures from the preceding fiscal year's level, with
certain exceptions. Within the MDE category were two issues: (1) the
proper definition of the MDE, which is affected by multiple factors, each
with varying interpretations, and (2) adequate Regional Office and state
and local procedures to ensure the MDE was being met.
Each concern was exanined as part of the ARS and the Air Grants Audit
Task Force effort. Issues addressed included:
- differing planning versus maintenance percentages and impact upon
grantee contributions;
- varying interpretations and applications of the definition of
nonrecurrent expenditures;
- non-selective;reductions in economically hard-pressed areas;
- treatment of local funds as part of a state's matching
contribution; .
- certification and verification of the MDE; and the
- adequacy of financial status reports.
The growth of non-105 air activities was also raised. This topic is
discussed in the next chapter.
21. MDE is also known in the Air Program as the continuing eligibility
level or continuing level of eligibility (CEL). For consistency's
sake it will be referred to as the MDE.
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Planninq Versus Maintenance Costs
Section 105 (a)(l)(A-C) of the CAA defines the maximum Federal share
of funding for state and local air pollution control programs as 60% for
maintaining an established,program, and 75% for planning or developing an
air quality program-.for those recipients carrying out a SIP.
The OIG found instances where "established" programs were receiving a.
greater than 60% Federal contribution. This occurred primarily in three .
Regions containing small states or states with troubled economies, or where
environmental, issues were of a low priority. EPA was contributing the bulk
of Air Program support in these states because these states' legislatures
had shown a willingness to allow the return of Air Program responsibilities
to EPA if they were forced to contribute a greater percentage match. From
EPA's past experience, it is clear that the cost of Federal administration
of a state 105 air program is significantly more expensive if a state were
to do it.,22
In FY 1986, analysis showed that perhaps $1.0 to 1.5 million in grants
was awarded above the 60% level (not including the 1/2 of 1% states). This
represented about 1% to 1 and 1/2% of the total national appropriation (see
Figure 30).
A number of factors, both objective and subjective, have caused the
evolution of different grantee funding shares in different parts of the
country (see Figure 31). Further, a number of Regional-Offices and
grantees have argued that, because the Air Program is a continually
evolving environmental program with new initiatives added each year,
it is impossible to differentiate maintenance versus planning'or
development expenditures.23 Nevertheless, it is the preference of the
majority of the Regional Offices to not fund grantees at more than a 60%
Federal contribution regardless of the status of the activity. Nationally,
the majority state and local agencies have been assuming only a slightly
greater percentage share of the financial burden of their 105 Air Program
as the amount of available Federal grant funds has remained stable.
22. See Chapter 8 of the "State and Local Air Program Resources Study";
OPM3; June 1985.
23. Past OAR policy has stated that the dynamic nature of a continuing air
* pollution control program has precluded any practical differentiation
between development and maintenance activities and hence different
funding percentages. See August 31,'1984 memorandum from Jerry Emison
to John Hidinger.
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Figure 30
Listing of Agencies Receiving .
Above 60% Federal Share - FY 1986
Region Agency
I . Massachusetts
Rhode island
• New Hampshire
Vermont*
VI
VII
VIII
IX
Oklahoma
Iowa-
Polk Co,, Iowa
Kansas
Kansas City***
Topeka, Kansas
Wichita, Kansas
Missouri**
Nebraska**
Montana*
North Dakota*-
South Dakota*
Utah
Guam* ,
Idaho •
% Federal Share
67
69
68 . •
70
63
74
65
74
75
66
69.
73
68
63
75
74 '
70
63
75
Subtotal Funding Above 50% Level
Total Minus 1/2 of 1% Recipients
Denotes 1/2 of 1%' recipient for that year.
Amount Above
60% Level (SQQQs*
297-
76
71
68
70
' 149
6
131
43
•5
14
375
63
32
93
61
181 -
134
$1,872 (in $000)
$1,675 (in $000)
** During FY 1987 and FY 1988 actions were taken to raise both Missouri's
and Nebraska's non-Federal percentage contributions. These are now
53% and 60% respectively.
*** Kansas City is an interstate agency pursuant to Section 106 and may *
receive up to 75% Federal support.
Most Regions have already taken action to correct apparent inequities
.by requesting that several of their affected states increase their contri-
bution. OAR is working with the Regions to address the remaining few low
match agencies.
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Recurrent Expenditures
Varying interpretations and the lack of documentation on non-recurrent
expenditures, have contributed to M3E difficulties. Briefly, 40 CFR 35.105
defines recurrent expenditures as those expenses associated with the acti-
vities of a continuing environmental program. A grantee's Section 105
grant,.approved,by EF&, constitutes.such a program. All expenditures,
except"those' for equipment purchases with a unit acquisition cost of'$5,000
or more, are considered recurrent, unless.justified by the applicant as
unique and approved as such by the Regional Administrator, in the assis- -
tance award. Conversely, a non-recurrent expenditure, while not expli-
citly defined by the statute or grant regulations, may be seen as: (a3 any
equipment purchase costing $5,000 or more, or (b) any expenditure approved
as unique by EPA in the assistance award.
While most Regions adhere to a strict interpretation of 40 CFR 35.105,
the dollar limit it imposes may be outdated depending upon the item and
the grantee's situation. CVing to the nature of MDE computations, and
depending upon the specific circumstances, costs incorrectly labeled
recurrent or non-recurrent can knowingly or unknowingly work to the
advantage or disadvantage of the recipient. Also while some expenditures
may recur annually their amount may vary from year- to year • such as program
revenue, supplemental awards, or local agency matching appropriations).
Alternatively, some expenditures may also recur periodically but still
quite predictably (certain equipment purchase or contracts, for example).
Given an outdated and unspecific definition, the Regions have relied
upon the discretionary aspect of the regulation to cover all of the
permutations that might occur. This has engendered some inconsistency
across the country, particularly in the area of "unique" nonrecurrent
expenditures.
unique Non-recurrent Expenditures
Several areas of concern remain over what is a non-recurrent
expenditure. TJie Regional Offices exercise some1 judgement and flexibility
in determining what constitutes a unique expense. While some nationwide
inconsistency has resulted nationwide, the Regional Offices' actions
generally reflect a pragmatic approach to dealing with an area where there •
is little guidance and which is subject to broad interpretation. Exatrples
of what Regional Offices have allowed as unique expenditures, and hence not
subject to the definition of recurrent expenses, and not included in the
K3E computation, are:
o Unique, one-time contract efforts (i.e., special research funds);
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o One-time, supplenental funds given to a recipient by its ..
legislature for special purposes; • • • ' .
o Funds contributed by the recipient inBorder to receive matching
one-time supplemental' EPA funds (i.e., state acid deposition work);
o Funds for special studies not lasting over three years in duration
(e.g.,. targeted air toxics monitoring); '•."•'
o Funds contributed from local pass-through agencies or sub-grantees
where: (a) their level may vary annually; or (b) there is an
uncertainty as to their continuing availability. In these cases
these agencies are treated as contractors by the grantee and it is
assumed their contributions have never been included as part of "
the grantee's MOE.
Additional insight on the interpretation of unique expenses lias been
provided by the staff of the Office of the Regional counsel (ORC) in
Region IX. In an opinion issued to the Regional Office IX Grants
Management Section on February 17;- 1988 the. ORG recommended that .unique
non-recurrent expenditures be interpreted to mean: "those specifically
identified expenses, such as those identified,with a task, a contract, or
an activity, that would not reasonably be expected to recur in the fore-
seeable future, taking into account' the environment in which the entity
operates."24
This opinion also does not-appear to conflict with any of the current
allowances for unique non-recurrent expenditure listed above. Therefore,
OAR has recommended that the Regions follow this interpretation of unique
non-recurrent expenditures until any applicable changes to the statute or
the grant regulations are made. The guidance also reiterates that all
grantees should differentiate their recurrent and non-recurrent expendi-
tures at the outset in their assistance applications. This can be done on
line 23, (Remarks) of EPA form 5700-33, Part IV, of the program narrative
portion of the assistance application, 'or on an accompanying separate
sheet.
Nonrecurrent Eauianent Costs
Another area of concern involved the $5,000 ceiling used to differen-
tiate recurrent equipment expenditures from'non-recurrent equipment
expenditures. This differentiation was included as part of the 1982
revised grant regulations (40 CFR 35) and raised the original level from
$2,500 to reflect ah increase in costs from 1974.
24. See "Section 105 Air Audits"; Region IX, ORC £o Region IX Grants
Management Section; February 17, 1988.
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Scme Regional Offices indicated that this ceiling needs to be revised
again, perhaps to at least a $10,000 level, or revised periodically, to
reflect the impact of inflation. For example, a review of EPA's 1987
estimate of the updated costs of monitoring equipment revealed that unit
acquisition costs for most criteria pollutant samplers are well over
$5,000. The;,annual capital costs of monitoring approximate $10,000 (using
a five year-life expectancy), and total.annual operating expenses in some
cases- reach beyond ,.$15., 000.25
\ , -•
Other Regional Offices and their grantees have grown accustomed to
the current limit and would find its modification problematic. Certain
grantees have also found themselves in situations where a raised cost
ceiling would move some expenses from the non-recurrent to the recurrent
category thereby artificially raising their MDE level. • These expenses
might also recur regularly (e;g., replacement of monitoring equipment
every five years) but not annually and thereby cause fluctuations in the
recipient's MOE level. ' . •
Other.grantees have used the same situation to argue that certain
equipment costs, even though-they are over $5,000, recur regularly and, as
a recurrent-expense, need to be counted towards their MDE. Recipients in
this situation have planned out .their future budgets to.incorporate these
equipment costs.or endeavor" to maintain;a MDE level which would otJierwise-
decline if these costs were not included;
Given the variety and complexity of grantee situations that could be
altered by a change to the equipment expense ceiling, OAR guidance directs
that the current $5,000 limit be retained until the appropriateness of the
of the regulation's dollar limitation and the categorization of certain
equipment costs can be reassessed and revised, if necessary, by OAR and
GAD. .
Overall, the ARS interviews found that virtually every Region had
strengthened its current procedures for identifying and verifying their
grantee's non-recurrent expenditures, and had taken steps to reacquaint
their grantees with the requirements.
Monselective Reduction
Section 105(a) of the CAA states that a grantee's non-Federal,
recurrent effort level may not decrease from a previous year's level unless
the Administrator determines that a reduction in expenditures is attri-
butable to a non-selective reduction in expenditures in the programs of
25. See "Cost of Ambient Monitoring for Criteria Pollutants"; November 6,
1987; Monitoring and Data Analysis Division (OAQPS).
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all executive branch, agencies of the applicable unit of government. The
explanation for this section of the statute has left much room for inter-
pretation, however. Difficulties with defining what is a selective versus
a non-selective reduction (and its concomitant impact on the MDE) have been
underscored by the iirpact of the Gramn-Rudman-Hollings initiative and other
economic forces. •
The purported purpose of this provision is to allow an exemption or ,
waiver from the M3E requirement for- a state or municipality faced with
severe economic hardship or fiscal insolvency. The earlier referenced
February 17, 1988, Region IX ORC opinion provided an articulate and
thorough discussion of the history of this provision and Congressional
intent. '
The ORC staff found that for an air program reduction to be considered
non-selective at least three tests need to be met: (1) the Air Program
itself must not have been singled out for a cut; (2) many other types of
agencies (and personnel) involved in the provision of basic municipal
services should also have been cut;. and (3) the cuts must be made as
economy measures. Once a legitimate non-selective reduction has been
agreed to, the grantee's revised contribution, level, becomes the accepted
M3E. ' - ...
While several states with largely petroleum or agriculturally based •
economies were believed to be potential candidates for non-selective
reduction, a survey of the Regional Offices indicated only a handful of
such situations had ever occurred and that none were imminent. Trie
Regional Offices generally agreed with the interpretation provided by the -
Region IX ORC. OAR and GAD endorsed the ORC's opinion and indicated that
it should be referenced, for guidance on non-selective reduction issues in
the future until the statute or regulations are modified. The only ••,
additional observation was that those grantees, who face a prospective
non-selective reduction situation, should notify-EFft. as soon as possible,
preceding or during the grant award period.and not after it closes, so that
timely adjustments can be made.
State Contributions to Local Agencies -
Over the last several years Regional Offices have sought, ways to
increase their productivity, and have found it advantageous to consolidate
the number of grantees with which they must deal. Consequently, some
Regional Offices.now award direct grants only to the states, -Indian Tribes,
and the larger local agencies.
-^
For the remaining smaller local agencies, several Regional Offices
have developed a pass-through policy whereby state agencies are primarily
responsible for: (a) the overall coordination and integration of these
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agencies' work plans and requests for Section 105 assistance with that of
the state, and (b) program oversight for these agencies. States now "pass
through" Section 105 funds and the state support to these agencies to carry
out approved Section 105 work plan activity that the State would do:in the
absence of these 'agencies. These agencies may also be doing work parti-
cular to their own needs and interest. Section 105 funds cannot be used to
.support such activity and states.are asked to provide assurances .that pass-
through agencies (PTAS') will not use Section 105 funds to supplant local
funds. . •
While consolidation of grantees has lessened the Regional Offices'
administrative workload, it has resulted in different Regional Office
applications of the MDE requirements in situations involving local FTAs.
Normally a state agency's contribution to. a PTA, for the express purpose of
carrying out an approved Section: 105 work plan activity, counts towards the
state's MDE level. State agencies with local PTAs generally do not include
the funds contributed by these agencies as part of the state agency's MDE.
This is because funding supplied-by local agency sources can be highly
variable and the state cannot guarantee' its level or continuation.
The above situation assumes that the state,'s contribution to its
PTA(s) is uniform and does not complicate the state:'s ability to maintain
its MDE. In.situations involving a PTA whose annual contribution level may
vary and where the state covers the PTA's 105 shortfall, difficulties in
managing"the IYDE baseline can occur. States have reacted to this situation
in two ways: (1) appropriations to the state agency and to the PTA through
the state agency have been treated as two separate appropriations, or (2) •
the state has not included its support to the PTAs or any of the PTAs' :
funds as part of its MDE. - » • •
Variable PTA funding can be a problem and several states have
attempted to avoid complications by certifying to EPA that if the PTA is no
longer able to accomplish the required section 105 activity, then the state
will assume the responsibility. Nevertheless, EPA concluded that a state
should include in its MDE any funds it contributes directly to support an
approved Section 105 workplan activity — an activity that the state would
otherwise carry out in the absence of the PTA.,
A state should establish with its PTAs the amount these agencies are
going to .receive to carry out the 105 activities in the state's approved
continuing Section 105 program each year. This state support to its PTA's
then becomes part of the state's MDE. A state need not include PTA con-
tributed funding as part of the state's MDE. However, if the state does
include in its MOE level those funds that a PTA contributes, then the state
must continue to include those PTA funds and must maintain the appropriate
MDE level. •
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Grantee Certification of tjie Mairrt"gnanre of Effort
Some Regions suggested that much of the difficulty with the MDE* ;
requirement could be avoided if EFA simply required the grantee's cer-
tifying representative (e.g., the agency's commissioner), at the time of .
the application for assistance, to clearly delineate the MDE level and
certify that the grantee was meeting it. Certification should assure that
the Federal funds being applied for would not .supplant available state
and/or local funds. This certification would be~similar to that done for
Procurement System Certification (EFA form-5700-48) and would consequently
be taken more seriously by the grantee. .
Few Regional-Offices reported grantees who explicitly identified and
certified their MDE as part of their applications. However,, a majority of
the Regional Offices are now requesting this in light of 'the OIG audit •
findings. . Accordingly, a MDE Certification'sign-off form is under develop-
ment 'for future use by 105 recipients. Grant recipients always have an
obligation to delineate their MDE level and assure that the MDE require-
ments are met.
EF?^Verification of the Maintenance of Effort
As noted earlier, in .order for.a grantee to continue to receive
financial assistance it must maintain or exceed its MDE level each
successive year. A grantee's MDE level should be delineated up front in
its upcoming year's assistance agreement and verified by the Regional
Office through a comparison with the grantee's previous year MDE level
documented in that year's final Financial Status Report (FSR). Final
FSRs, with some exceptions, are due no later than 90 days after the close
of the grant period.
The complication in verification is that an award for an upcoming
fiscal year must usually be made several months prior to the receipt of
the completed year's final, closed-out FSR. So as not to jeopardize the '
solvency of a grantees' operations, a Region may have to award a grant on
the basis of preliminary financial data. A complete assurance that the MDE
has actually been met, cannot usually occur until the RO receives the
previous year's final FSR — usually already months into the new award
year.
To overcome this dilemma, the guidance directs that preliminary >DE
verification should compare the level of recurrent funds in the upcoming'
year's grant application to that of the most recent award year's level
for which complete expenditure data is available from a closed-out, final
FSR. The official MDE verification for the 'upcoming year' (already
underway) then occurs when the final, closed-out FSR for the just completed
fiscal year is submitted. The guidance instructs that awards for subse-
quent fiscal years not be made until a final, official verification occurs.
This should assure that no time lag or gaps remain.
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For example, a. Region normally should receive a final FY 1989 grant
application by September of 1988. At that time, for preliminary FY 1989
verification, the. Region is to compare the prospective . FY 1989 MDE level
to the approved MDE level contained in the final FY 1987 FSR and the
FY 1988 MDE amount projected in the FY 1988 assistance agreement.
Region normally should receive the final FY 1988. FSR no later than
90 days after the close! of the FY 1988- grant period', or in this case, by-
January 1, ,1989. When the final FY 1988 FSR is submitted and closed out
its MDE level can be compared to: . '
* .
(a) The FY 1987 MDE for final FY 1988 MDE verification; and
(b) The MDE amount projected in the FY 1989 assistance agreement for
official verification of the projected FY 1989 MDE level.
.However,, final verification of the FY 19.89 MDE level does not •
occur until a final closed out FY 1989 FSR has been approved.
Adequacy of Programmatic and Fiscal Oversight
The OIG was critical- of certain aspects of some. Regions' approaches to.
overseeing, evaluating and rectifying their grantees' programmatic and«
fiscal performance.
Regarding the evaluation of programmatic performance, we noted earlier'
that the OIG audits were conducted prior to the institution of the Admini-
strator's ..PBAP. In addition to placing renewed emphasis on negotiating
realistic, measurable commitments and outputs between ERA. and its grantees,
the PBAP outlines additional steps EPA should take in evaluating and, if
necessary, rectifying recipient performance.
The Air Resources Study interviews determined that all Regions had
bolstered their oversight and evaluation functions as a result of the PBAP
and the OIG audits. Many indicated that the PBAP simply reinforced their
current approach. Virtually all Regions were using the mechanisms outlined
by the PBAP for the correction of grantee performaiice including the increr-
mental release for funds. Not all Regions, however, embraced the specific
approach for programmatic evaluation recommended by the PBAP.
OAR has further clarified and. bolstered the programmatic oversight and
evaluation aspects of the PBAP with issuance of two additional guidance
documents to the Regions and program offices: "Procedures for withholding
Grants Funds," June 19, 1987 and, (2) "Procedures for Resolving Grant
Negotiation Issues," Decanber 1, 1987.
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. Need for Annual On-Site EvaJnation
.•Hie OIG referenced the FBVP's objective of having every- grantee
undergo an annual ori-site evaluation. All but two Regions performed such
evaluations and those that did not were the Regions which contained the
greatest number of grantees (including local agencies). These Regions were
severely constrained by the lack of resources available for evaluation.
Each of these Region's approaches in evaluating grantee performance
was examined to assess their adequacy. In one Region it was determined .
that, though a formal annual on-site visit was not performed, the Region's
oversight of its grantees was probably more rigorous than many Regions
which did conduct an annual on-site evaluation. Therefore, an annual
on-site evaluation, does not in of itself, ensure adequate oversight.
Rather, the entire approach of a Region must be examined. One. other Region
has redirected its resources to begin annual pn-site evaluation of all its
grantees. While each Region is in the best position to judge evaluation
needs, an annual on-site visit, while highly desirable, may not be
necessary for each grantee depending upon the grantee's overall annual
performance. However, it is sound management .practice to follow current
guidance and conduct annual bn-site 105 evaluations with each grantee.
Several Regions have requested further guidance on or modification of this
policy.
Region-wide adoption of computer based tracking and evaluation systems
of grantee work plan and overall program performance has proven popular.
At least half the Regions' have instituted, or will have instituted, such a
system by the end of FY 1988. Additionally', all Regions evaluate grantee
work plan progress :quarterly, with more frequent reporting requirements
.required by particular program offices. Cost information from the survey
of state and local agency operations, noted earlier, may supply further ,
data and information that can improve oversight of activities and grantee
performance and facilitate identification of where corrective action may be
necessary. . .'
Adequacy of Fiscal Tracking and Oversight -.
The QIC audits found instances where the grantee's MDE level could not
be verified because of: (a) the untimely sutmission of a financial status
-report by a grantee; (b) the submission of an incomplete or inadequate FSR;
(c) inadequate Regional Office procedures to verify FSRs; or (d) the
inadequacy of the form itself in providing the needed information.
Virtually every Region, including those not audited, has strengthened
its FSR practices and procedures and has clarified FSR and MDE require-
ments with its grantees. Only one Region reported that it was still
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having difficulty receiving timely FSRs.. Several Regions indicated tliat
they had negotiated grant conditions whereby funding would be withheld
until a timely and complete FSR submission was received from the grantee.
However, of those grantees interviewed virtually all were submitting more
timely, completed FSRs.
However, there is still inconsistency in the degree of information •
received on the grantees' FSRs because of the latitude afforded by the
current wording of the regulation. The OIG requested that the Regional
Off ices"'collect more detailed expenditure information on the FSR. OAR* has
requested, as some Regional Offices now do, the collection of financial
data by object class on a grantees's final FSR by each Region. While a-
recently revised OMB Circular A-102 indicates that Federal agencies shall
not require object"class information to be reported on the FSR, Federal
agencies are still allowed to request information, as may be necessary, to
assure the integrity of the management of the grant. In any regard, it is
OAR's intent to pursue the development of an automated grants information
and status tracking system for the future.
adequate Financial Review
The OIG noted that the Regional Offices should conduct periodic
limited financial reviews to ensure sound grants program management.
Unfortunately,, the OIG did not detail what constitutes an adequate limited
financial review. The appropriate role and responsibilities of; a Region
versus the OIG in conducting audits has not been made clear.
Many of the Regional Offices conduct some form of limited financial
review of their grantees but the scope and extent of these reviews- varies
among the'Regions. One Region conducts in-depth training sessions for its
state agencies' financial officers to aid them in properly administering
EFA's assistance programs. Some Regions have hired additional staff with
accounting and auditing expertise in order to bolster the adequacy of their
grantee reviews. Generally, however, the Regions do not have the resources
or expertise to conduct a financial review on the scale of the OIG audits.'
One impediment is the Regions' concern for their liability should their
financial review fail to uncover inappropriate use of grant funds by the
recipient. . •
For any MDE certification and verification to be truly meaningful,
however, periodic grantor oversight and auditing are necessary. GAD has
noted that while verification of the MDE may appear to be a rather simple
exercise there are still several complicating factors:
o Grantees' assistance applications and FSRs often do not display the
projected.and final M}Es respectively;
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o Interpretations of recurrent/non-recurrent costs nave .varied among
Regional Offices in part due to a lack of guidance and training
materials;
o Regional Offices- are reluctant to question state officials'
certifications;
o TSR amounts are not absolutely verifiable without a detailed
.financial review.
Short of conducting a detailed financial review or audit, the Regional
Offices have employed various methods to check and assure that the MDE is
met. For example, some Regional Offices:
o Have each grant carry a special condition delineating the MDE and
an assurance it will be met;
o Give grantees a worksheet to calculate the MDE;
o Require grantees to list all equipment purchase over $5,000;
o Use a checklist to review the FSR and MDE;
.o Use a grantee's application data to calculate a prospective MDE;
o Direct their grantees by letter to report all nonrecurrent costs
and record their MDE on the FSR; and
o Do not approve an FSR as final until all unliquidated obligations
. are resolved.
As noted by GAD, current Regional procedures for conducting limited
financial reviews include: mid and end-of-year reviews of letters of
credit, obligations, accounting systems and recurrent expenditures; joint
program and grants staff grantee site visits; joint internal staff meetings
on grantee status; and tracking and resolution of unliquidated obligations.
Limited financial review is a topic for further discussion between
OAR, GAD, OGC and the Regional Offices. This matter must be resolved with
the OIG so that clear guidance can be provided to the Regional Offices on:
(a) what constitutes a limited financial review; and (b) what audit
resources and procedures can be used for verification of grantee financial
integrity.
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CHAPTER 6
THE FUTURE OF THE SECTION 105 AIRPBDGRAM
The preceding chapters have described the. Section 105 program's
history, accomplishments and process, and critically reviewed its program-
matic and'fiscal aspects. This chapter examines major issues affecting the
continued effectiveness of, and support.for, Section 105 air program
activity at the state and local level.- New strategies and modifications to
the current approach to managing the program are suggested". However, the
chapter also looks beyond remedial management concerns to pose funda-
mental questions and offer varying perspectives on the future of the
Section'105 air program - its needs, possible sources of financial support,
relative intergovernmental responsibilities and appropriate focus. . .
Future.Resource Meeds . • *
Paramount to;any discussion of the future of the Section 105,program .
is the question of- future resource needs. EPA and state and local agencies
will necessarily have to look beyond the provisions of the Section 105
program in order to-respond to the air pollution control needs of the
1990s. Given the current trend in Section 105 support levels, even with
modest increases, it is unrealistic to. expect that the air grant program.
could meet the. projected resource demands of emerging problem areas without
a significant infusion of funds fram' additional sources.
Estimates 'of Meed' ' ,- • '-•'"'
OAR has undertaken several efforts to estimate the likely future' "
funding demands of the'-Air Program, both on EPA and on state and local
agencies. Using OAQPS' Air Pollution control Strategy Resource Estimator
• Model (APCSRE), EPA has-estimated that approximately 8000 work years are
currently expended by state and local agencies on Section 105 activities
annually. Assuming that every base and priority activity presently listed
in the model would need to be carried out, the model estimates the demand '„
for resources at the state and local level could rise to between 10,200 to
12,000 work years - a 25 to 50% increase over current levels. The
increased activities cover implementation plan development, regulation
development, enforcement and compliance, administrative and planning costs,
etc. - ••-•••
The resource model estimate only covers those activities currently.
defined as part of the Section 105 program. In cooperation with several
other offices, OAR conducted a preliminary analysis of the resource impacts
on EPA Headquarters, Regional Offices and state and local agencies of
Senator George Mitchell's CAA Reauthorization Bill - S. 1894. While other
legislation was offered during the 100th Congress, S. 1894 was analyzed
because it was the most-comprehensive proposal which might
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demand the expenditure of resources at the state and local level. The
Bill's five titles covered: a more extensive ozone and carbon monoxide
control program; an acid deposition control and clean coal technology
program; expanded control of motor vehicles and motor vehicle fuels;
control of air emissions from municipal waste incineration; accelerated
revision and expansion of national ambient air. quality standards.
development; and the development and- implementation of a control program
for hazardous, air pollutants (see Figure 32). Areas, such. as indoor air
pollution and radon were not included..
The results of this analysis are quite preliminary. The analysis was
conducted by the program offices and may not completely reflect the
financial needs of the Regional Offices and the grant recipients. Resource
demands can be expected to shift to the Regions and to state and local
agencies in the latter years. Only the first five years following
enactment are considered. This analysis also focuses on , estimated resource
demands in the areas of personnel and contract costs. It does not reflect
a complete assessment of: expected increases due to the impact of
inflation; the costs attributable to administrative overhead, land and - .
facilities costs;, and growth in employee. compensation and benefits, etc.
Nevertheless , a preliminary estimate of the projected incremental five
year resource demand of these expanded and new program areas -on EPA program
offices, Regional Offices and state and local grantees shows a, significant,
increase in overall resource needs. These preliminary estimates have just
recently been reviewed by the Acting Assistant Administrator and additional
resource projections will be necessary in order to apply this data and
information to new CAAA proposals currently being considered by Congress.
s on Air Program Resources From Other Media
. Over the last six years there has been a growing recognition of tlie
interrelatedness of hazardous pollutants across tlie various environmental
media. We have found that our pollution abatement efforts in one medium
may 'also transfer pollution to another medium. There is an increased need
for a better understanding and a more sophisticated approach to dealing
with complex cross-media problems. As a result it is imperative that a
more structured integration occur of air expertise and support with other
media programs which deal with hazardous air pollutants.
This need obviously has implications on air resources. Major media
program areas with potentially demanding resource impacts on air include:
(a) Superfund assessment and cleanup; (b) Resource conservation and
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FIgure 32
FIVE TITLES of S. 1894
I
NONATTAINMENT
PROVISIONS
ACID
DEPOSITION
HI
MOBILE SOURCES
MUNICIPAL WASTE
COMBUSTION
IV
NAAQS
AIR
TOXICS
Recovery including treatment, storage and disposal facilities for hazardous
wastes (TSDFs) as well as air emissions from publically-owned waste
treatment works (POlWs); and (c) emergency response and toxic episodic
releases. ,
With the exception of certain Superfund support activity for the
Regional Offices beginning in FY 1987, neither the Regional Air Programs
nor state and local 105 recipients have received any type of compensation
or financial assistance for other media program support activity.26
Furthermore the Air Program has not done an overall analysis of likely
demands on its resources or those of state and local agencies due to other
media programs or problems. However, one Region has done a preliminary '
analysis of workload factor estimates related to four other program
activity areas (see Figure 33).27 This analysis indicates that current
demands are likely to be modest but have the.potential to rise noticeably
as activity in these other media areas expands.
26. See "Superfund Resource Utilization;" Whu A. Spratlin to T. Maslany;
June 13, 1988; (a preliminary estimate). Also see the FY 1989
Operating Guidance for a discussion of the. use of Superfund resources
for air support work.
27. From "Media Integration Air Programs foforkgroup;11 Region III; May 1984.
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.Figure 33
Workload Factor Estimates for Selected Other
Media Program Activities Which Have Air Impacts (1984)
Superfund
Dump site Investigation
Remedial Investigation
(Work Plan)
(Field Work)
Feasibility Study
Mitigation/Evacuation Plans
Iirmediate Removal
Resource conservation' and Recovery
Workload Factor (Work week/event)
1.5
5.3
(1.3)
(4.0)
1.3
2.5
2.5
Review Hazardous Waste Incinerator Design
(Delegated/Nbn-delegated Program)
Determine Concentrations of Hazardous Air
Constituents for Exemption Requests
Review State Incinerator Regulations
Identify Other Potential RCRA Sources
Requiring Permits or Permit Changes
Review Impact of Land Disposal of Hazardous Wastes
(Delegated/Nbndelegated)
Emergency Response
Field Activity
Obtain Meteorological Data
Modeling
Concentration Predictions
Other Air Support work-
Access Combustion Sources/National Dioxin Strategy
Respond to Information and Assistance Requests
Improve Air Emissions Data Base
(4.0/.5)
4.0
1.0
.5
(4.0/.2) (modeled)
2.5
1.0
0.5
0.8
4.0 modeling/
1.3 general
.25
.1
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Fundina The Future ^
t
What strategic approach should be taken by EPA aiid state and local"
agencies':to carry out current and additional anticipated air pollution
control responsibilities given a significant shortfall in the level of
resources necessary?. The existing 'approach practiced by EPA'and grant
recipients.over the last five years has been to;continue the periodic
restructuring.of-program priorities (i.e., the current disinvestments
approach). Retaining the disinvestments approach assumes that: .Section 105
funding will remain stable or decrease (in real and inflation-adjusted
dollars) and that more' than just marginal increases in both the non-Federal
and Federal sectors will not be forthcoming. •
Restructuring Program Priorities .
Over the last several'years,•EPA and state and local agencies have'
been faced with a continuing -dilemma of funding an increasing number of
priority problems while valuable resources have either remained stable or
declined; EPA and SB^PPA-AIAPCO agreed to institute a disinvestments
approach where additional work, and' increased operating costs, were to be
offset by increased funds or the disinvestment of certain activities.-
However, as we have previously noted, the easiest disinvestments have
already been obtained.' "
Tine Regions have indicated that no uniform list of disinvestment
activities nor list of required activities can adequately address the
disinvestment problem given the complexities of varying grantee negotia-
tions.28 Recognizing this, Headquarters' current approach is to identify a
minimum number of required national activities and allow maximum Regional
and state and local flexibility in the selection of the rest of the
activities in order to optimize the efforts of their respective air
programs.- !
All parties involved, however, have shown a reluctance to disinvest
from activities required by the CAA. Regions have indicated that further
disinvestments cannot necessarily assure the adequate protection of public
health in all areas. During the ARS interviews'each Region was
requested to identify: (a) areas of total and partial divestiture; (b)
areas where only a marginal level of effort was able to be expended; and
28. See "Minutes - Air Branch Chiefs Meeting of May 13-15, 1987;"
Carl Walter to.Air Branch Chiefs; June.13, 1987.
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(c) those activities considered to tie outside the purview of Section 105
(see Figure 34). Virtually no Region indicated it had completely divested
required activity. However, all Regions expressed concern'that further
cutbacks could be or were already jeopardizing the integrity of air program
operations. Partially disinvested areas that were particularly noted as
being deleterious included the decline in: the overall,frequency and
quality of field enforcement and oversight; training, contract support and
technical assistance^ to. grantees;; attention to preventive .or maintenance-
strategies (like new source review, etc.); and infrastructure activities
like emission inventory upkeep and ambient monitoring.29 No respondent lias
been able to specifically quantify the threshold at which further reduc-..
tions in the air program infrastructure will cause a complete unraveling of
the overall program's ability to assure adequate protection of the public
health. However, several Regions indicated they would not be able to
absorb an. additional 5% reduction or redistribution of their funds without
sacrificing the integrity of their grantees' operations, and.their ability
to meet EFR requirements.
Another complicating concern has been the continued growth of air
program activity outside the purview of the Section 105 program.. This lias
occurred because of the following factors or combination of factors: (a)
continued disinvestment by EPA in less.problematic program areas each year
in favor of more immediate, high priority activities with grantees re-:"
taining some degree of continuing responsibility; (b) grantees initiating
activity in emerging program areas where there is yet to be a clear. Federal
mandate or where there is little or no dedicated or, reliable Federal
funding; (c) certain state and local agencies being able to rely upon
sources of funding other than Section 105 funds to support their activi- ,
ties;"and (d) grantees desiring greater autonomy in their program
operations and not wishing to raise their maintenance of effort level,
thereby subjecting more of their funds to Federal concerns at the expense
of their own. .
Non-105 air program activity has raised some ticklish issues. From a
positive standpoint, it signals state and local initiative in the absence
of.federal direction and support. However, the'OIG has also questioned
whether.this means grantees are supplanting the use of their funds with
Section 105 funds. Grantees would challenge this interpretation as
treading upon state and local prerogatives and priorities. ND one really
knows the degree of expenditures on air program activity outside the 105
29. See Regional Responses to "Information Needed to Complete the Air
Resources Study and Headquarters' Response to the OIG's Section 105
Audits," OEM) to Air Branch Chiefs; March 25, 1988.
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-116-
program nationwide. Various estimates have ranged between 10-25% of the
total Federal/non-Federal contributions each year. The analysis of the
costs of operating state and local air agencies may shed some light in this
area.
The development of non-105 concerns can be traced- to EPA's October 12,
1982 revisions to its financial assistance regulations which consolidated
the various program grant regulations into a single 40 CFR Part 35.30
Subpart A,sought to clarify the limits on MOE with what constituted '
applicable Section 105 program activities. It'allows that expenditures for
activities not within the bounds of an approved Section 105 program can be
excluded from the MOE calculation even if these activities are ongoing in
nature.
Subsequent policy discussions within EPA generally characterized ,
applicable Section 105 workprogram activities as, at a minimum, those
recurring activities and expenditures necessary for: the implementation of
national priorities; statutory or regulatory - mandated actions; and EPA
programs delegated to the state for which EPA provides continuing grant
support through commitments in the 105 grant work' program.3^ Within this
interpretation maximum flexibility was afforded Regions through grant
negotiations-with their "grantees. As a result a; certain degree of incon-
sistency has developed between Regions as to what, they view "as an
applicable 105 expense, and among grantees, as to what.has'been included in
the 105 work program..
A comparison of Texas and Massachusetts is a good example. With the
except ion. of some research and development costs, Texas has for years
included all of its air program activity within its 105 grant work program
regardless of whether all of this activity was 105 related. Massachusetts
has traditionally included only activity that it feels is specifically
related to CAA Section 105 requirements. As a result, Texas' percentage of
non-Federal contribution appears to be well above the national average
while Massachusetts' well below it. If both agencies included only those
activities common to each of their programs and to Section 105, then their
relative non-Federal, percentage contributions would appear to be
approximately the same.
30. See 47 FR 44946.
31. See J.R. O'Connor letter to H.J. Wortreich; December 21, 1983.
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More uniformity could be achieved nationally if each grantee followed
the recommendation of the PBKP. The FBAP urges every grantee to identify
all ©f its air program activity within its Section: 105 work program.
However, funding for non-105 activity .necessarily need not be delineated.
The analysis of the costs of state and-local air activities has also
attempted to estimate air activity expenditures outside 105 for several
reasons. From the grantees' standpoint, identifying all of the additional
air quality work that is undertaken could provide convincing evidence tliat
Section 105 assistance falls far short of helping meet state and local
needs. From EFA's standpoint, the survey results can affirm that all 105
funds are being properly utilized and can aid EFA in making tough.decisions.
about where disinvestments can occur.
Nevertheless, some persons feel the debate on appropriate Section 105
expenditures and.grantee responsibility is misdirected. To them, grantees
are still accountable for all statutory requirements of the CAA regardless.
of the limitations of negotiated Section 105 work programs (i.e., grantee
responsibilities are determined by the Act and not solely by section 105
guidance). . . • . ,
This thinking is also reflected in a recent proposal from the Regional
Air Branch Chiefs. The Air Branch Chiefs have proposed an alternative
four-step approach to the determination of disinvestments and the
allocation of grants. These steps are:
(1) joint development by ERA and STAPPA-ALAPCO of a grantee workload
•display system to articulate the base program;
(2) ranking of base progran activities with statutorily-mandated .
activities taking preference over activities solely desired by
EPA;
(3) institution of a grant funds tracking system which would
determine the actual costs for each state and local -agency to
accomplish base program activities; and
(4) the total Federal and non-Federal funds available to each grantee
would then be targeted to a descending rank order of base
priorities and according to the grantee's costs per activity
(determined by a workload display system). The expected outputs
could also be shown.
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Ihis ideal approach has merit whether or not EPA and state and local
agencies receive additional air program funding. However, the likelihood
of adoption of such an approach in the short term is clouded by a hesitancy
in instituting a base workload system and the inherent weaknesses of the
disinvestments approach.
It is reasonable to conclude that the disinvestments approach has a
finite capability to accommodate new responsibilities^ and increased costs
without likely sacrificing.the integrity of program operations and failing
to meet-statutory obligations. What alternative or supplemental strategies
for support of continued air program activity are then possible?
Funding the Future; Additional Approaches
In addition to the current approach of restructuring program
priorities, there are several approaches that could be used by EPA and
state and local agencies to reconcile program demands with available
resources. These approaches range from the fundamental realignment of-
program responsibilities, to changes in program management policies and
procedures, to the aggressive pursuit of additional funding sources. While
any of these,approaches could be carried out independently,-their impact
would probably be most effective if carried out as an.integrated strategy..
and ResponsJ]
The Section 105 air grant program has been in existence for over 25
years. With passage of the 1970 and 1977 CAA, state and local agencies
were seen as having the primary responsibility for addressing air pollution
problems at their levels. With the assumption of this responsibility,
Congress also envisioned that state and local governments would eventually
assume an increasing role in financial support. ERA'S role was to change
from direct involvement and intensive oversight to one of providing
technical assistance, conducting research, providing support for emergency
areas and conducting general oversight.
This has not entirely occurred, of course. New problems have emerged
and existing problems have proven overly complex, with appropriate inter-
governmental responsibilities not so readily distinguishable. Some
interview respondents felt that the intergovernmental relationships in
the air grant program are no longer maturing as Congress had originally
envisioned, despite the increasing state/local dollar percentage contri-
bution. Progressive assumption of the Air Program by all states has not
occurred at the rate expected and EPA is still heavily involved in funding
the "maintenance" aspects of some state and local air pollution control
programs.
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One view of.the 105 program is that its funds are to be used to help
establish a nationwide state and local air pollution control program
infrastructure, and once this is accomplished then its emphasis should
shift to support for.the investigation of emerging air quality problems and
the wider provision of training, guidance and technical assistance for than
and for established program areas>-
Some critics feel the Air Program now faces an identity crisis through
its attempts to fund both base program activity and high priority/emerging
problem areas. Some persons maintain that EPA should first fully support
the base or infrastructure aspects of the Air Program then devote any
remaining funds to new areas. Other persons feel that base activities
should solely be a state and local responsibility, and that EPA should fund
only newer emerging problem and high priority areas awarding funds more on
a competitive, demonstrated-perfprmance basis.
However, without the more detailed information it is impossible at .
this time to differentiate wiiat portion of Federal funds and what portion
of state and local contributions make up 'core' or base activities versus
high priority and emerging problem areas. .Such a differentiation also :
raises EPA concerns about its ability to continue to influence state and
local programs should the Agency does move out of base activity areas.
Even if EPA were to concentrate its resources on base activities, the
degree of'ERA'S continued, influence would still be a concern due to unclear
mandates from Congress for emerging problem areas.. This will continue to
fostered the growth of state and local activity in progran areas outside
the traditional 105 program.
A fundamental question is whether EPA's future 105 role will be a
peripheral or a integral one. For example, in California the state and
local agencies contribute approximately 90-95% of their programs' cost.
The remaining portion is funded by EPA Section 105 funds. The Region lias
indicated that California complains that the Section 105 funds simply cover,
the costs of staff time spent responding to EPA tracking and data requests.
The Section 105-funds in California essentially buy EPA a "window" into the
state's program but currently do not serve to strongly influence grantee
action for the Regional Office. . v ,
Phiiadelphia,also pays for about 90-95%.of its program with other
than Section .105 funds. Philadelphia's air pollution problems basically
mirror the air pollution agenda of EPA." Since EPA has invested a good deal
of research and technical assistance funds in the Philadelphia area, the
Agency has been intimately involved with the City in its air pollution
control efforts." . .
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Henee, a fundamental question facing EPA. is — what is the paradigm
for intergovernmental relationships under Section 105 for the future -
detached EPA oversight and provision of technical assistance or direct EPA
involvement? Would it be fair and appropriate to shift more of the burden
of the costs of maintaining day to day operations to state and local
agencies? Is this consistent with a philosophy of. a Federal-state
partnership particularly when some critics have charged that certain state
and local agencies, have been more creative in environmental.problem-solving
than the- Federal government? '
Pursuit of Additional Funding
Prudence dictates that the EPA and state and local agencies cannot,
and should not, totally rely upon the Section 105 air grant program for the
support of their future funding needs. Even if modest increases in Section
105 grants were forthcoming a resource shortfall would still remain.
Therefore, EPA and state and local governments still need to aggressively
pursue other sources of support and a greater percentage recovery of their
program costs. • A good start would be for EPA and state and local agencies
to fully utilize the funding mechanisms already available to them.
Obviously this would include the application of existing permit fee
provisions;
Existing "Permit Fee Requirements
While it is obvious that the majority of state and local air pollution
control agencies need additional revenues to meet their increasing respon-
sibilities, most have yet to make full use of the permit fee provisions
successfully applied in several states and required under Section 110(a)
2(K) of the 1977 CAA. Part of the responsibility for this uneven response
rests with EPA since the Agency chose not to issue uniform requiranents but
instead general guidance. The guidance was issued several years after the
GVA enactment, at a time when EPA was grappling with many other, more '
profound requirements of the legislation. Nevertheless, the intent of
110{a)(2)(K) is clear.
For approval of a state air quality implementation plan the CAA
requires the owner and operator of each major stationary source, as a
condition of receiving a required permit, to pay to the permitting author-
ity the reasonable costs of reviewing and acting upon the application for
such a permit. If the permit is approved, the'source is also responsible
for the costs to the permitting agency of implementing and enforcing permit
terms and conditions. The statute is not specific to the type or design of
fee program to be implemented. However, it does intend that the fees
collected ultimately be applied by the appropriate state and local agencies
for the purpose of protecting and improving air quality.
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An initial analysis by CftQPS of the aggregate costs to state and local
agencies in FY 1987 for routine permitting (renewals), PSD, and nonattain-
ment area source permitting (NSR) provided an estimate a total of over 4
$50,000,000.32 This estimate only covered sources in EPA's National .
Bnissions Data System and hence pertained to that permitting activity
covered by section 105 funds. Independent-state and local permitting
activity was not included. • .
• Preliminary survey results from-the'analysis of the operating costs of
state and local agencies indicated that of the total 105 funds utilized by
grantees approximately 11% are devoted to permitting activity. Multi-
plying this percentage times the total 1987 Federal and non-Federal 105
program contributions (estimated to be approximately $283 million) yields
a total of $31.13 million for Section 105 applicable permitting. Multi-
plying this figure by the relative Federal and non-Federal percentage
program shares (38/62) indicates that of the $31 million-plus for •
permitting, EPA contributes approximately $12 million and the-non-Federal
sector contributes approximately $19 million. ,
A comparison of the QWDPS estimate ($50 million), to the preliminary
state and local survey results ($31 million), indicates that grantees nay
be underestimating the actual costs of permitting activity on their
operations. The estimate of $12 million in Section 105 grants, expended
for 105-applicable permitting activity, is conservative. This is'an "
estimate that conceivably could be recovered- by grantees and thereby free
the corresponding Section 105 funds for other grantee activities.
*
-* Permit Fee Task'Force . • '
In response to the need for additional state and local air program
revenues and in order to come into compliance with the CAA, the AA for OAR
established a task force in June of 1987, under the direction of OPMO, to
examine the issues related to air permit and emission fees,
explore options and report back to him with recommendations • for further
action.
The task force found that the purposes of permit fee programs, as
envisioned by their congressional, state and local supporters, are four
fold. First, they can provide a major additional source of revenue to
support ongoing air permitting activities thus liberating 105 funds for
newly emerging air pollution control efforts. Of most importance
to industry is that state and local agencies are,, as a rule, more timely
and effective in their permit related activities when an established fee
32. "Estimated Cost "of Permit Reviews"; November, 1987; QAQPS
(Tom Donaldson).
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program and schedule are in place. Second, fee programs can make state
and local air programs more self-sufficient and thus more stable in the
face of sometimes volatile state funding. Third, by making a fee program
a national requirement, equity among state and. local agencies and the
industries they regulate can be assured, and thus avoid having fee states
be penalized by non-fee states in competition for industry. Fourth, by
having the regulated sources bear the cost of permit programs, the program
becomes more consistent with the - "polluter, pays" principle'and the industry
(and the goods-and services it produces) will more-accurately reflect the
true public cost of its activities.'
To the extent fees are proportional to the severity associated with -
pollution, they can provide some incentive to reduce emissions. However,
permit fees will generally be far too low to significantly influence
industrial behavior in this regard. Therefore, they are not intended as a
substitute for emission regulations. Similarly, they are a supplement, not
a substitute,'to 105 funds.
- Progress in Development.of Fee Programs-
As shown in Figure 35, there has been major progress in "the number of
state and local .agencies that have established, or have been authorized.,
to establish permit fee programs. Beginning with 10 state agencies tliat
had been authorized prior to the 1977 amendments, 31 state agencies now .
collect fees and an additional 11 have the authority but are not yet
collecting. Similarly, with regard to local agencies, 26 of trie 32 local
agencies responding to the STAPPA/7MAPCO 1987 survey reported that they had
permit fee authorization, and 25 of those are currently exercising that
authority. . • .
Although this progress clearly is positive and many ageicies have
done very well, Figure 36 indicates that serious problems still, remain.
Nearly 11 years after this requirement was enacted, approximately 40% of
the states still have no permit fee programs at all and the majority
receive less than 3% of their total air pollution control budget from fees.
While the average for the fee collecting states (exclusive of California)
is approximately 10% of state air budgets, even this average masks major .
differences! Texas, for example, covers well over 50% of. their air program
costs through permit fees while Missouri receives only 0.5% from such
sources. Failure to charge and collect fees adequate to cover the
reasonable costs of administering permit programs is common both among
those states that are largely self-sufficient and among those heavily
dependent on 105 funds.
The task force found numerous reasons why agencies support or shrink
from fee programs. Common reasons supporting a fee program were: (a) the
existence of fee programs predating'the Federal requirement; (b) response
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fe
llJ
DQ
35
30
25
20
15
10
5
Figure 35
PROGRESS ON STATE PERMIT FEE SYSTEMS
1987 STAPPA-
ALAPCO REPORT
1989 OAR
TfSK FORCE
FINAL 11002K
GUIDELINES
1901 fc.
DRAFT 1979
EPA GUIDANCE
19840CC
INTERPRETATIVE
MEMO
1977 CM
SIGNIFICANT MILESTONES
to budget balancing and reduction environments at the state and local .
level; (c) sentiment and response in favor of the polluter pays principle;
(d) a requirement of .the 1977 CAA; and (e) encouragement by the EPA.
Onese last two areas are the only ones really under EPA control.
Regional interviews revealed that generally management and staff in the EPA
Regions with strong fee programs readily knew the status of those programs.
In other Regions, Regional management referred interviewers to lower level
staff who then had to research fee program status. Supportive Regions did
not usually feel they were doing anything unusual with fees. Invariably
fees were a topic of conversation both informally and during formal grant
negotiations with their grantees.
Reasons why other states lagged behind in instituting the 110
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33VlN30d3d
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or being labeled anti-business. These same respondents stressed the.
importance of a national regulation or policy in order to avoid putting
any one state or comnunity at a competitive disadvantage with its neigh-
bors. Lastly, many agencies were seriously concerned that fees would be
absorbed by other state agencies, or would be subject to compensating
reductions by either state appropriations committees or by OMB at the
Federal.level. • •
The last concern, particularly regarding OMB, is especially important.
While EPA has only limited influence over OMB, state and local agencies
must be assured.that it is not EPA's'intent to substitute permit fees for
105 funds. Furthermore, as noted above, all agencies collecting fees found
that they benefited financially even where the fee revenues were not
specifically earmarked to them.
- Manor Task Force Findings and Recommendations-
The OAR permit fee task force was unanimous in its conclusion that
properly implemented permit fee programs can provide major benefits. This
same conclusion was shared by virtually every air agency having experience
with. fees. While a few of the air agencies without fees were reluctant to
adopt them, every representative contacted from an organization collecting
fees to any significant degree was positive about the program. Interest-
ingly, even where fees collected go first to the general treasury and are '
not necessarily earmarked for the air program, experienced participants
still felt that permit fees were beneficial. The normal pattern appears to
be that state agencies responsible for contributing to the state treasury
usually benefit at appropriation time, even where there is no legal
obligation.
Other major conclusions included the following: (a) fees do not deter
the location of new industry nor the retention of old; (b) there are many
acceptable bases for assessing fees including, quantity of emissions, log
of time and materials, and source size, age and category; (c) full re-
covery of costs of a permit program include the implementation of permit
conditions.as well as permit issuance itself; and (d) full cost recovery is
required by the CAA; •
The task force on State and Local Permit and Emission Fees was
unanimous in the following recommendations: • .
o EPA should initiate a strong program to assist and direct all
state and local agencies to recover all reasonable costs
associated with implementation of permit programs;
o The focus should be on the bottom line for cost recovery and
• allow maxunum state and local flexibility in the design and
implementation of fee systems;
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o EPA should .encourage that fees collected go to the respective air
agencies;
o EPA should work closely with STAPPA/AIAPCO to develop a formal
policy for implanentation of the Permit Fee Requirements ;
o Witliholding of .105 funds and other sanctions should be. used only
as a last resort; and
o The option to promulgate-a national permit fee requirenent, in
. the absence of state and local initiative to collect fees, as
required by the statute, should be left open.
Other Fee Provisions .
Grantees are not limited to the permit fee provisions of Section
110(a)2{k). Numerous state and local agencies have been operating
sophisticated and progressive fee systems for years and recovering the
costs of public sector services to private sector profit-making operations.
For example, the California air pollution control agencies have been
leaders in the development and management of fee systems. In the face of
continued nonattainment problems, the south Coast Air Quality Management
District (SCAQMD) recently revised its fee schedule eliminating exemptions
for certain small sources, lowering emission cut^-off levels for fee
applicability requirements and selectively raising existing fee amounts
for other sources. The SCAQMD board, which gets 90'h of its revalues from
the fees on permits and penalties for permit violations, also increased its
annual operating, renewal, and engineering evaluation fees. The'revisions
increased SCAQMD's budget from $50 to $63.6 million enabling the agaicy to
hire over 100 new inspectors, engineers and enforcement personnel.
Air pollution control agencies in Florida have benefited from that
state's passage several years ago of an additional $.50 fee per motor
vehicle tag to fund mobile source-related, hazardous waste and asbestos •
pollution control, efforts. And while other .agencies have complained to EPA
that they cannot afford the costs of operating an asbestos clean up progi'am
and have refused to accept asbestos program delegation, a progressive local
agency like the Puget Sound Air Pollution control Agency covers the bulk of
its asbestos demolition and renovation program costs with fees collected
from asbestos notification and contractor certification programs.
Public-Private Partnerships
During the Air Resources Study interviews, Region VIII noted that
major industries and utilities using coal, natural gas or petroleum, at
the Region's- invitation, had joined EPA, the State of Colorado and the
local Chamber of Commerce, in a public-private partnership to .develop a
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comprehensive study to characterize the nature and sources of the Denver
metropolitan area's toxic "Brown Cloud." Support for the study by area
'industries, including automotive concerns, was prompted by:. the urgency, of
the problem, the shortfall of funding from EPA and the state, and a concern
over culpability for the source of the problem area industries contributed
approximately $1 million in funds to the study. .The study was managed by
the Chamber, of Commerce-since neither EPA nor the state could accept funds
from the. private sector. EPA and the state agency have contributed
technical assistance to the effort. A three member board, comprised of
representatives from the Governor's Office, the Chamber:of Commerce and
EPA, provided oversight and. direction to the study.
* t •
User Fee Proposals . • • .
•Numerous other proposals have .been discussed within EPA.and GMB
regarding the extension of various" user fee, or polluter-pays systems which
could have the potential of eventually delivering funds to cover the costs
of air pollution control efforts at the state and local level. - For.
example, in the face of continued.ozone nonattainment, one proposal would
have facilities that annually emit, over 100 tons.of volatile organic
compounds .(VDCs), and which are located in nonattainment. areas, pay a per
ton fee based-upon their "allowable" emissions. Sources could pay a fee
based on lower "actual" emissions if.ample documentation was provided.
State and local agencies could also extend their fee .schedule applicability
to less than 100 ton per year sources as well. - -.'
f -*• •" .
Another proposal would'have electric utilities, which.annually emit
" 1,000 or more tons of 303 and NOx, pay a per tori fee based upon their total.
emissions of these pollutants. Utilities could calculate their estimated
emission fees using formulas developed by EPA and covering such factors as
fuel type and quantity, fuel quality, boiler efficiency and existing
control technology in place. The fee would be based on plant-wide
emissions, rather than individual unit emissions. The quality of emissions
data for basis of the fee could improve with the .eventual installation of
continuous emissions monitors (CEMs).
Additionally, CMB. has urged EPA to propose a competitive "marketplace"
approach to controlling chlorofluorcarbon (CFC) emissions. In this
approach, portions of an annually predetermined-annually decreasing level
of allowable CPC emissions are competitively bid upon by competing
facilities for the rights to emit (i.e., manufacture the appropriate amount
of the product still allowed to be produced). Assuming an expeditious
reduction schedule, this concept could be extended to other pollutants and
industries particularly where carcinogenic* and other hazardous air
pollutants are involved.
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Prime candidates for permit fee or emission tax provisions are
emerging air pollution problem areas where a clear Federal mandate and
dedicated source of Federal funding are absent. Congress, EPA and state
and local agencies may also wish to consider if a technology-forcing- .
emission tax approach (where-the more effective.the controls in reducing
the. volume of pollution -.the'less tax is paid) would be appropriate for
emerging program areas-,, like, air toxics emissions control.
Economic Incentives and Disincentives
Apart from funding a pure regulatory approach, another way to ensure
or encourage compliance with air pollution control requirements is to offer
various financial assistance mechanisms (incentives), or financial
penalties (disincentives) to the polluters. Experience with polluter
incentives and disincentives directly affecting actual air pollution
emission .and control has been limited in the united states. Limited
application of incentives has occurred in the area of emissions banking,
bubbling and trading. Disincentives have generally only involved non-
compliance fines and penalties, which for reasons of program integrity and
practicality, are not viewed as "planned" sources of program revenue.
European experience has been much.more extensive, particularly in the
area of subsidies to industry. These have included:.- (a) direct investment
subsidies, covering part of the costs-for the development of new pollution
abatement technologies; (b) loans for installation of pollution abatanent
equipment or environmental rehabilitation, or interest subsidies to
facilitate loans; (c) tax rebates, such as reductions in motor vehicle
taxes for clean technology -vehicles; and (d) subsidies for investment in
energy - saving and low - waste technologies (i.e., encouraging the
redaction .of fossil fuel combustion).
Other European experience includes: levying additional taxes and
surcharges on uses of certain fuels; reductions in charges for low-
polluting fuels; levying of penalties and fines based upon emission rates
(the rates being charged in proportion to the environmental damage caused)•
and the proceeds going to a fund for the development of remedial measures
and clean-up activities.33
One possible proposal for air pollution control in this country,
emulating the European experience, would be to have all air pollution
fines and penalties collected by EPA go directly into a remedial financial
33. See "National Strategies and Policies for Air Pollution Abatement;"
United Nations and Economic Commission for Europe; 1987.
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assistance fund or a .National Air and Radiation Trust Fund for eventual
redistribution for EPA programs and state and local pollution control
activities. EPA lias already established a somewhat similar approach under
its cost recovery policy for the Leaking Underground Storage Tank (LUST)"
Program.34 Other media approaches are noted below.
Other Media Program Approaches " '
EPA's Water Program recognized that the traditional grants approach to
funding its Wastewater Facility construction Grant and Non-point Source '
Water Pollution Grant .programs could not continue indefinitely given
projected costs and likely economic scenarios. As a result of Congres-
sional action, the Water Program'is shifting the costs of planning,.
preliminary engineering, constructing and maintaining such facilities to
states by way of a state capitalization fund. The revolving capitalization
fund was initiated with 80% Federal funds and 20% state funds. The State *
Revolving Fund appears to hold limited utility for the Air Program, how- .
ever, since the Air Program does not feature a capital-intensive element
such as a wastewater treatment facility. The Water Program also faces
hurdles in how to continue adequate funding for non-capital intensive *
purposes like water quality, planning.
•Managing for the Future . - . •:••
The need for reassessment, and clarification of the direction of the
Section 105 program and of relative Federal, state.and local air program
roles has been suggested in the above discussion. This has been prompted,
in large part, by the dilemma of ever-increasing responsibilities out-
stripping available resources. It is necessary, of course, to seek
additional funding sources. However, in addition, there are remedial
administrative .and management steps that can be taken to lessen the strain
of the funding dilemma. These actions might not necessarily increase
funding but they may increase overall productivity ,and help limited dollars
go farther. These steps would certainly be enhanced if the issues of ...
program focus and future support were, resolved, but their pursuit is not
prevented in the absence of such resolution. . •-
These actions include: (a), development and integration of a.longer
range multi-year outlook into the ongoing air and radiation program
planning, budgeting and execution cycle; (b) assessing anticipated program
support needs for new program responsibilities at the Federal and state and
local levels and matching this need estimate with realistic resource
34. see OSWER's ."Cost Recovery Policy for Leaking Underground Storage
Tank Trust Fund;" October .7, 1988; J. Winston Porter to Regional
Administrators.
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strategies and projections at the outset; (c) promoting to Congress and the
Administration the virtues of providing appropriations on more than just an
annual basis; (d) implementation of various modifications to the
administrative aspects of the current CAA pertaining to grants allotment
and management intended to make them.less cumbersome and more equitable;
and (e) improving grants tracking and oversight systems and the grants
information data base. The next sections.discuss these possible
administrative, and. legislative changes in" more-detail.
Multi-Year Planning
As noted earlier, 'a crucial concern of state and local agencies has
been the continuity and certainty of EPA's program priorities and financial
support. Interview respondents were critical of EPA's continual
modification of its annual priorities and a corresponding inconsistency in
maintaining its funding cotimitments. From QAR's perspective, annual
adjustments are necessary to meet competing'and constantly changing needs.
The fact that this occurs, in a time of limited resources, further under-
scores the difficulty of. meeting the need for. flexibility versus- the
need for stability.
To accommodate these competing forces, many respondents urged that OAR
adopt a more formalized multir-year approach to the planning, programming
and funding of its activities. It was'felt that this would enable
recipients to better respond to EPA requirements and more effectively
operate their programs (i.e., secure timely matching funds, hire and train
needed staff, secure legislative authority, etc.).
By necessity, goals for reducing air pollution are multi-year in
nature - overcoming ozone and carbon monoxide problems may take decades,
for example. However, QAR's management of its resources, including state
and local assistance, is driven by decisions based on annual Congressional
appropriations rather than longer term authorizations. Annual competition
among priorities often results in the deferral or diminution of funding of
some program objectives for the benefit of others. This underscores a
simple axiom — as resources diminish or 'remain stable, and priorities
increase, the amount .of time it takes to complete an objective or resolve a
problem lengthens. The recurrence of the same annual objectives in the Air
Program's past successive operating guidance documents amply illustrates
this.
The course of resource management- decisions is also highly dependent
on the tenure of the presiding Regional'Administrators, Assistant
Administrators, and Administrator. A multi-year plan, which overlaps
tenures, may not be well received by incoming management if the new
management perceives its control as being constrained by a previously
approved multi-year, plan. Interim adjustments during this period can
always be made, of course.
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Despite these possible impediments, CM* and other top EPA managers
must pursue a more logical approach to match program goals with projected
resource need;and availability. Before requesting appropriations, the'
total costs required to adequately complete a program activity, need to be •
assessed.' These requirements must then be weighed' against the possible
sources and availability of funding. Funds can then.be requested '
accordingly, and the period for completion of a major program goal can then1
be projected and programmed accordingly.. If resource support changes or
other priorities emerge (e.g., court orders, 'increased health risk, etc.),
then the relative1 timeframes for completion of the activities can be
adjusted. What should result is a "living",-multi-year plan containing a -
detailed first year implementation program with" total program costs and
sources of funding spelled out. "The ensuing years' agenda, would ' ';'
necessarily contain less detail but would still show specific funding
recommendations in'the basic program areas. - "
There are various mechanical aspects to consider for carrying out a
'multi-year planning and programming cycle - discrete multi-year periods"
versus a rolling multi-year "window" approach. With a- discrete block
cycle/ planning and programming would occur for a distinct multi-year ' ';
period. Assessment of accomplishments, and any necessary adjustments, :
would occur in the'final year of the multi-year'cycle and-would influence'.
the formulation of the next multi-year period plan- arid program.'
commitments would be negotiated and locked in for the entire multi-year
period. . • ,- . • • •*• .
Another approach would feature more of'a capital budgeting"format with
projected activities moving through a three or five year plan and becoming •
more focused as they near the implementation year (e.g., similar to the' <-
Department of Transportation's annual element portion of its. three«year"
capital improvement plan). .The second year is more of. a "staging" year * " •
possessing a greater likelihood of funding of the activities it contains
than the upcoming "candidate" activity-years of three through five.
Another variation would feature a moving or overlapping multi-year
window. In this case planning and programming would occur for a discrete
multi-year period but adjustments would be made at the end of each year of
the cycle. As one year is completed another moves into the implementation
window and any' adjustments necessary from the first year would influence
the content of the "new" three to five year program plan. •
Any multi-year approach must necessarily incorporate revisions to:
operating guidance and grants guidance; SPMS negotiations and commitments;
and ongoing strategic planning and needs analysis exercises"conducted by
OAR program offices (e.g., OAQPS annual "Greensboro" strategic planning
sessions). The current process for formulation, development and execution
of one year's budget would need to.be revised to reflect multi-year
considerations. •
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, The expenditure of grant funds would still be able to occur over a
two-year period. The most far - reaching implications of this approach
would be for Congress to adopt a multi-year framework for appropriation of
grant funds. This would require fundamental changes in the'way Congress
does business and obviously would not occur simply to accommodate the 105
air grant program.
If a multi-year'planning'.cycle»is adopted, grants could be negotiated
for multi-year commitments. Annual Regional management reviews would allow
adjustments for non-core or changing priority activities. SPMS commitments
would be projected for three to five years allowing annual adjustments and
retaining quarterly and .annual progress reviews. Strategic planning would
be required of all the program of f ices and an overall OAR annual strategic
planning session would be held involving the program offices and the
Regions. Consultation with STAPPA-AIAPCO would be retained.
Possible constraints and disadvantages associated with a multi-year
approach are: incompatibility with biennial state budgets {20 states employ
biennial formats); opposition-to longer-term authorizations due to economic
circumstances; perception of diminished-federal control (possible weakening
of annual accountability); and increased need."for maximum federal flexibi-
lity due to diminishing resources...
Possible advantages would be that: a marriage of projected resource
requirements and program goals would occur; Regional Offices and grantees
would have a more stable resource commitment for. base activities and longer
range-planning would be promoted; less SFMS micro-management would
predominate; environmental results could be better assessed over a three to
five year period; action-forcing events like new legislation and cross-
media concerns could be better, planned for; and realistic program
priorities and plans could be made into the 1990s.
EPA Headquarters is still considering a more formalized approach to
multi-year planning.^5
, Cost Analysis of Actions to be Implemented
All'too often, legislation, litigation or environmental exigencies
result in additional EPA responsibilities without the Agency first being
able to assess the costs of their implementation or the availability of
additional resources. EPA, in turn, must distribute limited resources to
state and local agencies to follow through on these new responsibili-
ties, on some occasions not truly knowing if the available resources .are
35. See "Memorandum on Five Year Program Plans;" Office of Management
Systems Evaluation; September. 13, 1988. .
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fully adequate to allow completion of the requirement in a timely manner.
Ideally, before a new responsibility is added to the agenda of EPA and
state and local agencies, a preliminary analysis of the costs to accomplish
it should be determined and the necessary resources programmed accordingly.
This would allow a better match of resource needs to resource availability.'.
Resulting shortfalls and relative timeframes for completion would be more
evident and would aid in multi-year planning and programming'.
If resources do not exist for the activity then: (a) a dedicated
source of funding should be identified; or (b) a strategy for development
of supporting resources should accompany it; or (c). areas of existing
activity able to be deferred or curtailed, in deference to the new respon-
sibility should be identified. Both Congress and EPA could perform such
analysis as part of the development of legislation, regulation or policy
for each new responsibility. • . ' .
National Grants Management Information System
- ™fc i i ^-i™" . — ,., .£ « f. -_
O ..-."'
The study also determined that, other than a'manual updating of annual'
financial obligation status by grantee, there is presently no national-
scale system or data base in place which provides information specifically
documenting grants accomplishments or the actual utilization of grant
resources by major air program objective. Grantee close-out financial
status reports, at best* may outline object class (salaries, travel,
equipment," etc.) or program element (monitoring, enforcement, etc.)
information. But these are usually received at least a full quarter after
the end of the completed grant year, and object class information is of
little value in determining how funds are spent'on national air priorities.
Some persons have questioned the need for such information and l -
oversight at the national level. Congress, however, holds' the national
program managers responsible for implementing the statutory requirements-of
the Act, and accountable for assuring that grant funds awarded to carry-out
these requirements are so expended. It1 would also seem to'be-sound
management practice for Headquarters^, which is responsible for national
resource allocation, to have a direct link to evaluation of resource
utilization and accomplishment of national objectives. " ''. '
- ' - . i * ' SV
.These concerns highlight the dilemma- of trying to strike a balance
between the desire for flexibility and the need for accountability. To
reconcile this dilemma, the Air Program has recently initiated efforts,
utilizing Productivity Improvement Project Funds, to develop an automated
grants accomplishments tracking system (and information data base) by -
building upon reporting and data systems already in existence at the
Regional Office level. This should increase national level knowledge,
enhance national level decision-making, and do so with a minimum of
administrative disruption to the Regions and grantees.
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Qther Administrative and'Statutory Revisions
There are various actions that EPA could pursue to make selected
administrative and statutory provisions dealing with Section 105 air,grants'
less cumbersome and more equitable. These actions fall within two general
categories: (1) changing how funds are appropriated for certain grant
purposes; and (2) making administrative modifications to Section 105 of. the'
current Act.
- Identifying Special Appropriations
In the first area for.potential revision, separate appropriations for
special purposes, intended for direct financial assistance to state or
local air agencies, could occur apart f ran > the overall Section 105
appropriation. These include separate appropriations for: (a) equipnent
purchases; (b) training funds; (c) protection of Indian Tribal lands; and
(d) intermedia demands. The advantage to separate appropriations in these
areas is a highlighting of their annual funding needs and renoving them
from continual competition for limited 105 funds. These areas are
discussed in more detail below.
o: Equipment Purchases - EPA and. State, and .local agency equipment- .
needs vary .depending upon the enactment of "new requirements and the life.
expectancy of equipment-in-place. As: old equipment wears out, the resource
needs for its replacement must compete with the continually growing demands
of personnel salaries and benefits (even though resources may not in-
crease) . A separate appropriation for equipment costs would also prompt
EPA and grant recipients to prepare an equipment lifecycle plan spelling .
out equipment purciiase and replacement needs. By identifying a separate
appropriation for equipment needs?, the Air Program could also drop the
administrative encumbrance of having to differentiate non-recurrent
equipment costs as part of the maintenance of effort determination. .
o Training Funds - As program responsibilities have grown, training
assistance.has diminished. While forms of technical assistance are ,
inherently provided to grant recipients for carrying out new responsibi-
lities, in FY 1988 neither EPA nor Congress requested that funds be devoted
specifically for training purposes. Annual training needs, including those
available under Section 103, need to be identified for separate appropria-
tion. Funds could also be included for intergovernmental program
assignments of EPA personnel.to state and local agencies and vice versa.
Pursuant to the desire to expand technology transfer activities for .
grantees, some form of a State assignee program could be resumed.
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o Protection of Indian Tribal Lands - New proposals and ongoing
projects to fund activities to protect the air quality of Indian Tribal
Lands must continually compete with requests to support established and
growing state and local air quality programs. Making them a separate
appropriation would focus more attention on their individual merit, 'and
remove them from competition with air pollution control agency requests.
Overall coordination of air quality improvement efforts would need to be
maintained with state and local governments.
o Intermedia Demands - The Air Program needs to better define the
impacts on its operations of other media programs for resource support or
where air program support is needed but has not been identified. .A special
appropriation to address intermedia demands could also be provided or
compensatory resources from the appropriation sources of the other media
programs could be utilized.
. - Modifications to Current Administrative and Statutory Provisions
in the'second category modifications to current language in section
105's paragraphs (a), (b) and (c) could be considered which would either":
shift greater financial responsibility to state and local agencies,
further shift limited dollars among grantees, or simplify certain
administrative encumbrances thereby encouraging grantees to contribute •
more of their own funds. For example: '
o In Section 105(a) the maximum Federal contribution available
to grantees could be limited to 3/5 of the cost of the state/local
program or 60%. Those grantees contributing less tlian 40% of their
program's costs would be required to gradually increase their
contribution by at least 3% per year until they reach a 40%
level. In this case a grantee presently contributing only 25% of
its program would have 5 years to raise its contribution to the
40% level.
o Section 105(b) could be revised to incorporate updated criteria
reflective of conditions of the 1990s in the calculation of the
allocation of 105 funds to grantees. The half of 1% provision in
Section 105(c) would be retained but the maximum amount avail-
able to any one state would be 5%, not 10%. This would have the
effect of allowing the redistribution of several million dollars
of 105 funds among grantees. Only a handful of grantees
currently receive more than 5% of the funds (generally 6% has
been the maximum). >
o The MDE requirement could be modified by either fixing a base
year amount, allowing.a slight range of percentage change in
costs year-to-year, or adopting a grantee progressive assumption
approach.
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In the progressive assumption approach, state and local agencies
would be required to bring their program contribution levels up
to at .least 40% according to the schedule previously mentioned.
In another five years this contribution level would have to reach
at least 50%. A grantee would not be permitted to lower its
contribution level (not withstanding.a non-selective reduction),
and a still receive Federal funds, if it were already above the
applicable minimum grantee -percentage contribution.
The MDE requirements could be further simplified if all equipnent
purchases were either entirely excluded from consideration as
recurrent activity or were officially allowed to be used as either
a recurrent or non-recurrent activity so that a grantee could meet
its MOE each 'year. The original intent of the MDE requirement
was to allow flexibility and not rigidity in grantee program
management operations.
Finally, grantees could be required to describe all of their air
program activity and expenditures within their 105 financial
.assistance work programs. More uniformity could be achieved
nationally if each grantee followed the PBAP, and included a.
description of all of its air program activity with the Section
105 submission. From the grantees' standpoint, identifying all
of its air quality work could provide convincing evidence that
Section 105 falls short of helping them meet their air resource
needs. EFA could also pledge not, to use this information to the
detriment of grantees when determining their proper IOE level.
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CHAPTER 7
SIFMARY and RECCMVIENDATICEIS
SUMX1ARY
From its beginning in the 1963 CAA the Section 105 grant program has.
grown to award nearly $100 million annually in state and local assistance.
The combined Federal and state/local 105 contributions of. $4.8 billion
since 1963 have served to promote and anchor a nationwide air pollution
control infrastructure. This infrastructure has helped to reduce or
prevent over 400 billion pounds of air pollutants since the program's
inception. For most of the nation this 26 year old grant program serves
as the financial backbone of state and local air pollution control efforts.
With such a concrete foundation and background why is it" necessary to
reappraise the program's conduct and course? There are several factors
initiating this reappraisal. The foremost is the combined effect of static
appropriation levels, and as a result, diminished buying power, with an
ever-increasing agenda of air pollution problems and responsibilities.
Since 105 grants can not be expected to support all of this burgeoning
agenda this, raises fundamental questions about:' (a) the Section 105
program's focus; (b) and appropriate Federal and state and local roles,
and responsibilities. • • • -
An overriding national priority is the reduction of the Federal
budget'deficit. Until the mid-1980s Section 105 assistance to-state and
local agencies and these agencies' own contributions, experienced steady,
if marginal growth accompanying the growth in air program responsibili-
ties. While there was always some changing differentiation of priorities
and some redistribution of Section 105 funds, this generally occurred in
times of increased funding. Few, if any, grantees and Regions experienced
a net reduction in resources and most activities received some measure of •
funding.
In recent years, however, Section 105 levels have remained relatively
constant. Even a marginal increase of 5% in the most recent fiscal year
has done little to offset the approximate 15-20% erosion in real buying
power of the dollar since 1982. This has proven particularly troublesome
when combined with the added burdens of continued' nonattainment and un-
foreseen emerging air pollution problems. At a time when resources have •
been leveling off, issues such as the control of air toxics and acid
deposition, post-1987 ozone and carbon monoxide nonattainment, indoor air
pollution and intermedia pollution have all been added to an already full
Air Program agenda. This has lent a new appreciation for the plirase "doing
more with less."
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In its initial dealings with these problems, the Air Program proved
remarkably resilient. Improvements in productivity were gained via
reductions in staffing and refinements in monitoring and data management
systems. Efforts were made to improve consultation and "open" tlie process
thereby reducing, in part, inherent inter-jurisdictional tension. EPA and
state and local agencies also adopted an approach currently in use for
restructuring program priorities. This "disinvestments?1 approach was
intended to offset increased work demands and operating costs with
increases in funding, and the savings achieved from disinvestiture of
selected activities..
However, it has become increasingly evident that the disinvestments
approach, by itself, holds limited utility to adequately accommodate the
future demands of the Air Program. The most palatable disinvestments have
already been instituted. The cost savings which have been derived have
reportedly failed to cover the costs of new responsibilities. Some
persons have cautioned that disinvestments in some established program
areas have seriously eroded the program's infrastructure and any further
steps could be debilitating. To address this concern EPA and state and-
local agencies teve undertaken an ambitious effort to determine the extent
of this problem and to further identify potential disinvestments by
examining the costs of operating state and local programs.
Additional information gathering efforts are often viewed as laborious
and can be met with an uneven response from grantees. The Air Program
finds itself in somewliat of a paradox in this regard, .attempting to balance
flexibility with accountability. The desire is not to conduct oversight of
grantees tlirough micro-management but rather to promote a balanced Federal-
state relationship. Nevertheless, there are serious deficiencies in the
Air Program's data base on the costs of program operations and on resource
utilization. This information is a critical ingredient for helping make
the difficult resource management decisions .which will affect the future
course of focus of the program.
The periodic restructuring of program priorities is not the only
option available to reconcile program demands with available resources.
EPA and state and local agencies need to identify and pursue other funding
alternatives to supplement Section 105 funds. This includes the- full
utilization of funding mechanisms already available to them, specifically,
the Section 110{a)(2)(k) permit fee provisions. Full implementation of
these provisions has lagged, in part, to the absence of uniform national
requirements. Numerous state and local agencies, however, have benefitted
from these provisions and other user fee approaches, and now possess a
wealth of experience worth sliaring with all grantees.
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Reauthorization of the CAA provides a unique opportunity for the Air
Program to revisit, refine and reemphasize the current permit fee require-
ments as well as other potentially significant, revenue-generating, and
cost recovery approaches. These could include:' "dedicated" fee programs
tied to specific new requirements of a reauthorized CAA; technology-foreing
and rewarding emission tax rates; tax rebates and clean technology invest-
ment subsidies; creation of a trust fund which would retain for EPA and :
grantee use any fines and penalties levied on violating sources. Develop- •
merit and utilization* of these potential funding sources, to supplement or
eventually replace Section 105, is a prudent step for the future,
particularly, if estimates of• anywhere from and 50% to a near doubling of
future resource requirements are accurate.
4 •. ' .
Reexamining the CAA at this time also affords the opportunity for
taking constructive action in several other ways: (a) modifying certain
administrative provisions of Section 105 to make -them less cumbersome and
more equitable for grant recipients; .(b) rethinking the schedule and manner
in which grant funds are appropriated and for what purposes in order to
highlight special needs; and (c) utilizing new approaches to accomplishing
air quality goals. This latter category includes such approaches as:
promoting public private partnerships in funding air pollution research,
significantly expanding technical assistance, reducing the need for
regulatory controls and oversight, and periodic certification of state
programs. Many of the concepts in this last category fall beyond the scope
of this report, yet have significant bearing on the future of the Section
105 program, since they could produce significant cost savings.
In addition to determining the appropriate focus of the program and
to pursuing additional resources, EPA can also: (a) improve its current
approach to day to day management of Air Program operations; (b) reexamine
and update, as appropriate, the rational basis for national allocation of
grant funds; and (c) pursue a more strategic, longer-term approach to
program planning and budgeting.
Within the first category numerous actions can be taken which will:
(1) encourage improved grantee performance; (2) inprove coirmunication
throughout the grants process, making its conduct less stressful for all
involved; (3) strengthen and maintain oversight to assure continued grantee
financial integrity; and (4) increase overall productivity.
The rationale used by the Air Program to allocate Section 105 grant
funds at the national level is based upon an allocation scheme and allo-
cation criteria originally developed in 1974. since that time, the
factual bases for many of these criteria have changed, some of the criteria
are duplicative, and many ensuing years' funding increases have been
allocated either proportionally.or on the basis of other quantitative
factors. The national basis for allocating Section 105 funds should
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therefore be reexamined to assess whether it reflects the environmental
conditions of the 1990s. This reexamination should be done by EPA in
consultation with state and local agencies. Should there be significant
changes in the allocation results these should be phased-in gradually.
The Air Program also needs to better prepare for the future. This
will require, that the Air Program better match its anticipated program
support.needs-with realistic resource-strategies and'projections,
particularly for "the support of-state and local activities. The costs of
implementing new responsibilities,.oh both EPA and state and local
agencies, needs to be assessed and planned for prior to these responsi-
bilities being assumed. While the Air Program can unilaterally conduct
such assessments, it also needs to impress upon Congress the importance of
doing so in the development of new legislation and programs. The Air -
Program also needs to integrate a longer range, multi-year outlook into'its
ongoing program planning, budgeting and execution cycle. The usefulness of
providing funds on more than just an annual basis should be impressed upon
Congress. This would facilitate multi-year planning by adding a greater
certainty and continuity to air program priorities aiid funding.
In summary by implementing the major policy, funding and management
recomnendations- noted above, and by elevating those major resource policy
issues which -reach beyond their purview, EPA and its partners- in the" Air
Program, state and local agencies, can more confidently, effectively and
efficiently carry out their responsibilities under the current or revised
CAA. The major recatmendations of this study are listed below and are
discussed in more detail in the ensuing paragraphs.
RBCCM'ENDAMCMS
The primary recommendations and conclusions of the Air Resources Study
fall within 3 major categories of initiatives: policy, funding and
management.
(1) EPA, state and local agencies, and Congress should determine the
appropriate focus of the Section 105 program for the future, and
in so doing reexamine and define the appropriate Federal, state
and local programnatic and financial support roles and
responsibilities.
(2) The Air Program should examine and promote other approaches to
the traditional command and control approach of "doing air
pollution control business," if these will result in a more
effective utilization of air resources.
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Funding Recommendations
(3) EPA, should seek legislative changes intended to remove current
Section 105 radministrative encumbrances, facilitate planning for
the future, and highlight special appropriation needs.
Additionally EPA and state and local ageicies should explore
additional funding sources to supplement the Section 105 program.
(4) EPA and state and local agencies need to pursue "alternative state
and local funding, and develop funding mechanisms in addition to
the Section 105 grants program. In so doing, they "should fully
utilize the alternative funding mechanisms already currently
available to them— namely 110(a) (2) (k) permit fee provisions.
(5) EPA, in consultation with state and local agencies, should
reexamine the basis for the national allocation of Section 105
funds and update it as appropriate; Any changes should be
phased in gradually.
Reconmendat ions
(6) ERA should integrate a more strategic, multi-year perspective
into its ongoing Mr Program planning, -programming and budgeting
process including the state and local assistance element. EPA
should better assess the costs of implementing new activities 011
state and local agencies.
(7) Within the current section 105 program, EPA should seek
•productivity improvements intended to streamline the internal
management of the process, and encourage improved grantee
performance.
(8) EPA, with the 'cooperation of state and local agencies, needs to
improve i'ts grants management information and data base systems
to enable more effective decision making on resource utilization.
(9) EPA must continue its efforts to improve and maintain grantee
financial integrity and accountability, and strengthen Regional
capability for adequate programmatic/fiscal oversight.
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RE03W1EMDATIONS WITH ACTION ITEMS
Policy
(1) Determine the appropriate focus of the Section 105 program
relative to EPA and state and local agency responsibilities:
(a) Assuming 105 funding levels-remain-relatively unchanged,
OAR should develop a policy discussion paper for the
Assistant Administrator on options for the proper program
and focus of Federal, State and Local roles. These options
include having EPA:
-. fund base program activities first and then new
initiatives, if possible;
- fund high priority activities and technical assistance
to grantees with grantees responsible for base costs;
- fund CAA-mandated activity first;
— combine base and priority activities and rank order
them according to three tiers of priority; or
- support prevention and maintenance activities first, then
allocate the balance to emerging areas.
(b) Hav^e the Assistant Administrator convene a workgroup of
senior Agency managers,'Consisting of. several Regional.
Administrators, Office Directors and state and local agency
officials to examine this issue and make appropriate
- recommendations.
(c) Have the Administrator urge a wider public discussion of
changing Federal, state and local roles and responsibilities
involving EFA, state and local agencies, and Congress.
-' (d) After receiviiig the workgroup recommendations, OAR in
consultation with the program and Regional Offices, should
issue a policy clarifying what constitutes an applicable
Section 105 program expense.
(2) Examine and promote other approaches to the traditional ways of
"doing business." .
(a) Have OAR and the Regional Offices publicize the cooperative
public-private efforts occurring such as: Denver's "Brown
Cloud" Study, Houston's Ozone Study and the PAWVDH Study.
Promote such ventures in the rest of the country.
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-143-
Funding . .
(3) EPA should study the feasibility of seeking legislative changes
to Section 105 during-the CAA reauthorization process intended
-to increase the equity and effectiveness of the.grant program.
(a) Draft revisions to Section 105 requirements that would
"level the playing field" in terms, of the Federal
contribution to any grantee including minimum and maximum
percentages and minimum grantee contribution percentage.
Any changes would be gradually phased in.
(b) The maintenance of effort requirement should be retained
but CftR, in consultation with OGC, the Regions, and state
and local agencies should draft revisions intended to
simplify and make more flexible the administrative aspects
to the MDE provisions.
(c) OAR should draft a position paper for the AA and
Administrator on the need for Congress to consider using a
two year or multi-year appropriation cycle instead of the
present annual appropriation process. .
(d) During the CAA reauthorization, OAR needs to communicate to
Congress the need to reemphasize the requirement for every
state to have a fee (cost recovery) program under
110(a)(2)(k) in order to have an approvable SIP.
(4) EPA and state and local agencies need to pursue additional
approaches to funding state and local air program needs other.
than just. Section 105 air grants.
(a) EFA and state and local agencies should fully utilize the
alternative funding mechanisms already available to them,
the 110(a)(2){K) permit fee provisions. In so doing OAR,
in consultation with STAPFA-AIAPCO, should set-up an
information clearinghouse on successful state aiid local
permit fee programs outlining: fee schedules, legal issues,
implementation issues, ways to retain fee revenue, model
programs, etc. An electronic bulletin board system could
facilitate this.
(b) CPiR, in consultation with STTvPFA-ALAPCO, should also
include information in this clearinghouse on other fee and
cost recovery systems, and on other innovative approaches
to generate revenue or cost savings including: pooling of
shared equipment resources, data management efficiencies,
and innovative personnel management practices.
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-144-
(c) EEA, in consultation with state and local officials, should
also examine other funding alternatives for state and local
assistance: dedicated user fees, low-polluting investment
incentives, and the retention of fines, levies and penalties
for a "Remedial Mr Program Trust Fund."
(5) EF&, in consultation with state and local agencies, should
reexamine the basis for national allocation of Section 105 funds.
and-update it, as needed.
(a) CftR should select a contractor to update the factual,
basis for current allocation criteria and for any
criteria that might be considered in a revised
allocation scheme. This would include: .population,
number of sources, extent of pollution, etc. The
contractor would also identify other areas like degree
of risk, performance criteria, and agency capability,
. that could.be considered. '
(b) OAR should form a workgroup consisting of Regional
Office and. Headquarters personnel to discuss the
contractors results, and to advise on the need for any
. modifications to the national allocation scheme. State
and local agencies should also be consulted.
(c) Should any modifications be necessary, a plan for their
gradual introduction would need to be formulated.
Management
(6) OKR should adopt a multi-year planning approach which would be
tied to existing EEA management systems including those affecting
the state and local assistance element.
(a) OEMD should work with CftQPS in extending their
strategic multi-year approach throughout C5VR. Multi^
year planning should also be extended and tied to
Regional management systems. State and local agencies
should also be consulted on the extension of the multi-
year concept to a portion of the Section 105 grants
assistance.
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(b) OAR should routinely assess the costs of implementing
each new activity on.state and local agencies.
Resource demands should be matched to resource
availability and the appropriate timeframe.
(7) Under the current Section 105 program, OAR should seek
productivity improvements intended to: improve communication
throughout the grants process, encourage improved grantee
performance, • and strengthen and maintain adequate oversight to
ensure grantee program integrity.
(a) In the area of improved communication, internally EPA
• should: 'increase involvement of Regional senior
management in grants review as needed; establish 105
• r • ' • issues as a topic for the AA/IPA, Regional Review
• ' '- - visits; continue annual Air Branch Chiefs/Regional
'Grant Coordinators national meetings; issue a 105
Reference Manual similar to the OAQPS guidance notebook
series which compiles relevant polices, memos,
^ guidance, etc.; continue to encourage early Regional
•''•;' • Office input in operating and. grants guidance
,;• " .' development; and promote personnel rotations and
.exchanges between Headquarters and the Regional
Offices. -
(b) In terms of increased communication between EPA and
state and local agencies: Regional Offices should
continue to hold early spring meetings with state and
local agencies prior to formal grant negotiations;
Regional Offices should continue to document their own
- - Section 105 allocation rationales for their grantees;
• encourage Headquarters and.Regional Offices to continue
or develop formal personnel exchange or rotational
programs with state and local agencies; those Regional
Offices which have not done so are encouraged to
develop their own manual outlining their Section 105
grants policies and procedures for their grantees; and
Headquarters should continue to involve state and local
representatives in early discussions on annual air
• program priorities via SEVPFA-AIAFCO.
(c) Improved grantee program performance can be encouraged
by Regional Offices in several ways: Regional Offices
use of mid-year grant evaluations from the current year
to influence grantee negotiations in the upcoming
year, where possible; Headquarters and Regional Offices
could establish or encourage formalized systems for
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grantee performance incentives including reduced
oversight and reporting requirements and increased
grantee roles in high priority project selection; and
wider Regional Office use of pure performance-oriented
.. and. adjusted schedule of award approaches for grant
awards.
(d) Overall, productivity and. performance enhancements-
include: OAR placing more emphasis on technical
assistance and technology transfer activities with
grantees; promoting resource-sharing among grantees
. and EPA; having Regional Offices draw a closer link
between grant evaluations•and national air audits,
.where possible; development of a pilot program within
each Region designed to involve the Regional Office,
program offices and at least one grantee in the review
of EPA oversight and reporting requirements, and the
refinement of them accordingly; periodic review of
OAR's withholding and Escrow Policy; OAR review of the
need for greater flexibility in the annual Regional on—
site review of grantee performance; and development and
expansion of interactive computer capabilities between.
EPA and grant recipients to simplify workplan develop-
ment and negotiation, progress tracking, data and
technology transfer.
(8) EPA, in cooperation with state and local agencies, needs to
improve its resource management information systems.
(a) All state and local agencies should cooperate in the
completion of the joint SIAPPA-AU^PCO/EPA survey on
the Costs of Operating State and Local Air Programs.
OAR should consider alternatives to obtaining this
information if the survey is not completed in a timely
manner or the responses are inadequate.
(b) OftQPS, utilizing Productivity Improvement Program (PIP)
grant funds, needs to complete its automation of the
grant obligation status tracking system. Using PIP
funds, OAR and OAQPS need to utilize existing Regional
• Offices' grants acconplishments tracking systems to
rebuild a system which enables tracking overall grants
accomplishments by major activity area. This should be
integrated with the grants component of the Regional
Priority Tracking System.
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(c) OAR should develop a discussion paper on the utility of
developing state and local workload allocation models
at the Regional level for potential use in awarding
Section 105 funds to grantees.
(9) EFA must continue its efforts to ensure grantee financial
integrity.
(a) Regional Offices should continue to improve their
fiscal oversight procedures and systems in the wake
.of the OIG 105 audits. Additional actions Regional
Offices have taken or can take are: conducting program
administration training workshops for their state -
and local financial officers;.. hiring an auditor or
accountant in the Region to track grantee fiscal
accountability; and conducting joint Regional Office
Air/Grants Divisions site visits to grantees.
(b) OAR and the OIG should clarify auditing responsi-
bility and adequacy criteria. GAD and OAR should also
continue to carry out the revised MDE guidance and
• pursue legislative refinements to current WDE
requirements.
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*
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APPENDIX B
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APPENDIX C
DISCUSSION of REGIONAL OFFICE* and GRANTEE
LOE PRACTICES and PROCEDURES
Region
Automatic
RO Set-Aside
Description of RO and
grantee LOE practices
and procedures
States request that all funds be
obligated; if a grantee does want
to utilize the LOE mechanism- it is
done on an individual grantee basis;
if funds have already been awarded
to a grantee for an effort that now
must be done via LOE .then, the grant
or subsequent grant is reduced
accordinalv
Total allocation is made to grantees
except when there is a refusal to
assume responsibility for a program;
in that case, the Region may use the
LOE mechanism; on occasion states
will, request LOE assistance which
is then funded with their 105 funds
Nb
States inform RO of their DOE pro-
ject needs and how much they should
have transferred from their base
award; if LOE needs are identified
after the grant award they are
funded from available sources
(contingency, unexpended prior year
funds etc.) :
NO
States have requested that all funds
be obliaated - r» LQE set asides
States request that all funds be
obligated; if LOE projects arise
during the year the RO and grantee
can deobligate, use prior year
unexpended, or mutually agree as to
what other activity will be deferred
in its place
-------
Yes
RO contacts states by phone early in
process to identify their LOE needs;
traditionally the amount set aside
has been about 5% of.the Region's
allocation . . .
Yes
RO sends letter to states requesting
their identification of needs; priority
of IDE requests is based upon each
merit, EFA-State priorities, grantee
refusal to perform certain required
activities
8
RQ obligates all funds to its grant-
ees; if a state requests an LOE
project then funds come from its
grant award; if there are unexpended
funds at the end-of-the year a LQE
oroiect mav also be done
Yes
The- amount of LOE set aside' is de-
termed by state and high national
projects; RO technical'staff taUcs
to their state and local counter-
parts with potential projects
identified during worJcplan negotia-
tions; grantees send request to Air
Section Chief reouestina LOE oroiects
10
Yes
States in Region meet to discuss and
jointly recommended potential pro-
jects and RO staff select proposals;
most grantees on July fiscal year
but do not see their LOE funds until
November
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Schedule For Taropt-ina IDE Funds
May
August
October
November
January
QAQPS request RO estimate of grantee requests and
provides pr-eluninary guidance on contractor costs
of activities.
KOs provide initial estimate of LOE projects- and
costs.
Preliminary advice of allowance to special support
account.
FDs conduct further negotiations with grantees and
make appropriate adjustments; provide OPQPS with
planning list of projects.
Transfer of Regional 105 funds to the special
support account; notification of the advice of
allowance.
April-June
Additional direct transfer requests from RDs.
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APPENDIX D
DISCUSSION OF DRAFT 1974
ALLOCATION RATIONALE
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P RAFT
APPENDIX (1974 Allocation Plan)
I. 1974 Allocation Plan Criteria and Assumptions
The FY '74 allocation plan utilizes specific Input data on a
statewide basis. In making this preliminary allocation of State needs
FY '74} the following parameters were utilized 1n the calculations for
each State:
1. The population of the State expressed as a percentage of the
national population. (1970 Census Data.)
2. The number of manufacturing establishments 1n a State expressed
as a percentage of the estimated nationwide total. (1967 Census of
Manufacturers.) , .
3. The number of air quality priority 1 regions 1n the State
expressed as percentage of nationwide total. - '
4. The total capital expenditures for new manufacturing equipment
expressed as a percentage of the nationwide total. -
5. The motor vehicles registered 1n the State expressed as a
percentage of the national total. • • • :
The allocation for each State is first determined as Its percentage
need and then adjusted to a base of 1001. The State's Federal share of
Federal dollars Is then the State's percentage need multiplied by the
total Federal dollars available for 1974 ($48.5 million). Table 1 shows
the factors utilized for each State and the resulting allocation.
The tentative allocation scheme parameters address directly two of
the four basic Federal Register criteria, population and the extent of the
stationary source problem. The scheme also reflects, somewhat, on the
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impact'of national priorities as 1t expresses the relative problems to
be faced by a.-State with respect to priority I air quality regions (air
quality standards) and looks at a possible Indicator of the mobile source
and stationary source problem as they relate to meeting the standards.
The tentative allocation scheme does not address the Impact that require-
ments,for revising control plans or developing new control schemes, such
as land use planning and transportation controls, may have on control
program resources of a State. Nor does 1t look at local and State programs
In terms of the types of program operations that they should perform 1n
order to be most effective 1n controlling air pollution sources.
Although the scheme provides a basis for apportioning grant funds on
a percentage basis regardless of the amount of total Federal funds, It
has an obvious shortcoming In that the growth 1n population, motor vehicles,
etei were*not'considered.
A second Important aspect would be to look at the possibility of
substituting a measurable control parameter that Indicates the extent of
the existing problem. The total emissions 1n a State could be substituted
for the number of manufacturing plants and capital expenditures as these
two parameters Indicate the extent of the possible pollution problem from
stationary sources. Such a substitution neglects the variation from
state to. state.1n types of existing control problems and could penalize
those states which have performed capably 1n the abatement and preventive
aspects of air pollution control.
The optimum allocation system would be. one that tended to provide
funds to states and localities not only on a need basis, but also on the
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effectiveness of the control program 1n either reducing air pollution
levels or 1n the maintenance of air pollution standards. The existing
data would not Support this type scheme until definitive trend data
concerning emission reduction and air quality data are obtainable for
each agency. The semiannual and annual report of State activities may
eventually result 1n data that can be correlated with cost.
II. Revision of 1974 Target Allocation
In an effort to move toward a distribution of resources to those.
areas with an Increasing need, and toward the achievement of the Clean A1r
Act on a nationwide basis, the tentative 1974 allocation tended to redistribute
the funds from areas with essentially (1) small land areas, (2) air
participate problems, (3) slowed growth rates, and (4) relatively Smaller
populations to areas with (1) medium.size land areas and large populations,
(2) Increased growth rates, and (3) transportation control needs. Data
provided by the regional offices and an analysis of State SIP resource
needs, however, indicates these changes In distribution should .be phased
over a period of time to prevent the granting of Increased awards to
agencies that cannot utilize these additional resources Immediately and to
prevent drastic cuts In essential agency operations that are striving to
meet SIP obligations.
In 1973 the regional offices were requested to rank their agencies
based on the priority system of SIP roles. Since Federal funds will be
available to support the State and local control program operations
nationwide 1n FY 1974 at the same level as 1n FY 1973 we must rely on the
State and local agencies to make an even greater effort to obtain additional
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non-federal resources. The limited Federal resources make 1t necessary
to assign lower priority to continued support to agencies that may share
some responsibilities with the State agency. For this reason the regions
are encouraged to provide the State and those Priority I and II local
agencies with relatively more of the necessary resources to achieve the
Implementation plan by providing relatively less support.or phasing out
unnecessary agency operations or agencies that do not have specific
delegated operations. This policy means that agencies which-are not
contributing effectively to solution of priority problems or even those
with some responsibility In enforcement, source surveillance, air quality
monitoring and laboratory services will face a phaseout of Federal funds
In 1974.
To begin this Implementation of a program whereby the regions begin
.to look at the need and effectiveness of the local programs a 701
reduction of funds In priority III and IV agencies has been reallocated
to the regions having essentially priority I and II agencies. In addition,
funding levels for priority I and II agencies have been kept at essentially
the same level as 1n 1973. The revised allocation for the regional offices
1s shown In Table II.
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ACKNOWLEDGEMENTS
The Office of Program Management Operations would like to gratefully
acknowledge the valuable, contributions of the persons listed below without
whom the production of this report would not have been possible. In addition,
we would like to extend our very special thanks to the following 'national
experts' for their support and advice beyond the call of duty - Greg Claim,
Richard Mitchell, Dave DeBruyn, Paul Bryan, Shirley Mitchell, Dan Ryan and
Don Smith.
SPA Headquarters (OAOPSr N.C.)
Greg Glahn
Bern Steigerwald
Don anith
Fred Renner
Kirt Cox
Jerry Emison
Gary McCutcheon
Jerry Yarn
Curt Devereux
Joe Padgett
Neil Frank
Bill Hamilton
Tom Donaldson
EPA. Headquarters (Washington)
Richard Mitchell, GAD
Jane Souzon, OGC
Laszlo Bockh, (JMS
John Rasnic, SSCD
Ron Shafer, SSCD
Kristin McNamara, OARM
EPA Regional Offices
Region I
Paul Bryan
Lou Gitto
Dan Regan
John Hanisch
Steve Perkins
Region IV
Bruce Miller
Ray Gregory
Wayne Aronson
Winston Smith
Bill McBride
Region II
Bill Baker
John Fillipelli
Roch Baamonde
Helen Beggun
Connie Simon
Alice Jenik-
Region V
Shirley Mitchell-
Joe Clesceri.
Steve Rothblatt..
David Kee . ,
Julia Barrow
Charles Luczak '
Richard Cox
Region III
Dan Ryan
Jessie Baskerville
Tom Maslany.
Kathy Mastropieri
•Region VI
Ragan Broyles
Joan Brown
Diane Sales
Ray Smith..
Bill Hathaway
Jack Divita
Phyllis Putter
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Region VII
Wayne Leidwanger
Carl Walter
Carol Levalley
Art Spratlin-
Gene Ramsey
Region X
Dave DeBruyri
Dave Kircher
George Abel
Gary O'Neal
STftPPA/ALAPCO
Bill Becker
Region VIII
Lee Hanley
Dean Giilam
Doug Skie
Irv Dickstein
Martha, NiccdeniLis-
Jack'Hidinger
Regipn IX
Wally Woo
Melinda Taplan
Dave Howekamp
Janet Popil
Willard Chin
Carol Sakamoto
Dave Calkins
Richard Grow
Stephanie Valentine
•-V-B
State and Local Agencies
Don Arkell, Lane Regional Council (Or.)
Brad Beckhain, Colorado
Jan-Bush, CAPCCA
Ivan Choronenko, Hillsborough County (Fl.
Bob Collom and Marvin Lowry, Georgia
Art Damritoehler, Puget Sound (Wa.)
John ETanoff, Chicago (II.) :
Bruce Maillet, Massachusetts
Kurshid Mehta, Jacksonville (Fl.)
Nick Nikkila and Janice Bggen, Missouri
John Paul and Bruno Maier, Dayton (Gh.)
Roger Randolph, Tulsa (OK.)
Steve Spaw and Dru Skaggs,, Texas
Paul Stablein, Kansas City (Mo.) •
Don Iheiler and Bob Belongia, Wisconsin
Roger^Westman, Allegheny County (Pa.)
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