oEPA United States Environmental Protection Agency Office of Solid Waste and Emergency Response Office of Underground Storage Tanks (OUST) DIRECTIVE NUMBER: 9650.7 TITLE: Supplemental Guidelines for FY89 LUST Trust Fund Cooperative Agreements APPROVAL DATE: April 7, 1988 EFFECTIVE DATE: April 7, 1988 ORIGINATING OFFICE: & FINAL D DRAFT A STATUS: REFERENCE (other documents): Guidelines for UST Trust Fund Cooperative Agreements; OSWER DIR. 9650.6; April 2, 1987 Supplemental Requirements for LUST Trust Fund Cooperative Agreements; OSWER DIR. 9650.6-1; Anoiich m 1 Qfl7 OSWER OSWER OSWER VE DIRECTIVE DIRECTIVE Dl ------- c/EPA united otates tnvironmemai protection Agency Washington. DC 20460 OSWER Directive Initiation Request 1. Directive Number 9650.7 2. Originator Information Name of Contact Person John Heffelfinger Mail Code WH-562A Office OUST Telephone Code 382-2199 3. Title Supplemental Guidelines for FY89 LUST Trust Fund Cooperative Agreements. 4. Summary of Directive (include brief statement of purpose) This guidance provides information to assist States and EPA Regional offices in negotiating, awarding, and overseeing cooperative agreements containing FY89 monies from the Leaking Underground Storage Tank Trust Fund. . • 5. Keywords Underground Storage Tanks, LUST Trust Fund, Cooperative Agreements, States, Regions 6a. Does This Directive Supersede Previous Directive(s)? b. Does It Supplement Previous Directive(s)? No No Yes What directive (number, title) Yes What directive (number, title) 9650.6; 9650.6-1 7. Draft Level A - Signed by AA/DAA X B - Signed by Office Director C - For Review & Comment D - In Development 8. Document to be distributed to States by Headquarters? Yes X No This Requestjjleets OSWER Directives System Format Standards. 9. Signature/Of Lead Office Directives Cqordinaigr Nftevp>f'lv ,,Thnrfias./ OUST Pi receive Coordinator Date 10. Naifce-an'd Title of Approving Offici PeEerHubbalrd, OSWER Directives Officer Date EPA Form 1315-17 (Rev. 5-87) Previous editions are obsolete. OSWER OSWER OSWER O VE DIRECTIVE DIRECTIVE DIRECTIVE ------- 0 is;to Eft- -t) ±T< •- - c/EPA United States Environmental Protection Agency Office of Solid Waste and Emergency Response Office of Underground Storage Tanks (OUST) DIRECTIVE NUMBER: 9650.7 TITLE: Supplemental Guidelines for FY89 LUST Trust Fund Cooperative Agreements APPROVAL DATE: April 7, 1988 EFFECTIVE DATE: April 7, 1988 ORIGINATING OFFICE: Q FINAL D DRAFT STATUS: REFERENCE (other documents): Guidelines for UST Trust Fund Cooperative Agreements; OSWER DIR. 9650.6; April 2, 1987 Supplemental Requirements for LUST Trust Fund Cooperative Agreements; OSWER DIR. 9650.6-1; Aiioiig t- 1 ft 1 Qfi7 OSWER OSWER OSWER rE DIRECTIVE DIRECTIVE Dl ------- OSWER DIR. 9650.7 UNITED STATES ENVIRONMENTAL PROTECTION AGENCY WASHINGTON. D.C. 20460 APR -7 OFFICE OF SOLID WASTE AND EMERGENCY RESPONSE MEMORANDUM SUBJECT: Guidelines for LUST Trust Fund Cooperative Agreements FROM: Ron Brand, Director Office of .Underground Storage Tanks TO: Waste Management Division Directors, Regions 1-II1, V-IX Water Management Division Directors, Regions IV and X Attached is the final version of the Supplemental Guidelines for FY89 Leaking Underground Storage Tanks (LUST) Trust Fund Cooperative Agreements. The guidelines provide information to assist EPA Regional offices and States in administering cooperative agreements containing awards of FY89 Trust Fund monies. Where appropriate, the principles contained in these guidelines may be used in administering Trust Fund cooperative agreements for the remainder of FY88. These guidelines supplement the previous guidance issued by EPA to support the Trust Fund program. The previous guidance will be included in a compendium of Trust Fund information that the Regional offices will receive during April. The Office of Underground Storage Tanks (OUST) also plans to issue a consolidated set of guidelines later this year. A draft of the guidelines was distributed to all Regions on March 16. The guidelines have since been revised as a result of OUST's review of written comments and discussions with Regional UST Coordinators. The most substantial changes have been in the cost recovery section, where we have moved closer toward establishing a final cost recovery policy for the Trust Fund. The issue of whether States may keep recovered Trust Fund monies should be resolved shortly. We will inform you as soon as a decision is reached. In the meantime, the cost recovery policies explained in the guidelines should be integrated into the Region's Trust Fund program. ------- OSWER DIR. 9650.7 -2- As in the past, the Regions will be responsible for negotiating, awarding, and overseeing the cooperative agreements with States. 1 commend the Regions, and the UST Coordinators in particular, for our remarkable success rate thus far, in awarding cooperative agreements to 42 States and three territories. I anticipate that all of the current grantees, plus a few additional ones, will participate in the Trust Fund program in FY89. he are committed to supporting you in making this happen. Attachment cc: Regional UST Coordinators J. Winston Porter Jack McGraw Louise Wise ------- OSWER DIR. 9650.7 SUPPLEMENTAL GUIDELINES FOR FY 89 LUST TRUST FUND COOPERATIVE AGREEMENTS U.S. ENVIRONMENTAL PROTECTION AGENCY OFFICE OF UNDERGROUND STORAGE TANKS APRIL 7, 1988 ------- OSWER DIR. 9650.7 SUPPLEMENTAL GUIDELINES FOR FY 89 LUST TRUST FUND COOPERATIVE AGREEMENTS Table of Contents I. OVERVIEW A. Purpose B. Previous Guidance C. Revised EPA Grant Regulations II. PROGRAM REQUIREMENTS, POLICY, AND GUIDANCE A. State Cost Share Requirements B. Allowable Costs C. Trust Fund Use at Government Facilities D. Solvency of Owners and Operators E. Linking of Trust Fund with State Program Approval Process F. Relationship of the Trust Fund to EPA's Transition Strategy G. Compliance with Corrective Action Regulations H. Program Appraisal Reporting Requirements I. Cost Recovery -2- ------- . / SUPPLEMENTAL GUIDELINES FOR FY 89 LUST TRUST FUND COOPERATIVE AGREEMENTS I. OVERVIEW A. PURPOSE In October 1986, Congress amended Subtitle I of the Resource Conservation and Recovery Act (RCRA) to provide a federal Trust Fund to finance the cleanup of petroleum releases from underground storage tanks (USTs). The Environmental Protection Agency (EPA) has made money available, through cooperative agreements, to 42 States and three Territories that have acceptable plans for using Trust Fund resources. The purpose of these guidelines is to provide information to assist States and EPA Regional offices in negotiating cooperative agreements containing awards of FY 89 Trust Fund monies. Where appropriate, the principles contained in these guidelines may be applied in administering Trust Fund cooperative agreements for the remainder of FY 88. B. PREVIOUS GUIDANCE These guidelines supplement previous guidance issued by EPA to support the Trust Fund cooperative agreement process. The previous guidance generally remains operative, where appropriate. The Office of Underground Storage Tanks (OUST) plans, in the future, to consolidate these guidelines with the previous guidance to make it easier for Regions and States to be aware of the currently applicable requirements and policies. Previous Trust Fund guidance includes: 1) Guidelines for UST Trust Fund Cooperative Agreements; OSWER Directive 9650.6; April 2, 1987. 2) Interim Financial Policies and Procedures Governing Use of the Leaking Underground Storage Tank (LUST) Trust Fund; Comptroller Policy Announcement No. 87-13; June 3, 1987. 3) Reporting and Recordkeeping Requirements for LUST Cooperative Agreements; Memorandum from David P. Ryan and Harvey G. Pippen; July 2, 1987. 4) Supplemental Requirements for LUST Trust Fund Cooperative Agreements; OSWER Directive 9650.6-1; August 10, 1987. -3- ------- OSWER DIR. 9650.7 5) Letter of Credit Drawdown Procedures for States receiving LUST Trust Fund Cooperative Agreements; Memorandum from David P. Ryan, Comptroller; August 12, 1987. 6) LUST Cooperative Agreement Issues; memorandum from Howard Corcoran, OGC, and Joe Retzer, OUST; August 26, 1987. 7) Development of LUST Cost Recovery Policy and Financial Management Guidance; Memorandum from David P. Ryan and Ron Brand; March 25, 1988. 8) Interim Guidance for Conducting Federal Lead Underground Storage Tank Corrective Actions; OSWER Directive 9360.0-16; June 4, 1987. These documents, as well as other previous Trust Fund-related information, are part of a Trust Fund Compendium that EPA Regional Offices will receive in April 1988. C. REVISED EPA GRANT REGULATIONS EPA, jointly with other Federal agencies, has recently published revised common grant regulations that establish consistency in the administration of grants and cooperative agreements. The revised regulations were promulgated on March 11, 1988, with an effective date of October 1, 1988. EPA has decided to publish the common rule at 40 CFR Part 31. It will supercede certain of EPA's general assistance regulations currently contained in 40 CFR Parts 30 and 33. Specifically, Part 31 will be applicable to State and local governments, and federally recognized Indian tribal governments. Part 31 will, therefore, apply to LUST Trust Fund cooperative agreements. Part 30 will be revised to consist of requirements applicable to grantees other than State and local governments. Awards involving FY 89 Trust Fund monies will need to reference and adhere to the revised grant regulations. OUST's review of the Red Border package for the revised regulations identified a few particular items that are of interest to the Trust Fund program. These include: o State use of their own policies and procedures to acquire goods and services. o An increase in the dollar amount applicable to small purchase procurement procedures from $10,000 to $25,000. o An increase in the dollar amount applicable to formal disposition of purchased equipment from $1,000 to $5,000. o No requirement for EPA to approve equipment purchases by the State. Following review of the final grant regulations, OUST will provide further guidance, if necessary, with regard to its implications for Trust Fund cooperative agreements. -4- ------- OSWER DIR. 9650.7 II. PROGRAM REQUIREMENTS, POLICY, AND GUIDANCE This section provides supplemental policy guidance to assist in the negotiation of LUST Trust Fund cooperative agreements for FY 89. This guidance, as well as previous Trust Fund guidance, must be reflected in State cooperative agreements, as appropriate. The policies discussed in this section are: o State Cost Share Requirements; o Allowable Costs; o Trust Fund Use at Government Facilities; o Solvency of Owners and Operators; o Linking of Trust Fund with State Program Approval Process; o Relationship of the Trust Fund to EPA's Transition Strategy; o Compliance with Corrective Action Regulations; o Program Appraisal Reporting Requirements; and o Cost Recovery. -5- ------- OSWER DIR. 9650.7 A. STATE COST SHARE REQUIREMENTS Policy In order to comply with Section 9003(h)(7)(B) of Subtitle I, new or amended cooperative agreements that utilize FY 89 Trust Fund monies must incorporate a minimum 10 percent State cost share requirement for work done under the cooperative agreement. Guidance The State cost share requirement begins with any award of FY 89 Trust Fund monies after October 1, 1988, or after the effective date (not the "compliance" date) of the UST technical, corrective action, and financial responsibility regulations, whichever is later. The cost share requirement does not apply to unspent FY 88 monies which the State will expend after the effective date of the regulations. The State cost share percentage should be applied to the total allowable cost of the program covered by the State's cooperative agreement. State cooperative agreement work plans should reflect a total program budget, a minimum 10 percent of which will be contributed by the State. All expenditures under the cooperative agreement are presumed to be shared on the same percentage basis as the overall ratio of federal to State monies under the cooperative agreement. The State cost share must be for Trust Fund allowable expenditures. The manner in which States provide their cost share is to be negotiated with the Region and must be in compliance with the grant requirements of 40 CFR Part 31, when effective. Acceptable methods for cost sharing include: in-kind contributions, e.g., staff and equipment; and - direct, non-Federal funds expended or obligated by the State, or a political subdivision of the State, for cost-eligible activities. State contributions should be negotiated in advance and specified^in the State's cooperative agreement. The State's contributions must be verifiable from its records, in accordance with EPA's grant regulations. -6- ------- . / B. ALLOWABLE COSTS Policy Section 9003(h) of RCRA provides that Trust Fund monies may be used for the following general activities: corrective action, enforcement activities, cost recovery, exposure assessments, provision of water supplies, and relocation of residents. The Trust Fund may be used only for addressing petroleum releases from underground storage tank systems subject to Subtitle I jurisdiction, including tanks that are exempt or deferred from regulation until a later date in accordance with 40 CFR Part 280. The Trust Fund may not be used to address releases from tanks that are statutorily exempt from Subtitle I jurisdiction, although it may be used to investigate suspected releases up to the time that a leak is determined to come from a statutorily exempt source. Section 9003(h) further provides that both temporary and permanent alternative water supplies and relocation of residents are eligible costs for Trust Fund expenditure, as discussed below. Two additional categories of eligible costs for Trust Fund monies are long-term operation and maintenance of corrective action measures, and the purchase or lease of equipment. Both are discussed below. Guidance Alternative Water Supplies In the case of alternative water supplies, temporary provision of water is clearly an allowable cost to protect human health while awaiting corrective action measures to take effect, or for responsible parties to provide permanent supplies where needed. It is conceivable that, in some cases, the provision of a permanent alternative water supply by the State will be necessary, and more cost-effective than corrective action, relocation, or even extended "temporary" provisions of bottled or trucked-in water. Allowable costs for permanent water supplies are limited to the initial capital costs, and do not include operation and maintenance costs of the system. As part of their decision-making process, States should evaluate the cost-effectiveness of providing a permanent water supply in comparison to other corrective action and clean-up alternatives. When considering the cost of providing permanent alternative water supplies the State should consider both the total cost per site as well as the cost per affected household. Relatively high total costs may be reasonable if large numbers of households are affected. -7- ------- OSWER DIR. 9650.7 Relocation Of Residents Temporary relocation of residents is an allowable cost only where it is necessary to protect human health. States should evaluate the cost effectiveness of this measure versus other measures, such as a temporary water supply or in-house air filtration or venting units. Temporary relocation is an allowable cost where corrective action activities cannot be undertaken safely while residents remain in their homes. Permanent relocation, although eligible, should be considered an allowable cost only under the extremely unlikely circumstances that it is the only available option for protecting human health or is the most cost-effective option. If permanent relocation must be undertaken, States must comply with the Uniform Relocation Act (42 U.S.C. 4610 et. seq.) regarding property acquisition and relocation of residents. Operation and Maintenance Operation and maintenance (O&M) costs of corrective action measures, other than permanent water supplies, are allowable costs under the Trust Fund. States will use discretion as to whether to fund O&M costs out of the Trust Fund or through other means, e.g., responsible party contributions and State or local funds. States will be responsible for setting priorities between initiating cleanups at new sites or funding continuing O&M at old sites. EPA's commitment is to provide money only for the work identified in the cooperative agreement, and not to fund fully sites where the State may choose to continue O&M. Further, EPA cannot commit monies to States beyond the budget period. Purchase or Lease of Equipment Trust Fund monies may be used to purchase equipment if the equipment is necessary for LUST Trust Fund corrective action or enforcement activities, and if it is more cost effective to purchase rather than lease the equipment. A formal lease versus purchase analysis of the decision is needed only when the cost is more than $10,000. This analysis should be retained by the State and be available for EPA review, upon request. -8- ------- A State's purchase versus lease analysis should include the following alternatives to direct purchasing using the Trust Fund: - lease the equipment; - State purchase or lease of equipment and pro-rate charges to the Trust Fund for the equipment's use while performing Trust Fund eligible work; or - hire a contractor to perform the desired work. Where corrective action equipment is purchased for use at a single site, its cost should be attributed only to that site. Equipment may be used at multiple sites, however. Where this occurs, the costs of equipment that cost over $10,000 and is used for corrective action should be allocated among sites where the equipment is used. An exception to this is for equipment used at a large number of sites (e.g., response vehicles, field test equipment) for which it would be impractical to allocate costs to individual sites. States should consult EPA's grant regulations, 40 CFR Part 30 (or 40 CFR Part 31, when effective), for guidance in final disposition of equipment purchased with Trust Fund monies. -9- ------- OSWER DIR. 9650.7 C. TRUST FUND USE AT GOVERNMENT FACILITIES I Policy The Trust Fund ordinarily will not be used to address petroleum UST releases from government facilities. Governmental entities exist partly for the purpose of providing for and protecting public health and welfare and, thus, should be expected to meet their obligation of addressing environmental hazards for which they are the source. The Trust Fund may be used if necessary, however, at Federal, State, or local government UST facilities (subject to Subtitle I jurisdiction) in the following limited situations: - emergencies, including the mitigation of imminent hazards, and - site investigations, enforcement actions, and oversight of RP-lead cleanups This policy does not convey additional authorities to the State with regard to access to governmental facilities nor is it intended to alter State policies with regard to intergovernmental relations. The Trust Fund may not be used for cleanups at Federal or State UST facilities. The Trust Fund may be used for cleanups at local government facilities, if the State determines that the local entity is incapable of carrying out corrective action properly. Guidance Use of the Trust Fund for emergencies and mitigation of imminent hazards is allowable because human health and the environment should not be endangered if actions can be taken to minimize it. The State, however, should pursue recovery of such expenditures from the responsible government entity. As with other RPs, use of the Trust Fund for site investigations, enforcement, and oversight of government entity- lead cleanups results in desirable leveraging of Trust Fund monies. Cost recovery of these expenditures should be consistent with the cost recovery policy contained in section II. I. of these guidelines. The Trust Fund may not be used for cleanups at Federal or State UST facilities. EPA considers these entities (by definition) to have the requisite financial strength to cover the costs of taking corrective action and compensating third parties in the event of a release. The State should look to these entities to undertake and pay for the cost of cleanup, through enforcement action if necessary. -10- ------- 3 'J J u' The Trust Fund may be used for cleanups at local government facilities, if the State determines they are incapable of carrying out corrective action properly, and if the State decides they are high priorities compared to other eligible sites. The State should treat these entities as they would other responsible parties. The State should look first to the government entity to undertake and pay for the cleanup, and expect the entity to have the required level of financial assurance. If the Trust Fund is used, cost recovery should follow. -11- ------- OSWER DIR. 9650.7 D. SOLVENCY OF OWNERS AND OPERATORS Policy Solvent responsible parties (RPs) are expected to undertake and pay for corrective action, either voluntarily or in response to corrective action orders, without use of the Trust Fund for cleanup. The level of financial responsibility required to be maintained by owners and operators is not a limitation of their liability. When a release is discovered, States first should seek to identify the tank's owner or operator and direct him to perform the cleanup at his expense. Where time and circumstances permit, States should pursue RP cleanups through enforcement mechanisms. States may rely on the Trust Fund for cleanup when they cannot identify an RP who will undertake action properly and promptly. Solvency becomes a consideration when undertaking cost recovery. With regard to the financial condition of responsible parties, solvency is defined as the ability to pay financial obligations as they become due, including the costs of corrective action and cost recovery. In cost recovery situations, States should view solvency in terms of how much an RP can afford to pay without becoming insolvent. In pursuing cost recovery, States should not impair the ability of RPs to continue in business if the RP complied with financial responsibility requirements and there was no negligence or misconduct by the responsible party. Guidance Although Congress intended that solvent owners and operators take responsibility for releases from their tanks, it is not necessary to make a determination of the RP's insolvency in order to access the Trust Fund for cleanup. The statute allows for Trust Fund use if the State determines that an RP is incapable "... of carrying out such corrective action properly." Several conditions may give rise to this determination. For example, an RP may be reluctant or refuse to comply with a request or order to take corrective action, or the RP may claim he cannot afford the cost of cleanup. Another example is the situation where the costs of corrective action provided by the RP exceed the. level of financial responsibility required to be maintained, and the State determines that expenditures from the Trust Fund are necessary to assure an effective corrective action. If such sites are among the State's priorities, the Trust Fund may be used for cleanup, with a more detailed analysis of the RP's ability to pay performed later as part of the cost recovery process. -12- ------- OSWER DIR. 9650.7 For cost recovery, when a State is deciding whether and for what dollar amount to pursue the RP, more scrutiny should be given to solvency. In these cases, the State should view solvency in terms of how much an RP can afford to pay without becoming insolvent. (Pursuant to RCRA Section 9003(h)(11), however, States may not consider the RP's solvency, and are directed by the statute to seek full cost recovery if the RP has not complied with applicable financial responsibility requirements.) The State may view the RP's ability to pay in terms of a lump sum payment or on an installment basis, depending on State preference. The rationale for not forcing RP's to become insolvent is found in the Congressional Conference Report for the Trust Fund legislation: "A full cost recovery is not intended where the owner or operator has maintained financial responsibility as required ... and the financial resources of the owner or operator (including the insurance or other methods of financial responsibility which was maintained) are not adequate to pay for the costs of a response without significantly impairing the ability of the owner or operator to continue in business." This provision is not a legal defense for RPs against further cost recovery where deemed appropriate, but it provides an indication of Congressional intent, particularly when small businesses are concerned. -13- ------- E. LINKING OF TRUST FUND WITH STATE PROGRAM APPROVAL PROCESS Policy States are expected to make reasonable progress during FY 89 toward submitting a completed application to EPA for approval of their UST prevention, corrective action, and financial responsibility programs under Section 9004 of RCRA. A State's success in making reasonable progress toward submitting a complete application may be grounds for increasing State access to the Trust Fund in FY 90. Guidance The long-term objectives of the Trust Fund clean-up and the UST regulatory programs are to protect human health and the environment due primarily to releases to groundwater caused by leaking USTs. Cleaning up releases using the Trust Fund is an immediate need, but by itself is a short-term and temporary solution. The long-term solution is for States to develop prevention programs which, over time, will result in fewer leaking tanks. States must also develop financial assurance requirements or programs that will provide funds for future cleanups. Regions are encouraged to use the Trust Fund as an incentive for States to run prevention programs and apply for State program approval. Regions should develop criteria to measure State progress and_.evaluate progress for each State. They should consider adequate progress in allocating Trust Fund monies to States in FY 90. -14- ------- iX JiK. F. RELATIONSHIP OF THE TRUST FUND TO EPA'S TRANSITION STRATEGY Policy Following promulgation of EPA's corrective action regulations for underground storage tanks, States with cooperative agreements will be asked to carry out an acceptable level of activities to implement the federal regulations during the transition period prior to State program approval. There are no plans for EPA to conduct corrective action activities for petroleum UST releases in,these States, except in emergency situations where a State requests EPA involvement in accordance with OSWER Directive 9360.0-16A, Guidance for Conducting Federal- Lead Underground Storage Tank Corrective Actions. Guidance EPA has developed a Transition Strategy that identifies roles for EPA and the States during the period of time between the effective date of the federal UST regulations and the dates State programs are authorized by EPA to operate in lieu of the federal program. This strategy emphasizes program implementation by State and local programs, with federal resources in a support role. The transition period will be characterized by the continued development of State and local programs. Activities that States carry out under their Trust Fund cooperative agreements generally will provide adequate implementation of the federal corrective action regulations during the transition period. The minimum site-specific activities necessary to implement the federal corrective action program for petroleum USTs, as specified in 40 CFR Parts 280.60 - 280.66, are allowable costs for States to incur using the Trust Fund. -15- ------- OSWER DIR. 9650.7 G. COMPLIANCE WITH CORRECTIVE ACTION REGULATIONS Policy Corrective actions taken after the effective date of the federal corrective action regulations (40 CFR Parts 280.60- 280.66) must be performed in a manner that is consistent with the substantive requirements of the federal regulations. Guidance This policy pertains to the actual performance of UST cleanups. It is not intended to supplant the State program approval process for corrective action. For example, States need not have, at time of award, their own statutes and regulations in place that are no less stringent than the federal regulations. Rather, States need to assure that the actual cleanups performed, either by RPs or the State, reflect the substantive requirements of the federal corrective action regulations, until approval of the State's program to operate in lieu of the federal program. -16- ------- OSWER DIR. 9650.7 H. PROGRAM APPRAISAL REPORTING REQUIREMENTS Program Appraisal Strategy In FY 89, EPA will begin to implement a formal program appraisal system. The program appraisals will focus on balancing oversight of State UST programs with service to the State's needs. Guidance on the FY 89 appraisal process is contained in the Program Appraisal Strategy. The types of reports that will continue to be part of EPA's appraisal process are summarized below. Reporting Requirements States will be required to submit two types of reports in FY 89: 1) Quarterly Progress Reports, including: a) Exception Reports, b) Trust Fund Usage Forecasts, and c) Financial Reports 2) Financial Status Report SF 269 (year end), and Federal Cash Transactions Report SF 272 (quarterly). Quarterly Progress. Exception, and Trust Fund Usage Forecast Reports In quarterly progress reports for State cooperative agreements, EPA is requesting that each State submit data on activities that are supported by Trust Fund monies as well as comparable information on the accomplishments of the State's program as a whole. The FY 89 reports contain minor changes and additions from FY 88 reports, and the Trust Fund usage forecasts are mandatory in FY 89. Exhibit 1 lists the data elements that are contained in the quarterly progress reports. All States should report in a timely and accurate fashion the data needed for the quarterly activities report and the Strategic Planning and Management System (SPMS) report for the EPA UST program. Regions will need to relay this data to OUST/HQ within 10 working days of the end of each federal fiscal quarter. Regions and States may develop reporting schedules that allow them to meet these deadlines. Financial Status Reports The Office of the Comptroller is responsible for issuing Agency financial policies and procedures for tracking the LUST Trust Fund in the Agency's Financial Management System (FMS). State UST Programs will be required to comply with the Comptroller's policies and directives concerning cost accounting and Letter of Credit drawdown procedures for the LUST Trust Fund. OUST will be coordinating its program appraisals with the Comptroller's fiscal review procedures as they are developed for FY 89. -17- ------- OSWER DIR. 9650.7 EXHIBIT 1 FY 89 ACTIVITIES REPORTING FOR U.S. EPA OFFICE OF UNDERGROUND STORAGE TANKS 1. Number of Site Investigations Completed 2. Number of Emergency Responses Taken 3. Number of Sites Where Enforcement Actions Taken to Complete Clean-Up 4. Number of Sites Where Cost Recovery Initiated 5. Site Clean-Ups for Petroleum Releases—Initiated a. Responsible Party lead b. State lead with Trust Fund money c. State lead with no Trust Fund money 6. Site Clean-Ups for Petroleum Releases—Under Control a. Responsible Party lead b. State lead with Trust Fund money c. State lead with no Trust Fund money 7. Site Clean-Ups for Petroleum Releases—Completed a. Responsible Party lead b. State lead with Trust Fund money c. State lead with no Trust Fund money 8. Exceptions Report (Identify by site where:) a. State plans to use innovative or experimental technology at the site b. State plans to provide permanent alternative water supply c. State plans to permanently relocate residents 9. Forecasting Trust Fund Use Number of Sites with Confirmed Releases Where: a. Owner/Operator has been identified b. Owner/Operator is insolvent/incapable of conducting timely clean-up c. Responsible Party search not completed J&-. Search for Responsible Party unsuccessful -18- ------- OSWER DIR. 9650.7 EXHIBIT 1 (Cont.) 10. Financial Report State plans to spend over $100,000 of Trust Fund money at site; include amount State has obligated over $100,000 of Trust Fund money at a site; include amount State actually spent over $100,000 of Trust Fund money at a site; include amount For any site, State reached a cost recovery settlement; include amount For any site, cumulative cost recovery payments received; include amount Optional. Aggregate State dollars outlayed for site responses -19- ------- OSWER DIR. 9650.7 I. COST RECOVERY The primary purpose of cost recovery under the LUST Trust Fund is to serve as an incentive for responsible parties to comply with technical and financial responsibility requirements, and to be responsible for cleaning up releases from their own tanks. Thus, State-lead cleanups followed by cost recovery should occur in a minority of cases. When cost recovery is necessary, it will provide income for additional cleanups. Variations in State procedures can be expected, but generally States will be responsible for all of the following activities in cases that they deem to be high priorities: o Determination of a release o Notification of responsibility to the owner or operator o Negotiation for corrective action (in non-emergency situations) o Cleanup (if the owner or operator is incapable or unwilling to clean up) o Demand for payment o Negotiation for a settlement of the recovery claim o Litigation (when demand for payment and negotiations fail) States are encouraged to tailor these procedures to suit their individual programs and to save program resources. For example, States are encouraged to investigate and make use of alternative methods of dispute resolution (e.g., arbitration). In addition, the specific policy guidance that follows has been developed to insure that cost recovery resources are used efficiently and stimulate compliance by responsible parties. -20- ------- OSWER DIR. 9650.7 State And Federal Roles In Cost Recovery Policy States are responsible for undertaking judicial cost- recovery actions, settling claims, and compromising cost recovery claims for expenditures from the Trust Fund. The Federal government will be bound by these actions but will exercise general oversight over the State's activities. At this time, States are responsible for returning recovered Trust Fund monies to the Trust Fund. Guidance As part of their responsibility for operating the cost recovery program, the States will need to exercise authority to recover Trust Fund expenditures, namely, to litigate, settle and compromise claims-against RPs. Compromising claims means accepting less than the full value of the settlement. States may compromise claims under the conditions described in the Federal Claims Collection Standards (4 C.F.R. Ch. II 103) which includes an RP's inability to pay, the likelihood of unsuccessful litigation, the cost of collecting the claim, and enforcement policy. Although EPA and the Department of Justice are currently attempting to resolve the issue of the States' legal authority to bring judicial recovery actions and reach settlements without Federal involvement, this policy assumes that sufficient grounds for this authority exists under Section 9003(h) of RCRA. Thus, States with cooperative agreements will exercise enforcement discretion, litigate and settle cases, and, where necessary, compromise claims. In general, States will be encouraged to seek negotiated settlements to facilitate recovery of Trust Fund monies and minimize State resource expenditures. The factors to be considered, when deciding whether to litigate include the solvency of the RP, the cost of cleanup, the likelihood of recovery, the case's deterrence value, and the opportunity costs (State resources that could be used in pursuing other cases or in other parts of the State's Trust Fund program). Generally, EPA will be bound by State judicial actions and settlements. However, if EPA finds in the oversight process that a State is mismanaging cost recoveries, the Agency will offer the State appropriate assistance in correcting any problems. If mismanagement persists, the Agency may take appropriate action under regulations governing cooperative agreements. -21- ------- OSWER DIR. 9650.7 At the present time, States will be required to return monies attributable to Trust Fund expenditures to the U.S. Treasury. At a minimum, EPA plans to provide additional funds to States in some proportion to their success in recovering Federal expenditures, in the future, States might be able to keep recovered funds for use on additional Trust Fund eligible activities. EPA expects to resolve this issue within the next few months and will promptly inform States of any changes in current policies. If State recovery actions are based on Subtitle I rather than on State authorities, States should notify the EPA Regional Office at the time the action is filed. This will allow EPA to determine whether the action might affect the scope of the Agency's Subtitle I authorities. -22- ------- OSWER DIR. 9650.7 Priorities For Cost Recovery Policy States should establish priorities for cost recovery cases that devote greatest efforts to responsible parties who are solvent but recalcitrant, and RPs who fail to comply with financial responsibility requirements. In addition, some effort should be devoted to all cases involving Trust Fund cleanups or enforcement actions. This means, at a minimum, a search for responsible parties (RPs) and a demand for payment if an RP is located. Guidance Where the State expends Trust Fund money for corrective action or enforcement, the State will pursue recovery of costs from responsible parties. Timely processing of cases (and litigation where necessary) increases the chances of successful recovery. However, the level of recovery effort that should be devoted to any RP should be based on a weighing of the resource? necessary to conduct negotiations and pursue litigation against the amount that may be recovered and the prospects for recovery. The determination should be based on factors such as: the solvency of the RP, the cost of cleanup, the likelihood of recovery, the deterrence value of the case, and opportunity costs (State resources that could be used in pursuing other cases or in other parts of the State's Trust Fund program). States will develop their own priority systems based on these and other relevant considerations, but there are general circumstances where cost recovery should be assigned a high priority, low priority, or is impractical where owners or operators cannot be located. High priority - Solvent RPs who refuse to comply with corrective action orders or are otherwise recalcitrant should be pursued aggressively, to serve as a warning to the regulated community and to stimulate compliance by other RPs. priority - Owners and operators who do not comply with financial responsibility requirements should be pursued vigorously. Although Section 9003 of RCRA generally allows consideration of whether pursuit of full cost recovery will significantly impair an RP's ability to continue in business, States are precluded by statute from considering this factor if the RP has not complied with financial responsibility requirements in effect at the time. -23- ------- OSWER DIR. 9650.7 Low priority - Insolvent or financially distressed RPs should be given lesser emphasis as a class, although selective pursuit within the class should be undertaken where the RP could afford lesser amounts, is hiding assets, fails to cooperate, or is negligent. Whenever States perform corrective actions using the Trust Fund, the RP should, at a minimum, be sent a demand for payment. The level of additional State effort beyond this point should be based on an evaluation of the factors listed above. Minimum priority - Sites where a liable owner or operator cannot be identified will reguire expenditures from the Trust Fund for cleanup. Efforts to recover costs expended at these sites will only rarely result in recovery of funds. However, States should make reasonable efforts to locate a liable owner or operator before assigning a low priority to cost recovery in these cases. States must formally close out all cases, including those of low priority or not pursued, and document the reasons for the decision. Factors justifying close out include consideration of. strength of evidence, the nature of the release, cost of further pursuit in relation to potential recovery, and bankruptcy or other low priority status. States should not allow the statute of limitations (SOL) to run and justify case closure solely on that basis. Cases generally should be pursued promptly and priorities revised as SOL deadlines approach. States bringing recovery actions using their own authorities should consult their statutes and case law to determine the applicable statutes of limitations. EPA believes that the statute of limitations applicable to the Subtitle I recovery authorities is six years, however some courts have applied three year limits in similar cases. To be prudent any States using Federal authorities should proceed assuming the three year limit applies, at least until the courts have clarified the issue. -24- ------- OSWER DIR. 9650.7 Recoverable Costs Policy Owners and operators are liable for all costs of corrective action and enforcement, including interest and the indirect costs associated with these activities that are paid for by the Trust Fund. To calculate indirect costs States will apply the indirect cost rates that are negotiated annually with federal agencies under the terms of the Office of Management and Budget Circular A-87. States are not required to pursue Trust Fund expenditures for program management costs incurred by the U.S. E.P.A. States will assess and may collect interest on Trust Fund expenditures used for corrective action and enforcement pursuant to 31 U.S.C. 3717 and the Federal Claims Collection Standards (4 CFR Ch. II 102.13). Interest charges should provide incentives for responsible parties to settle cost recovery claims. Forthcoming guidance will include more detailed information on how to assess interest charges. Owners and operators are also liable for Trust Fund expenditures made by States in overseeing responsible party cleanups. Generally, the costs of oversight are comparatively low. Therefore, EPA expects that States will exercise discretion in determining an appropriate level of effort to devote to pursuing oversight costs. Guidance States should focus their efforts on recovering the direct costs of corrective actions and enforcement. These costs are most easily documented and defended in litigation. EPA expects that the costs of overseeing cleanups by cooperative owners and operators will usually be a lower priority for recovery because Fund expenditures for oversight of a typical cleanup will be comparatively small. In addition, States may wish to exercise their discretion and waive these costs in cases where this will provide valuable incentives for owners and operators to clean up releases from their tanks. In seme cases States will expend significant enforcement resources to compel reluctant owners or operators to cleanup or to pay cleanup costs (e.g., legal costs associated with protracted negotiations, issuance of cleanup orders and litigation). These costs are recoverable. Accounting for them will give States additional leverage in their attempts to reach agreements for RP cleanups and settlements for cost recovery. -25- ------- •OSWER DIR. 9650.7 Documentation Of Costs Policy States are required to document corrective action and enforcement costs on a site-specific basis. Guidance States must establish a financial cost accounting system that tracks the costs of cleanup and enforcement activities on a site-specific basis. States are normally not required to begin site-specific accounting until a Trust Fund-financed, detailed site investigation or an emergency response has begun. A detailed site investigation is an attempt to determine the source, extent and severity of a release. An initial site visit (e.g., to determine if a release has occurred) should generally not trigger site-specific accounting because not all sites will be candidates for Trust Fund expenditures and cost recovery. If an RP is clearly recalcitrant, however, site-specific accounting should begin as soon as costs are incurred. Site-specific information needed on corrective action activities and costs for sites where Trust Fund monies are used includes: Site location and description Results of site investigations (including identification of responsible parties) Enforcement actions taken Documentation of responses taken and time frames Documentation of all costs, identifying Trust Fund monies expended. Enforcement costs include all expenditures reasonably related to inducing a recalcitrant RP to comply and to recovering clean-up expenditures. States should establish cost-effective accounting systems to support recovery of Trust Fund monies in state courts. Features of cost documentation that are essential to recovering costs in court include: Expenditures are reasonable and necessary ""Expenditures are documented (i.e., record includes proof that work or purchase was authorized by the State; the work or purchase was completed; the State was billed; and the bill was paid). -26- ------- |