United States         Office of The Comptroller     March 1989
              Environmental Protection    Washington, D.C. 20460
              Agency
»EPA     HANDBOOK  FOR
              SETTING  USER   FEES

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                           FOREWORD
   User fees  are prices the  Federal  government charges individuals  or
organizations for  a service  or thing of value provided  by a Federal agency.
Examples of services EPA provides are registrations, permits, certifications and
other reviews  and approvals authorized  by the  environmental statutes the
Agency administers.

   Since 1952, Federal agencies have had general authority to set fees under
the Independent Offices Appropriation Act (IOAA).  Some agencies also have
had  fee-setting  authority  under either program authorization statutes  or
appropriations  legislation.

   At the present time, the U.S. Environmental Protection  Agency (EPA)
charges fees for only a few of the service programs it administers.  Over the past
several years, however, EPA  has taken  a careful look at the potential for
additional fee programs and has conducted at least three major studies  and  20
program-specific analyses.   Moreover, as efforts of the Federal government to
reduce its budget deficit intensify, EPA  has paid greater attention to, and taken a
more active role in, establishing fee programs.

   EPA's national program managers (NPMs) need guidance on how to ensure
that any fee programs they propose and adopt meet three broad objectives:

   •  Consistency  with EPA's overall mission;

   •  Compatibility with  specific program goals and operations;  and

   •  Adherence to  all  pertinent Federal  statutes, regulations,  and
      policies.

   This handbook serves  as a road map  for  EPA offices considering and
developing fees.  It provides both procedural and substantive  guidance.  The
handbook summarizes current Federal and EPA approaches to fees, identifies
EPA participants  in the process of fee-setting, and describes their roles and
responsibilities.   In addition, the handbook sets forth a  methodological
framework program managers can use to systematically and thoroughly  identify
and weigh all aspects of fee-setting. This handbook is designed to ensure that
NPMs invest sufficient resources in  the  background analysis  to  design  an
effective fee program that represents good public policy.

   While not prescribing a uniform fee-setting system for all program  offices,
this  methodological  framework defines a standard set of  analytic steps  to
support senior management's decision-making on specific fee  proposals.  For
each of these steps, the handbook describes choices and their  advantages and
disadvantages.  In practice,  program managers will find that fee-setting  is   an
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iterative and flexible process.  Thus, they either can use the methodological
framework in its entirety or select specific portions to address particular issues.

   Specific  questions about the information  in this  handbook should  be
addressed to:
      Chair, Agency Task Force on Fees     Fiscal Policies and Procedures Branch
      Budget Division                      Financial Management Division
      Office of the Comptroller               Office of the Comptroller
      (202) 382-4170                      (202) 382-5113
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                 TABLE   OF  CONTENTS
                                                               Page
                                                             Number

FOREWORD                                                     i

TABLE OF CONTENTS                                            iii


LIST OF EXHIBITS                                                v

I.     OVERVIEW OF FEE  DEVELOPMENT  PROCESS            1

      1.    EPA Policies on Fee-Setting                             1
      2.    Phases of the Decision Process                          3
      3.    Roles and Responsibilities                               5

II.    CRITERIA FOR EVALUATING FEES                        7

      1.    Legislative Feasibility                                   7
      2.    Financial Feasibility                                    12
      3.    Environmental Impacts                                  15
      4.    Acceptability to States                                  16
      5.    Administrative Feasibility                                16
      6.    Economic Impact                                       17

III.    INITIATING FEE  DEVELOPMENT                          19

      1.    Identify Candidate Services                              20
      2.    Define Service  Beneficiaries and
           Special Benefits                                       20
      3.    Determine Recoverable Service Costs                     20
      4.    Conduct Preliminary Assessment                         20

IV.    DETERMINING AND  EVALUATING SERVICE COSTS       23

      1.    Types of Costs  Eligible for Recovery                       23
      2.    Calculation of Direct Costs                               25
      3.    Calculation of Indirect Costs                             28
      4.    Feasibility Determination                                29

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                 TABLE  OF  CONTENTS
                              (cont.)
V.    DEFINING AND EVALUATING  ALTERNATIVE
      FEE  PROGRAMS

      1.    Basic Options for Pricing Fees
      2.    Waivers
      3.    Alternatives Analysis

VI.   PROMULGATING A FEE  REGULATION

      1.    EPA Rulemaking Procedures
      2.    Integration of Fee Program Development
           and Rulemaking
                                                             Page
                                                            Number
                                        31

                                        31
                                        33
                                        35

                                        37

                                        37

                                        39
APPENDICES

      APPENDIX A:

      APPENDIX B:


      APPENDIX C:

      APPENDIX D:


      APPENDIX E:
Criteria Worksheets

EPA Direct and Indirect
Costs Per Staff Year

Techniques for Updating Fees

Useful Contacts for Program
Offices Developing Fees

Text of IOAA
A-1


B-1

C-1


D-1

E-1
      APPENDIX F:

      APPENDIX G:
Text of OMB Circular A-25

Office of the Comptroller
Policy Statement on Fees
F-1


G-1
                             -IV-

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                    LIST  OF   EXHIBITS
Exhibit                                                          Following
Number                                                          Page
   1       Overview of the Fee Development Process                   3
   2       Legal Criteria for Fee-Setting                              8
   3       Phase 1: Initiating Fee Development                       19
   4       Preliminary Assessment Worksheet                         21
   5       Phase 2: Determining and Evaluating Service
           Cost                                                   23
   6       Service Cost Calculation Worksheet                        23
   7       How to Use a Timekeeping Report                         25
   8       How to Use a BUD-2 Form                                25
   9       Feasibility Assessment                                   30
   10      Phase 3: Defining and Evaluating Alternative
           Fee Programs                                           31
   11      Phase 4: Adopting a Fee Program and
           Promulgating a Fee Regulation                            37
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I.  OVERVIEW OF FEE DEVELOPMENT
           PROCESS

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  I.   OVERVIEW OF FEE  DEVELOPMENT PROCESS
   EPA's authorizing statutes establish a number of programs to protect the air,
land,  ground water,  and surface water and to limit human exposure to
hazardous substances, pollutants, and contaminants.  Under these programs,
EPA provides individuals and organizations with a wide variety of services such
as permits,  registrations, certifications, and  other reviews and approvals
authorized by statute.

   The reasons for considering the adoption of a fee program may vary from
office  to office.   Moreover, not all offices that initiate development of a  fee
program will  complete the effort.  For those that do, setting the fee levels (i.e.,
prices) for each service is just one of several  decisions facing EPA program
managers. Examples of the other decisions they must make include:

       Services for which  to  set fees;

       Users subject to  the fees;

       Waiver policies; and

       The  administrative  mechanism  (e.g.,  regulation,  policy,
       guidance) for implementation.

These decisions must  be consistent  with  EPA's overall  environmental
objectives, compatible with  the operations  of specific programs, and in
accordance with current  Federal  and EPA policies governing the  adoption of
fee programs.

   This chapter introduces EPA's general policies on fee-setting as well as the
overall process within EPA for designing fee programs.  The chapter also
identifies the key participants in fee-setting, their roles and their responsibilities.
Subsequent  chapters provide detailed  procedural and substantive guidelines
for national program managers (NPMs).

1. EPA  POLICIES ON  FEE-SETTING

   Some general policy  principles governing the design and adoption of fee
programs emerged from the 1986 work of an EPA Task Force on Fees as  well
as from a number of other Agency studies.  These broad policy principles,
designed to  balance each office's need for flexibility with the Agency's overall
need for effective and legally defensible fee programs, include:

       EPA will focus on setting  fees for services provided under
       "strictly  Federal programs".  The  Agency will  set fees for other
       programs if directed by statute or if a  fee will benefit EPA's policy goals.
       The  term "strictly Federal" refers to  those services that are provided

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       solely by EPA and for which EPA does not have authority to delegate
       implementation.

       Opportunity for public comment is an integral part of the fee-
       setting process.  Program offices should identify and fully utilize both
       formal and  informal opportunities for public participation in order to
       ensure that fee programs represent sound public policy.

       Rulemaking   will  generally   be  the   mechanism   for
       establishing fees, unless otherwise directed by statute.

       The four analytic criteria formulated by the Task Force on
       Fees should be  used  to  develop  the fee proposals presented
       to senior management prior to Red Border review.

Each of these four policy principles is discussed in greater detail below.

   (1) Fees for Strictly  Federal  Programs

       EPA manages two general  types of programs:   those for  which the
   Agency has legal authority to delegate implementation to the States and
   those  for which it does  not.  At the present time,  EPA's general policy is to
   focus  its fee-setting efforts on the latter type  of programs, referred to
   throughout this handbook as strictly Federal programs. This policy position
   is consistent with the Agency's heavy reliance on the  Independent Offices
   Appropriation Act (IOAA) of 1951, as amended (31 U.S.C. §9701),  which
   authorizes Federal agencies to charge for their own services  but does not
   authorize Federal agencies  to require delegated States to charge for those
   identical services.   EPA's policy  also  is to utilize  any  other  authority
   Congress provides for fee-setting under program statutes or appropriations
   legislation.

   (2) Opportunity for Public Comment

       Public participation has  become an  integral element of most EPA
   programs. The States,  localities,  industry, environmental groups, and other
   citizens contribute ideas, proposals, knowledge,  and experience to the
   formulation and  implementation of environmental policy.   Inclusion  of the
   public as early as possible can promote the design of a  sound, effective, and
   defensible fee program  that is compatible  with a program office's existing
   objectives and operations as well as with overall Agency goals.

       Program offices have  a  number of formal and informal avenues for
   encouraging and soliciting public  involvement. The mix each office selects
   will be a function, in part, of the office's proposed method of establishing its
   fee program.  If an office plans to promulgate a regulation, for  example, the
   office   must  provide at a minimum a formal opportunity for a  public review
   and comment period of a specified duration. With or without rulemaking as
   the implementation mechanism, program offices should  make the most of
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  available avenues for an informal dialogue with the public throughout the
  development of the fee program.   Examples of informal forums include
  conferences, specialized meetings, workshops, or seminars sponsored
  either by the Agency or other interested parties. To ensure adequate public
  involvement,  program offices may consider developing a communication
  plan at the outset of their fee-development efforts.

  (3)  Establish Fees Through Rulemakinq

       Under current statutory authority, most EPA programs derive authority
  for fee-setting from the IOAA.  OMB Circular A-25, which guides Federal
  agencies on  the implementation of  IOAA, stipulates  that the head of an
  agency (in EPA's case, the Administrator) "may  prescribe regulations"
  establishing a user fee.  For consistency and legal defensibility, offices
  proceeding under other statutory authority, in most cases, also should
  undertake rulemaking to implement  their fee programs, although it is not
  necessarily required.

  (4)  Use of  Standard Analytical  Criteria

       The Agency Task Force on  Fees identified six analytical criteria that
  would enable NPMs to identify the key advantages  and impediments to
  incorporating user fees into program operations.  These criteria are intended
  to help program offices answer questions concerning the feasibility and
  benefits of a fee program and to ensure thorough analysis of important
  policy issues common to  fee-setting across EPA  programs.   Specific
  evaluation questions  for each criterion serve as a checklist that any office
  contemplating a fee program should complete before going to Red  Border
   review. Chapter II of this handbook contains detailed descriptions of the six
  criteria, and Appendix A contains worksheets for each criterion.

2. PHASES OF THE  DECISION PROCESS

   The process of analyzing and developing a fee program can be viewed in
terms of four phases:

       Initiating fee  development;

       Determining and evaluating service costs;

       Defining  and evaluating alternative fee structures; and

       Adopting a fee program.

Formal adoption of  a fee program generally will be accomplished through
rulemaking (which may  begin  at a number of points in  the fee development
process) although other  mechanisms may be used.
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             EXHIBIT 1
Overview of the Fee Development Process
              PHASE 1
              INITIATE

            DEVELOPMENT
                 IS
             FEE PROGRAM
              FEASIBLE?
              PHASE 2
             DETERMINE/
              EVALUATE
               SERVICE
               COSTS
              PHASES
               DEFINE/
              EVALUATE
             ALTERNATE
            FEE PROGRAMS
              PHASE 4
               ADOPT
                 FEE
              PROGRAM
STOP   J
                                       STOP
                                    REGULATORY
                                    DEVELOPMENT

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   Each of the four phases, as well as the rulemaking process, encompasses a
distinct combination of procedures, participants, and key decisions about the
substance and design of a fee program. For clarity and efficiency in presenting
complex  information to NPMs, Exhibit 1  depicts the four fee development
phases in a structured sequence, with a parallel rulemaking process beginning
at the end of Phase 2. In actuality, program offices may overlap or combine the
four phases to fit their individual circumstances and also may formally initiate
rulemaking either earlier or later in the process of developing a fee program.  At
the completion of the process, though,  program offices must have  a well-
documented record of the rationale for the  fee program's design.

   (1) Initiating Fee  Development

       Design of an effective  fee program that represents sound public policy
   and is legally  defensible may require a substantial investment of time and
   effort.  Before committing  these resources,  program managers should
   conduct a  preliminary assessment of the feasibility of integrating a fee
   program into  service operations.  Key characteristics of this first phase
   include identification of services that  are potential candidates for fees (in
   offices that provide multiple services); determination of service users; and an
   initial  application of the  six selection  criteria to  make a  preliminary
   determination  of feasibility.

   (2)  Determining and  Evaluating  Service  Costs

        If a program  office makes a preliminary decision to  proceed with fee
   development, the next phase  is to ascertain more fully the cost to the
   government of providing each service for which a fee  is contemplated. This
   cost estimation will serve as the basis for setting fee levels.  Steps in this
    phase include selecting one or more techniques for computing service costs,
    gathering the information  necessary for  the computation,  and  actually
    calculating the cost.  Once a program office  has a cost estimate, it can
    conduct a more in-depth examination of the feasibility of a fee program.  This
    assessment typically will provide NPMj, with sufficient information to decide
    whether to continue fee development  and initiate regulatory development
    activities.

    (3)  Defining and  Evaluating  Fee  Alternatives

        After estimating the service's cost program offices must translate that
    cost into a specific fee or set of fees to  charge service  users. The application
    of various pricing techniques, described in Chapter V of this handbook, will
    enable program  offices to  design alternative fee schedules.  These  fee
    schedules can be molded  even further *o the  specific needs of a program
    and its users through the  incorporatio.i of provisions for waivers, as also
    discussed in  Chapter V.  Once  all alternatives have been identified, the
    program office should assess them, drawing  heavily on  the six analytical
    criteria previously described, and  maXe a  recommendation  to senior

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   management on  whether to  proceed.   An affirmative  recommendation
   should include the proposed fee schedule.

       This evaluation and  recommendation  process will  vary  somewhat
   across EPA's programs, depending on whether the program office intends to
   establish the fee through formal rule making.   When rulemaking  is the
   method chosen, the program office will conduct the evaluation in partnership
   with the Agency  workgroup established at the start of rulemaking.  This
   group will recommend whether the proposed rule should go forward to Red
   Border  review for further consideration and will help the program office
   prepare the appropriate package for this review.

   (4)  Adopting a Fee  Program

       The formal adoption of a fee level and associated procedures may be
   through a regulation, policy, guidance or other mechanism.  This  final phase
   will vary somewhat depending  upon the mechanism selected. In the case of
   rulemaking, this  phase will encompass  all activities required  to publish
   proposed and then final rules.  Preparations  for the Notice of Proposed
   Rulemaking (NPRM) may include:  revising the proposal based on Red
   Border review and review by the Office of Management and Budget (OMB),
   developing  the  preamble  and  regulatory  language,  obtaining  all
   concurrences  and the  Administrator's  signature, and arranging  for
   publication in the Federal  Register. Steps  related to promulgation of  the
   final  rule may  include: analyzing and responding to public comments,
   holding public hearings, modifying the fee program,  revising the regulatory
   language  and  preamble,  conducting  another Red Border review,  and
   repeating all other steps leading to publication in the Federal Register.

3. ROLES  AND  RESPONSIBILITIES

   Throughout the fee development process,  program managers and staff
charged with  fee development may  need  to interact with varying frequencies
with a number of offices across the  Agency.  Some of these participants can
serve as technical resources to the program office, while others are part of  the
Agency's formal decision-making process.  Key participants are listed below:

        Office   of  Administration  and  Resources  Management
        (OARM), Office of the  Comptroller,  Budget Division: serves as
       the coordinating office for the Agency user fee initiative; provides expert
       advice on determining service costs  and pricing fees; serves as a
        resource on use of the indirect cost model.
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       OARM,  Office  of the  Comptroller, Financial  Management
       Division (FMD):  provides assistance on financial  issues related to
       fee program administration and implementation (e.g., determining the
       cost of fee program administration, collection of checks and use of the
       EPA lockbox); responsible for handling and tracking checks once the
       fee program is in place.

       Office of  Policy,  Planning,  and Evaluation (OPPE), Office of
       Standards  and Regulations  (OSR):  advises on when and how to
       undertake rule-making; provides assistance in determining impacts of a
       fee (e.g., economic implications) and designing  a fee system to support
       overall policy goals.

       Office of the General Counsel (OGC): assists in ensuring the fee
       program complies with statutory authority; provides litigation support if
       needed.

       EPA Regions: provide input on fees based on service programs with
       Regional operations; help EPA  Headquarters offices assess the impact
       on States and industry.

       EPA Steering Committee:  coordinates and integrates the Agency's
       regulatory  development  activities; provides feedback during initial
       phases of rule-making; establishes workgroups  for the proposed rule.

       EPA Workgroups: support the program office  in regulatory policy
       analysis and design.

   Throughout the handbook various references are made to these offices and
groups and the ways in which they contribute to fee-setting.
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II.  CRITERIA FOR EVALUATING FEES

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             II.  CRITERIA FOR  EVALUATING FEES
  EPA's primary mission is the implementation of permitting, certification, and
other service programs to protect human health and the environment. As  an
integral part of  program  operations,  user fees must take into account these
objectives as well  as the acceptability of fees across the Agency's varied
constituencies.

  EPA's Task Force on  Fees formulated six criteria that can assist NPMs in
identifying and weighing the complex issues associated with the adoption of a
fee program.  These criteria enable NPMs  to estimate the feasibility and
acceptability of fee  levels and fee program procedures before instituting them.
Specifically, the  criteria help NPMs determine whether a fee is:

   •  Legislatively  feasible;

   •  Environmentally acceptable;

   •  Financially  acceptable to  EPA;

   •  Acceptable  to States;

   •  Administrate; and

   •  Economically fair to  users.

To aid programs in using  these analytic criteria, Appendix A contains a separate
worksheet for each criterion.  Each worksheet includes key questions NPMs
must consider in order to devise an effective, defensible fee program. At early
stages of the fee developmenT process, program offices are likely to have only
some of the information  they will need to apply the criteria and 10 develop a
record of their  program design decisions.   Therefore,  the program office
periodically should  revisit the criteria as more information becomes available
during the process.

   In using the fee evaluation criteria, a program office should keep in mind that
its fee proposal need not satisfy each criterion equally.  The principal purpose of
the criteria is to guide  program offices in determining what information to collect,
analyze, and to present  to Agency decision-makers on  a fee's strengths and
vulnerabilities.

1. LEGISLATIVE  FEASIBILITY

   At the  outset, program offices must  consider two fundamental questions:
1) what statutory authority exists for adopting  fees and 2)  how the applicable
legal authority will  shape the  design of the  fee program.   EPA  derives  its
statutory  authority for fee-setting from three basic sources. One source is the

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IOAA.  This Act gives Federal agencies broad discretion to collect fees for "a
service or thing of value provided by the agency." Another type of authority is
specific language in a program's enabling  legislation.  This program-specific
authority often defines the service(s) for which EPA can collect fees and/or the
amount of the fee.  A third source  of authority may be annual appropriations
legislation which may stipulate the following: programs eligible for fee-setting,
maximum revenues, duration of fee collections, and the Agency's authority to
retain the fees it collects.

   Establishing the  statutory authority for fee-setting is usually straightforward:
programs either have specific statutory authority in authorizing legislation or
they do  not,  in which  case they  have to rely either on  IOAA  or  annual
appropriations  language.  The  source of statutory authority can affect a fee
program's design, and much of a- program office's fee-setting effort will focus on
how to interpret and apply the pertinent statute. Exhibit 2 summarizes the legal
criteria for each type of statutory authority.

   The importance of  the legislative  feasibility criterion cannot be over-
emphasized.  In the past, Federal courts have rejected several fee proposals
because implementing agencies failed to interpret correctly the authorities used
for fee-setting.  Program offices consequently should consult with the Office of
the General Counsel at the earliest possible  date.

   (1)  Fees  Under IOAA

        Setting  fees under the authority of the IOAA is  a complicated and
   somewhat  uncertain process. The Act itself, reproduced in  Appendix E,
   provides broad authority but inexact guidance on  how to set appropriate fee
   levels. According to Title V, charges for services must be fair and based on:

            Costs to  the  government;

            Value to  the  recipient;

            Public policy or  interest served; and

            Other relevant facts.

        Circular A-25, published by the Office  of  Management and  Budget
   (OMB)  and  reproduced in  Appendix  F, provides guidance to  Federal
   agencies on how to  implement the fee-setting authority in the  IOAA.  Case
   law also sets forth the boundaries of fee-setting under the  IOAA, although
   NPMs should keep in mind that the courts have not been uniform  in their
   interpretation of  the law.

        Based on  IOAA  itself,  OMB guidance, and  case  law,  three broad
   principles have emerged that govern the establishment of user fees  at EPA
   as well as other  Federal agencies:

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                                   EXHIBIT 2
                        Legal Criteria for  Fee-Setting
                           STATUTORY  BASIS  FOR FEE-SETTING*
                              IOAA
                                 PROGRAM-SPECIFIC
MANDATORY
LEGAL
CRITERIA
OPTIONAL BUT
RECOMMENDED
CRITERIA
SPECIAL BENEFITS: Fees must
be based on special benefits
provided above and beyond those
provided to the public at large.

NEXUS TEST:  Fees must be
clearly linked to special benefits
provided to discrete beneficiaries.

COST BASIS: Fees must bear a
reasonable relationship to the cost
of providing the  service.
N/A
CASE-BY-CASE: Fees must be
constructed to reflect the dominant
statute's or rule's requirements
(e.g., applicability to certain
activities, dollar ceiling on
charges).
USE IOAA PRINCIPLES: Where
direction is lacking in a specific
statute, fees should, where
possible, take into account the
IOAA leeal criteria.
  *Program-specific authority may derive from either authorization or appropriations legislation.

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    Fees must be based on the concept of "special
    benefits".

    EPA must be able to identify and charge specific
    beneficiaries.

    The soundest approach to setting fee levels is to  base
    them on  the government's cost of providing the
    service.

1.  Special  Benefits

    A primary purpose  for  assessing a  fee is  to  recover the
government's cost of providing services that deliver independent,
private benefits to  service users.  Circular A-25 cites the following
examples of such "special benefits" services:

      Those that  enable the beneficiary to obtain more gains
      or values than those  that accrue to the general public
      (e.g., patents, insurance or guarantee provisions, and permits or
      licenses for particular business activities).

      Those  that provide  business  stability  or contribute  to
      public  confidence   in   the  beneficiaries'  business
      activities (e.g., product inspection and grading, insuring bank
      deposits).

      Those  that are performed at  the  request of or  for the
      convenience  of  the  recipient,  and are  beyond the
      services  regularly received by other  members of the
      same industry or group,  or of the  general  public (e.g.,
      passports, visas, or inspections after regular duty hours).

A  key issue for EPA is how to document as conclusively as possible
that the regulatory services it provides confer special benefits on users.

     The courts  in general have  confirmed  the authority of Federal
agencies to charge for regulatory services.  In one of the earliest cases
interpreting  IOAA,  the  court clearly stated  that  the   Federal
Communications Commission  (FCC) could charge  for "services which
assist a person in complying  with his statutory duties" (554F.2d 1109
(1976) at 1115).   In  a related case, the court determined that the
Nuclear  Regulatory Commission (NRC) could charge for  licensing
nuclear facilities,   since  "a   license from the [NRC] is an absolute
prerequisite to operating  a nuclear facility" (601 F.2d 223 (1979) at
223).

     A wide range of EPA services meet the special  benefits test,
including permitting, licensing and registration, inspections that support
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specific  licensing  and  registration  decisions,  and  processing
certificates.  Examples of special benefits accruing through  these
activities are market access and increased ease of communicating
product information to the consumer.

     Under the  IOAA, EPA cannot charge for activities that support the
Agency's  overall  regulatory  efforts and are  not  linked to specific,
identifiable beneficiaries (see next section).   Under the IOAA, EPA
cannot incorporate into its fee structure costs for generic  regulatory
processes that  are not linked to specific, identifiable beneficiaries (see
next section).  For example, a program fee could take into account the
cost of a public hearing on a specific permit or license.  In general,
however, the cost basis for the fee could not encompass the Agency's
costs for industry-wide rulemaking (e.g., standard-setting).

2.   Identifiable   Benefits    Provided   to   Identifiable
     Beneficiaries

     Once  a program office has made certain  that a service provides
special benefits, the next step is  to link those benefits to discrete
beneficiaries.  That connection is frequently referred to as the  "nexus
test."  A critical point to consider when making the connection is the
need to distinguish private from public benefits.   Under the  IOAA,
agencies may charge only for services that confer some private benefits
to identifiable individuals or entities.  Many of the services provided by
EPA include private as well as public benefits. The  key distinction here
is that the benefits provided through the service should accrue primarily
to a private beneficiary.  The courts have  held  that where a service
provides both  public and private benefits, agencies may  charge to
recover the costs associated with the special, private benefit.

     An example from the  lOAA's  legal history will help clarify this point.
In 1976, the court stated that "a certain nexus, a threshold level of
private benefit," was required before the FCC could charge fees  for
common carriers and equipment manufacturers (554 F.2d 1109 (1976)
at 1114).  The court, however, later qualified this  claim, stating that the
FCC was "not prohibited from charging an applicant or grantee  the full
cost of services rendered to an  applicant which also result in some
incidental public benefits" (Op. cit. at 1115).

     To illustrate its meaning, the  court cited a hypothetical example.  If
the FCC incurs expenses for testing or inspection, these expenses can
be  charged in  full to the  applicant.  But if the agency   engages  in
further testing in order to  meet   consumer safety standards, it cannot
charge for this testing, which  is performed to satisfy some independent
public interest.

     The need to identify individual beneficiaries means that a program
office  cannot simply take its total  operating budget, divide  by the
                            -10-

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number of companies regulated, and assess an annual fee. A number
of Federal agencies have tried to set fees using this simple approach,
only to have their fee schedules overturned in court.  In prohibiting this
type of fee, the court in one case stated that "whole industries are not in
the category of those who may be assessed, the thrust of the  [IOAA]
reaching  only  specific charges for specific  services  to specific
individuals or companies" (415 U.S. 345 (1974) at 349).   In other
decisions, courts have noted that basing fees on the formula described
above amounts to  a tax rather than a fee, and  that only Congress is
authorized to levy taxes.

3.  Relationship of Fee to the Cost of Providing the Service

    Under the IOAA,  Agencies generally have  based fees  on the
government's cost of providing goods or services. The requirement that
the fee bear a relationship to cost does not mean program offices must
track  the cost of each individual service transaction.  Program  offices
instead should use all reasonably available data to estimate future
costs  of service delivery. Specific methodologies for estimating costs
are described in Chapter IV.  In general, cost estimates (and thus fees)
based on detailed timekeeping and accounting systems are preferable,
but if such systems are  not  available, program offices can estimate
costs  and set fee levels from case studies or interviews.

    -The courts have recognized that fees cannot always be based on
individual calculations, and have interpreted the IOAA as requiring only
a "reasonable particularization of the basis for the fees, accomplished
by an allocation of costs to the smallest unit that is practical" (554  F.2d
1109  at 1116).  To incorporate this  concept into their fees, program
offices that discover a wide range of costs for a particular service may
need  to break service actions down into  categories that  reflect this
diversity.

    Program staff responsible for calculating service costs  should be
aware that the IOAA allows agencies to include both  indirect and direct
costs in a fee's cost basis.  Direct costs commonly comprise the major
portion of service cost.  These costs cover expenses incurred directly as
a result of providing the service,  such as the wages of the  worker
processing a permit or license, and any other expenses with a clear link
to  the service.   Indirect  costs include overhead costs  such as
management of workers or incidental xeroxing and data processing.
Chapter IV contains a fuller discussion of direct and indirect costs.

     Regardless of what fee  an  office  proposes or how  that fee is
determined, program staff should document  the process by which
special benefits and beneficiaries are identified, how a  relationship
between charges  and specific beneficiaries is established, and the
method for calculating fee  levels.   Meticulous documentation  will

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        facilitate EPA's  internal review  and  concurrence,  substantiate
        rulemaking, and support the Agency in the event of a legal challenge.

   (2)  Fees  Under Program-Specific  Authority

        Some of the statutes EPA administers already authorize the Agency to
   set fees.  Additionally, statutes can be amended to include such authority.
   Historically, fee-setting authority  or requirements differ slightly from one
   statute to the next.  Some legislation, for example,  offers program offices
   great flexibility  in setting  fees,  and  only  requires  that  the  fees be
   "appropriate".  Other statutes explicitly authorize full cost recovery, while yet
   others set a fee cap without regard for full cost recovery.

        A statute with few restrictions on  fee-setting provides the NPM with
   considerable flexibility in designing the fee program:  how much to charge,
   for which services to charge, and what portions of true cost to include in the
   fee eventually assessed. To provide some structure for fee-setting efforts in
   these circumstances, a  program  could  apply the basic principles  of fee-
   setting  under the  IOAA.   Considerations such as  identifying clear
   beneficiaries and discrete services are  an important part  of  fee-setting,
   regardless of the statutory basis for the fee.

2.    FINANCIAL FEASIBILITY

      A primary intent of user fees, particularly under the IOAA, is to promote
the financial self-sufficiency of Federal agencies. Even if EPA  does not have
legislative authority to retain all fee revenues it collects, program offices should
attempt to estimate the total annual revenue from a fee program,  the  ratio of
administrative costs to revenue, and the long-term dependability of user fees as
a source of revenue.  These financial performance measures are meant to
serve as a reference for decision-making, to enable NPMs and Agency senior
management to weigh financial  performance against other considerations in
determining a fee system's design. As with all six of the selection  criteria, the
financial performance measures should be  viewed as interactive with the other
considerations for fee-setting. For example, the Agency may want to implement
a fee program that raises only a small amount of revenue, if the fee program can
stimulate desirable  environmental  impacts or produce other benefits such as
more effective  administration of a statute,  a reduced number  of  spurious or
faulty  service  applications, or  any  of  a number  of  positive  public  policy
implications.

   (1)  Annual  Revenue  Generated

        The projected magnitude of annual gross  revenues from a fee program
   in and of itself is an important financial performance measure. The rationale
   for projecting a fee's annual gross revenue is  based on the assumption that
   each fee proposal,  no matter how complex, requires a certain  level of
   Agency effort before any fees can actually be assessed. A fee that raises

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only minimal revenue each year may not justify investing resources into
setting the fee level, shepharding the fee through the rulemaking process,
responding to public comments, and administering a fee program. Program
offices can seek advice from the Office of the Comptrollers' Budget Division
on whether  fee revenues are likely to justify development of a user fee
proposal.

     To project annual revenue, program offices can look both at the
magnitude of the fee and the number of service transactions for which the
fee will be assessed.  In some cases, discussed below under "Revenue
Dependability," service volume may vary from year to year.  In addition, any
waivers the  program office  decides  to offer will  reduce fee revenues
correspondingly.

(2)  Administrative  Cost/Revenue  Ratio

     One way for a program office to project the financial performance of a
fee program  is to  compare its  administrative cost to its anticipated gross
revenue. A low ratio makes a fee program more attractive.   Administrative
cost refers exclusively to the cost of  the incremental resources committed to
fee administration  and does not encompass the costs of administering the
service for which a fee is being levied.   The  purpose of this performance
measure is to demonstrate the extent to  which the Federal government in
general and/or EPA in particular will benefit financially from the adoption of
fees.

     Concerns over the administrative cost/revenue ratio also is linked to the
issue of fee retention. Some of the  Agency's administrative costs are fixed.
with or without fee retention.  Under IOAA, the revenue  the Agency collects
from its fee  program will  go into the U.S. Treasury's General Fund, unless
Congress authorizes retention.  Furthermore, program authorization statutes
and appropriations bills  rarely provide  for retention.  In  the  absence of
retention, therefore, fees  with low administrative costs are more acceptable
than those with high administrative costs.

     Calculating the  administrative cost  to revenue  ratio  is relatively
straightforward:  program offices should divide the  annual cost of full-time
equivalents  (FTEs), or staff years, responsible  for administering the fee
program by the  fee's  projected  gross  annual  revenue.    Estimating
administrative costs involves  projecting  the number of FTEs  required to
collect, review,  and process fees. Not all of these administrative costs are
borne by the program office.  Fee processing, for example, is handled by the
OARM.  This office  estimates that its  portion of  a service  transaction
averages 18 minutes.  Such costs need to be factored into the total estimate,
since they are an important part of the fee  program's overall administrative
costs.  For more  information  on the cost  of fee program administration,
program offices should  consult  directly with staff in OARM's Financial
Management Division (FMD).

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     Program offices should be especially careful not to confuse the cost of
fee program administration  with service  delivery costs.   For example,  the
cost of FTEs required for a technical, substantive review of a  permit
application is not part of the cost of fee program administration.  Legitimate
fee administration costs are associated with fee-related  activities such as
verifying that a beneficiary has paid in advance for a service, that the  fee
was included in the application and that the check was  made  out for  the
correct amount, and processing of the payment through FMD.

(3)  Revenue   Dependability

     Revenue durability refers to the length of time for  which  a program
office  projects  it can  collect fees.   This projection depends on such
considerations as the expiration date of statutory authority for a service or for
a  user fee itself.  Revenue  stability is a  measure of  the fluctuation in
projected annual revenues over the life of the fee program.

     1.  Revenue  Durability

         In general, fee programs with  long estimated lifetimes are more
     attractive than those of short duration.  A  fee program that generates
     revenues for several years may justify devoting Agency resources to
     the program's development more than a fee program of short duration.
     In  addition, implementation of  a long-standing fee program is likely to
     result in fewer  disruptions of ongoing program operations  than those
     fee programs that are short-lived.

         Estimating the longevity of a fee program, however, is a difficult
     task,  largely because of legislative  uncertainties.   Some  possible
     indicators of duration are  the estimated reauthorization  date of program
     legislation  or the  expiration of fee collection  authority in an  annual
     appropriation.  Program  staff and managers will  need to  exercise
     considerable caution, however, in basing decisions  on these types of
     indicators because of the unpredictability of legislative activity.

     2.  Revenue  Stability

         Fluctuations  in  service  transactions  from year to year  can
     complicate  the administration of  a fee program,  particularly if  the
     fluctuations are relatively  unpredictable  and have significant impacts on
     fee revenues. Programs  that are authorized to retain fee revenues  and
     depend on  them for  program operations are particularly vulnerable
     from such fluctuations.  Even if programs do not retain the fee revenues,
     they still will find fee systems with a stable number of  transactions and a
     predictable  administrative cost to  revenue ratio more attractive than
     those for which the number of transactions varies significantly from  one
     year to the next.
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           In order to estimate revenue stability, program managers need to
       examine the characteristics  of the underlying  service program.  A
       principal consideration is whether the program is delivering a one-time
       service to each beneficiary (e.g., a unique, one-time scientific review) or
       periodic services (e.g., permit renewals).  Demand for services
       delivered periodically may be  easier to predict. Another consideration
       is whether renewals are staggered over the years or  provided to  all
       beneficiaries at the same time.   A third factor is whether EPA is
       providing the service to a fixed or fluctuating universe of  beneficiaries.

           Program  offices can  estimate fee  revenue fluctuations  by
       examining service volumes for  recent years,  identifying relevant
       upcoming rulemakings, and by identifying trends reflected in budget
       planning. Program offices also should investigate any other issues that
       could affect revenue stability.

3.    ENVIRONMENTAL  IMPACTS

      Every EPA program is designed to achieve a set of environmental goals.
Services such as permitting and  certification are ways to meet  these goals  by
fostering environmentally sound  behavior by the regulated community.  At a
minimum, the fee program should not impede the environmental goals of the
permitting, certification, registration, or other relevant program activities. If a fee
system as  first conceived has  adverse environmental consequences, the
program office should attempt to mitigate these impacts by altering the fee
system's design. In addition, program offices should investigate fee system
alternatives that may increase environmental  benefits, such as  significant new
risk reductions,  stimulation of desired technological innovation,  or reduction of
cross-media impacts.

      Design  of a fee program  does not  require an in-depth  Environmental
Impact Assessment.  Rather,  program staff  should articulate for their senior
managers the key environmental issues  that  may emerge during the fee
program's development and affect  support for the program within,  as well  as
outside, EPA.  Examples of key questions program offices can examine are:

      •  How  will  the fee program  affect the  timing  of service
         delivery?

      •  What effect will the fee program  have on compliance  with
         EPA  regulations?

      •  How  will  the fee program  affect  EPA's  enforcement  of
         regulations?

      •  Will  the fee program have an effect on information transfer
         to the States and  the  regulated community?
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Because of the cross-media  linkages among the Agency's programs,  the
examination of environmental effects should not be limited to the program for
which a fee is under consideration.

4.    ACCEPTABILITY  TO STATES

      As a partner with the States in protecting the environment,  EPA needs to
be  sensitive to how fees for strictly Federal programs affect  the  States
environmentally, economically, and politically.   In addition, EPA needs to
consider the impact of fee-setting for a particular program (or set of programs)
on its long-term working relationships with individual States. In order to  assess
a fee program's acceptability to the States, program offices can look at whether
the fee results in one or more of the following circumstances:

      •  Duplicates or overlaps  with an  existing State fee  program;

      •  Requires States  or their localities to pay fees;

      •  Affects   major  industries,  and   thus  the   economy,   of
         particular States; or

      •  Fosters  regional inequities.

      Even when they are not affected by  a specific fee program,  States may
have fee-setting experience that may  be useful to  Headquarters program
offices.  As a general rule, program staff should work closely with their Regional
counterparts in initiating contacts with the States; and   program  offices should
keep Regional  staff apprised  of subsequent interactions  with  States.   In
addition, program  offices may wish to  tap the resources  of the State/EPA
Committee.

5.    ADMINISTRATIVE  FEASIBILITY

      Program managers need to incorporate  administrative procedures  into
the design of their fee programs and estimate the resources the  Agency will
need for effective fee administration. Two distinct, but related, concerns are the
operational feasibility of the  fee program and the  effect of the fee  program on
the administration of the service program itself.

      The degree of complexity in a fee program will be an important factor in
determining ease of administration.  As a general rule, a fee program that
encompasses multiple services, an elaborate schedule  of fees for each service,
or an extensive user clientele will be  more complicated to operate. In these
complex, multi-service,  multi-fee programs, the likelihood that users  will remit an
incorrect fee is greater than in simpler, single-fee programs.  Verification that
service users  have  paid their fees and selected the appropriate category may
require  either the program office and/or the  Office of the Comptroller to dedicate
substantial incremental  resources.   Conversely, a fee program  might improve

                                   -16-

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overall operation of the service program.  For example, it might encourage new
timekeeping  and  recordkeeping  systems and discourage applications
submitted without any real chance for approval.

6.    ECONOMIC  IMPACT

      Fee programs have the potential for adverse economic consequences
such  as disrupting  the delivery  of products and services to consumers or
impairing the financial stability  of  individual  users,  industry segments or
regional economies.  Careful examination of these potential consequences is
essential and should not be separated from analysis of the other fee selection
criteria.  Severe economic impacts,  for example, may reduce the number of
users and in turn the potential magnitude of fee revenues.  Economic impacts
also may reduce the fee program's acceptability to one or more  States,
especially if the fees appear inequitable or unfair to users in those  States.
Environmental and economic impacts also are closely linked.

      Not all program offices designing fee programs will have to conduct an
in-depth  Economic Impact Analysis.  Rather, staff responsible for development
of a fee program need  to present  to senior management  the  key issues
associated with the  general concept of a fee program as well as with  specific
program designs.  Program offices experienced in the development of major
rules already  may have substantial economic information with which to evaluate
fee alternatives. Many offices, however, will be able to rely only on their own
limited  knowledge  coupled with  information  gleaned  from  the  .public
participation process.

      A substantial  body  of guidance already exists within EPA for conducting
economic assessments.  Below are a few examples of some economic impact
indicators that may be useful to program offices contemplating  the adoption of
fee programs.

      One rough indicator of the economic impact on a firm  is the proportion of
that firm's annual revenues the fee(s) represent. Program offices can estimate
this ratio by comparing proposed fee levels to firms' net revenues.  The  fee
program also may affect  industry segments and consumers of their products.
The types of economic impacts  to watch for include market access,  market
stability, and increased  prices.   Program offices might  anticipate effects on
market  access if a fee is so  high that it discourages startups of new firms.
Market stability, on the other hand, might be affected if a fee  schedule assesses
variable fees  for related services. Here, the economic standing of firms paying
the lower fees might improve relative to other firms relying on more expensive
services. Market stability could also suffer if a fee schedule is structured so that
one class of service users  subsidizes service consumption by competitors. This
scenario might take  place if the first firm to register a new technology or product
paves the way for approvals of related applications.
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      Consumers of a service user's products, on the other hand,  might be
affected by a fee program if firms pass on the cost of fees in the form of higher
prices for their products.  In and of itself, this is not necessarily a problem,
unless the impact is severe. Additionally, if the existence of fees causes firms to
drop out of the market, product availability might decline.

      Program offices attempting to predict a fee's effect on industry and
consumers should be aware that previous studies have indicated that a fee
generally would have to be quite high to produce major market disruptions.
These considerations do  not alter the fact firms may perceive fees to be an
excessive economic burden.  Moreover, whether potential economic impact is
real  or imagined,  discontented firms and their industry representatives can
severely delay or even prevent implementation of a fee program by requesting
judicial review  of the Agency's implementing  regulations.  The  potential for
industry opposition should not prevent development of a fee proposal, however.
Furthermore, as with the  environmental impact criterion, the initial  identification
of potential negative economic consequences need not derail adoption of the
fee program. Through the use of waivers, discussed in Chapter V, a program
office may redesign the  fee program  to avoid or substantially  mitigate the
projected adverse impacts.
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III.  INITIATING FEE DEVELOPMENT

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             I.  INITIATING FEE  DEVELOPMENT
   Program offices initiate their examination of fees for a variety of reasons.
Some programs have an explicit statutory authority to implement user fees. For
other programs, the  impetus for embarking on fee-setting may be either an
initiative from within the Agency or an external request from OMB or even the
regulated community.

   Regardless of how or why a  program office begins its  exploration of fee-
setting, initial design of the fee program coupled with a preliminary assessment
of its feasibility should be  a prerequisite to any major commitment of Agency
resources.  The design steps should focus on the identification of 1) candidate
services, 2) the service users (beneficiaries) and the special benefits to those
beneficiaries, and 3) the service  costs potentially eligible for  recovery. Once
these preliminary design steps are completed, the  program office should use
the six analytic criteria described in Chapter II to make an initial decision on the
merits of continuing fee development, issues requiring further study, and issues
to be addressed in the final design of a fee program.  This first phase of fee
development, shown in Exhibit 3,  also should identify the information  needed to
support fee-setting and establish a plan for obtaining it.

1. IDENTIFY  CANDIDATE  SERVICES

   Each  environmental  statute EPA administers typically either requires  or
enables EPA to undertake classes of  service activities such  as permitting,
registration, scientific review, or certification.  The first step, therefore, is to take
inventory of all services that are  potential candidates for fees, so that none is
excluded from  the initial screening. This  inventory should list the service
candidates, describe each service, identify the number of service transactions in
recent years, and provide as much information as possible about the users of
the service.

   Types of services at  EPA that are good candidates for fee-setting include
permits, registrations, facility and site  inspections, processing  of  regulatory
exemptions, and certifications.  Each of these broad  types of service categories
can be subdivided into smaller, more discrete service units. A program office
might be able to disaggregate a  permitting program, for instance, by class  of
permit.

   Often,  these service  programs  have been  established  by a program's
enabling legislation.  In some cases, the statute distinguishes among different
service classifications (e.g., different types  of permits).  The program office,
however, often  has discretion to make these delineations on its own through
operating regulations or guidance documents.  A fee program may serve  as a
basis for further refinement of services for which different fees may be charged.
                                  -19-

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           EXHIBIT 3
Phase 1:  Initiating Fee Development
             IDENTIFY
            CANDIDATE
             SERVICES
                          Li
        DEFINE BENEFICIARIES
        AND SPECIAL BENEFITS
                          LI
             DETERMINE
        RECOVERABLE SERVICE
               COSTS
        CONDUCT PRELIMINARY
            ASSESSMENT
                                             J

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2  DEFINE  SERVICE  BENEFICIARIES AND SPECIAL
 ' BENEFITS

   As noted in Chapter II, fees set under the IOAA must meet specific tests.
First, the service provided by the Federal government must confer a special,
private benefit  to  an identifiable beneficiary.  In this early  phase  of fee
development, a program office using the IOAA should begin to assemble the
information necessary to demonstrate that these tests are met. Program offices
operating  under other legislative authority may also find this step useful.
Program files or other records on historical service transactions or background
documents for  prior rule-making may  be  good sources of information  for
preparing a reliable profile of beneficiaries. Delineation of special benefits may
be  more difficult and may involve some  original research,  including the
solicitation of  public participation.

3. DETERMINE  RECOVERABLE SERVICE  COSTS

   Under the IOAA, fee schedules also must meet the "nexus" test, i.e., that a
reasonable relationship exists between  the government's cost  of providing a
service and the fee charged.  This first phase is an appropriate point at which to
start documenting that  relationship.  Thus, for each candidate service, a
program office  should list the participants in  its own and other offices and
should try to estimate roughly the total staff and management time spent on the
service program as a whole and/or individual  service  transactions.  Coupled
with the projected number of transactions, this information forms the basis for a
rough estimate of future fee revenues.

4. CONDUCT  PRELIMINARY  ASSESSMENT

   In this early phase of fee development, program offices should evaluate the
initial fee program design against all six of the  criteria presented in Chapter II.
By  necessity, the assessment for some criteria will be more detailed than for
others because the program office will not have all the information it needs for a
complete evaluation  until later phases of the  process.   Nevertheless, at this
stage,  preliminary application of the criteria  should allow program  staff  to
identify the major policy and management issues that will need resolution prior
to final adoption of a fee program. Below are some  examples of  how to use the
criteria for a preliminary assessment:

        Legislative  Feasibility: At the outset  of Phase  1, a  program office
       should identify the appropriate fee-setting authority for each candidate
       service on its list.   It is  possible that some offices will have explicit
       statutory authority to set fees for of  its services. In other instances, an
       office may need to  rely on the IOAA for legal authority.  The efforts in
       this first phase to identity candidate services, the number of  annual
       transactions for each service, and the beneficiaries and their benefits
       should  provide a preliminary assessment of the soundness of the
        potential fee program.
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       Financial Feasibility: This criterion will be of significance to senior
       management in deciding whether to pursue fees further.  Using budget
       planning documents and workload models, program  staff can develop
       a rough  assessment of  the potential revenue  stream from  a fee
       program.  Additionally, legislative and regulatory tracking and analysis
       can provide some  indication of the revenue stability from a potential
       fee.

       Environmental  Impact:  As early  as possible,  program  staff
       responsible for fee development need to brief program managers on
       any major environmental  implications, either adverse  or  beneficial,
       associated with the establishment of a fee program. Other offices, such
       as the Office of Enforcement and Compliance Monitoring (OECM) and
       the Office of Policy,  Planning  and Evaluation  (OPPE)  may  be
       particularly helpful in this exercise.

       Economic Impact:  In this phase,  a program office will  be able to
       discern  potential economic  impacts  only in  a very preliminary way,
       because the  fee schedule alternatives  have not been defined yet.
       Through  ongoing  interaction  with  States,  industry,  and  other
       representatives of the public, however, program staff should be able to
       foresee any economic issues that may create opposition at a later stage
       of the process.

       Administrative  Feasibility:  Based on initial design considerations,
       a program office should be able to project the relative  administrative
       complexity of  its fee program and identify for senior managers any
       undesirable implications that adopting a fee program may have on the
       program's existing  organization, staffing, and other operational
       characteristics.

       Impact on States:  Evaluation of legislative feasibility  and economic
       and environmental impacts,  coupled with  direct discussions  with
       States, will provide a preliminary profile of the acceptability to States of
       the general concept of a fee program. Analysis of the acceptability of
       specific design alternatives is more appropriate at a later stage.

   The analysis  of fee-setting is by  no means complete  after this  initial
application  of the selection criteria, because specific fee levels  have not been
proposed  yet.   Nonetheless, program  offices will have made  an  initial
determination of the merits of continuing to examine fees.

   Program offices should attempt to begin establishing a written record of their
analysis at the conclusion of this phase. Exhibit 4 is an example of how to
summarize the preliminary assessment results and document the conclusions
of the screening phase.  This worksheet  is also a convenient way to present
information to appropriate decision-makers.   The manner in which each
service's performance on the criteria is expressed  is at the discretion of
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                                       EXHIBIT 4
                            Preliminary Assessment  Worksheet
                  (To be filled in by program office at the end of Phase 1)
Service Legislative Financial Environmental Impact on Admin Economic 3
Candidate Feasibility Feasibility Impact States Feasibility Impact '••
1.
2.
3.
4.
s
3
f
\
!.
f
/
y
H
;j
•^
>J
*:
                  Service 1
Service  2
Service 3
Service  4
Principal
Positive
Principal
Negative


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individual program offices.  Pluses and minuses or high/low classifications both
serve the same function -- to highlight tradeoffs and effectively communicate
which services merit further investigation for fee-setting.
                                    -22-

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IV.  DETERMINING AND EVALUATING
        SERVICE  COSTS

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   IV.  DETERMINING AND  EVALUATING SERVICE
                              COSTS
   Once a program has identified the services for which it wants to investigate
fees,  the  next  phase of fee development is  to calculate  the  cost  to  the
government of providing these services. The costing phase is an  intermediate
phase on the way to actually setting fees, and is necessary because EPA policy
is to set fees as close to full cost recovery as possible in the absence of  any
restrictive legislative  language to the contrary.  Determining  the  cost of
providing the service becomes particularly critical in the case  of IOAA fees,
since the statute requires that fees bear a reasonable relationship to  the
government's true cost of providing the service to identifiable beneficiaries.

   Procedures for using cost estimates to determine fees may be  more  flexible
under program-specific statutes.  In many cases, such statutes  do not contain
detailed restrictions on costing or pricing fees.  Thus, program offices setting
such  fees could theoretically omit the thorough calculations  in  this costing
phase.  Nonetheless, program offices basing their fee programs on  specific
statutory authority  other than IOAA are  encouraged, whenever possible, to
structure their fees with the three IOAA tests described in Chapter II in mind.

   This chapter describes the steps program offices should follow  to determine
service  costs.  A section covering the types of recoverable costs precedes the
discussion of the  individual costing steps.  The steps themselves include
selecting a methodology for estimating service costs, using this methodology to
gather cost information and  compute service costs, and deciding whether to
continue with fee development.  Exhibit 5 shows an overview of Phase 2,  and
Exhibit 6 is a worksheet which guides a user through the steps associated  with
costing  services.

1. TYPES OF COSTS ELIGIBLE   FOR RECOVERY

   For fees set under IOAA, OMB Circular A-25 provides guidance to Federal
agencies on what constitutes the full cost  of services rendered.  No comparable
guidance exists for fees set  under other statutory authorities.  EPA's general
policy is to seek full cost recovery in those cases, unless the statute authorizing
the fee  contains alternate  provisions,  or full cost  recovery produces an
unwanted result that could be alleviated with lesser fees.

   Under Circular A-25, user charges based on the IOAA should  be "sufficient
to recover the full cost... of providing the service, resource, or  property."  Full
cost consists of all direct and  indirect costs including, but not limited to, the
following items:

        Direct  and indirect personnel costs, including salaries and fringe
        benefits such as retirement and medical insurance;
                                  -23-

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                  EXHIBIT 5
Phase 2:  Determining and Evaluating Service Costs
                  IDENTIFY   L
              COSTING OPTIONS
                 ASSEMBLE   L—
            COSTING INFORMATION
                 CALCULATE
               SERVICE COSTS
              APPLY ANALYTIC
                 CRITERIA
                            \L
                                         STOP
                                        PREPARE START
                                       ACTION REQUEST
             c
GO TO PHASE 3
   BRIEF STEERING
   COMMITTEE AND
CHARTER WORKGROUP!

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           EXHIBIT 6
Service Cost Calculation Worksheet
STEP
Al
A2
A3
A4
A5
A6
A7
Bl
B2
B3
B4
B5
B6
Cl
C2
C3
Dl
D2
D3
El
E2
E3
Fl
F2
F3
F4
F5
F6
Gl
G2
G3
G4
G5
G6
DESCRIPTION
If using time allocation method, complete this section.
Total hours charged to service annually in timekeeping system
% of staff time spent on non-service related activities
Hours of staff time on non-service related activities (AlxA2)
Staff hours spent on service (A1-A3)
Number of service actions completed annually
Hours per service action (A4/A5)
FTEs per service action (A6/2080)
If using time expenditure build-up method, complete this section.
Average hours expended for step 1 of service
Average hours expended for step 2 of service
Average hours expended for step 3 of service
Average hours expended for step 4 of service
Average hours, total (B1+B2+B3+B4)
FTEs per service action (B5/2080)
All users complete this section.
Enter either A7 or B6 here (HQ FTEs per service action)
Dollar cost of an FTE for the appropriate AA office (Appendix C)
Dollars per service action, HQ activities (ClxC2)
If service is provided in the regions, comolete this section.
Compute steps A1-A7 or Bl-B6for regional activities on a separate
worksheet; enter either A7 or B6from the worksheet here
Dollar cost of an FTE at the regions (Appendix C)
Dollars per service action, regional activities (DlxD2)
If contractors assist service deliver), complete this secnon.
Total contractor costs attributable to service
Enter A3 here (Number of service actions completed annually)
Contractor costs per service action (E1/E2)
If indirect costs are to be included, complete this section.
Enter A7 or B6 here (HQ FTEs per service action)
Indirect costs per FTE for the appropriate AA office (Appendix C)
Indirect dollars per service action, HQ activities (FlxF2)
Enter Cl here (regional FTEs per service action)
Indirect costs per FTE for regions (Appendix C)
Indirect dollars per service action, regional activities (F4xF5)
All users complete this section.
Enter C3 here (dollars per service action for HQ activities)
Enter D3 here (dollars per service action for regional activities)
Enter E3 here (dollars per service action for contractor costs)
Enter F3 here (indirect dollars per service action for HQ activities)
Enter F6 here (indirect dollars per service action for regional activities)
Total cost per service action (G1+G2+G3+G4+G5)
AMOUNT



•




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       Physical  overhead,  consulting,  and  other  indirect  costs,
       including material  and supply costs, utilities, insurance, travel, and
       rents or imputed rents on land, buildings, and equipment;

       The agency's management and supervisory  costs; and

       The  costs  of  enforcement,  research,  establishment  of
       standards, and regulation, including  any required environmental
       impact statements.

In order to provide a simpler definition of the kinds of Agency costs incurred in
providing  a service, the Office of the Comptroller has grouped all EPA expenses
into two categories described in detail below: direct costs and indirect costs.

   (1) Direct  Costs

       Direct  costs are all costs incurred by the divisions,  branches or other
   organizational units which  actually provide the service.  In EPA's accounting
   system, such costs include salaries and benefits, travel, certain kinds of
   equipment  charges, and  contractor expenses.  Some  costs which may
   directly benefit service providers, such  as internal  EPA  research and
   development, are not charged to service providers in  EPA's  accounting
   system, and hence are not considered direct costs.

       In general, program offices will not have to  worry about adding up all
   the various  types of direct costs. The Office of the Comptroller has prepared
   Appendix B to simplify the calculation of both direct and indirect costs. Once
   a program  office has determined how many staff ( including appropriate
   support and management staff  within  the  program office) work  on the
   service, it can  refer to this Appendix to obtain the average annual  cost of
   salary, fringe benefits, travel, and equipment per staff member.  Contractor
   costs  are not included in Appendix B, however. Program  offices  will have to
   work  with their budget staff to identify any contractor costs that directly
   support the  service  (see Section 2 of this chapter for details).

   (2) indirect Costs

       Indirect costs  are the  expenses of managing the four Assistant
   Administrator (AA) program offices (Air and Radiation, Water,  Pesticides and
   Toxic  Substances, and Solid Waste and  Emergency Response) and the
   Regions, as well as the expenses associated with the Administrator's Office
   and the non-program AA offices: OARM, OECM, OPPE, Research and
   Development (ORD), External Affairs  (OEA),  General  Counsel  (OCG),
   Inspector General (OIG),  Regional Operations,  and International Activities
   (OIA).  Program offices will not have to calculate indirect costs, since they are
   itemized in  Appendix B. Section 3 of this chapter explains  the use of the
   Appendix.
                                  -24-

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2. CALCULATION  OF DIRECT  COSTS

   Circular A-25 stipulates that Federal agencies normally will collect fees "in
advance of or simultaneously with the rendering of services."  This requirement
shapes the methodologies open to program offices for ascertaining costs.  It
rules out, for example, methodologies that track direct costs on a case-by-case
basis and bill the user at the completion of the service.  Rather, it requires
program offices to utilize a methodology that calculates the "representative" or
average staff time to perform each unit of service and translates that staff time
into an average direct cost.

   Several methodologies exist for determining  "representative" staff  time
required to perform  a service. Two basic estimating methodologies, described
more fully  below, are time allocation and time expenditure build-up.  Time
allocation involves the use of existing timekeeping and service delivery tracking
systems to estimate both the total  annual staff time required to carry out the
service program and the total annual service transactions.  Time expenditure
build-up is a case study method, whereby program offices interview program
staff and review records for each stage of the service to "build  up" an estimate of
the total time necessary to perform the service.

   Program offices can view these two estimating methods as the two ends of a
continuum.  Program offices can combine them  into alternative methodologies
that  address the offices' needs and capabilities more effectively.  No single
method is inherently better  than  another.   Each has its own merits and
shortcomings,  which are highlighted  in the following discussion.  Where
resources permit, offices are encouraged to use several methods and compare
the results.

   (1)  Time  Allocation

        The time allocation methodology relies on  existing program  office
   timekeeping  and service delivery tracking systems.  Program offices can
   extract information from the timekeeping system on the total  hours expended
   on the service over the course  of a year, as illustrated in Exhibit 7.  If the
   timekeeping system records only professional staff time, program offices can
   estimate support and management time based  on those figures.   For
   example, if the timekeeping  system  shows that 25 percent of the
   professional  staff in a division  work full-time on a service, the  office can
   assume that 25 percent of that division's support and management staff also
   contribute to the  service.

        Another approach is to use  budget information to estimate total staff
   time expended annually on the service. The BUD-2 budget form, shown in
   Exhibit  8, contains information  on  assigned staff for  each EPA program
   element activity in the most recent fiscal year.  Program staff should  be
   aware,  however, that the BUD-2 form may not assign  manpower by the
   service designation under study  for fee-setting and identifies assigned  rather
   than actual staff  levels. Thus the BUD-2 form is likely to be less reliable than

                                   -25-

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                                           EXHIBIT 7
                            How  to Use a  Timekeeping Report
A timekeeping report with the necessary information might look like this:
                                     TIME ACCOUNTING SYSTEM
                                  BI-WEEKLY EXPENDITURE REPORT
                                  FOR PAY PERIOD ENDING: 09/30/87
                                  SORTED BY ORGANIZATIONAL UNIT
                                                                   (l) DATE: 01/23/88
                                                                       PAGE: 7 OF 10
      ORGANIZATIONAL UNIT: DIVISION A
      ACT.
      CODE  |
       DESCRIPTION
       05    |  ACTIVITY A
       06    |  ACTIVITY B
      ) 10    |  OTHER - SPECIAL STUDIES C8

      ORGANIZATIONAL UNIT SUBTOTAL

      ORGANIZATIONAL UNIT:  DIVISION B
      ACT.
      CODE
       01
       03

     5)13
       DESCRIPTION
MRS THIS
  PER
ACTIVITY X
ACTIVITY Y
ACTIVITY A
OTHER - STATE PLANNING COMMITTEE
      ORGANIZATIONAL UNIT SUBTOTAL
     25
    215
     27
    103

    370
                                                                      2,918
YTDHRS
    311
  2.470
    320 QjJ
  1,350

  4.451
 (T) (2) (s)  ^ne ^ ^e reP°rt 's generated 0) is not important What is important is that the report be as of the close
             of whatever lime period a program office has chosen to measure. In this case, the time period is as of the
             close of fiscal 1987 (2). Note that the column marked "YTD HRS" (5) will give the full-year summary of
             hours needed.

     (j\ /4\  In some cases, it is possible to get a report "sorted" in a number of different ways. This report is sorted by
             organizational unit (3), which in this case means different divisions in a program office (4).

             Although it might be convenient to have a report sorted by activity code (6), this report allows staff
             developing fees to see all  activities of the two divisions. Such an overview is useful in the early stages of
             defining a service, when inappropriate activities (8) can be excluded from the service definition.  Note that
             different types of activities often have different account code structures; here, other activities have account
             codes (7) of 10 or greater.

             In this example, if the service consisted of two activites (ACTIVITY  A and ACTIVITY B) the total hours
             expended for the year would be 1340 + 970 + 320, or 2630.  This number would be entered in Box A4 of
             the Service Cost Calculation Worksheet (Exhibit 6).

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                                            EXHIBIT 8
                               How to Use a "BUD-211  Form
"BUD2" forms, submitted to OMB each September, look like this:
BUD~2 U.S. ENVIRONMENTAL PROTECTION AGENCY - PROGRAM ELEMENT PRICING ANALYSIS
(Dollars In Thousands)
PECODE: 0(XXX»""HQ: X RT: PE TITLE: PROGRAM x PERMITTING OFFICE: WATER fe.a.l

0 ACTIVITIES & ACCOMPLISHMENTS
PERMIT TYPE A SUPPORT
POLICY & STRATEGY DEVELOPMENT
7) - PERMIT CATEGORIZATION STRATEGIES
PERMIT TYPE B SUPPORT
REGIONAL REVIEWS
-REGIONAL REVIEWS
REGIONAL TECHNICAL SUPPORT (fij)
TOTAL
0 FY87
OPERATING PLAN
© 
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a timekeeping system which records actual hours worked. Nevertheless, the
BUD-2 information provides  program offices with a mechanism for checking
on calculations made using  a timekeeping system or, if necessary, splitting
figures for total hours worked into Headquarters and Regional components
as described below.

     Ideally, a timekeeping system  will distinguish  Headquarters  from
Regional hours, if appropriate.  If it does not, the ratio of Headquarters FTEs
to Regional FTEs for the program element and activity that best correspond
to the  service  can be obtained from the BUD-2  budget  forms for
Headquarters  and  Regional activities.   For example, if that ratio is  1
Headquarters to  9  Regional FTEs, then total  hours or FTEs  reported by a
timekeeping system can  be split 10 percent to Headquarters and 90 percent
to the Regions.  This split is necessary because of the differences in salary,
fringe benefits and other  costs between Headquarters and the  Regions.

     Once an estimate of total hours expended on the service is complete,
program staff will need to calculate the total number of service transactions
performed  over  the selected  time period in both Headquarters and the
Regions.  Each  program office  will have its  own sources for this  kind of
information.  The  BUD-2 form is one  such source.  A second is the
information compiled by  each AA's  office for  EPA's Strategic Planning and
Management System (SPMS), which contains numerical  measures of
progress against certain goals,  (e.g., permit  issuance). If the service for
which a fee is to be charged matches one of the performance measures in
SPMS, the SPMS accomplishment figure for the selected time period can be
used directly in cost calculations. If SPMS information is not usable directly,
the AA's Office or  the program  office  itself may maintain a  more detailed
database of program office accomplishments.  Budget staff  from the AA's
Office  can assist program staff in obtaining  SPMS information and other
office-wide accomplishment information.

     After completing the calculation of total staff  time spent on  service
delivery and the total number of service actions performed, programs have a
simple, mathematical task to complete hours  per service action. Lines A4,
A5 and A6 of the cost calculation worksheet (Exhibit 6) guide users through
this  calculation.   If there is a  Regional component to the service, the
calculation should  be performed separately on a blank worksheet and the
result from line A7 of that worksheet copied to  line D1 of the main worksheet.
Two separate  sets of calculations are necessary because  Regional  and
Headquarters staff time  cost different amounts.  These must be combined
into  a single cumulative  cost, for all service actions, whether performed at
Headquarters or  in  the Regions.

     For program offices with extensive timekeeping  and service delivery
tracking  systems, the time  allocation methodology is an attractive option.
Provided the  systems  are accurate and  up-to-date, calculations are
comparatively simple to perform. The estimation  methodology can generate
                               -26-

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the most faithful  picture of the time expended on the service, since
calculations are based on actual time recorded in the past by service staff.

    The time  allocation methodology has  two potential  drawbacks of
importance to all program offices. The first is that the timekeeping system
may not accurately segregate those staff activities not directly related to
service delivery and thus ineligible for inclusion under the  IOAA costing
principles.  For example, staff may charge 100 percent of their time  to a
service account in the system although they  actually spend some time on
special projects, public information activities, or other tangential activities.
Program offices could use a time expenditure build-up methodology to
adjust reported hours for the service downward to compensate for such non
service-related  activities.

     A second problem  with the methodology  is that it may  not be an
accurate barometer of wide variations in the time required to complete a
service action.  If the variations are significant, it may be necessary to break
the service action  into  categories.  This will be a subjective decision based
on the lOAA's requirement, explained  in Chapter II, that  fees bear a
reasonable relationship to the cost of providing a service.  Program offices
are encouraged to use  some of the interview and sampling techniques
described below to identify variability in the time requirements  for service
transactions and to consider such variability in designing a fee program.

(2)  Time Expenditure Build-Up

     The time  expenditure build-up  methodology  attempts to ascertain
historical trends on actual time  spent completing service transactions.  It
differs from  time  allocation in that it identifies each step of the service
transaction, and through staff interviews,  estimates the average time spent
on each step. The averages for each step of the service transaction are then
added together to get a total or "built-up" estimate.

     Alternatively,  specially designed timesheets can be used to record staff
time  spent on a  sample of service  actions.   The timesheets should be
attached to  the paperwork for all service actions initiated  during  a  time
period, e.g. one or two months. Every staff member handling the paperwork
would be expected to initial the timesheet and indicate how much time he or
she spent on it. When all the  applications have been processed, the hours
for each application can be totalled and an average service time calculated.

     The major advantage of this methodology is its usefulness for program
offices that do  not have elaborate timekeeping or other tracking systems. A
secondary advantage  of the methodology is that it  is more  likely than the
time allocation  methodology to discern any significant variability in  staff time
spent on service actions. Interviews are more likely to reveal the range of
service costs, and program offices can question service delivery staff directly
on how the effort required to complete a service differs from case to case.
                                -27-

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       The time expenditure build-up methodology  has some drawbacks,
   however.  Because it depends on interviews and sampling, it is more difficult
   to perform.  Additionally, personnel perspectives on  service cost  are
   subjective, and their estimates of time expended may be less accurate than
   those based on timekeeping systems. A related disadvantage is that once
   program offices  have completed their surveys, no independent means of
   verifying the figures exist.  As a  result,  fees calculated using only  this
   methodology may be more susceptible to criticism from service constituents.

   (3)  Hybrids

       Program offices may devise other cost estimating methodologies  that
   are hybrids of the two described above.  These hybrids can use the stronger
   points of one methodology to buttress the weaker points of another.  An
   example will make the advantages of  such combinations more clear. A
   program office may have used the  time allocation methodology to arrive at
   an  initial  estimate  of  service cost.  To corroborate  or refine the initial
   estimate, the program  office could then use the time expenditure  build-up
   technique and  gather more information  through interviews  or specially
   designed service tracking timesheets.

   Once a program office has completed its estimate  of representative staff
time, calculation of the dollar cost of the staff time for a service action is simple.
Program  offices can convert their service time estimate to FTEs  (at 2,080 staff-
hours per FTE) and refer to Appendix B for the direct  dollar cost of an FTE.
Lines C1-C3 and D1-D3 of the worksheet in Exhibit 6 describe this calculation
for the Headquarters and Regional components of a service.

   If program office staff  believe that  contractor activities directly  support the
service, they should contact budget staff in their AA's office for assistance in
estimating the costs of these activities.  The BUD-2 budget form lists contractor
expenditures in the most  recent fiscal year for each program element activity
(see Exhibit 6).  Even if a program element activity exactly matches a service
definition, however,  program staff must still determine whether the  contractor's
activities  directly support the service. It may be that only a portion or none of the
contractor's activities assist program staff  in service delivery.  Once program
and  budget  staff   have  estimated the dollar amount of contractor costs
attributable to the service, that amount should be entered  on line E1 of the
worksheet in  Exhibit 4.

3. CALCULATION OF INDIRECT  COSTS

   Appendix B lists the FY 87-88 both direct and indirect costs for the  Regions
and for the four major program offices, OAR, OW, OPTS and OSWER. Program
offices will have used the direct cost  portion  of the appendix to calculate the
dollar cost of the staff time expended on a service action.  The  indirect cost
portion of the Appendix will  enable program offices  to calculate  the indirect
costs associated with that staff time.   Use of the Appendix figures  to calculate
                                  -28-

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indirect costs associated with the Headquarters and Regional components of a
service is described in lines F1-F6 of the worksheet.

   The indirect cost  areas listed in the left-hand column of the appendix are
divided into three groups.  Group  1 costs are those that should be included in
fees unless there is statutory language to the contrary; these are typical indirect
costs such  as  program  management at the AA and  RA  level; finance,
accounting and personnel (OARM); legal  (OGC); and internal audit (OIG).
Group 2 consists of the cost centers associated with EPA's Office of Research
and Development (ORD).  R&D costs, in at least some cases may  legitimately
be included in the input of the service cost.  Each program office relying on the
IOAA should seek input from OGC on the feasibility of including R&D costs.
Group 3 cost centers appear to have a somewhat tenuous relationship to most
of the services EPA provides.  Program offices promulgating a fee under
statutory  authority  other than  the IOAA or wishing to calculate fees on an all-
inclusive  basis may consider using  group 3 costs in their fees.  Again, program
offices should work closely with OGC in determining which costs to include.

   In order to use the Appendix, program  office staff should use the column for
their AA's office (and the column marked "Regions" if the service is  partially
provided  in the  Regions), and sum the dollar  figures listed for those indirect
costs in groups 1, 2 and 3 which they desire to  include in their fees.  The dohar
cost per FTE for the AA's Office should be entered on line F2 of the worksheet;
the Regional dollar cost per FTE should be entered on line F5.

   Appendix  B also  describes how the indirect costs were calculated by tie
Office of  the Comptroller.  Program offices may want to include portions of  this
description in the  proposed rule for  the fee and other documents explaining
how the fee was developed.

4. FEASIBILITY  DETERMINATION

   After  completing  its calculation of service costs,  a program office shot Id
reevaluate the feasibility  and  desirability of setting user fees.  This evaluation
can then form the  basis for a  decision on whether to proceed with  adoption of
the fee program through a regulation,  policy, guidance, or other mechanism.

   Program offices  can perform this assessment  with the help of the six
selection criteria introduced in Chapter II.  During the costing phase, program
offices will have gathered considerable additional information that will support
more in-depth evaluation of all criteria. Examples of how to apply the criteria in
this phase of the process are as follow:

        Legal Feasibility: At the conclusion of this phase, the program office
       will have important information it  needs to develop a fee program thaf
        recovers the full cost  of service and apportions those costs consisteiv
       with the law.
                                  -29-

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       Financial   Feasibility:   A program  office  now will have  some
       concrete, reliable data on the potential total revenue from a fee as well
       as the durability of that  revenue stream. Without further information
       about the fee structure, however, the program office will only be able to
       make broad assumptions about administrative costs.

       Economic  Impact:  The program office can use the service cost
       information to project the probable level of fees and the likely impacts of
       such a fee schedule on the direct service beneficiaries and other facets
       of the economy as a whole.

       Administrable: This criterion is one for which the program office will
       not be able to undertake in-depth analysis until it completes the design
       of the user fee program. Certain assumptions can be made, however,
       based on such factors as the number of service beneficiaries and the
       complexity of services provided.

       Environmental Impact:  From this phase, the program office will
       have gleaned little,  if any, additional information on the potential for
       environmental  impacts.  The exception  may be  estimated economic
       impacts which in turn may have discernible environmental effects.

       Acceptability to the States:  The closer the  program office gets to
       setting specific fees, the  more accurate its evaluation of acceptability to
       the  States  will be.  Determining  service costs and projecting the
       probable fee schedule in this phase will enable the program office to
       refine its earlier analysis of the  fee program's potential effects on the
       States.

   Exhibit 9 consists of a table that program offices can use to summarize the
results of their costing evaluation.  The  difference  between this table and the
summary assessment table  first used in the screening  phase is that program
offices are now targeting fee-setting for a specific set of services. To document
the results of the  evaluation in the new table, program offices should attempt to
use short, descriptive paragraphs rather  than the  simple pluses and minuses or
high/low classifications used  at the end of Phase 1.
                                   -30-

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                                                 EXHIBIT 9
                                           Feasibility  Assessment
                          (To be filled in by  program office after the costing phase.)
Service Candidate:
      Legislative
      Feasibility
 Financial      Environmental       Impact on        Admin         Economic
Feasibility         Impact            States        Feasibility        Impact
         Principal
         Positive
         Principal
         Negative

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V.  DEFINING AND EVALUATING
     ALTERNATIVE  FEE
        PROGRAMS

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    V.  DEFINING  AND  EVALUATING ALTERNATIVE
                        FEE PROGRAMS
   Following the determination of service costs, a program office will be ready
to price fees; i.e., translate the estimated service costs into one or more fee
schedules that  can  be evaluated and  presented to senior management for
decision-making.  This chapter provides program offices with information on
basic options for pricing fees, the use of waivers to fine-tune the fee program,
and the preparation of a complete alternatives analysis that will be presented to
senior  managers who  are assessing the merits of a fee program.  Exhibit 10
summarizes the key steps in this third phase of fee program development.

1. BASIC  OPTIONS FOR PRICING  FEES

   Two primary pricing options are available for pricing fees:

        Average cost, in which all service users are assessed an identical fee
        that corresponds to the estimated service cost.

        Stratified average  cost, in which the charge for a particular service
        is stratified into different fee levels, depending on variations in cost to
        different groups for performing the service or subservice.

   The discussion below is  designed to aid  a program office in selecting the
option that best fits its needs.

   (1)  Average  Cost

        Average cost  pricing is the most  elementary pricing  methodology
   available  for setting user fees. In average cost pricing,  the fee charged as a
   general rule  is identical to the service cost that program offices estimate in
   the costing phase,  Phase 2. Using this  method, the  fee schedule for an
   office's fee program will consist of a separate, specific amount for each type
   of service (e.g.,  each type of permit or registration) included  in the fee
   program.

        Variations on the average cost  method may occur under the following
   circumstances:

             The program office includes fee  administration costs in
             the proposed fee  schedule;

             The program  office has calculated  service  costs using
             data  from earlier  years, and decides  to adjust the fee
             to account for inflation; and
                                 -31-

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                    EXHIBIT 10
           Phase 3:  Defining and Evaluating
              Alternative Fee  Programs
NO
            PREPARE FEE
           ALTERNATIVES
              ASSESS
           ALTERNATIVES
                  YES
          CONSIDER WAIVER
              OPTIONS
                                     REGULATORY DEVELOPMENT
                              REGULATORY
                              WORKGROUP
                                MEETINGS
                              AND REPORTS
                                      STOP
           RECOMMEND FEE
              PROGRAM
         c
                              DRAFT RULE
                               PACKAGE
GO TO PHASE 4
OBTAIN CLOSURE FROM
 WORK GROUP AND/OR
 STEERING COMMITTEE

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     Program  offices may  find this relatively  simple approach  especially
attractive when resources for fee development  and administration  are
scarce.  Because no further calculations beyond those in  Phase  2  are
necessary to set a fee schedule, personnel costs  for the fee development
are kept to a minimum.  Similarly, with a single fee level, fee  payments will
be eaiser and less labor-intensive to process,  preserving scarce resources
for other program operations. Even when resources are scarce, however,
program offices with a diverse pool of  service users  should proceed
cautiously in using the  straight average  cost as  the fee level.  Different
classes of users may translate into different costs to the Agency as well as
different capabilities to bear the burden of the fee.

(2)  Stratified Average Cost

     Conceptually, program offices can stratify fees for a service In several
ways.  The first and most common method is to  vary fees according  to the
level of effort the Agency expends in  providing the service.   This could be
done when identifiable categories that exist within a type of service  action
require significantly different levels of Agency resources. Additionally, cases
might  occur when different classes of service  users  require significantly
different Agency resources.  Program offices could also set stratified fee
levels  for a service based on  the characteristics of the service request itself
(e.g., was the request submitted punctually, was it complete?).

     In practice, however,  program offices should stratify fees based on
service cost, since the  driving principle behind  fee collections is full cost
recovery. For IOAA fees, particularly,  the  program office is legally obligated
to demonstrate that fees do not deviate significantly from estimated service
costs.

     General  examples  of program  offices where  staff should consider
setting stratified average cost  fees include:

     Offices  with  complex service programs.  Because stratified
     average cost fees inherently involve differentiated fees, they can more
     readily capture the range of service costs associated with  a complex set
     of services.

     Offices  that  anticipate legal  challenges to the fee program.
     By using the differentiated fees set under stratified average cost to most
     closely capture the actual cost of  services, program offices may be able
     to reduce the chances of legal challenges to  the fee programs.

     In contrast, program offices whose services  are not easily grouped into
discrete categories may need to be more cautious about setting stratified
average cost  fees.  If service users  have difficulty determining which fee
level to pay, the program office may end up committing significant resources
to determining whether each service applicant has submitted the correct fee.
Regardless of which pricing  option a program office pursues to set fees,

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   consultation with supporting offices such as OGC is essential to ensure that
   the fee complies with statutory requirements.

2. WAIVERS

   A waiver is a mechanism program offices can use either to reduce or entirely
eliminate the  fee a user otherwise would pay. In the rule making process, the
program office can specify that waivers will be considered on a case-by-case
basis, or can exempt certain classes  or categories of users on the basis of
criteria such as size, revenues, or economic hardship.  Adoption of a waiver
policy provides a program office with an opportunity to fine-tune the basic
design of its fee program.  Waivers  can be used  either to enhance a fee
program  (e.g., increase  its  political acceptability or promote  environmental
objectives) or ameliorate identified negative impacts (e.g.,  economic hardship).

   In developing waiver policies, all offices should examine a standard set of
characteristics:  categories of eligibility, eligibility guidelines, waiver fees, and
administrative procedures. As with the basic fee program, a program office has
a number of  choices for designing each  of these aspects of its approach to
waivers.

   There is little policy or guidance on waivers that is uniformly applicable to all
Federal user  fee programs.  The IOAA does not  address waivers directly, but
OMB Circular A-25, currently being revised, provides some guidelines on their
use.   The draft revision provides  Agency heads with the discretion to
recommend to OMB that exceptions to  the fee  schedule be granted.  Most
exceptions are subject to review by OMB after a period of four years.  This
handbook provides a further discussion of how to incorporate the use of waivers
into fee programs.

   (1)  Eligibility  Categories

        Recent waiver proposals by a  number of Federal agencies offer some
   useful  information on  the way waivers can be structured.  In general, the
   waiver categories have been defined in terms of subsets of users (e.g., small
   businesses) and to a lesser extent in terms of subcategories of service (e.g.,
   products with public  benefits).   The  most common examples of  waiver
   categories are:

        Public Interest:  A program office may wish to consider public interest
       waivers when a user fee may impede the introduction or continuation of
       a product (e.g., innovative technology) that may significantly reduce risk
       or have other significant positive  environmental or public  health
       benefits.   Existing Federal  fee programs already incorporate public
       interest waivers.  EPA itself, for instance, grants waivers from the fees
       for pesticide tolerance petitions if the pesticide is part of an integrated
       pest  management  program.    Similarly,  the Food  and  Drug
       Administration (FDA) plans to exempt  orphan drug applicants from
                                  -33-

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     licensing user fees because the advantages to the public outweigh the
     direct benefits to the licensee.

     Financial Hardship:  The  rationale  for allowing financial  hardship
     waivers is that  full cost recovery should not be pursued so vigorously
     that a fee program's adverse economic impacts on a user eliminate the
     service's presumed benefits to the user.   Few, if any, guidelines have
     been established for ascertaining  whether a user fee  poses financial
     hardship.  Types  of  information found in a firm's financial statement
     (e.g., gross revenues, net profits) may  help a program office determine
     a user's ability to pay all of its projected fees.

     Small  Business:  This waiver  is a subset of financial  hardship
     waivers. In general, the  Federal government's policy is to stimulate, not
     impede, small  business; and small business waivers may allow a fee
     program  to be consistent with that  objective.   In defining  "small
     business,"  a   program office may want  to consider annual  sales
     volume, product volume, number of employees, or other factors.

Other categories of waivers considered by one  or more Federal  agencies
include government agencies (e.g., States and localities), quasi-government
entities (e.g., regional planning authorities), and non-profit institutions (e.g.,
academic entities).  The rationale in these cases usually is a variation on the
"public" interest waiver.  Program  offices are not limited to these categories.
Moreover,  they  can  incorporate  multiple  waiver  categories  into  fee
programs,  provided the fee program's  design  continues to  meet all
applicable statutory requirements.

(2)  Eligibility Guidelines

     Identification of waiver categories  for possible adoption is just the first
step in fashioning a program  office's  approach to waivers. A related step is
the development of quantitative or qualitative  criteria for  determining a
specific  applicant's eligibility for a waiver,  regardless  of whether  the
applicant or the Agency initiates consideration of a waiver. Some categories
of waivers, such as the "small business" one may lend themselves to being
defined in quantitative terms.  Even in such cases, the program office should
define the  type of  information the  applicant must submit  as  evidence of
eligibility.  This is discussed in more detail  in the section on administrative
procedures.

(3)  Waiver  Fees

     Administrative  expenses are incurred in reviewing waiver applications.
It may be appropriate, therefore, for a program office to attempt to recover the
cost of these reviews.  Each EPA office should set its own policy for the
amount to be charged for  each waiver application. One option is to address
each application for a waiver on a case-by-case basis.  This gives an office
maximum flexibility but may  raise issues of equity and fairness within the

                                -34-

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   user community.  The second  approach, therefore, is to designate in
   advance the fee for each waiver category. A program office could choose to
   refund waiver application fees in those instances  where waivers are
   granted.

   (4)  Administrative  Procedures

        Finally, the  program office must develop administrative guidelines for
   both its own staff and the user community to address such issues as:

        Payment Method:  one option is for the waiver applicant to remit the
        reduced waiver fee initially, with the balance of the full fee due  if the
        waiver is denied; an alternative is to require the applicant to pay the full
        fee, with a rebate if the waiver is approved.

        Eligibility:  an office  can elect to grant waivers only upon petition by a
        user; or an office can consider  and grant a waiver on its own initiative.

        Waiver Petition:  petitioners need to  know what  information the
        program office requires in order to act upon a waiver request.  An  office
        may design a special form, require a letter on formal letterhead, and/or
        delineate the types of data to be submitted.

   As with other aspects  of the fee program, a program office can tailor its
   approach to waivers to  meet its specific objectives and program operations.

3. ALTERNATIVES ANALYSIS

   A substantial portion of the third phase of fee development is the analysis of
alternative fee schedules.  In some cases,  program offices may already have
considered waivers in defining these alternatives.  Some offices, by contrast,
will incorporate waivers after conducting the alternatives analysis and as part of
the adoption  of a final fee program in phase 4.   Each program office should
select the approach best suited to its particular circumstances.

   The  alternatives analysis  once again evaluates the fee program's design
against  the six analytical criteria discussed  in the previous phases. This third
application of the selection criteria occurs at a critical point in the fee-setting
process, since program offices now should have virtually all the information they
need to complete the criteria worksheets in Appendix A.

   As in the  other analytical phases,  legal considerations  play a particularly
important role  in the pricing phase.  Program  offices should be certain to
document how all proposed fee schedules meet any legal restrictions set forth
in  the authorizing statute. Offices proposing lOAA-based fees in particular
should  verify an approximate  relationship  between  the fee  and estimated
service  costs and private benefit.  It  should be noted that if a fee program
includes many waiver categories, fees paid by nonexempt service constituents
                                  -35-

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cannot increase to compensate for fee revenues lost through waivers, because
each user's fee would not accurately represent its service costs.

   After pricing fees, program offices have an opportunity to better estimate the
revenue potential of each proposed fee alternative.  Information gained in the
pricing phase  now can be used to project more accurately the annual revenue
from each fee as well as the fee's anticipated revenue stability, and the ratio of
revenues to administrative costs.  As  with the other selection criteria, these
topics are covered more extensively in Chapter II.

   With the definition of a fee schedule, program offices now also will be able to
assess the  economic and programmatic impacts of  fees  both on service
constituents and on other government activities. Program offices, for example,
should determine whether any comparable State programs might be influenced
by new EPA fees.

   The fee  alternatives devised  by the  program office may have  differing
administrative impacts.  A program office might expect, for example, that a fee
schedule  with  a  large number  of waiver categories would pose more
administrative complexities than a simpler schedule.  Similarly, a program office
may find that the design of a fee schedule will influence both the  environmental
and economic impacts of a fee program.
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VI.  ADOPTING A FEE PROGRAM AND
        PROMULGATING A
        FEE  REGULATION

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                          EXHIBIT 11
       Phase 4: Adopting a Fee Program and Promulgating
                        a Fee Regulation
                            SELECT
                        ADMINISTRATIVE
                          MECHANISM*
                                      4a
                             CONTINUE
                           RULEMAKING?
                                  YES
                           PREPARE
                           PROPOSED
                             RULE
                                      4b
                                I
                                     |4c
                          CONDUCT RED1—
                        BORDER REVIEW..
                          CONDUCT OMB
                            REVIEW
                                I
                            ADDRESS  111
                         COMMENTS AND
                          REVISE NPRM
REPEAT STEPS
4c THROUGH 4f
FOR FINAL RULE
                                      4e
    OBTAIN
CONCURRENCES
                           PUBLISH IN
                            FEDERAL
                            REGISTER
                           RESPOND TO
                                      4g
                        PUBLIC COMMENTS
                          AND PREPARE
                           FINAL RULE
                                              NO
                           ISSUE POLICY
                           OR GUIDANCE

                 * Initial selection may occur
                  in Phase 2 or 3 but be
                  reconsidered in Phase 4.

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             VI.  ADOPTING A  FEE  PROGRAM
                   AND   PROMULGATING
                     A FEE REGULATION
   OMB's policy for  lOAA-based fees is "that unless there are statutory
prohibitions or limitations, user charges will be instituted through administrative
action."  Examples of administrative action include policy memoranda, program
guidance, or rules and regulations.

   In most cases, EPA will adopt fee programs through the rulemaking process.
The final rule, published in the Federal Register, should  contain the following
information:

        Services for which fees will be charged;

        Discussion of private benefits  from the service(s);

        Description  of beneficiaries;

        Fee schedule and waiver policy; and

        Description of fee collection procedures (see Appendix G).

   Exhibit 11 provides an overview of the key steps in the rulemaking process.
Because rulemaking is a very flexible  process,  however, program offices will
have considerable  latitude in when  they  select rulemaking as the adoption
mechanism and initiate rulemaking. Program offices should contact the Office
of Standards and Regulation (OSR) for more specific guidance.

1.EPA RULEMAKING PROCEDURES

   A standard set of procedures is  applicable  to  virtually any rule  EPA
promulgates, including user fee rules. Items of particular importance to program
offices planning to promulgate user fee  regulations include*:

        The Start  Action Request (SAP) is the official form that program
        offices use to initiate formal Agency action on the  proposed fee rule. In
        the SAR,  the  program office  describes the basic elements of the
        proposed fee program. The EPA Steering Committee uses information
        in the SAR to anticipate the fee's effect on EPA program activities and
        to map out further review of the fee  rule.
  The discussion is based on the EPA Regulation Management Series
  fact sheets.

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The SAP also assists other program offices in determining whether they
need to nominate program staff to the rule's official workgroup.

The Steering Committee is a standing committee with responsibility
for coordinating  and integrating the Agency's regulatory development
activities.  The Steering Committee reviews the SAR submitted by the
program office and sets up the rule's workgroup.  The Committee plays
an important role throughout regulatory development, since it monitors
the workgroup's progress and has the final say on whether the merits of
the proposed fee program are sufficient to justify promulgating a rule.

The Workgroup, chartered by the Steering Committee, is composed
of staff from the  program office and other staff  assigned by Steering
Committee representatives from each office. The workgroup provides
the Steering Committee  with in-depth analyses of  regulatory options
based on a variety of perspectives from within the Agency.

Development Plans are required for all major rules, i.e., those with a
very large  impact on society, either  in terms of cost ($100 million or
more) or other impacts.  In the Plan, the program  office explains the
need for the proposed fee program,  examines regulatory options and
their anticipated  regulatory impact, and presents a plan for developing
the fee regulation. Fee rules themselves are unlikely to be classified as
major rules, but they may be part of a major rulemaking.

The  Workgroup  Reports are  prepared  periodically to keep the
Steering Committee  abreast of regulatory developments.   These
reports describe the regulatory issues confronting the workgroup,
including any problems requiring the attention of Agency management.
The  workgroup chair, i.e., the program  office lead, writes the reports
with support from other workgroup members.

The Draft Rule Package is  prepared by the program office and
distributed in advance of the closure meeting.  This package, which
contains the core of the Red  Border/OMB review package, should
include the action  memorandum, the  preamble and  regulatory text,
supporting analyses, and other relevant materials. For some rules,
program offices may need to include an Information  Clearance
Request, which  is the  form for requesting OMB permission to collect
substantial  amounts of  information from regulated  parties.   In the
preamble and text, program offices should discuss the  following items:
the statutory authority for fee collection; the service(s) for which the
program office will collect fees; any special benefits  accruing to service
users; and the fee levels, including any differentiated fees or fee waiver
provisions. The  package also should include the methodology used to
determine  service  cost  (program  offices whose fee  levels  are set
directly in the authorizing statute can omit this step), including the basic
items included in the estimate of service cost and a justification for their
inclusion.

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       Workgroup  or Steering  Committee Closure occurs  before the
       program  office can  send the draft rule  package  forward  for
       management  review.   The  purpose of  a closure meeting  is to
       summarize the status of issues raised on the proposed fee rule.  Based
       on the closure meeting, staff from  the  OSR prepare a closure
       memorandum which defines the terms of Red Border review and
       summarizes  the conclusions of the  workgroup and  the  Steering
       Committee.

       Red Border Review/OMB Review is required  prior to  publication of
       the  Notice of Proposed  Rulemaking (NPRM) in  the Federal  Register.
       EPA's internal  review, referred to  as "Red Border Review," should
       include the Assistant Administrators  for OPPE and OARM and the
       General Counsel.   From time to time, other AAs or RAs may also
       participate if the AA/RA workgroup representatives feel that the rule
       may affect their program activities.  The standard components of the
       Red Border/OMB review package include -- in  addition to the action
       memorandum,  the  preamble, and the rule --  the communications
       strategy, a completed OMB SF83 form, and assorted other materials.
       More information on these  items and how to put the review package
       together is available from the Regulation Management Branch of OSR.

       Under Executive Order 12291, OMB must review each proposed and
       final rule before the  Administrator signs it. The purpose of OMB review
       is to ensure that the Agency has selected the regulatory option with the
       least adverse  impact on the regulated community.   The Steering
       Committee member  representing the program  office's Assistant
       Administrator takes responsibility  for coordinating the  review and
       response to OMB's comments.

       Federal  Register Publication is the legal, formal mechanism for
       informing the public of a new regulation.   The  NPRM  will notify the
       public of EPA's intent to establish  a  fee program and announce the
       opportunity for public comment.  Following receipt of public comments,
       the program office summarizes and  analyzes them and addresses their
       disposition in the preamble to the final  rule.  Publication of a final rule in
       the Federal Register formally and legally implements the  user fee. The
       program office preparing the Federal Register notice should follow the
       formal requirements for submitting a notice carefully, since even minor
       irregularities can cause delays.

2. INTEGRATION OF  FEE DEVELOPMENT  AND
   RULEMAKING

   Although the rule making  process follows  a standard series of steps, program
offices may find  it  difficult to determine when  to initiate the process in
developing  a fee.  Timing will vary from office to  office, depending on such
factors as the difficulty of developing the fees  or the time frame established for
investigating fees.

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(1) Timing the  Initiation of  Rulemaking

    Ideally, initiating rule-making procedures early in the fee development
process will ensure that  perspectives from throughout the  Agency are
considered before options for the fee program have been foreclosed.  Yet if
a program office starts the rulemaking process before it has  sufficient
preliminary  information on the feasibility  and impacts of the fee, the
rulemaking process could utilize  EPA resources inefficiently.

    One approach is for a program office to initiate rulemaking (i.e., submit
the Start Action Request) after the second phase of fee investigation. At this
point, program offices will have a good idea of possible fee levels, projected
revenue, and potential impacts on users and the States.

    For some offices, however,  a later start, perhaps after the pricing phase,
may be more appropriate.  Premature efforts at rulemaking may reduce the
fee's  chances  of receiving  a  favorable review from  Agency  and  OMB
management.  On the other hand, if the need to implement a fee program is
urgent, a  program office may choose to initiate rulemaking  even before
concluding the costing phase.

(2)  Using  the Regulatory  Process to  Examine Fee Alternatives

    The advantage of starting rulemaking after the costing phase is that the
third stage of  fee-setting -- defining the fee level ~ can then become an
integral part of regulatory development.  As the fee development flowchart
shows, the  program office can  use the  workgroup  meetings  as a way to
secure outside feedback on fee alternatives. The program office may find
the workgroup's reaction  to the fees especially helpful in assessing the
impact of  the fee program on the  Agency at large, since the group should
include representatives from all appropriate AAs' and Regional offices.

     Through the workgroup's examination  of fees, it and/or the Steering
Committee  will reach  a decision on  whether the  program office should
proceed with promulgating a fee regulation.  This decision is  the signal to
the program office either to abandon its fee-setting efforts or to prepare the
draft rule package for Red Border review.

(4)  Addressing the Management  and Public  Review Comments

     Regardless  of how a  program  office combines fee-setting and
regulatory  development in earlier phases,  the final  phase  of fee
development incorporates formal comments received from reviewers into the
fee structure.  When the program office first receives the draft  rule package
back  from Red Border/OMB review, it needs to incorporate any comments
into the fee proposal.  These comments may cover a variety of issues, such
as the financial burden on the affected industry, impacts on other programs,
the administrative cost to EPA, or the methodology used to calculate service
cost.

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    After addressing management and OMB comments on the proposed
fees, the program office can forward  the preamble  and regulatory text,
accompanied by the Action  Memorandum, to the Administrator's office for
signature. If the Administrator approves the package, the signed original of
the preamble and  rule, together with the forms necessary for publishing the
proposed rule, can be forwarded to EPA's Federal Register Officer in the
Regulation Management Branch of OPPE.

    The notice of proposed rulemaking (NPRM) will  precipitate a second
round of review comments, this time  from the public and the regulated
industry-  Program offices can expect these comments to be  broad in scope.
Subjects that reviewers  might address  include statutory authority  (or
perceived lack thereof), waiver categories, economic impact on the industry
at large as well as on individual entities, the fee levels, and the  fees' effect
on prices. The program office, in conjunction with the workgroup members,
must address formal comments received in response to the  NPRM. This is
usually done in a  separate  section of the  preamble entitled "Response to
Comments."  The  public comments may raise significant issues that could
result in  considerable refinement of the proposed fee program.  If such
changes are made, the package must undergo Red Border and OMB review
again,  and comments from  those reviews must  be  resolved  before the
package is forwarded to the Administrator for signature and then to OPPE for
Federal Register publication. After publication in the Federal Register, the
fee program  will  become effective  on the date specified  in the  Federal
Register.
                              -41.

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APPENDICES

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     APPENDIX A



CRITERIA  WORKSHEETS

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                Worksheet  1:   Legislative Feasibility
             QUESTION
DISCUSSION
  PROGRAM-SPECIFIC AUTHORITY
 1.   Is there specific statutory authority for
     collecting fees?

 2.   What are the fee-setting requirements?

 3.   How will the fee meet these requirements?

 4.   To what extent is the fee authority
     consistent with IOAA principles?

 5.   Does upcoming legislation exist that
     would grant specific statutory authority?


                IOAA
 6.   If program-specific authority is not
     available, would IOAA authority be
     satisfactory?


         SPECIAL BENEFITS
 7.   What service(s) will be subject to fees?

 8.   What special benefits does each service
     confer?

 9.   If the service is exclusively regulatory, are
     there special benefits other than
     regulatory?


           BENEFICIARIES
10.   Who are the beneficiaries?

11.   Are they individual firms or citizens?
     (As distinct from groups or classes of
     applicants.)


           Proper Cost Basis
12.   How closely does the estimated cost
     reflect the true cost of providing the
     service?

13.   Is the assessed fee different from the
     calculated cost of providing the service?
     If yes, why?
14.  Is there adequate documentation to justify
     the fee level?
                                        A-1

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                    Worksheet 2:  Financial Feasibility
              QUESTION
                                                     DISCUSSION
           GENERAL
1.  How close does the fee come to full
   cost recovery? (i.e., are both direct and
   indirect costs included?)

2.  What are the basic cost elements in the
   fee's cost basis? (Attach separate list
   if necessary.)

3.  How will the fee be monitored/updated?

4.  What will be the annual fee revenue?
   Does this amount justify the resources
   needed for program development?

5.  Will income tax deductions reduce net
   revenue to the government?

   ADMINISTRATIVE COST/REVENUE
                 RATIO

6.  What will be the relationship of adminis-
   trative costs to revenue generation?
7.
How will this ratio change over the life
of the program (i.e., if administrative
costs are high in start-up years, how
quickly will they decline)?
    REVENUE DEPENDABILITY:
          Revenue Durability
8. What is the projected lifetime of the fee
   program?

9. Are programmatic or legislative changes
   in the offering that could affect continua-
   tion of the service program?

10. Could the fee program in any way
   benefit/hinder efforts to secure program
   reauthorization?


    REVENUE DEPENDABILITY:
          Revenue Stability

11. How constant will fee revenue be from
   year to year?

12. Does the service have a history of
   fluctuating demand?
                                          A-2

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                 Worksheet 3:   Environmental Impact
             QUESTION
DISCUSSION
1.   What is the (expected) overall effect
    on environmental behavior?

    - Would the fee encourage risk
      reduction?

    -  Would it have an impact on
      innovation?

    -  Would it assist in environmental
      education?

    -  Would it enhance environmental
      protection?
2.   Would the fee impede information
    transfer to the States or the regulated
    community (e.g., by making
    information transfer too costly)?
3.   Would the fee discourage compliance
    with regulations (e.g., Late
    submission of data, illegal waste
    disposal)?
4.   Would the fee make enforcement
    more difficult? (Result in more
    enforcement actions? Make them
    more complex?)
5.   Would any cross-media effects occur
    (e.g., fees for one type of chemical
    disposal resulting in an increase in
    another form of chemical disposal)?
                                       A-3

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                   Worksheet  4:  Acceptability to  States
           QUESTION
DISCUSSION
1.   How would the Federal fee program
    affect established State programs (e.g.,
    affect collection of fees at the State
    level)?
2.  What impact would the fee have on State
    regulatory requirements (e.g.,
    enforcement or compliance actions)?
3.   Would the fee contribute to regional
    disparities (e.g., by creating "pollution
    havens")?
4.  Would the fees serve as a disincentive to
    program delegation?
    Would the fee be levied against public
    entities (e.g., States, municipalities) or
    constitute a mere shift of accounting
    funds (e.g., Federal grants being used to
    pay fees)?
6.  How would EPA fee programs affect
    State efforts to adopt their own fee
    programs?
7.  Are there sufficient opportunities for
    States to provide EPA with comments
    on the fee proposal?
                                          A-4

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                 Worksheet 5:   Administrative  Feasibility
             QUESTION
DISCUSSION
1. Are adequate recordkeeping systems in
  place for tracking service delivery and
  service costs?
  Would the fee affect program efficiency
  (e.g., reduce unnecessary service
  requests, increase efficiency of service
  delivery, standardize program
  operations)?
3.  Would the fee have administrative or
   programmatic repercussions in other
   program offices (e.g., more
   enforcement actions, greater demand
   for comparable services offered by
   other program offices)?
   Would the program office be able to
   absorb costs of fee program
   administration in the event that a
   compensating budgetary allocation is
   not forth comming?
5.  At which point during service
   application and delivery will the fee be
   assessed?
6. Will all service users pay the same fee?
7.  If not, what is the basis for variable
   charges  (e.g., type of applicant, level
   of effort necessary to provide the
   service, etc.)?
8.  Can the program office supply the
   personnel resources to calculate the fee?
                                           A-5

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                       Worksheet 6:   Economic Impact
             QUESTION
DISCUSSION
1.   Would the abrupt transition to a fee
    program inflict debilitating hardship on
    the payor (i.e., fee as a percentage of
    revenue or sales)?
2.   Does the fee schedule reflect any
    differences in economic standing among
    service users (e.g., through use of
    waivers)?
3.   Would the fee have significant market
    impacts (e.g., market stability, market
    access)?
4.   How would the fee affect the
    competitive position of American
    producers in international markets?
5.   Would a cross-subsidy result from the
    fee (e.g., one class of service users
    subsidizing service consumption by a
    competitor.)?
6.   Would the fee substantially affect
    product prices?
7.   What impacts would the fee have on
    product availability?
8.   Will affected parties have sufficient
    opportunity to comment?
                                          A-6

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      APPENDIX B

EPA DIRECT AND INDIRECT
 COSTS PER STAFF YEAR

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                                        APPENDIX  B:
               EPA  DIRECT  AND  INDIRECT  COSTS  PER  STAfF-YEAR
                    COST CATEGORY

DIRECT COSTS:

Salaries,  fringe benefits, travel and equipment •
                                                              AIR
          	  COST  PER FTE FOR 	
           OPTS   OSUER    WATER  REGIONS
INDIRECT COSTS:

(a) Group 1:

Program management. Air, OPTS.  OSUER. Water and Regions •«     2,951    1,665    4,771    4,069    8,488
EPA Administrator, Deputy Administrator  and staff offices
Associate Administrator for Regional  Operations
AA for Administration and Resources Management
Office of the  General Counsel
Office of the  Inspector General

Total, Group 1
  1.128    1,129    1,231     1,161      574
     0        00        0       83
 15.537   11,471   21.544    24,415   17,691
  1,553    1,621    2,428     1,732      222
  1.342    1,342    1,342     1,342    1,342

 22.511   17,228   31,316    32,719   28,400
(b) Group 2:

AA for Research and Development

Total, Group  2

Total, Group  1 and Group 2
 72,906   21.601   28,710   63,507        0

 72,906   21,601   28,710   63,507

 95,417   38,829   60.026   96,226   28,400
(c) Group 3:

Associate Adninistator for International  Activities
AA for Enforcement and Compliance Monitoring
AA for Policy,  Planning and Evaluation
AA for External Affairs

Total. Group  3

Total, Group  1, Group 2 and Group 3
    508     SOB      508      508        0
  1.899   1.899    1.899    1,899    1,899
  6,535   6,535    6.535    6.535      280
  2,79*   2,794    2,794    2,794        0

 11.736   11,736   11.736   11,736    2.179

107,153   SO.S65   71,762  107,962   30,579
Note*:
• Data not yet  complete
•• Final figures Hill vary slightly Mhan updated data are used
                                               B-l

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     TECHNICAL INFORMATION ON  DIRECT  AND
                        INDIRECT  COSTS

   The following explanation of how the figures in Appendix B were calculated
is intended for program office staff who wish to understand the numbers in more
detail.  In  addition, the Office of the Comptroller is aware that program offices
need to provide an explanation of their service costing approach in a proposed
rule and in  memoranda  prepared for internal EPA use.  Sections  of this
appendix can be quoted verbatim for that purpose; key sections appropriate for
inclusion in a proposed rule are underlined.

A.    Direct Costs

   EPA's Office of the Comptroller has calculated the direct cost per full-time
equivalent staff year (FTE)  for FY 87/88 for the Agency's four main program
offices and its regional operations. Direct costs per FTE include salary and
benefits, travel, and other  incidental charges.  Costs  were calculated by dividing
the total expenditure  for each  of the program offices and for  the regional
operations (excluding contractor costs incurred  by  these areas) by total staff
hours recorded for each area.  The resulting cost figures were divided by 2,080
in order to express them in terms of standard EPA staff years (FTEs). Program
offices can obtain assistance from the  Office of the Comptroller in updating the
costs.  Appendix C provides some techniques for updating to reflect changes in
EPA's overall cost structure.

B.    Indirect Costs

   EPA's  Office of the Comptroller also has calculated indirect costs  for the
Agency's four main program offices and its regional  operations. The technique
used  to make  the calculations  is fully consistent with generally accepted
accounting principles, and has been  used in Federal  court to document the
indirect costs associated with Superfund toxic waste clean-ups. Indirect costs
associated  with  each of  EPA's major  administrative units are itemized
separately so that a program  office may charge for only those administrative
costs which are appropriate to the particular fee.  The Office of the Comptroller
also can aid the program offices in  updating these costs to reflect  annual
changes in EPA's overall cost structure.

   Program  management costs for the Regions (combined) and for the Air and
Radiation, and Water  programs were  calculated by dividing total expenditures
in those program element areas designated by EPA as program management-
related by total hours charged to those  program elements.  Cost figures were
then expressed in terms of standard EPA staff years (FTEs) by dividing hours
charged by  2,080.  The program elements  considered to include program
management are as follows:

Air:         A2TR5A, Program Management, Air
OPTS:      A2VR5A, Program Management, OPTS
 Water:      A2UR5A, Program Management, Water
 OSWER:    AGLR5A, Program Management, OSWER

                                 B-2

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 Regions:    A3XT5A, Regional management
            A3ZT5A, Financial management
            A4AT5A, Personnel management
            A4EX5A, Regional support services
            A2XT5A, Regional counsel

   Other indirect costs were "allocated" to the four AA offices and the Regions
using a model developed by the Office of the Comptroller. The model, which is
based on a model used to document indirect costs for Superfund cost recovery
legal actions, takes the expenditure for any individual indirect cost area (e.g.,
the Office of the Comptroller) and calculates how  much of that expenditure
should be  charged or "allocated" to  other  administrative areas within the
Agency.

      Each indirect cost area is allocated on a basis which reflects the actual
use of that  area's  output by the Agency.  For example, the  Administrator is
involved in  all phases of the Agency's activity, so the cost of the Administrator's
office  is spread to all Agency  administrative areas in  proportion to  their
assigned staffing levels.  Upkeep charges for  EPA's National Computer Center,
however, are allocated to administrative areas in proportion to their use of the
Center's computer capacity.
                                  B-3

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         APPENDIX C



TECHNIQUES FOR  UPDATING  FEES

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                          APPENDIX  C:

           TECHNIQUES  FOR  UPDATING  FEES

   Appendix B was compiled using financial figures from fiscal 1987, and can
be used in service  costing throughout fiscal  1988.   In subsequent years,
program offices who calculated and promulgated fees in fiscal 1988 may decide
to adjust fee levels to take into account both changes in EPA's organizational
structure and  changes in the government's labor costs,  the primary cost
component of EPA fees.  The fee level adjustment methodologies described in
this appendix are designed to minimize the burden on program  offices while
ensuring that fee levels continue to accurately reflect  EPA's cost of providing
services. Two  possible fee adjustment methodologies are described  below.

A.    Fee Recalculation

   In  any given fiscal year, a program office may seek assistance from the
Office of the Comptroller's Budget Division in updating the figures in Appendix
C.  Without re-estimating the staff  hours necessary for each service action,
program  office staff can use  original estimates of staff hours and the revised
figures to produce a new service cost estimate as the basis for a revised fee
schedule. The total time necessary for this exercise is not likely to  exceed more
than one or two hours.

   While this approach is significantly more accurate than the labor-cost inflator
methodology described below, it does have one disadvantage. Because each
service  provided by a program office  has a different mix of Headquarters,
Regional and contractor labor, no two services are likely to increase in cost by
exactly the same percentage.  If a program office is charging for several fees, for
example, one may go up by 3% while another increases by 4 1/2%.  Users may
notice this "discrepancy" (actually the result of a more accurate recalculation of
costs) and complain about it.

B.    Using  the Labor-Cost Inflator

   A second methodology is to  increase all fees directly, without revisiting
service costs at all. Fees could be adjusted upwards by the percentage change
in the Federal government's General Schedule (GS) pay scale  or any other
appropriate inflation index.  This information is published annually by OMB and
available through the Office of the Comptroller's Budget Division.
                                 C-1

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         APPENDIX D

USEFUL CONTACTS  FOR PROGRAM
   OFFICES  DEVELOPING FEES

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                          APPENDIX  D

    USEFUL  CONTACTS  FOR PROGRAM OFFICES
                     DEVELLOPING  FEES

      Contacts that can assist program offices in their efforts to set fees include:

            For help on determining service costs and pricing fees:

            Budget Division
            Office of the Comptroller
            Office of Administration and Resources Management
            Room W717, Tel. 382-4170

            For assistance on issues relating to fee program implementation
            (e.g., determining the cost of fee program administration,
            establishing collection of checks and use of the EPA lockbox):

            Fiscal Policies and Procedures Branch
            Financial Management Division
            Office of the Comptroller
            Office of Administration and Resource Management
            Room M3423, Tel. 382-5155

            For information on the mechanics of rulemaking:

            Regulation Management Branch
            Information and Regulation  Systems Division
            Office of Standards and Regulations
            Office of Policy, Planning and Evaluation
            Room W415, Tel. 382-5479

            For assistance in examining a fee's statutory authority:

            General Law and Claims Branch
            Office of General Counsel
            Room W1054, Tel. 382-4550

The EPA Task Force on Fees is the coordinating group for the Agency's user
fee initiative.  The Task Force is chaired within the Office of the Comptroller's
Budget Division. This should be the initial contact point for a program office
considering user fees.
                                 D-1

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 APPENDIX E



TEXT OF IOAA

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                 CHAPTER 97.   MISCELLANEOUS

   Section
   9701.   Fees and charges Tor Government services and things of value.
   9702   Investment of trust funds
     Auto-Cite?-: Any case citation herein can be checked for form, parallel
       references, later history, and annotation references through the Auto-
       Cite computer research system
§ 9701.  Fees and  charges  for Government  services and  things of
value

(a) It is (he sense of Congress that each service or thing of value provided
by  an agency  (except  a  mixed-ownership Government  corporation) to a
person  (except a person on official  business of the United States  Govern-
meit) is to be self-sustaining to the extent  possible.
(b) The  head of  each agency  (except  a mixed-ownership  Government
corporation) may prescribe regulations establishing the charge for a service
or  thing  of value provided by the  agency Regulations  prescribed by the
heads of executive  agencies  are  subject  to  policies  prescribed  by the
President and shall be as uniform as practicable Each charge shall be—
   (I) fair; and
   (2) based on—
     (A) the costs to  the Government;
     (B) the value of the service or thing to the recipient;
     (C) public policy or interest served, and
     (D) other relevant facts.
(c)  This section does  not affect a law of the United States—
  (1) prohibiting the  determination  and  collection of charges  and the
  disposition of those charges; and
  (2) prescribing bases for determining  charges,  but a charge  may be
  redetermined under this section consistent with the prescribed  bases.
(Sept. 13, 1982, P. L. 97-258, § 1, 96 Stat.  1051.)

           HISTORY; ANCILLARY LAWS AND DIRECTIVES
     Prior law and revision:
       ReviMd Section	Source (USCS)	Source (Sutuiei ai Urgt'
     9701  	31-483*	 Au» 31. I9J1. ch 376. { 501. 63
     	Sut. 290	

                                  743
                                       E-l

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31  USCS  § 9701                                  MONEY AND FINANCE

     In the section, the words "agency  (except a mixed-ownership Govern-
     ment  corporation)"  are  substituted for  "Federal  agency  (including
     wholly owned Government  corporations as defined in the Government
     Corporation  Control Act of 1945 [31 U.S.C. 841 et seq ]" because of
     section 101 of the revised title and for consistency.
     In subsection (a), the words "each service or thing of value provided"
     are substituted for "any work,  service, publication, report, document.
     benefit, privilege,  authority,  use. franchise, license,  permit, certificate,
     registration  or  similar thing of value or utility  performed,  furnished.
     provided,  granted, prepared, or issued" for consistency and to eliminate
     unnecessary  words  The words  "(including groups,  associations, orga-
     nizations,  partnerships, corporations, or businesses)"  are  omitted  as
     being included in "person" under 1 1
     In subsection (b), before clause (1).  the words "ma> prescribe  regula-
     tions establishing the charge for a service  or thing of value provided  by
     the agency"  are  substituted  for "is  authorized by  regulation     .  to
     prescribe  therefor  such  fee,  charge, or  price,  if  any, as  he shall
     determine, in case none exists, or redetermme, in case of any  existing
     one" for consistency, to eliminate  unnecessary words,  and because of
     the restatement  In clause (1). the words "and equitable" are omitted as
     being  included  in  "fair"  In  clause (2)(A), the^-words "direct and
     indirect" are omitted as surplus  In clause (2)(B), the  words  "of the
     service  or thing"  are added  for clarity   In clause  (2)(D), the words
     "and any  amount so determined or redetermmed  shall be collected and
     paid  into the  Treasury  as  miscellaneous receipts"  are omitted  as
     unnecessary because of section 3302(a) of this title.
     Subsection (c)  is substituted  for 31.483a(provtsos)  for  clarity  and  to
     eliminate unnecessary words
                                   E-2

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       APPENDIX  F



TEXT OF OMB CIRCULAR A-25

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                        OFFICE OF MANAGEMENT AND BUDGET
          AGENCY: Office of Management and Budget, Executive Office of
                                 the President.
                                  July  1, 1987


 Circular A-25,  * User Charges"
ACTION: Draft Revision OMB Circular No. A-25; Request for Public Comment.


SUMMARY:  Circular A-25  establishes Federal policy regarding fees assessed  for
Government services and for sale or use of Government property or resources. The
revision updates the existing Circular, which was last issued in 1959.
DATE: Comments from the public should be submitted no later than August 1,  1987.
ADDRESS: Comments should be addressed to: Ellen Balis, Budget Review Division,
Room 6001 New Executive Office Building, Office of Management and Budget,
Washington, DC 20503, Telephone: (202) 395-4574.
SUPPLEMENTARY INFORMATION: Title V of the Independent Offices Appropriation Act
of 1952 provided authority for Federal agencies to charge for services or
benefits provided to specific beneficiaries.  Circular A-25  provides guidance
to the agencies to implement this authority.


Analysis of Key Sections

   6. General Policy. This section provides the basic policy for when and what
type of  user charge  should be assessed.

    — Section 6a discusses special benefits. Paragraph one retains the same
definition of special benefits as the existing Circular but provides updated
examples. Paragraph two defines the appropriate pricing mechanism for setting
charges. It continues to allow net revenues to be earned in specified cases.
Paragraph three provides new guidance for cases when there are incidental public
benefits. Paragraph four retains existing guidance for cases when the
identification of beneficiaries is obscure.

    — Section 6b provides new guidance that charges can be made to the direct
beneficiary even if part of the benefit is passed on to others.

    — Section 6e continues to provide exceptions that can be granted directly

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by  agencies.  Some exceptions can also be granted by the Office  of Management and
Budget upon the recommendation of agencies.

     — Section 6d defines full cost recovery and market pricing. An annual rate
of  return on  capital resources has been added to the definition of full cost
recovery.  The revision also adds examples of how to use commercial practices to
determine market pricing.

    7.  Implementation.  This new section provides guidance on agency
implementation of  user charges.

     — Section 7a provides the general policy that,  unless  there are statutory
limitations,  charges should be instituted through administrative action.
     — Section 7b provides guidance  for developing legislation  in cases where
there are  statutory impediments.

     — Section 7c states when proposal  of excise taxes rather than  user
 charges   would be appropriate.

     — Section 7d encourages agency  coordination of collection  efforts and
legislative proposals.

     — Section 7e promotes designing collection  efforts that keep costs to a
minimum.

     — Section 7f notes  that agencies should follow normal  legislative clearance
procedures for  user charge legislation.

   8. Agency responsibility. This  section outlines the role of  the agency in
proposing  and  implementing user charges.   In addition to responsibilities as
laid out in the existing Circular, agencies are  to undergo  annual reviews of
their  user charges  and update them to reflect  changing conditions, and to
maintain readily accessible records  related to the base for setting fees and the
fees collected.
   9. Disposition of  receipts. This  section allows more  flexibility for agency
retention of receipts than the existing  Circular. When agencies do retain
receipts, the new guidance does  require,  in most circumstances, that the
receipts remain under appropriations control.  Receipts above the level of full
cost recovery are always  returned  to the general fund under this guidance.


TO THE HEADS OP EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS


Subject:  User Charges

   1. Purpose. The Circular establishes  Pederal policy regarding fees assessed
for Government services and for  sale or  use of Government property or resources.
It provides information on the scope and types of activities subject to  user
 charges  and on the  bases upon  which  user charges  are to be set. Finally, it
provides guidance for agency implementation of charges and the disposition of
receipts.

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    2.  Rescission.  This rescinds Office of Management and Budget Circular No.
 A-25,  dated September 23,  1959,  and Transmittal  Memoranda 1 and 2.
    3.  Authority.  Title  V  of  the  Independent Offices Appropriations Act of 1952
 (31 U.S.C.  9701).

    4.  Coverage. The provisions of this Circular cover all  Federal activities
 that convey special benefits to  recipients beyond those  accruing to the general
 public,  except where  the  imposition of  user charges  is prohibited by lav or
 regulated by executive  order, or where specific statutes provide authority for
 the assessment and imposition of  user charges.   In such cases,  the statute or
 executive order shall take precedence over this Circular (e.g.,  sale or disposal
 under  Federal surplus property statutes).  In any case where  an Office of
 Management  and Budget circular provides guidance concerning  a  specific  user
  charge   area (e.g.,  OMB  Circular No.  A-45 concerning charges  for rental
 quarters and OMB  Circular No. A-130 concerning  costs of  disseminating
 information products  and  services),  or specific beneficiaries  (e.g.,  OMB
 Circular No.  A-97 concerning providing services to State and local governments),
 the guidance of that  circular shall  be deemed to meet the  requirements of this
 Circular. This Circular applies  to all agencies,  as that term  is used in 31
 U.S.C. 9701,  but  does not apply  to activities of the legislative and judicial
 branches or to mixed-ownership Government  corporations,  as defined in 31 U.S.C.
 9701.
   5. Objectives. It is the objective of the United States Government:

   a. To ensure that each service, sale, or use of Government property  or
resources provided by an agency to specific recipients be self-sustaining;

   b. To promote efficient allocation of the Nation's resources by establishing
charges for special benefits provided to the recipient that are at least as
great as costs to the Government of providing the special benefits; and

   c. To allow the private sector to compete without disadvantage in supplying
comparable services, resources, or property where appropriate.

   6. General policy, A  user charge,  as described below, will be assessed
against each identifiable recipient for benefits derived from Federal activities
beyond those received by the general public. When the imposition of  user
 charges  is prohibited or restricted by existing law, agencies will review
activities periodically and recommend legislative changes when appropriate.
Section 7 gives guidance on drafting legislation to implement  user charges.

   a. Special benefits
   (1) Determining when special benefits exist. When a service (or privilege)
provides special benefits to an identifiable recipient beyond those that accrue
to the general public, a charge will be imposed to recover the full cost to the

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 Federal Govenunent for providing the special benefit*.  For exanple,  a special
 benefit will be considered to accrue and a  user charge  will  be  imposed when a
 Government service:

    (a)  Enables the beneficiary to obtain more immediate or substantial gains or
 values  (which Bay or may not be measurable in monetary  terms)  than those that
 accrue  to the general public (e.g.,  receiving a patent,  insurance, or guarantee
 provision,  or a license to carry on  a specific activity or business  or various
 kinds of public land use); or

    (b)  Provides business stability or contributes to public confidence in the
 business activity of the beneficiary (e.g.,  inspection  and grading of farm
 products,  or insuring deposits in commercial banks); or

    (c)  Is performed at the request of or for the convenience of the  recipient,
 and  is  beyond the services regularly received by other  members of the same
 industry or group, or of the general public (e.g.,  receiving a passport,  visa,
 airman's certificate, or an inspection after regular duty hours).
    (2)  Determining the amount  of   user  charges  to assess:

    (a)  Except as provided in section  6c,   user charges  will be sufficient  to
recover the  full cost (as defined  in  section 6d)  of providing the  service,
resource,  or property.

    (b)   User charges  will be  based on  market prices (as defined in  section 6d)
when the Government is supplying services,  property,  or resources  in its
capacity as  property owner rather  than  as  sovereign (e.g., leasing space  in
Federally-owned buildings).  Under  these conditions,   user charges  will recover
full costs and may yield net revenues.

    (c)   Dser charges  will normally be  collected in advance of, or
simultaneously with the rendering  of  services.

    (3)  In  cases where incidental benefits  to the general public are  provided
along with benefits to specific beneficiaries (e.g.,  processing a  new drug
application  or inspecting farm products),  charges should generally be set in
accordance with paragraph (2)  of section 6a.

    (4)  No  charge should be made for services when the identification of the
specific beneficiary is obscure and the service can be considered  primarily as
benefiting broadly the general public.

   b. Charges  to the direct  recipient. Charges will be made to the direct
recipient of the special benefit even though all or part of the special benefits
may then be passed to others.

   c. Exceptions.  (1)  Agency heads or their  designee may make exceptions to the
general policy in the following cases:

   (a) The provision of a  free service is  an appropriate courtesy to a foreign
government or  international  organization;  or comparable fees are set on a
reciprocal basis with a foreign country; or

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    (b) The recipient of a special benefit is entitled by lav to  receive  such
benefits  free or at a subsidized rate. However, if the Administration  does not
agree with the exception, legislation to change the lav can be proposed.

    (2) Agency heads or their designee may recommend to the Office of Management
and Budget that exceptions to the general policy be Bade when:

    (a) The cost of collecting the fees would be an unduly large  part of  the
receipts  from the activity; or
    (b) Any other condition exists that, in the opinion of the agency  head or  his
designee, justifies an exception.

    (3) All exceptions shall be for a period of no more than four years  unless
renewed by the agency heads or their designee for exceptions granted  under 6c(l)
or the Office of Management and Budget for exceptions granted under 6c(2)  after
a review to determine whether conditions warrant their continuation.

    (4) Requests for exceptions and extensions under paragraphs  (2) and  (3)  of
section 6c, shall be submitted to the Director of the Office of Management and
Budget.

   d. Determining full cost and market price. (1) "Pull cost" includes  all
direct and indirect costs of providing a property, resource, or service.  These
costs include, but are not limited to, an appropriate share of:

    (a) Direct and indirect personnel costs, including salaries and fringe
benefits such as retirement and medical insurance.

    (b) Physical overhead, consulting, and other indirect costs including
material and supply costs, utilities, insurance, travel, and rents or imputed
rents on land, buildings, and equipment. If imputed rental costs are  applied,
they should include:

   (i) Depreciation of structures and equipment, based on official Internal
Revenue Service depreciation guidelines unless better estimates are available;
and

   (ii) An annual rate of return (equal to the average long-term Treasury bond
rate) multiplied by the value of land and other capital resources used.

   (c) The agency's management and supervisory costs.

   (d) The costs of enforcement, research) establishment of standards, and
regulation, including any required environmental impact statements.

   (2) "Market price" means the price for a unit of property, resource, or
service that is based on competition in open markets, and creates neither a
shortage nor a surplus of the property, resource, or service.

   (a) When a substantial competitive demand exists for a property, resource, or
service, its market price vill be determined using commerical practices, for
example:

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    (i) By  competitive  bidding;  or

    (ii) By reference to prevailing  prices in competitive markets  for property,
resources,  or  services that are the same or similar to those provided by the
Government (e.g.,  campsites or  grazing lands in  the general vicinity of private
ones) with adjustments as  appropriate  that reflect demand, level  of service, and
quality of the good or service.

    (b) In  the  absence  of substantial competitive demand,  market price will be
determined by  taking into  account the  prevailing prices for property, resources,
or  services that are the same or substantially similar to those provided by the
Government, and then adjusting  the  supply made available and/or price of the
property,  resource, or service  so that there will be neither a shortage nor a
surplus, e.g., campsites in remote  areas.

    7. Implementation,  a. The general policy is that,  unless there are statutory
prohibitions or limitations,  user  charges  will be instituted through
administrative action.

    b. When there are statutory  prohibitions or limitations on charges,
legislation to permit  charges to be established  should be proposed. In general,
legislation should seek to remove restraints on   user charges  and permit
their establishment under  the guidelines  provided  in  this Circular. When passage
of this general authority  seems unlikely,  more restrictive authority should be
sought. The level of charges proposed  should  be based on the guidelines in
Section 6. When necessary,  legislation should:

   (1) Define in general terms the services for which charges will be assessed
and the pricing mechanism  that will be used;

   (2) Specify that receipts will be collected in  advance of or simultaneously
with the provision of service; and

   (3) Specify where receipts will be  credited (see section 9).


Legislation should not specify precise charges. The   user charge  schedule
should be set by regulation. This will allow  administrative updating of fees to
reflect changing costs and market values.

   Where it is not considered feasible to collect  charges at a level specified
in Section 6, charges should be set as close  to that  level as is practical.
   c. Excise -taxes are another means of charging  specific beneficiaries for the
Government services they receive. New  user charges  should not be proposed in
cases where an excise tax currently finances the  Government services that
benefits specific individuals. Where appropriate, agencies may consider
proposing new excise taxes rather than user fees. This  should be considered
where a tax would be significantly cheaper to administer and its burden would
rest almost entirely on the user population (e.g., gasoline tax to finance
highway construction). Excise taxes cannot be imposed through administrative

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 action but rather require legislation. Legislation should meet the sane criteria
 as in 7(b), except that the level of the tax mist  be explicitly stated. Agency
 review of  these taxes Bust be perforated periodically and new legislation should
 be proposed, as appropriate, to update the tax based on changes in cost.

    d.  In proposing new charges or nodifications  to existing  ones,  managers of
 other prograns that provide special benefits to  the sane or  sinilar user
 populations should be consulted. Joint legislative proposals should be Bade and
 joint collection efforts designed to ease the burden on the  users  should be used
 whenever possible.

    e.  Every effort should be made to keep the costs of collection  to a minimum.
 The principles embodied in Circular No. A-76 (Performance of Commercial
 Activities) should be considered in designing the  collection effort.
   f. Legislative proposals will be submitted to the Office of Management  and
Budget  in accordance with the requirements of Circular No. A-19. To  ensure the
proper  placement of user fee initiatives in the budget account structure,
agencies are encouraged to inform 0KB of proposals at an early stage of
development.

   8. Agency responsibility. Agencies are responsible for the initiation and
adoption of  user charges  schedules consistent with the policies  in this
Circular. Each agency will:

   a. Identify the services and activities covered by this Circular;

   b. Determine the extent of the special benefits provided;

   c. Apply the principles specified in paragraph 6 in determining full cost or
market  price, as appropriate;

   d. Apply the guidance in section 7 either to implement charges
administratively or submit legislation as appropriate;

   e. Review charges annually and adjust then to reflect changing  costs or
market  values;
   f. Ensure that the requirements of OMB Circular No. A-123  (Internal Control
Systems) and appropriate audit standards are applied to collection.

   g. Maintain readily accessible records of:

   (1) The services or activities covered by.this Circular;

   (2) The extent of special benefits provided;

   (3) The exceptions to the general policy of this Circular;

   (4) The information used to establish charges and the specific method(s) used
to determine them; and

   (5) The receipts from each  user charge  imposed.

   h. Maintain adequate records of the information used to establish charges and
provide them upon request to OMB for the evaluation of the schedules.

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   9. Disposition of  receipts,  a.  If user fees are implemented  solely under the
authority of this Circular,  collections will  be credited to the general  fund of
the Treasury as miscellaneous receipts, as required by 31 U.S.C.  9701.
   b. Legislative proposals  to permit the collections to be retained by the
agency nay be appropriate  in certain  circumstances. Proposals should meet the
guidelines in Section  7b.

   (1) Proposals that  allow  agency  retention of receipts may be appropriate
when:

   (a) The fee charged recovers  the outlays  of the agency in providing the
special benefit in the period in which the service is provided.  (For example, a
fee calculated as the  overtime pay  of inspectors charged for after  regular duty
hour inspections). In  these  cases,  use of the receipts need not be  controlled
directly through the appropriations process.  Generally, the use of  receipts
credited to an agency's appropriation should, however, be subject to limits set
in the annual appropriations language.

   (b) The fee charged is  tied to the full cost of providing the special
benefits. In these cases,  the agency's outlays in a given fiscal year to provide
the benefit may be less than the full-cost recovery fee charged. Under these
circumstances, agency  use  of the receipts should be subject to control through
the appropriations process.
   (2) Legislative proposals  should  always  credit collections above the level of
full-cost recovery to the general  fund.

   10. New activities. Whenever agencies  prepare legislative proposals for new
or expanded Federal activities that  would provide special benefits, the policies
and criteria set forth in this Circular will  apply.

   11. Inquiries. For information  concerning  this Circular, consult the Office
of Management and Budget examiner  responsible for the agency's budget estimates.

   By direction of the President:


James C. Miller III,

   Director.
[FR Doc. 87-14265; Filed 6-30-87;  8:45 am]

   BILLING CODE 3110-01-M Certified  to be a true copy of the original.

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        APPENDIX G

OFFICE OF THE COMPTROLLER
 POLICY  STATEMENT ON FEES

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      \
        UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
                       WASHINGTON, D.C. 20460
                 COMPTROLLER POLICY ANNOUNCEMENT        OFFICE OF
                            NO. 88-03                 ADMINISTRATION
                                                      AND RESOURCES
                                                       MANAGEMENT
MEMORANDUM
SUBJECT:     Collection of User Fees for Services and
               iteria],s Provided iy EPA
FROM:    /, yDa^id P. Ryan
               motroller
        (X
TO:          Assistant Regional Administrators
             Management Division Directors
             Senior Budget Officers
             Regional Comptrollers
             Allowance Holders


     This Policy Announcement establishes general  financial  and
accounting requirements applicable to user  fees collected by EPA.
Program requirements specific to each Agency user  fee will be  set
out in separate regulations developed by the Programs implementing
those fees.

BACKGROUND

     As a result of Congressional direction and Administration
initiatives, EPA has undertaken a review of various  services and
materials provided to the public that may be candidates  for  assess-
ment of fees.  Fee collection is based on a philosophy that  Federal
activities conveying special benefits to recipients, beyond  those
accruing to the general public, should be as self-sustaining as
possible.

     User fees are now being considered for a  number of  EPA  programs,
and several have entered the rulemaking stage.  As user  fees are
implemented for various EPA programs, it will  be essential to  know
the amount and type of fees collected for budgeting  and  internal
control purposes.  This Policy Announcement is intended  to provide
the basic mechanisms for receiving,  depositing and reporting fee
collections so that adequate data are available for  management
decisionmaking.

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                                 -2-

POLICY

     Fees must be received by EPA, payable in U.S. currency,  before
services will be administered or goods provided.  As these fees are
received, they will be  identified uniquely in the Agency's Financial
Management System (FMS), and will then be deposited into the General
Fund of the U.S. Treasury.  Should EPA receive Congressional approval
to establish a Special  Fund (i.e., a Treasury account where receipts
can be reserved for specific purposes), we will issue amended
guidance.

PROCEDURES

Use of EPA Lockbox.   In order to improve physical security over
checks, and for cash  management purposes, user fees must be remitted
through the EPA Lockbox system.  Program offices establishing user
fees must include the appropriate Lockbox address in its regulations
and in other guidance that advises parties on requesting services
or materials from EPA.   Program offices must obtain the respective
Lockbox addresses from  the Office of the Comptroller's (OC) Fiscal
Policies and Procedures Branch  (FPPB) .  FPPB will add a line in the
Lockbox address that  will  identify the type of user fee or Program
Office to be notified.   This modification of the standard Lockbox
address will facilitate processing by the Financial Management
Offices  (FMO).

(As Programs work with  the OC in establishing user fees, OC will
designate an FMO(s) responsible for processing these materials.)

Forwarding Lockbox  Receipts to EPA.  The Lockbox bank will forward
a copy of any remittance check, the envelope in which the check was
sent, and any materials that accompany the check to the appropriate
EPA Financial Management Office within one working day.  To help
match checks with the applications for services and materials sent
directly to the Program, the Program  administering the user fee
will request the remitter  to annotate the check, or to include
information with the  check to link it with the application.

EPA FMO Processing.   For each type of user fee that it must account
for, the EPA FMO receiving materials  from the Lockbox bank will
maintain a running  log  of  such  receipts.  The FMO will number the
receipts sequentially.   The numbers will be  structured as follows:
The first digit will  be the  fiscal year  in which  the remittance was
deposited.  The second, third and  fourth digits will be the first
three positions of  the  Program  Element under which the activity
primarily occurred.   The last six  positions  will be used  for
sequential numbers,  e.g.,  "000001,"  "000002," etc., with  an entire
log number looking  like 7AGT000001.

For large volume user fees (e.g.,  quality assurance samples), the
Financial Management  Officer  and  the  responsible  program  may agree
to post  receipts  in batches  rather than  by  individual order.

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                                -3-

The FMO staff will annotate this number on the copy of the check
and on any order form that it forwards to the Program office.
These items, and any other related finance or administrative
documents received from the Lockbox,  will be forwarded to the
responsible Program Office within one working day.

The FMO will complete a Schedule of Collections (EPA Form 2505-3)
daily for each type of user fee collection and will E-mail a copy
of that schedule to the Program Office.  To ensure all materials
sent are received and that amounts are correct, the Program
Office must reconcile the Schedule of Collections both with the
Lockbox materials they receive separately and with their own
system for tracking applications for goods or services they
provide.

Entering Information in the FMS.  FMO staff will record user fees
in FMS as a deposit to Treasury Receipt Account 68 2410, "Fees and
other charges for administrative and professional services." Trans-
action code 399 will be used to establish a debit to EPA account
362.0, "Miscellaneous Receipts - Return to Treasury," and a credit
to account 590.0, "Miscellaneous General/Trust Fund Receipts."

The FMO will enter the sequential number assigned above in
positions 21-30 of the General Ledger Code Sheet, EPA Form 2500-3.
The transaction data will be entered in positions 63-70, and the
name of the remitter, abbreviated if necessary, will be entered  in
positions 71-80 of the Code Sheet.

Program Office Tracking of User Fees.  Each Program Office
responsible for user fee assessments must track — preferably
through an automated system — all applications for services or
materials.  The Program Office system must include fields for both
the FMO assigned number and the amount of the collection reported
on the EPA Form 2505-3.  These required data elements are simply
to link the Financial Management System and the program system
for internal control and reconciliation purposes.  In developing
the tracking system, the Program Office should also attempt  to
anticipate data requests that may be made as part of the budget
development process and should include such data  elements in
their system.

Summary Reports.  Within one month following the  end of each
Quarter, the responsible FMO will send to the appropriate Programs
and to the Budget Division a printout of all FMS  data for that
Quarter on each user fee.

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                                -4-

EFFECTIVE DATE

     These policies and procedures are effective immediately for
all user fees that the Agency collects for services or materials
(except for the existing  fee collected for tolerances and tolerance
petitions issued under Section 408 of the Federal Food, Drug, and
Cosmetic Act).

FOR ADDITIONAL INFORMATION

     If you have any questions on the policies and procedures set
forth above,  please contact Bob Cluck, Fiscal Policies and Procedures
Branch, at 382-5160.

cc:  J. Richard Bashar
     John J.  Sandy
     Alvin Pesachowitz
     Vincette L. Goerl
     Tony Musick
     John Elliott
     Carole Ansheles
     Financial Management Officers
     FMD Branch Chiefs

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