Concept Paper
for IrcpSsmentation of
and VI
QUALITY ACT OF 1987
DATE: April 8, 1987
Planning and Aaalyxij Division
Offic* of Municipal Pollution Control
TJ.S. Environmental Protection Agency
401 M Street, S.W. (WH-546)
Washington, DX1 20460
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C. TABLE OF CONTENTS
PAGE
NTRODUCTIQN
A. Purpose of Concept Paper 1
B. Contents of the Paper 2
C. Table of Content* i-iv
LEGISLATIVE HISTORY Of T^E CONSTRUCTION GRANTS PROGRAM 3
I. APPROACH TO IMPLEMENTATION (RULES OR GUIDANCE) 4
ASCRIPTION OF TOPICS TN SUBPARTS
II I.TITLE II - AMENDMENTS TO THE CONSTRUCTION GRANTS PROGRAM 6
.*.. National Reserves and Stats Set-aaides 6
1. National Reserves 6
a. Marine CSO and Estuary Reserve 6
b. Graata to Indian Tribes 7
2. State Set-As ides 9
i. 205(g) Management Assistance Grants 8
b. 205(h) Rural Set-aside -.0
s . -Q£(. i) Innovative and Alternative 'T'-icimoiagv 10
d. 205(j) VX$A Planning, Non-point Source and Estuaries 11
e. 205(m) Optional Transfer of Title II Fund to
Title VI 12
B. Design/Build Projects 13
C. Termination of the Higher Federal Share for 15
Phased and Segmented Projects
D. Agreements on Eligible Costs 15
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IV. TITLE VI - THE STATE REVOLVING FUND CAPITALIZATION 16
GRANT PROGRAM
A. Purpose 16
B. Types of Assistance 17
!. The SRF May Not Award Grants 17
2. Loans 17
a. Ingres :£atc 1?
b. Payment to SRF 18
c. Dedicated Repayment Source 18
d. Repayment to SRF 18
s- Prtvsntion cif Double Seas fits 19
3. Uses Other than as Loans 19
a. Refinancing 19
b. Guarantees, Insurance 20
c. Leveraging 20
d. Subs t A t e. Revo Iving Funds 21
e. Administrative Expenses 21
f. Eara in^-ir sa v Z2
g= Assistance for the non-Federal Share 22
C. Notice of Intent to Use Titls II Allotments for SRF Programs 22
D. Capitalization Grant Application and Agreement 23
1. SRF - An Instrumentality of the State 24
2. Payment Schedule 24
3. State Match 25
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4. Cjas=.itns «•:,:! for 120 Percent la One Year 25
5. Conditions Applying to All Funds 26
6. Funds As A Result Of Capitalization Grants -- 27
Birst Use for Enforceable Requirements
7. Funds Directly Made Available from Capitalization 2$
Grants -- Title 11 Xequ ;': rosiest i '
J. 3s t -aa idea .from 75. ~:.<: VI *.!.'. a tasatj 34
9- Scale Laws aad Procedures 34
10. State Accounting and Auditing Procedures 34
11. Recipient Accounting and Auditing Procedures 35
i2. Zsvivo amenta I .Rsvje-w Rsqui r erne at s 36
E. Intended Use Plan, Annual Report 37
1. Intended Use Plan 37
\. List of ?roj«ct3 37
b. Long and Short Term Goals 37
c. Information on the Activities to be Supported 38
d. Timing and Use of Funds J3
i. Cr i c a r : a ^ad Meth.cci for Distribution uf 38
Funds Including -- Public Conxnest
f. Interim Reporting Requirements 38
2. Annual Report 38
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F. EPA'« Role - Oversight of Capitalization Grunt 39
1. Program Level Review 39
2. Information Management 40
3. Annual .Review jad Ccaxpiiiac« Aasurrnce 40
4. He cavei~ of Fu^dj 41
;. Audi!-. lav*;-"W 42
V. APPENDICES
A. Annual Operations of an SRF
B. Conditions on the Use of Funds in a Federally Capitalized
State Revolving Fund
C. Catalogue of Authorities £f;sc:isg tha 2?A Coaa nr»ic-; ion
Grants Program
D. Examples of Contents for the Annual Report
S. Timing of Key Activities for Fiscal Yean 1987-1990:
Fuaiiiaj from 205(m)
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CONCEPT PAPER
FOR IMPLEMENTATION OF TITLES II AND VI
OF THE WATER QUALITY ACT OF 1987
NTRODUCTION
A. Purpose of Concept Paper
This paper describes the Environmental Protection Agency's (EPA)
interpretation of the Water Quality Act of 1987 (1987 Amendments), -which
unends the Federal Water Pollution Control Act. Thii interpretation is
f.<3 provide T.b.e baaij for the '.rap! smcn tat ioa of thsss ame.adme;it s
The purpose of thia Concept Paper is to provide interested parties
vith the opportunity to review and respond to EPA't interpretation of the
dineaued ;ona iruct ion grants program and the newly created capitalization
grant program, whereby funds may be obligated to State Water Poilucion
Control Revolving Funds.
After ;he review period for this Concept Paper ends, EPA wi i i decide
vnetaar iay 9 revisions in '. tte Ac c 'will be dsvej. opesi »a rsguiationa, o r
whether guidance alone will provide a suitable operational rr^ias^vori.
Comments should be addressed to Geoffrey Cooper, U.S. Eavi r onmenr a 1
Protection Agency, Office of Municipal Pollution Control (WH-546), 401 M
Street, SW, Washington, D.C. 20460. In order to use these comments in
guidance or rulemaking, EPA must receive them by May 20, 1987.
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B,. Contents of the Paper
Pare I of this paper briefly reviews tie history o* the construction
-•raasa -5 .? a 3 ? .rcn ind 1i ^hl i g.if.-s. -.haasjia^ tT«ada.
Part II describes the approach EPA is proposing t j uae In developing
the guidance, and rules if necessary, to implement the 1987 Amendments and
sets forth a tentative schedule.
Part III describsa :h
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I. LEGISLATIVE HISTORY OF THE CONSTRUCTION GRANTS PROGRAM
In 1972, Co£--r«as *nacr
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Beginning in fiscal year 1987, States will have the ope ion to use a
portion of their annual construction grants allotments for the
capitalization of SRFs. Separate appropriations for SRF capitalization
grants are authorized from fiscal year 1989 through fiscal y«ar 1994.
Aftsr the management of fiscal year 1994 funds is completed, the Federal
role will no longer include financial assistance to States or
municipalities for wastewater treatment faelii'ey canatrnctIcn. Tie Siatas
and municipaliti«3 will thereafter have the sole responsibility for
providing financing to meet the enforceable requirements of the Act.
II. APPROACH TO IMPLEMENTATION (GUIDANCE AND/OR RULES)
A decision has not yet been made whether, in addition co guidance,
regulations will be necessary to implement the amended construction grant
program and the newly created capitalization grant program of Title VI.
The amendments to Title II and the legislative language of Title VI are
clear, detailed, and straight-forward. The areaa which day sail for
regulatory interpretation appear to be limited in number and scope.
Title VI in particular contains areas of considerable complexity and
tarsia ^micJd :ire iaadequa. t s iy defined. Re gui a t i ona. may be nscaaaary to
clarify these matters and co assure consistent, 'jindinjj1 EPA
interpretations. Regulations may also be necessary to assure that the
flexibility of the Act is not inadvertently restricted by other programs
or Agency regulations. Whichever option is eventually selected, EPA
intends to implement the program in a manner which adheres as nearly as
possible to the language and the intent of the Water Quality Act, while
providing States with sufficient latitude to operate their SRF programs.
In order to assist the Agency in determining whether, and to what
extent, regulations are necessary, this Concept Paper is being distributed
widely to solicit comments on the Agency's interpretations, of :he 1987
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•meadmeats. The Agency's decision on the approach to program
.mplemeata t i on will be made soon after tae conaneat period «nda on May 15,
1.987.
Regardless of whether that decision. is to implement the program by
zcaas of guidance, regulation, or both, this Concept Paper will serve as
the basis for preparing interim guidance to allow States and *. Jis Riijioas
to negotiate capitalization graai; agrsjaaiens £°* 53.F pyo^raam AS ioaa is
ooss ible .
Should the Agency decide that some regulations will be promulgated to
facilitate the long term management of the program, the Concept Paper and
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PESfTRTPTTDN OF TOPICS TN TITLES TI AND VI
III. TITLE II - AMENEMENTS TO THE CONSTRUCTION GRANTS PROGRAM
A. National Reserves =ind State Set-aiidaa
The 1987 Amendments continue cue authority for State set-asides and
33 vabl isa. raft) ^aciaaal jr^srve*. Fuacti-asj for faa riatitmai rsncrvaa, tis
new set-asides for non-point source and estuary purposes, and the optional
...i'fer of Title II funds for Title VI purposes, shall apply to any
appropriations bill passed after enactment of the Water Quality Act of
1987.
1. National Reserves
The national reserves provide funding ior projects to abate combined
sewer overflows (CSO) into marine bays and estuaries and for awarding
construction grants to Indian Tribes. Ual iis Stata j«t-*sides and che
Governor's discretionary authority, which are percentage amounts set aside
by the State or the Regional Administrator from each State's allotment, or
from each 3'iat*'a share of che auxhor izax ion in ". iie cams of stats
management aaaiatanca graata, aationai rGaurverj are Amounts ieduc.tad by
•;he EPA Admiai a r,7a'cor from tiie ^ntira .ippropr ia.-c i on, before allotment
a. Marine CSO and Estuaries Reserve
The marine CSO and estuaries reserve is 1 percent of the
appropriation for fiscal years 1987 and 1988, and 1.5 percent of the
entire appropriation in fiscal years 1989 and 1990. Two-thirds of the
amount of the reserve shall be available to address water quality problems
resulting from marine CSO discharges into marine bays and estuaries. The
Agency intends to use existing regulations (40 CFR Part 35.2024(b)) and
guidance to award f-inds for marine CSO projects from this set-aside.
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Applications for marine CSO grant* from fiscal year 1987 funds must be
tubmitted to the Regional Administrator by September 1. 1937.
The remaining one-third of the marine CSO and estuaries reserve is
:o be used to supplement the funds available to tia !!aMeaal Estuary
'rogram usder Section 320 of th-. Act. These funds will be administered
•nder guidance o? regulations to be developed by the Office of Marine and
Estuarine Protection and TV! 1 i not b« discussed ia i'urtaer detail is this
Concept Paper.
b. Grants to Indian Tribes
Under :hs 1987 Amendments, one-half of oae percent of the sums
appropriated under section 207 will be reserved for grants for P,HB
development of wast; treatment management plans and for the construction
of sewage treatment works to serve Indian tribes.
In cooperation with the Indian Health Service (IHS), H?A -will
conduct a 12-month survey/study to assess the sewage treatment needs of
ladiun Tribes. Tlie survey ~sriil slso «tudy how allotments to States under
lection .105 can best meet Indian needs. The 1987 Amendments ilso require
r.he Admiai 3 r ra t or -co specify iiow iribea. -i?c to oe aaaia-cad ia asating
their wastewater management planning and -ionu CTUC- ion aectia, and. how ttic.
Agency will maximize Indian participation in the administration of these
p r o g r uns .
The Act authorizes EPA to treat Indian tribes as States for purposes
of Title II and other sections of the Act. but only where the tribe has
the necessary capability and authority to carry out the functions of the
Act and applicable regulations. The 1987 Amendments require the Agency to
promulgate regulations before August 5, 1987 on how Indian tribes will be
treated as States. For the purposes of the construction grants program.
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EPA'a lsi:i.tl thinking is to apply the existing regulations at 40 CFR,
Part 35, Subpart J that govern State delegation agreements.
In view of the phase-out of the construction grants program in 1990,
and the limited time in which to fully develop the cocnnical and
managerial capabilities to manage »he projrim,, iv$ -riry po»*.lbi« that
Indian *.?ib«s any elect to forego delegated authority to manage the
construction grants program.
To assure that there are alternative administrative arrangements.
EPA is exploring the feasibility of an administrative arrangement based on
the existing relationship between the Indian Health Service and the
cribes. Uaaer $ais approach tie THS could admiaia tar the Title II funds
through its existing sanitation facilities program. IH5 guidance would
apply in the interest of IHS program consistency and administrative
efficiency, however, EPA may include additional requirement*, such as i
requirement tiat projects with CM&. eligible needs r*c*i7s first priority
for funding. Alternatively, EPA could enter into an agreement whertby the
IHS would act as a "delegated State" and administer rhs set aside under
*.lie construction grants i'auias ions iad aa 2?A aa.tional rsriori.ty list.
EPA will aatabiiaa a wo rijjr oup to svaiuata these- liiernative-
approaches on Title II implementation for Indian Tribes. The workgroup,
which will include representatives of the tribes, IHS. Regions, and
States, will study proposed implementation approaches, impacts , and
regulatory barriers to implementation, and other major activities as they
relate to applying Title II provisions to Indian tribes.
The actual allocation of the set-aside funds will be baaed on. sera-
form of priority ranking system that includes criteria for determining
eligibility and priority. For example, at least the following approaches
will be considered:
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-- Aa ladiaa ?r-3j*sr Priority List developed by an Indian tribe, if
the Indian tribe receives program delegacies,
-- A National Priority List developed by EPA in cooperation with IHS
if IHS assumes responsibility aa * "iei^jaKd Star.-!,"
-- A Project Funding List developed by IHS if IHS administers
program.
The Act does not authorize the Agency to treat Indian Tribes as
States for purposes of awarding capitalization grants under Title VI, but
they may be eligible for SRF assistance in the same manner as
jiun A w i p a i i i i 4 u .
2. State Set -as ides
i. Section 2Q5(g) Management Assistance Grants
The authority for the set-asides for State management assistance
grxnxa, -whicii are deducted, from sach State's share of the Title II
authorization, is extended through fiscal year 1994. Howevjr,
year 1990, so the sourcs of funds for Stacs management -iaaiatancs grants
after 1990 is unclear.
By extending section 205(g) authority and not tome other set-asides
to 1994, Congress appears to recognize that construction grant management
activities will continue for several years after fiscal year 1990 and to
intend for funds to be available for delegated States to phase out the
program.
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Moat States -will :««3i *o coordi.nats operation! of the construction
grant and the capitalization grant programs, and EPA expects to facilitate
•uch coordination by allowing States to use up to 4 percent of their
annual authorizations in a combined fashion for both purposes. However,
States may not use more than 4 percent of the amount
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Subsection e. of this Section describes how the amounts s^t aside
under the rural and the innovative/alternative technology provisions may
be effected in any year in which funds are transferred to an SRF under
section 205(m).
/
4U Section 305(j) Water Quality Management Planning
Non-Point Source and cscuary Programs
The set-aside for water quality management planning of section
205(j)(l) is continued under Title II and a similar set-aside for planning
under sections 205(j) and 303 is included in the new Title VI.
Section 316(d) of the 1987 Amendments (new section 2Q5(j)(S) of the
Act) creates a set-aside for the Nonpoint Source Pollution Management
Programs developed under the new section 319. Each State must reserve the
gTrtnisr of 3100,000 «r one percent of its annual allotment. The State is
required to obligate the first $100,000 of this reserve annually for
development and implementation of nonpoint source pollution management
3 r o g r amB or f orf ei v; - the -inobl i %c. t ?.d. balance of that first 5100,000 to
rsallotment. These 205(j) funds shall be reallotted to States that are
,-ibiu to obiiija'ce ;juca. funds .for ".he ^uraoaes of jecxion 319- 'Whsre the
reserve for any State exceeds $100.000. funds in szcess of 'che- sanda t ory
$100,000 may be used by the State for any purposes defined under Title II
of the Act.
The nonpoint source management set-aside can be used for the same
purposes as funds authorized to be appropriated under new section 319(j)
of the Act for developing and implementing approved nonpoint source
management programs. In addition, section 316(c) amends 20l(g)(l) to mate
eligible, under the Governor's 20 percent discretionary provision, grants
for the development and implementation of non-point source management
programs and demonstration projects (3l9(h)), and grants for protecting
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groundw&ter (3l9(i)). The Conference Report states that sections 201(g)(l)
and 20S(jX£) funds can be used for "financial assistance to individuals
only insofar as the assistance is related to costs of implementing
demonstration projects."
The new sections 60l(a) and 603(c) provide that SRF funds may be
used for implementing a management program under section 319 and for
developing ajad Impiesisn': lag a .-ionae ?Ta« ion ind riaaagssment prnjram under
section 320.
Guidance or regulations to implement these programs will be
developed by the Office of Water Regulations and Standards and will not be
diseuaaed in further detail ia this Concept Paper.
e. Section 205(m) Optional Transfer of Title II Funds to
Title VI
Sacxion 205(m) of :h« 1937 Amendments Allows :ae 2;a:e ;o transfer
funds from the State's Title II allotment for deposit into the SRF to use
ia a, Title VI capitalization grant. The amount of the.Title II allotment
that can be transferred ia limited to 50 percent of the State'a fiscal
year 1987 a j. 1 o trie a u -md 75 -j:crcant of tie Stata's fiscal year 1988
411 o czaent . Tiieru ia ao I imi i on. ':ie imouat OE che depoai^: for fiscal
years 1989 and 1990. Section 20S(m) specifically exempts only sums
reserved under section 205(j), including subsections (l) and (S), from
deposit into an SRF under this provision.
The Title II set-aaide calculations may be affected in any year in
which Title II funds are' transferred into an SRF. Because Title VI
exempts only section 205(j) from deposit into the SRF. it appears that
Congress intended for the other statutory set-asides to be calculated
against the balance of each allotment remaining available for Title II
purposes. EPA recognizes that under this preferred interpretation.
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oandatory tet-asides other than section 205(j) could be effectively
sliminated by a State that deposits its eati/e
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costs at the applicable Federal shire. An allowance will be provided for
facility planning work if a Step 1 gzaat haa 20 s bsss vwardeo .for the
project.
The grant tgteeman.: must a.'.,:3 provide:
- Date* for the start and completion of construecion;
- A schedule of payments for the Federal share;
- Assurance that:
-- tie prances h.aa adequate engineering and management
ass is tsince ,
-• the treatment works will be operable and will meet
all progr ara r e q u i r erne n t a ,
-- the treatment works will meet project performance
standards or applicable permit rsquirsmest3 wi shin-
one year following the agreed date of completion;
- A requirement for a contractor's bond in ac Amount ~o ^rotee-:
~as' rsdcrai in.tsrea.t.; and,
- Other terms and conditions to aaaure compliance with program
requirements, C-jcluding the submission of plans/specifications
and payment provisions as Stated in section 203(a), (b), and (c),
which do not apply).
To assure compliance, EPA wi 11 retain 10 percent of each grant
payment awarded for design/build projects. In the case of non-compliance
the Federal contribution wi 11 be recovered. Excess Federal funds
remaining in a design/build grant will be deobligated and returned to the
State's allo tme n t.
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C. Termination of Higher Federal Share for Phaasd
or S egmented Projects
Phaoes or segments of projecti whicii previously recaived % Federal
grant share of 75 percent, or 85 ?srrant for innovative and alternative
'.aehnalasias, will no longer be eligible for that level of funding after
October 1, 1990. On :nat dace, this Federal ahare for *il prajastsi <~vi .1.1 be
no more ;h»n 55 percent, and no more than 75 percent for innovative and
alternative technologies. The reserve capacity eligibility for
grandfathered phase/segmented projects continues to be 20 years for grants
or grant amendments for these projects funded from any remaining funds
appr opr .1 A tad undar Tills II.
D. Ag r e erne nts On Eligible Costs
Under section 103(A) of the 1987 Amendments all construction grant
agreements or amendments must now include a written statement specifying
the items of the proposed project which are eligible for Federal payments.
Tlie Agency ;say -sot later- modify such eligibility determinations unless
they are found to have been made in violation of applicable Federal
r."Eatttt«s and re.gui a.t i ens . However, this provision does not prc&ibit jraat
amendments. Eligibility determinations do not preclude -.he Agency from
auditing a project or from wi thholding or recovering Federal funds for
.costs which are found to be unreasonable, unsupported by adequate
documentation, or otherwise unallowable under applicable Federal cost
principles, or are incurred on a project which fails to meet the design
specifications or effluent limitations contained in the grant agreement
and permit. Guidance on this provision was issued by Memorandum, dated
March 31, 1987, to the EPA Regional Offices.
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IV. TITLE VI - THE STATE REVOLVING FUND CAPITALIZATION GRANT PROGRAM
A. Pur nose
This lection dascr ibes. the Federal jraquirssea'Ja tssoc iated wi th the
SciiKs iravoiviag fund cap?. ?.a, 1 izat * oa.
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Congress devi-ied the SRF Capitalization Grant program with two
overriding objectives in mind: to enable States to quiclen tfc pace of
vaatewater treatment facility construction in order to meet the
enforceable requirements of the Clean Water Act, and to facilitate the
establishment of permanent institutions in each State that would provide
continuing sources of finite lag needed to maintain water quality. EPA
.vi.'i laaura that these two objectives are achieved through the Agency's
implementation of the program.
fi. Types of Assistance
1. The SRF may not award grants
2. Loans
The primary type of financial assistance an SRF is expected to
provide la loans. Properly conditioned loans, as compared with the other
types of financial assistance available from SRFs , establish repayaaeac
streams to the SRF to assist communities in attaining and maintaining
compliance -ariti, sJSie CvVA. The conditions placed on loans made by an SRF
-tie intended to maintain the Fund's financial integrity wi tiout hampering
';ae Sca.tc'a flexibility to aa« 'che Fund ~o addrsaa tie diverse aesds of
its communities. As part of its fund management, .strategy, i 2;are aiiouici
strive to ensure that money will be continually available to meet future
wastewater treatment needs. Note, however, that loans may not be made to
support the non-Federal share of a project receiving grant assistance
under the construction grants program. However, loans can be made for
phases, segments or stages of treatment works that previously received
grant assistance for other phases, segments or stages.
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a. Interest Rate
Loans must be made at or below market interest rates, and may
include zero intfcv.sat lo-iaa. A State may exercise flexibility in setting
interest rates in order to accommodate the fiscal circumstances of
individual communities. (The market interest rate is the rate the State
iscartains to b« pravn i \ iag in cia 5t»xst -cor aizailir ^uoiic -T»nria-
•
projects, and may be applied for a period of time or may be set as each
1 -•.n is made . )
b. Repayment
Principal and interest payments must be made at leas; annually
beginning not later than one year after the date of completion of
construction. The loan must be fully amortized within twenty years of
completion of construction. EPA intends to define completion of
construction as the date operations are initiated. Each Stace has
complete flexibility in setting the yearly amount of the principal
repayment and the interest payment. States may set standard State-wide
amortization schedules or addresa each loan on a viae-by-c^se ^aaia.
c. Dedicated Repayment Sourcs
Each loan recipient must establish one or more dedicated sources of
revenue for repayment of the loan. Dedicated sources of 'revenue could be
special assessments, general tax pledges (full faith and credit of the
municipality), revenue bonds, user charges or other sources. Recipients
constructing treatment w6rks with loan funds "directly made available by
capitalization grants under Title VI and section 205Cm)" of the Act must
also establish user charge systems as required under sections 602(b)(6 )
and 204(b)(l) of the Act which must satisfy the requirements of 40 CFR
Part 35 Subpart I. However, user charge systems meeting EPA requirements
so aov necsasarily aaaurs or vequirs- that ;he aaer charts aystasi crovids
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for the collection ox" J«bt service and, therefore, may not meet the
dedicated nource of revenue requirement established by lection 603(d).
d. Payment to the SRF
All payments of principal and interest must be credited to the SRF.
j. Prsveatioa. of Doufaiu Benefit
If a State makes a lo&n from its SRF in part co finance the cost of
facility planning and the preparation of plans, specifications, and
estimates for construction of treatment works and subsequently awards the
:3cipi«nt a 3rant under section 20l(g) for construction of the treatment
works and an allowance under section -0! (-; j (2} , tie 4U«x<: *nuu x -insure that
the recipient will promptly repay the loan to the extent of the allowance.
For this reason, the State should generally not raaie these expenses
eligible for loans when the State plans to award a subsequent grant for
cons true t ion.
1. Uses Other Than as Loans
In addition :o loans. State Revolving Funds may provide any of the
following types of financial -las i a sancs :
a. Refinane ing
An SRF may buy or refinance a local debt obligation at or below
market rate where such debt was incurred after March 7, 1985. For
example, a municipality that, for NPDES compliance reasons, cannot wait
for SRF funding to become available before commencing construction of its
wastewater treatment facility may obtain interim financing from another
source and seek refinancing through the SRF at a later date when SRF funds
are available. Projects receiving SRF refinancing must comply with the
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reauirementa applicable to projects funded by SRF loans (see Section E and
Appendix B). Further, where the original debt was in the form of a
multi-purpose bond incurred for purposes in addition to waatewater
treatment facility construction, an SRF may provide refinancing only for
eligible purposes, and 40: for the entire d^bt.
b . Guarantees and Insurance
Aa Stir o»7 .guarantee or buy insurance for local debt obligations
w&ere such action would improve credit market access or reduce interest
rates. Because guarantees and insurance may involve the expenditure of
funds without a return stream, their use will reduce the future purchasing
2 owe r of. •: a e 3SF *
c. Leveraging
aa in the SRF may also be "leveraged," i.e., used as a source
of revenue or security for the paymenc of principal tnd interest on
revenue or general obligation bonds issued by the State if the proceeds of
"lie AS.II: ox jucii bonds ira deposited in the SRF. Resources include all
assets of an SRF, including the existing balance in the SRF at any point
In 7. ime , and. luxure revBnues franv loan repayments. Tie £cate aay
to borrow against the repayment stredm frum outstaadinj loans made
initial set of capitalization grants or part of the capitalization grant
or S:a:c match, thus making available significant amounts of money much
sooner than would otherwise be possible. Each State must comply with all
of its securities laws and regulations, as well as with those of the
Federal government. The bonds may be issued by an instrumentality of the
State, the State agency responsible for administering the SRF, or an
interstate agency to which two or more States have delegated such
responsibili ty-
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The State match cannot come from future proceeds of a leveraging
iction that is dependant on a reserve account funded from the
Capitalization grant. The intent of the State match requirement is to
ihcw vhe State's willingness to invest in the SRF and to provide an
Absolute increase in the resources available to th« SRF, Further, a
capitalization £rant payment is not available for use by a State until the
.iia's has ahown that each match payment will be made and has made &t least
the first quarter's payment into ;h« SRF-
d. Sub-State Revolving Funds
An SRF can provide loan guarantees for similar revolving funds
established by municipal -r ratsrmunicipa1 agencies. EPA intends to delay
implementing this provision until there exists sufficient eip^r^snca witii
State-level revolving funds to provide a basis for considering sub-State
revolving funds.
e. Administrative Expenses
Aa previously ioted, SPA intends to allow States to use section
?.05(g.1 funds and SRF administrative funds for coordinated admini a t r -a.': 'i on
of *.he Fund and the construction grants program. Theas expenses siay not;
exceed four percent of the State'j combined jaar= or tie -iutiior i za c i ons*
under Titles II and VI.
The eligible administrative costs for SRF administration include all
costs similarly eligible under section 205(g) for management of the
construction grants program: and under the SRF program costs of servicing
loans and issuing debt, SRF program start-up costs, financial, management,
and legal consulting fees, and reimbursement costs for support services
from other State agencies. However, the SRF administrative allowance
cannot be charged with the costs of administering permit programs under
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sections 402 and 404 and Statewide waste treatment cznageraent planning
programs under section 208(b)(4), or any other section 106 activities.
f. Earn Interest
An SRF may earn interest-on fund accounts, subject to the
r tqa.i i sraeata "or ^pecli * laua irpsadi sure of Federal grant funds and
Federal and State arbitrage limits.
g Assistance for the Non-Federal Share
If a project is receiving a Federal construction grant it may not
receive a loan for the non-retierai aiiars a£ ';h.e project':!, cost. However.,
other forms of financial assistance, such as loan guarantees, may be
provided to that project only if the Governor determines that the
municipality faces severe financial constraints and the assistance is
necessary to allow the project *c proceed.
C. Notice of Intent to Use Title II Allotments for SRF Programs
T. f i Stats wishes to use a portion of its construction grant
allotment untie r- .section 205 of * he-Ac.: a.a . A cap i.ta i i zs. t i on. 7 ran', :. is
Governor must file a notice of the State's intent with the Regional
Administrator. In order to use fiscal year 1987 construction grant
allotments for this purpose, the Notice of Intent must be received no
later than May S, 1987. In order to use available allotments in
subsequent fiscal years, the notice must be filed no later than 90 days
before the first day of those fiscal years. In fiscal year 1987, up to 50
percent of the State's allotment may be deposited in its SRF, and up to 75
percent may be deposited for fiscal year 1988. Funds set-aside under
section 205(j) cannot be deposited into the SRF.
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The notice of intent requirement is not intended to bind the State
to a declared course of action. Instead, it will enable EPA to aim.: s.i 3». e r
the SRF program more efficiently, particularly in its early years.
Because the deadline for filing a notice of intent for any fiscal year
could pass before EPA issues interim final tulss, and because a State's
legal and budgsc circumstances may remain unclear until after the 90 day
isadAAne, the Agency is advising States to submit the notice as specified
above with th« aasurancs :iat ti« noeicj amj be amended or withdrawn.
la d.t t s.:mia ing :i« porr.ioa of the allotment the State wishes to transfer
lor deposit in its SRF, it should consider the effect of set-asides.
D. Capitalization Grant Application and Agreement
Prior to receiving capitalization grant fu.sds , the Region-di
Administrator and the State should reach an understanding on how the State
will administer SRF activities and the role of EPA in the program.
EPA is conjidering an umbrella concept whereby thess usdsrstand ings
and activities would be incorporated in a State-EPA Water Pollution
Caatrol Revolving Fund Operating Agreement (OA) which could be in effect
for multiple years, and which would be aiiailar to other Sta*s-E?A
igr e aaient a . Sines activities on construction grant projects will continue
for the nezt i'ew years, the OA may incorporate or cits by refcrenca
applicable portions of the existing State delegation agreement. Once the
terms of the OA are agreed upon, the State's subsequent applications for
capitalization grants may contain only the information needed to support
the annual application--for example the intended use plan, a negotiated
payment schedule and annual State certifications.
Among the topics that could be addressed in the OA are: the goals
and objectives of the SRF; the responsibilities and the relationships of
the State organizations involved in the total wastewater treatment
facility construction program; the manner in which projects will be
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selected for funding (using priority lists and intended use plans) and
administered through construction, completion and full repayment; the
content and frequency of intended use plans; the State's method for
accounting for obligations and disbursements, the application of State and
Federal regulations and procedures; (e.g., progress toward meeting
enforceable requirements, occ.); reporting; EPA capitalization grant and
paymeas jjroesdniTaa: the nature and scope of technical assistance,
information agreements, auditing and oversight activities. Annual :•.:por-.
requirement*, And other topics.
Although an Operating Agreement may contain many of the items in a
Capitalization Agreement, for each fiscal year, a Capitalization Grant
Agreement must: be entered into betTvesc. the Administrator and the State
before funds can be awarded from Title VI appropriations and from Title II
under the section 205(m) option. A.State may apply for a capitalization
grant by submitting to the Regional Administrator the standard application
form S? 5700-31 and a draft ajreement and intended use plan (the intended
use plan is described in detail in Section E). Beginning with fiscal year
1989, EPA must receive the application no later than 90 days prior to the
end of tie second tiacai year after appropriation. The Regional
Administrator should take action on the application within 45 days of
i v»; a i p t .
Section 602 and 603 of the Act clearly set forth specific conditions
that must be included in this agreement:
1. SRF - An Instrumentality of the State
Each State must establish that it has created an SRF as an
instrumentality of the State which complies with the requirements and
objectives of the Act.
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2. Payment Schedule
A payment schedule, established jointly between the Regional
Administrator and the State in accordance with the State's intended use
plan, must be included with th: capitalization grant agreement. For each
irant, the law requires that Federal payments must be made in quarterly
installments and completed no later than eight quarters after'the date the
State, first obligated such funds or twelvs quarters after the funds were
allotted to the State, whichever is earlier. The payment schedule
negotiation should also take into account the loan c otnmi cme n.' s that an SRF
has made or is expected to make, the factors effecting the pace of
construction within the State, the amount of funds already available but
?,ot -zpended by the SRF, and the timing and amount of various borrowing
needs of municipalities, States and the Federal gova rnsaeac .
3. State Match
The State must agree to satisfy the 20 percent match requirement on
or before the date the State receives the grant payment according to the
negotiated schedule. The report to the Senate bill provides that the
match requirements can be satisfied by deposits iaxo * seuicatad Stars.
revolving fund. ia. fiscal years prior to -the fiscal year that Federal
capitalization granc funds are received. ct-ite funds 'a a; we r s ciepa s i. : ad
into a dedicated State Revolving Fund after March 7, 1985, which is the
date this legislation began Congressional consideration, can be used to
satisfy match requirements. EPA ia examining the Act to determir.; whether
the match requirement can be satisfied from loan repayments .or interest,
particularly those from loans made from State deposits into the SRF in
excess of the match.
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4. Comri tmsnts for 130 Percent In One Year
The State must agree to enter into binding commitments to provide
financial assistance from the SRF in an amount equal to 120 percent of
each quarterly grant payment (the Federal grant and cite State's ma: en) not
later than one year after receipt of each payment. If a State enters into
binding commitments greater than the 120 percent requirement, the excess
balance may be credited towards a subsequent quar vet's r squi r siaas, r. . _;_ay
SRF funds committed fcr use, including funds T>i*c«d in a reserve account
for guarantees for local projects funds used to purchase insurance and
funds used for administration, can be cited as meeting the 120 percent
binding commitment requirement. Binding commitments are legal
obiijatiaaa, raeagai;sd ^j Stats law, that define, terms and timing for
transferring SRF assets to a recipient of financial assistance.
The intended use plan (described in Section E) must identify
sufficient potential recipients of financial assistance to satisfy this
requirement. The actual commitment made must be documented in the Annual
Report. In addition, any negotiated interim reporting may be met by
updating- *£8 intended isc plan. Tie intended, uaa nlaa. d.oes not bind the
State. Substitutes and modifications to provisions in the original plan
siuat, howevur. be vipiained in tie Annual Heporx, isd ; o c 3. i c ojaci ::r=3: s on
the amount, timing and type of assistance must be met. Only changes c^a-
are so significant as to constitute a change to the program for which the
grant was awarded will require review and approval by EPA.
5. Conditions Applying to All Funds
Generally, the funds in an SRF may be used to provide financial
assistance for (l) the construction of publicly owned treatment woris as
defined in section 212 of the Act; (2) the implementation of_ nonpoint
source management programs established under section 319 of the Act; and,
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(3) the development and implementation of estuary conservation and
management plans under section 320 of the Act, subject to certain
conditions in the 1987 Amendments which are explained in the following
sections. Projects :o rsc^ive financial assistance from the SRF must
appear on the State's priority list developed under section 216 and
discussed further in the next section.
The Stits auat tjtee to expend all of the funds in its SRF in a
timely and expeditious manner as defined in the intended use plan and
capitalization grant agreement and as constrained by the applicable Tax
Acts. In order to effectuate the Congressional intent to speed needed
construction, EPA is alao considering requiring States to agree to expend
funds within one year of the date a binding commitment was made. This
requirement applies to the capitalization grant payments, deposits made
under section 205(m) , the State match and any other State contributions,
including the proceeds of leveraging or other use of the monies and,
ultimately, loan repayments. Deposits into reserve accounts for
guaranteeing a local issue and the purchase of insurance are considered
^.tpendi tur e s . as are loan awards. However, securing a State bond issue
with Federal grant money is not considered an expend i 'cur e . Ti; in:;ndid
'aae plan .aus *. include assurances »nd specific proposals for meeting this
requi r ement .
Projects and programs to receive financial assistance must be
consistent with plans, if any, developed under sections 205(j), 208,
303(e), 319 and 320.
6. Funds as a Result of Capitalization Grants --
First Use for Enforceable Requirements
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All funds in the SRF "as a result of Federal capitalization grants
(e.g., capitalization grants, the State match, interest and repayments
from loans made from those grants, and leveraging proceeds, but not
p r o v i e d j 5 T 021 State monies in excess of the match) must first be used to
assure maintenance of progress toward compliance with the enforceable
deadlines, goals, and requirements of the Clean Wa^er Act. The
eaf oieeao is 7<-;qui rsment s of the Act include the municipal compliance
deadline of July 1, 1988. The Conference Hsport accompanying the 1937
Amendments explains that this first use requirement is met if the
treatment works in a State are on enforceable schedules to achieve
compliance with effluent limitations, whether or not there is a commitment
to fund such treatment works from a State revolving loan fund or with a
Title II grant. Thus, if »il treatment -vorks (as defined la section 212
of the Act) in a State are on enforceable schedules and thereby
maintaining progress toward compliance with, for example, the 1983
municipal deadline, the State may use its SRF funds resulting from
capitalization gxan-ca for any treatment works project on the State's
priority list, or for eligible programs or projects other than treatment
works (i.e., programs or projects identified under the Nonpoint Source
Pollution Control Program (jection 319) or the National Estuaries Program
-: ion. 320)) .
A project is maintaining progress toward compliance if durizg tie
term of the Intended Use Plan it is not in significant non-compliance or
is on an enforceable schedule. An enforceable schedule is an NPDES
permit, a judicial order, an administrative order, or a State order that
has been recognized by EPA as having the equivalent enf or c eab i 1 i ty of an
order issued under section 309.
At any given time there could be facilities in a State not
maintaining compliance. In order to avoid impeding the SRF ' s ability to
expend available funds in a timely manner, EPA is considering a provision
sby the Regional Administrator may be permitted to accept a State's
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isaurance that a facility not maintaining progress toward compliance and
enable to proceed regardless of funding commitments will be br.ughc onto
in enforceable schedule by a specified date. If such an assurance could
;e made, that facility could possibly be considered as maintaining
3rogress toward compliance.
Funds in the SRF not as a result of capitalization grants are not
subject to this requirement. These monies may be used 4; aay rims for ?.is
construction of any treatment work* on ciie State's priority list, for the
implementation of management programs established under section 319, or
for development and implementation of conservation and management plans
under section 320. The use of the funds for section 319 and 320 programs
need not be on the priority list but must be described in the intended use
plan. The Governor retains the discretion to use up to 20 percent of the
State's allotment to fund previously eligible projects as provided in 40
-fTv. Subpart I 35.2015.
7. Funds Directly Made Available from Capitalization Grants --
Title II Requirements
The Stats must certify to the Regional Administrator that ail
proiec'3 finances!, ia whole or i.a part, from funds auciiorirad before
fiscal year 1995 which are "directly made available™ by capitalisation
grants under Title VI and section 205(m) of the Act, will meet the
requirements listed below in the same manner as projects receiving grants
under Title II. These requirements are not imposed on projects funded
wholly from the State match nor to monies repaid to the fund, but do apply
to projects funded by the portion of the proceeds of leveraging which is
equivalent to the capitalization grant when that grant is used for
leveraging purposes. This is referred to as the "equivalency
requirement." Those Title II requirements can be shown to be met by
identifying in the Ist-aded Use Plan projects whose total eligible costs
squal or eiceed the grant amount. Eligible costs are defined in section
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20l(g)(l), which permits funding otherwise ineligible categories (sections
20l(g)(l) »nd 211) from the 20 percent Governor's discretionary account.
Any projects cited as having eligible costs that help to meet the
equivalency requirement must AIJO jucijfj *i.s other requirements listed
below.
If.» project receives a ioaa of at leu a-. 50% of it.i tcr.ii eligible
costs, tie total eligible costs of the project can be credited toward
satisfying the equivalency requirement of that grant and any excess
eligible costs can be offset against subsequent grants. The content of
the Intended Use Plan is described in more detail in the following
Section.
The applicable Title II requirements are:
>
Sect! on 201 Cb") . -which requires that projects apply best
practicable waste treatment technology Case *0 C7R,
35.2005(b)(7);
Secti on 201 ( g") C1 ) f which limits assistance *o projects :or
.-secondary treatment, advanced treatment., ar iny cost-effective
alternative, new interceptors dad appur tenanc 2 a.. irni
infiltration-inflow correction (this section retains the
Governor's discretionary set-aside by which a State can
use up to 20 percent of its allotment for other projects within
the definition of treatment works in section 212(2). and for
certain non-point source control and groundwater protection
purposes, as defined in sections 319 and 320 of the Act and
subsequent Agency regulations (see 40 CFR,
35.2015(b)(2)(ii-iv));
Section 2Ql(£)(2)f which requires that alternative -technologies
be considered in project design (see 40 CFS 3S.20'30):
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Section 2QlfgK3J. which requires the applicant to show that
the related sewer collection system is not subject to
excessive infiltration (see 40 CFR, 35 .2030(b)(4) and 35.2120);
%
Sect ion 201 f gKS) . which requires that applicants study
innovative and alternative treatment technologies and take
into account oppor tuai c i es to 12:4 £i mars « JfT I c i 33: uses of
energy aad resources (see 40 CFR, 35.2030);
See t ion 201 ( g ) ( 6 1 . which requires that the applicant analyze the
potential recreation and open space opportunities in the
isg 3i the proposed facility (see 40 CFR 35 . 2030(b) ( 5) ;
Section 201 f n.K O . which provides that funds under section 205
may be used for water quality problems due to discharges
of combined sewer overflows, which are not otherwise eligible,
if such discharges are a major priority in a State (see 40 CFR
35.20l5(B)(2)(iv) and 35.2024(a);
Section 201 ( a 1 . which calls on the Admini s t r a t or to is.ccu.rage
:iad Assist c anznun i : i a a in r.jie deve i opine at cf cani'al financing
plans ;
Section 2Q4Ca1Cl) and (_2 ) , which require that treatment works
projects be included in plans developed under sections 208
and 303(e) (see 40 CFR 35.2023);
Sgc t i on 2Q4Cta') ( 1 ) . which requires communities to develop user
charge systems and to have the legal, institutional, managerial,
and financial capability to construct, operate, and maintain
the treatment works (see 40 CFR 35.2208, 35.2130, 35.2140, and
35.2214);
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Section 2Q4fd')(2'). which, requires that, one year after the date
of construction, the owner/operator of the treatment works must
xertify that the facility meets design specifications and
«ffluent. 1imi cationj it-iudid i_: :-, 3 permit (see 40 CFR
35.2218);
Section 1\\ , wn:-,l provides thai collectors are act eligible,
uader the Governor's 20 percent discretionary authority of
20l(g)(l), unless the collector is needed to assure the total
integrity of the treatment works or that adequate capacity exists
»t the facility (see 40 CFR 35.2015(b)(2)); (Note that the 1987
Amendments extend the prohibition for funding separate storm
•ewers through fiscal year 1990).
Section 2 1 8 r which assures that treatment systems are cost-
effective and requires that projects of over $10 million
include a value-engineering review (see 40 CFR 35 . 2030Cb)(3 ) and
35.2114);
Section Sll(cHl). which applies the Natioae.1 Environmental
Policy Act co ireatmeat woria projects (.-jee 40 CFR 35.2113); as.d ,
Section 51 1, which applies Davis-Bacon labor wage provisions
to t r e a tme nt works construction (see 40 CFR 30.603(a).
Appendix B -- illustrates the eligibility concepts of Title VI and section
205(m).
The Act places the responsibility for demonstracing compliance with
these requirements on the State, which must establish "to the satisfaction
of the Administrator that" (section 602(b)) the eligible treatment works
have met the requirements "in the same manner as treatment -works
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constructed frith assistance under Title II" of the Act (section
602(b)(6)). This language, along with language in the Conference Repor;
to the effect that States need only "demonstrate" compliance with'the
enumerated requirements, suggests three possible approaches to assuring
compliance:
- the State would adopt and apply the applicable construction grant
regulations and procedures taat imp 1 me 2: tb.£.ie itatu:.-:--
requi rement s;
- the State would apply the construction grant regulations, but
would be'permitted to adopt its own streamlined procedures which
*r? more appropriirs to projects financed by loans; or,
- the State would develop its own regulations and procedures to
implement the statutory language.
Presently, EPA favors the second approach which is a more reasonable
interpretation of the language of the Act and of Congressional intent and
it tie approach that would allow the earliest award of capitalization
grants under guidance. This option would also mosx iffsctively accomplish.
•:he CTVO gouia of aciisviag compliance ^vi'ih the Act's r squi r -meat s and
providing States with the flexibility needed r.o operate iJie progr-^..
There are a number of laws and directives from other executive
agencies, in addition to those contained in Suoparc C of EPA'a regulations
implementing the National Environmental Policy Act (40 CFR Part 6), that
have traditionally applied to projects that receive Federal funds. EPA
does not intend to apply, for example, the Federal procurement policy and
similar authorities attaching to Federally funded projects. However,
there are a number of "cross-cutting" statutes which apply by their own
terms, whether or not a project receives direct Federal financial
assistance. Notable among these laws is Title VI of the C.ivil Rights Ac:
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of 1964. It is clear from the legislative history of the Civil Rights Ace
that Congress intended for its non-discrimination provisions to apply
broadly to any Federally assisted construction project, and this
interpretation of its application *M3 beva uphsid by the court. Several
oiLci li~a pertaining to discrimination and patterned after Title VI of
the Civil Rights Act may also apply.
Appendix C lists most of the laws and other requirements which the
»T/»TCV is evaluating to determine whether, and to what extent they apply
to projects funded by an SRF. The Agency will provide guidance to States
and recipients of SRF assistance explaining their responsibilities with
regard to these authorities and others which may need to be evaluated.
8. Set-Aside from Title VI Allotments
Title VI provides for only one set-aside. Each year, a State must
reserve one percent of its allotment or $100.000, wai.chever ia gn
carry out planning under sections 205(j) and 303(e).
er ,
9. State Laws and Procedures
The 3 cat a oiuat igr«e- ': o aaaure 'Chat \f. will follow i ;; 2 own. laws and.
procedures applicable to revenue commitment or expenditure. This
requirement may be satisfied by certification by an auditing body of the
State that the SRF's procedures are established so as to comply with the
State's laws and procedures and generally accepted accounting principles.
10. State Accounting and Auditing Procedures
Aa a Federal grant recipient the State must follow the accounting
and auditing provisions in EPA's General Grant Regulations (40 CFR Part
30). The Agency expects that these regulations will satisfy the
r squi rasiest 3 of. Tlsie- VI. Tha State niua t ifrrss ?o *atabli3h aouropriate
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fiscal and reporting procedures for the SRF. The State is required to
maintain accounts for payments received by the fund, disbursements mad? by
the fund, and fund balances at the beginning and end of the accounting
period. The accounting period will be the Federal fiscal year (October 1
to September 30) unless other annual reporting periods are established in
the Capitalization Grant Agreement.
At least 'once a year, the Admiai * < ra~;sr -/ill conduct, or will
require the Siice to have independently conducted, an audit of the fiscal
vitiation of the SRF. The State may designate an independent auditor of
the State to carry out the audit or may contractually procure the service.
An "independent auditor" is a State or local government auditor who meets
the Independence standards specified in generally accepted government
auditing standards. The Regional Administrator may arrange for 3.2. EPA
audit if the State fails to conduct the audit or if the State's review is
otherwise unsatisfactory. The audit must be submitted to the Regional
Administrator within 180 days of the end of the fiscal year for which it
was conducted. State conducted audits may be done in conjunction with the
single Audit Act (see Office of Management and Budget Circular A-128).
EPA will
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11. Recipient Accounting and Auditing Procedures
As a condition of making a loan or other forms of assistance
described in section 603(d) , the State must require recipients to maintain
nroject accounts in accordance with generally accepted government
accounting standards (e.g., Standards for Audit of Governmental
Organizations, Programs, Ac : i 7 i • 1 .»3 and Functions. 1981, also known as the
"Yellow Book" and "Governmental Accounting and Financ-ial Reporting
Principles",. National Council on Government Accountings Statement 1, March
1979).
12. Environmental Review Requirements.
As noted in Section 7, section Sll(c)(l) requires the Governor to
apply a NEPA-like review to projects constructed with funds directly made
available by capitalization grants. However, section 602(a) of the Act
•
gives the Administrator the author!cy to include conditions in
capitalization grant agreements in addition to those specified in section
602(b). Based on this authority, EPA plans to require each State to
assure, prior to receiving capitalization grant funds, that ill cr-raiaen:
•srori.3 ?.o BB ccmaxr'uc t ad ia -vhois or in part with funds provided from the
State'a revolving i'unu ^vi 1 i bs jubj'jg': ••: c .1 >TE?A-cype rsviaw and :o
systematic, interdisciplinary environmental review procedures to evaluate
the possible environmental impacts (including secondary impacts)
associated with such construction. Although the primary purpose of ths
SRF program in providing funding for the construction of treatment works
is to improve the quality of the environment, this environmental review
requirement is included because the potential exists for undesirable
environmental side-effects resulting from inappropriate design or siting
of funded treatment facilities, or from the promotion of uncontrolled
residential, commercial, or industrial development. In order to ensure
that the environmental improvement objectives of the SRF program are most
sx'fisc « i v« iy carried ou.t la perpetuity and are not jeopardi-zed by
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inadequate considsrat ion of the associated environmental costs, EPA
believes it is essential for States to develop and conduct ecologically
sound environmental reviews. Like the Federal NEPA process, these reviews
should provide for adequate public involvement.
States' comprehensive environmental review programs will be able to
fulfA.ll the above requirement simply by complying with their own program
requirements. State* iiave the option to use the NEPA process (as
developed under the construction grants program) until such time as the
State's own procedures have been developed and approved by the
Administrator. These EPA approved NEPA process review procedures must be
in place by fiscal year 1994 in order to be considered eligible for a
capitalization grant in that fiscal year. Once the State's procedures are
a matter of record, the Administrator's only concern will be to ensure
that the State consistently follows its procedures.
E- Intended Use Plan, Annual Report
1. Intended Use Plan
A State must submit an intended use plan 2.3 jarr of its application
•"or a capi : a i i za t i on ^Tuat . The plan may be- amended upon an agreement
between the State ana che Regional Administrator. The following
information must be included in each intended use plan:
a. List of Projects
A list of the publicly owned wastewater treatment construction
projects on the State's priority list and non-point source and estuary
protection projects eligible for SRF assistance;
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b. Long and Short Term Goals
A description of the long and short term goals of the State's SRF;
c. Information on the Activities -to be Supported
Information on the activities to be supported by the SRF program,
including a description of project categories, applicable discharge or
other enforceable requirements, terms of financial assistance, and
comnunities served;
d. Timing and Use of Funds
Assurances and proposals for meeting the binding commitments,
expeditious and timely expenditure of funds, maintenance of progress, and
specified Title II requirements of Section 602(b) of the Act;
e. Criteria and Method for Distribution of Funds --
Including Public Comment
Information on the criteria for distribution of funds. The State
mua; provide opportunity for public conxnent and review of -:he proposed
intended use plan before submitting it, in final form, to EPA. Hearings
for priority system and priority list purposes may concurrently satisfy
this requirement; and,
f. Interim Reporting Requirements
The intended use plan can be updated with actual dates to facilitate
any interim reporting negotiated by the Regional Administrator and the
State at the time of capitalization grant award.
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2. Annual Report
A State must submit an annual report, no later than 90 days after the
«sd of the fiscal year, which shall reflect the actual use of
capitalization grant funds. The report siail upaa:i :he i.-itiaded r.ae
plan, identify recipients of "Inancial assistance and include dates of
ioanu, loaa amounts, loan terms, and similar information regarding forms
of financial assistance other than loans. The annual repot:, ~.h-: I s. t -saded
use plan, and other records the Regional Administrator may reasonably
require, form the basis of the annual review of each SRF program. EPA
intends to develop an example report format as guidance. Appendix D
includes a sample listing of contents. EPA anticipates that this
reporting rsqui ~ sraeat -will sad rvirh r.i.s cloa«out of the last project
funded with funds "resulting from the capitalization grant" or the
closeout of the last capitalization grant, whichever is earlier. However,
limited information may be required as part of a general Stats report to
EPA as long as tins SRF operates, such as deposits of all repayments into
the SRF, use only for purpose under 212, 319 and 320. and public revisw
and comment on the operation of the fund.
F. EPA's Role - Oversight of Capitalization Grant Conditions
1. Program Level Review
The Regional Administrator is responsible for reviewing each State's
compliance with its capitalization grant agreement and the overall
requirements of Title VI. This review is conducted at the program level.
EPA will conduct reviews of selected projects at the time of review of the
annual report to assure program compliance. Projects may be reviewed at
any time as part of an investigation into allegations of waste, fraud, or
abuse of a program grant.
2. Information Management
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In order to facilitate effective and efficient EPA oversight of *. he
SRF program, States will be required to report a limited set of project
level data. Selected information will be updated on a quarterly basis and
will u«j d«ed by ZFA to aj«e«« th.» progress of the State in providing
financial assistance to municipalities that result/ in treatment works
construction. The fo
achieved, oy :n< o3.F.
construction. The focus of EPA wi11 be on the progress, or result? being
This information will also be used to facilitate management of the
cash flow, or outlays under capitalization grants in accordance with the
payment schedules negotiated between EPA and the State.
3. Annual Review and Compi i
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In making a determination of non-compliance wi ;h the capitalization
grant agreement and devising the corrective action, the Regional
Cdminiitrator -will identify the nature and cause of the State's failure.
the State's corrective action must remedy the specific instance of
ion-compliance and adjust program management to avoid non-compliance in
the future. Upon request, the Regional Administrator will provid.*
:echnicai aaaijtancc *, o cae Siac-j in -orr ssx ing *.ha tioa-compl iance
problem.
If a State fails to take the necessary corrective action as directed
by the Regional Administrator within sixty days of receipt of the
-on-comeliance notice, the Regional Administrator shall withhold payment.
to the SRF until tie S:a:a has taksn the required cor rsc -c i v« -icjtioc.
Once the State takes the corrective action deemed necessary and adequate
"y the Regional Administrator, the withheld payments ahall be released and
scheduled payments shall recommence-
If a State fails to take the necessary .corrective action deemed
adequate by the Regional Administrator within twelve months of receipt of
th? original notice, any withheld payments shall be acoc 1 i gat ed ^-zd
realiotsii Co other States.
4. Recovery of Funds
As a recipient of a Federal grant, the State is required to
safeguard the capitalization grant or section 205(m) funds from waste,
fraud, and abuse. If the Regional Administrator determines that
capitalization grant funds or funds resulting from the capitalization
grant were subjected to waste, fraud, or abuse, the capitalization grant
oi scctian 205(m) funds may be recovered in accordance with procsdures
outlined in 40 CFR Part 30.
Page 41
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5. Audit
The findings of the audit may be independent grounds for a
determination of non-compliance. The audit should support the line items
and the conclusions of the annual report. If ths audit proves the annual
report incorrect, the report should be reviewed Again in terms of the
v-id't findings. If this second review z'inds the State in non-compliance,
the procedure outlined above will b« implemented.
Page 42
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.
ACTIVlYItt (ftYATK)
i
AtFLICATMM
(ITATB)
PRKFAM/tUBMfT
INTENDED U8t
EVALUATION AMD
JlflVKW
M view OP
AfMJCATIOM
(FtAIAAL)
BTATf-fCOCRAL
ANNUAL OPERATIONS
ANNUAL ACTUAL
use
(•TATJ)
ANNUAL
XAVION GRANT
wenf
LOANS UADC TO
COUUUNITIEt
~4f flCFATMCNTI
9
CJ
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3/27/87
CONDITIONS ON THE USE OF FUNDS
IN A FEDERALLY CAPITALIZED STATE REVOLVING FUND
ALL FUNDS - EXPEND IN TIMELY MANNER - GENERAL USES: 212, 319,
FU1DS AS A RESULT Of - 1ST USE - ENFORCEABLE RLXJUIREMTNTS
126* OF GRANT - COMMITTED IN 1 YEAR
To
Financial
Asslstanc*
FU10S DIRECTLY MADE AVAILABLE
(EQUIVALENCY) - TITLE II REQ.
I Secondary
II Uor6 Stringent
IIIA Interceptors
IV6 InfIMration/Inflow
Governor's 20X Discretionary
Municipal
Coffipl lance
DeadIIne
GRANT
MATCH
REPAYMENTS
INTEREST
PROCEEDS OF
LEVERAGING
WITH GRANT
Estuaries
STATE MONEY
IN EXCESS
OF MATCH
eg, proceeds
cf leveraging
with state
funds
REPAYMENTS
WTFREST
x
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APPENDIX C
CATALOGUE OF AUTHORITIES EFFECTING
THE EPA CONSTRUCTION GRANTS PROGRAM
(Authorities in existence as of February, 1981)
ENVIRONMENTAL;
Archeological and Historic Preservatign Act of 1974, ?L 93-291
Clean Air Act, PL 95-95
Clean Water Act, PL 92-500, as amended
Coastal Zone Management Act of 1972, PL 92-583, as amended
Executive Order 11593, Protection and Enhancement of the Cultural
Environment
Executive Order 11988, Floodplain Management
Executive Order 11990, Protection of Wetlands
Executive Order 12114, Environmental Effects Abroad of Major
Federal Actions
Pish and Wildlife Coordination Act, PL 85-624, as amended
Marine Protection, Research, and Sanctuaries Act of 1972
PL 92-532, as amended
National Environmental Policy Act of 1363, PL 30-150, .is amended.
Maticnal Historic Preservation Act of 1966, PL 89-665, as amended
Noise Control Act of 1972, PL 92-574, as amended
Resource Conservation and Recovery Act, PL 94-580
Rivers and Harbors Act of 1899
Safe Drinking Water Act, PL 92-523, as amended
Toxic Substances Control Act, PL 94-469
Water Resources Planning Act, PL89-80, as amended
Wild and Scenic Rivers Act, PL 90-542, as amended
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ECONOMIC;
Appalachian Regional Development Act, PL 90-103'
Contract Work Hours and Safety Standards Act, PL 87-581
Davis-Bacon Act, 46 Stat. 14994, as amended
Demonstration Cities and Metropolitan Development Act of 1966,
PL 39-754, as amended
Executive Order 11738, Administration of the Clean Air Act and the
Federal Water Pollution Control Act with Respect to Federal
• tracts, Grants, or Loans
Local Public Works Capital Developmenst and Investment Act of 1976,
PL 94-369, as amended
National Community Development Prcgr^nj, ?L 32-333, PL 35-557
National Flood Insurance Program, PL 90-448, PL 93-234
Public Works and Economic Development Act of 1965, PL 89-136
SOCIAL LEGISLATION;
Age Discrimination Act, PL 94-135
Civil Sights Act c-f. 1364, 71.93-352
Sxecutive Order 11246, Equal Employment Opportunity
Executive Orders 11625 and 12138, Women1* a and Minority Business
Enterprise
Rehabilitation Act of 1973, PL 93-112 (including Executive Orders
11914 and 11250)
MISCELLANEOUS AUTHORITY;
Copeland (Anti-Kickback) Act
Intergovernmental Cooperation Act of 1968, PL 90-557
Regulatory Flexibility Act, PL 96-354
Uniform Relocation and Real Property Acquisition Policies Act of
1970, PL 91-646
C-2
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APPENDIX Dj EXAMPLE OF CONTENTS FOR THE ANNUAL REPORT
The Annual Report shall describe how the State has met the goals and
)bjectives for the previous fiscal year as identified in the Intended Use
Jlan. The Annual Report shall include the same information in the
intended Use Plan, updated to reflect actual loan activities, dates, and a
itatement of accounts. In addition, the Annual Report must answer the
following questions:
a. Has the SRF been established in accordance/with Section 603 of the
CWA?
b. Have all grant payments been deposited directly into the decLiCi-ed.
SRF?
c. Has the State satisfied its match requirement on or before the
date of deposit of the Federal payment?
d. Has the State made binding loan commitments equal to 120% of the
grant payment *mount within one year of receipt of each quarterly
payment?
e. Have all funds in the SRF been committed in an expeditious and
timely manner?
f, Have all the projects funded (in whole or in part by funds made
directly available by the capitalization grants) met tha
specified requirements that apply to a project that received a
grant under Title II?
g. Has the first priority for use of funds rnade available as a result
of the capitalization grant gens to projects to assure aiainicensr.cs
of progress iovard compliance with the enforceable requirements of
ins Clean tfatar Ac* (including the municipal ccmpiianca deadline)?
h. Has the SRF committed or expended the grant payments received in
accordance with the applicable State laws and procedures?
i. Are accounting, auditing, and fiscal procedures in accordance with
generally accepted government auditing standards (GAGAS) and
generally accepted accounting principles (GAAP)?
j. Has the SRF required loan recipients to maintain project accounts
in accordance with generally accepted accounting principles?
k. Has the State made annual reports to the Regional Administrator on
the actual use of the SRF?
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APPENDIX E: TIMING OF KEY ACTIVITIES FOR FY87-90: Funding From 205(m)
Activity
1) Notice of Intent to
Regional Administrator (RA)
2) Appropriation available for
grant awards to States
3) Application to RA (includes
Intended Use Plan)
4) Complete Capitalization Grant
Agreement (including negotiated
payment 3Chsdule)
5) Payments to State
6) Deposit 20% State Match into
SRF
7) Binding commitments for an
amount etruai to each quarterly
payment plus State match
3} Intaresu. payments-from leans
co
9) Principal repayments to the
Fund
10) Submit Annual Report to EPA
11) RA completes annual review;
compliance letter (if any)
to State
Timing
May 5, 1987, then 90 days prior
to each succeeding fiscal year.
During the fiscal year appropriated
and the following fiscal year.
As soon as possible, but no later
than (NLT) 90 days prior to the
end of the second fiscal year of
an appropriation.
NLT 45 days after receipt of
complete application
No more frequently than quarterly,
for the earliest of 12 quarters
from allotment, or 8 quarters from
the first obligation by the State.
No later than date of receipt of
each payment.
Within one year of receipt for each
quarterly payment.
\t discretion 01 State, but all
vithin 20 years ai'tar projact-
completion of construction.
At least annually, commencing one
year after completion of
construction, fully amortized not
later than 20 years after
completion of construction.
NLT 90 days 'after the end of the
fiscal year.
NLT 45 days after receipt of
Annual Report.
12) Submit- annual audit -to
NLT 180 days after the end of the
fiscal year.
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13) Final review of annual audit; NLT 90 days after receipt of
compliance letter (if any) annual audit.
to State
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