*.,
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Monday,
August 7, 2000
Part II
Environmental
Protection Agency
40 CFR Parts 9 and 35
Drinking Water State Revolving Funds;
Interim Final Rule
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Federal Register/Vol. 65, No. 152/Monday, August 7, 2000/Rules and Regulations
ENVIRONMENTAL PROTECTION
AGENCY
40 CFR Parts 9 and 35
[FRL-6846-5]
RIN 2040-AD20
Drinking Water State Revolving Funds
AGENCY: Environmental Protection
Agency.
ACTION: Interim final rule.
SUMMARY: The national Drinking Water
State Revolving Fund (DWSRF)
program, which was established by the
Safe Drinking Water Act (SDWA)
Amendments of 1996, authorizes the
U.S. Environmental Protection Agency
(EPA) to award capitalization grants to
States, which in turn may provide low-
cost loans and other types of assistance
to eligible public water systems to
finance the costs of infrastructure
projects needed to achieve or maintain
compliance with SDWA requirements.
States are also authorized to set aside a
portion of their capitalization grants to
fund a range of activities including
source water protection, capacity
development, and operator certification.
This interim final rule codifies the
DWSRF Program Final Guidelines
published in February 1997 and
explains: what States must do to receive
a capitalization grant; what States may
do with capitalization grant funds
intended for infrastructure projects;
what States may do with funds intended
for set-aside activities; and the roles of
both the States and EPA in managing
and administering the program. Each
State has considerable flexibility to
determine the design of its DWSRF
program and to direct funding toward
its most pressing compliance and public
health needs.
DATES: This interim final rule is
effective August 7, 2000. Public
comments must be received by EPA, in
writing, by October 6, 2000. Comments
will be considered and, if necessary,
EPA will issue a revised final rule
changing today's interim final rule to
respond to these comments.
ADDRESSES: Send written comments on
this interim final rule to the Comment
Clerk (Docket W-00-11), Water Docket
(MC-4101), U.S. Environmental
Protection Agency, Ariel Rios Building,
1200 Pennsylvania Avenue, NW,
Washington, DC 20460. Comments may
be hand-delivered to the Water Docket,
U.S. Environmental Protection Agency,
401 M Street, SW, East Tower Basement,
Room EB57, Washington, DC 20460.
Comments may also be submitted
electronically to ow-docket@epa.gov.
Please submit an original and three
copies of your comments and enclosures
(including references). The Agency
requests that commentors follow the
following format: Type or print in ink,
and cite, where possible, the paragraphs
in this interim final rule to which each
comment refers. Electronic comments
must be submitted as a WordPerfect 5.1,
6.1, or 8.0 file or as an ASCII file
avoiding the use of special characters
and forms of encryption. Electronic
comments must be identified by Docket
W-00-11. Comments and data will also
be accepted on disks in the formats
above. Electronic comments may be
filed online at many Federal Depository
Libraries. Commentors who want EPA
to acknowledge receipt of their
comments should include a self-
addressed, stamped envelope. No
facsimiles (faxes) will be accepted.
The record for this interim final rule
has been established under Docket W—
00—11, which includes supporting
documentation, and is available for
review at the Water Docket, U.S.
Environmental Protection Agency, 401
M Street, SW, East Tower Basement,
Room EB57, Washington, DC 20460. For
access to the Docket materials, please
call (202) 260-3027 between 9 a.m. and
3:30 p.m. (Eastern Time), Monday
through Friday, for an appointment and
reference Docket W-00-11.
FOR FURTHER INFORMATION CONTACT: For
technical inquiries, contact Kimberley
Roy, Implementation and Assistance
Division, Office of Ground Water and
Drinking Water (MC-4606), U.S.
Environmental Protection Agency, Ariel
Rios Building, 1200 Pennsylvania
Avenue, NW, Washington, DC 20460.
The telephone number is (202) 260-
2794 and the e-mail address is
roy.kimberley@epa.gov. For general
information, contact the Safe Drinking
Water Hotline, toll free at (800) 426-
4791. The Safe Drinking Water Hotline
is open Monday through Friday,
excluding Federal holidays, from 9:00
a.m. to 5:30 p.m. (Eastern Time).
DWSRF program information, including
a copy of this interim final rule, are
available on EPA's Office of Ground
Water and Drinking Water website at
http ://www. epa.gov/safewater/
dwsrf.html.
SUPPLEMENTARY INFORMATION: Regulated
Entities: Entities listed in § 35.3500 are
regulated by this rule. Regulated
categories and entities include:
Category
Government
Regulated entities
Governments/Agencies of the
50 States and the Com-
monwealth of Puerto Rico.
This table is not intended to be
exhaustive, but rather provides a guide
for readers regarding entities likely to be
regulated by this action. This table lists
the types of entities that EPA is now
aware could potentially be regulated by
this action. Other types of entities not
listed in this table could also be
regulated by this action. To determine
whether your organization is regulated
by this action, you should carefully
examine the applicability criteria in
§35.3500 of this rule. If you have
questions regarding the applicability of
this action to a particular entity, consult
the person listed in the preceding FOR
FURTHER INFORMATION CONTACT section.
Preamble Outline
I. Statutory Authority
II. Purpose
III. DWSRF Program Background
IV. Allocation of National Appropriation for
DWSRF Program
A. National Set-asides
B. Allotment to States
C. Allotment to Other lurisdictions and the
District of Columbia
V. DWSRF Program Implementation
VI. Rule Development Process
VII. Major Matters in this Rule
A. Withholdings of Funds (40 CFR 35.3515
(b)(l)(i) through (b)(l)(iii))
B. Use of Examples of Projects Eligible for
Assistance from the Fund (40 CFR
35.3520(b))
C. Eligibility of Creation of New Public
Water Systems for Assistance from the
Fund (40 CFR 35.3520(b)(2)(vi))
D. Ineligibility of Dams, Reservoirs, Water
Rights, and Future Population Growth
for Assistance from the Fund (40 CFR
35.3520 (e)(l) through (e)(3) and (e)(5))
E. Inclusion of Eligible Project
Reimbursement Costs Within Loans (40
CFR35.3525(a)(2))
F. Assistance from the Fund for
Disadvantaged Communities (40 CFR
35.3525(b))
G. Program Administration: Fees Paid
Directly by an Assistance Recipient (40
CFR35.3530(b)(2))
H. Program Administration: Fees Included
as Principal in a Loan (40 CFR
35.3530(b)(3))
I. Transfer and Cross-collateralization of
Funds Between the DWSRF and CWSRF
Programs (40 CFR 35.3530 (c) through
(d))
}. Authorized Set-aside Activities (40 CFR
35.3535(a)(2))
K. State Program Management Set-aside
Match Requirement (40 CFR
35.3535(d)(2))
L. Reserving Set-aside Funds (40 CFR
35.3540(d))
M. State Match Requirement (40 CFR
35.3550(g))
N. Preparation of an IUP (40 CFR
35.3555(a))
O. Meaningful Public Review of the IUP
(40 CFR 35.3555 b))
P. Priority System Requirements in the IUP
(40CFR35.3555(c)(l))
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48287
Q. Cash Draw Rules (40 CFR 35.3560 and
35.3565)
R. Audit Requirements (40 CFR 35.3570(b))
S. Application of Federal Cross-Cutting
Authorities (Cross-cutters) (40 CFR
35.3575)
T. Minority and Women's Business
Enterprise (MBE/WBE) Procurement
Requirements (40 CFR 35.3575(d))
U. Environmental Review Requirements
(40 CFR 35.3580)
VIII. Administrative Requirements
A. Executive Order 12866: Regulatory
Planning and Reviews
B. Regulatory Flexibility Act (RFA), as
amended by the Small Business
Regulatory Enforcement Fairness Act of
1996 (SBREFA), 5 U.S.C. 601 et seq.
C. Paperwork Reduction Act
D. Unfunded Mandates Reform Act
E. National Technology Transfer and
Advancement Act
F. Congressional Review Act
G. Executive Order 13132: Federalism
H. Executive Order 13045: Children's
Health
I. Executive Order 13084: Consultation and
Coordination with Indian Tribal
Governments
J. Executive Order 12898: Environmental
Justice
I. Statutory Authority
This interim final rule implements
section 1452 of the SDWA (42 U.S.C.
300J-12) which establishes a national
DWSRF program to assist public water
systems in financing the cost of drinking
water infrastructure projects needed to
achieve or maintain compliance with
SDWA requirements and to further the
public health objectives of the Act.
Section 1452(g)(3) of the SDWA states
that "the Administrator shall publish
guidance and promulgate regulations as
may be necessary to carry out the
provisions of this section."
II. Purpose
This interim final rule codifies and
implements requirements for the
national DWSRF program under section
1452 of the SDWA. This interim final
rule supplements EPA's general grant
regulations at 40 CFR part 31 which
contain administrative requirements
that apply to governmental recipients of
EPA grants and subgrants. With the
exception of requirements for the
participation of minority and women's
business enterprises (MBE/WBEs),
EPA's general grant regulations at 40
CFR part 31 do not apply to recipients
of loans and other types of assistance
from a State DWSRF program Fund. The
requirements for the participation of
MBE/WBEs apply to assistance
recipients under EPA's fiscal year 1993
Appropriations Act (Pub. L. 102-389).
In developing this interim final rule,
EPA has attempted to identify all the
major program requirements. To that
end, this rule includes items required by
the SDWA and those additional program
requirements that EPA considers
necessary for effective program
management.
This interim final rule applies to
States (i.e., each of the 50 States and the
Commonwealth of Puerto Rico) which
receive capitalization grants and are
authorized to establish a Fund under
section 1452 of the SDWA. While
eligible public water systems and other
assistance recipients are not regulated
by this interim final rule, they may be
indirectly affected because it includes
requirements that they must meet in
order to receive funding from the State
for purposes authorized under section
1452 of the SDWA. This interim final
rule does not apply to Indian Tribes and
Alaska Native Villages, the District of
Columbia, and other jurisdictions (i.e.,
Virgin Islands, the Commonwealth of
the Northern Mariana Islands, American
Samoa, and Guam) that receive grants
under section 1452 because they are not
authorized to establish a Fund. Grants
under section 1452 to Indian Tribes and
Alaska Native Villages, the District of
Columbia, and other jurisdictions are
administered by the EPA Regional
Offices under separate guidance.
III. DWSRF Program Background
The SDWA authorizes EPA to award
capitalization grants to States that have
established DWSRF programs
complying with the requirements of
section 1452. States use a portion of
these grants to capitalize a revolving
Fund from which low-cost loans and
other types of assistance are provided to
publicly-owned and privately-owned
community water systems and non-
profit noncommunity water systems to
finance the costs of infrastructure
projects. States must also contribute to
the capitalization of their DWSRF
programs by depositing State monies
equaling at least 20 percent of each
grant into the Fund. Loan repayments
made by assistance recipients to the
States return to the Fund and provide a
continuing source of financing for
projects. States are responsible for
developing a priority system that
identifies how projects will be ranked
for funding and a list of projects, in
priority order, that are eligible for
funding.
While it is essential to address
infrastructure needs of public water
systems, Congress recognized the value
of establishing programs which will
prevent drinking water problems in the
future. Therefore, States may set aside a
portion of their capitalization grants to
fund activities that encourage enhanced
water system management and help to
prevent contamination problems
through source water protection
measures. The success of these set-aside
activities will act to safeguard the
DWSRF program funds that are
provided for improving system
compliance and public health
protection. The SDWA also places
particular emphasis on assisting small
systems serving fewer than 10,000
people and on systems serving less
affluent populations by providing
greater funding flexibility for these
systems.
A State may combine the financial
administration of the Fund with the
financial administration of any other
revolving fund established by the State,
including the Clean Water State
Revolving Fund (CWSRF) program
established under Title VI of the Clean
Water Act (CWA). However, section
1452(g)(l)(B) of the SDWA requires that
"the authority to establish assistance
priorities and carry out oversight and
related activities (other than financial
administration) with respect to
assistance remains with . . ." the State
primacy agency, after consultation with
other appropriate State agencies.
In view of this language and the
overall role of the State primacy agency
in SDWA programs, EPA has
determined that Congress intended for
the primacy agency to be the State
agency which determines assistance
priorities for the DWSRF program,
including priorities assigned to projects
and allocation of funds between the
Fund and set-asides, regardless of
whether or not a State combines
financial administration of the Fund.
Further, although the primacy agency
has the authority to carry out oversight
and related activities, memoranda of
understanding or interagency
agreements may be entered into with
other State agencies to manage aspects
of the DWSRF program which could
include reviewing assistance
applications and project bid documents,
monitoring projects, and ensuring
compliance with environmental review?
and other program requirements.
Beginning one year after a State
establishes its Fund (i.e., one year after
the State has received its first DWSRF
program capitalization grant for
projects), a State may transfer an
amount equal to 33 percent of a fiscal
year's DWSRF program capitalization
grant to the CWSRF program or an
equivalent amount from the CWSRF
program to the DWSRF program. This
provision linking the national DWSRF
and the CWSRF programs signals
Congressional intent for EPA and the
States to implement and manage the two
programs in a similar manner. To the
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maximum extent practicable, EPA
intends to administer the financial
aspects of the national DWSRF program
in a manner that is consistent with the
policies and procedures of the national
CWSRF program. Each State has
considerable flexibility to determine the
design of its program and to direct
funding toward its most pressing
compliance and public health
protection needs.
IV. Allocation of National
Appropriation for DWSRF Program
Section 1452(m) of the SDWA
authorizes Congress to appropriate a
total of $9.6 billion for the national
DWSRF program for fiscal years 1994
through 2003.
A. National Set-Asides
National set-asides are reserved from
funds annually appropriated by
Congress under section 1452 of the
SDWA. These national set-asides are:
(l) Indian Tribes/Alaska Native
Villages. Section 145 2(i) of the SDWA
indicates that the Administrator may
reserve 1.5 percent from annually
appropriated funds under section 1452
to make grants to Indian Tribes and
Alaska Native Villages. Projects for
Indian Tribes and Alaska Native
Villages that have not otherwise
received either grant or DWSRF program
assistance under section 1452 for a
specific project are eligible for grant
financing under this provision. EPA
published the Tribal Set-aside Program
Final Guidelines (EPA 816-R-98-020)
in October 1998 establishing
requirements for the selection of
projects, project management, and
program oversight for these grants. The
Tribal Set-aside Program is
administered by the EPA Regional
Offices.
(2) Health effects studies. Section
1452(n) of the SDWA requires the
Administrator to reserve $10 million
from annually appropriated funds under
section 1452 to conduct health effects
studies on drinking water contaminants.
However, the Department of Veteran
Affairs and Housing and Urban
Development, and Independent
Agencies Appropriations Acts, 1998,
1999, and 2000 (Public Law 105-65,
Public Law 105-276, and Public Law
106-74, respectively) have precluded
the Administrator from reserving these
funds from annually appropriated funds
under section 1452 and have instead
provided funding for health effects
studies from other sources.
(3) Unregulated contaminant
monitoring. Starting in fiscal year 1998,
section 1452(o) of the SDWA requires
the Administrator to reserve $2 million
from annually appropriated funds under
section 1452 to pay for the costs of
monitoring unregulated contaminants
under section 1445(a)(2)(C).
(4) Small system technical assistance.
Section 1452(q) of the SDWA indicates
that the Administrator may reserve up
to 2 percent of the funds appropriated
under section 1452 in fiscal years 1997
through 2003 to carry out the technical
assistance for small systems provisions
of section 1442(e) to the extent that the
total amount of funding appropriated
under section 1442(e) is not sufficient.
The total combined amount of funds
made available under this set-aside and
the funds appropriated under section
1442(e) cannot exceed $15 million per
year.
(5) Operator training reimbursement.
Section 1419(d)(l) of the SDWA
requires the Administrator to provide
grants to States to reimburse the costs of
training and certifying operators of
public water systems serving 3,300
persons or fewer to meet the
requirements of the Final Guidelines for
the Certification and Recertification of
the Operators of Community and
Nontransient Noncommunity Public
Water Systems published in the Federal
Register (64 FR 5916) on February 5,
1999. Congress has authorized $30
million annually for fiscal years 1997
through 2003 for grants for
reimbursement under section
1419(d)(3). If the appropriation for any
fiscal year is not sufficient to meet
training and certification costs, the
Administrator will, prior to any other
allocation or reservation, reserve the
necessary funds from those
appropriated under section 1452.
B. Allotment to States
The funds available for allotment to
the States for capitalization grants are
those funds appropriated by Congress
under section 1452 of the SDWA less
the national set-asides. For fiscal year
1997 appropriations only, section
1452(a)(l)(D)(i) required EPA to allot
funds according to the formula used for
distributing public water system
supervision (PWSS) grants in fiscal year
1995 under section 1443. The minimum
proportional share that each State
received was one percent of the funds
available for allotment to all of the
States. This interim final rule does not
include this requirement for
determining the State allotment formula
for fiscal year 1997 appropriations.
Beginning with fiscal year 1998
appropriations, section 1452(a)(l)(D)(ii)
of the SDWA requires EPA to allot funds
to each State based on the State's
proportional share of total eligible needs
reported for the most recent Drinking
Water Infrastructure Needs Survey
conducted under section 1452(h) of the
SDWA. The minimum proportional
share that each State can receive is one
percent of funds available for allotment
to all of the States.
The first Drinking Water
Infrastructure Needs Survey: First
Report to Congress (EPA 812-R-97-001)
was presented to Congress on January
29, 1997. Prior to finalizing this January
1997 report, EPA solicited public
comment on six options for using the
results to determine the allotment
formula for fiscal year 1998, 1999, 2000,
and 2001 appropriations and finalized
the allotment formula in the Federal
Register (62 FR 12900) on March 18,
1997.
Subsequent Drinking Water
Infrastructure Needs Surveys are due to
Congress every four years after the
January 1997 report. The State allotment
formula for fiscal year 2002
appropriations and subsequent
appropriations will be adjusted to
reflect the needs identified in the most
recently published report.
C. Allotment to Other Jurisdictions and
the District of Columbia
Section 1452(j) of the SDWA requires
the Administrator to reserve up to 0.33
percent of the funds available for
allotment to the States to provide grants
to the Virgin Islands, the
Commonwealth of the Northern Mariana
Islands, American Samoa, and Guam.
Section 1452(a)(l)(D) of the SDWA
requires the Administrator to reserve
one percent of the funds available for
allotment to the States to provide grants
to the District of Columbia. These grants
are administered by the EPA Regional
Offices.
V. DWSRF Program Implementation
The DWSRF Program Interim
Guidance was distributed on October 4,
1996, to allow States to begin to develop
their DWSRF programs and to allow
capitalization grants to be awarded as
soon as possible. The notice of
availability of the Interim Guidance was
published in the Federal Register (61
FR 55635) on October 28, 1996, and
announced a public comment period
which ended on November 28, 1996.
EPA subsequently held a series of
public meetings with stakeholders to
provide information about the program
and to review the Interim Guidance.
Comments received during the period of
public comment and from attendees of
the public meetings were critical in
developing the DWSRF Program Final
Guidelines.
The DWSRF Program Final
Guidelines (EPA-816-R-97-005) were
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48289
signed by the Assistant Administrator
for Water on February 28, 1997. The
Final Guidelines were made widely
available to stakeholders, including the
appropriate State agencies that are
recipients of the DWSRF program
capitalization grants and were
published in the Federal Register (63
FR 59844) on November 5, 1998.
Program requirements contained in
the DWSRF Program Final Guidelines
are superceded by this interim final
rule. However, the Final Guidelines, the
DWSRF program management manual,
and other memoranda such as periodic
question and answer documents will
continue to provide guidance to States
on DWSRF program implementation.
VI. Rule Development Process
This interim final rule is the result of
a thorough stakeholder consultation
process. Because States have the
responsibility for managing and
administering the DWSRF program,
members of a State/EPA SRF Work
Group (formed to address policy
implementation issues for the national
DWSRF and CWSRF programs) were
given the opportunity to review and
comment on previous drafts of this rule.
The State/EPA SRF Work Group is
comprised of State DWSRF managers,
State CWSRF managers, and managers
of State financial agencies as well as
EPA Regional and Headquarters staff. In
May 1998, comments on a draft outline
of the interim final rule were solicited
and discussed at a State/EPA SRF Work
Group meeting in Washington, District
of Columbia. All comments on the draft
outline were considered in developing
the first draft of this rule.
In September 1998, the first draft of
this rule was sent to the State/EPA SRF
Work Group for a 30 day comment
period. Work Group members were
encouraged to share the draft rule with
their colleagues from other States. EPA
received comments from 27 parties, 18
of whom were Work Group members. A
number of comments that EPA
considered significant (because they
addressed policy issues or because they
were submitted by more than one
commentor) were discussed at a Work
Group meeting in Seattle, Washington
in November 1998. After the meeting,
all comments were considered in
developing the second draft of this rule.
The second draft of this rule was
posted on the Internet on April 12,
1999, for a 45 day public comment
period to give all interested parties an
opportunity to comment. National
stakeholder organizations, the State/
EPA SRF Work Group, and State
DWSRF managers were notified by EPA
when the rule was posted. EPA received
comments from 32 parties representing
State government agencies, national
trade organizations, and national State
government organizations. All
comments were considered in
developing this interim final rule.
VII. Major Matters in This Rule
This interim final rule includes
several modifications or additions to the
DWSRF Program Final Guidelines based
on policies that have evolved as the
DWSRF program has been implemented.
These modifications or additions to the
Final Guidelines provide additional
flexibility to States in implementing
their programs. The policies released
after the DWSRF Program Final
Guidelines went through rounds of
comment and revisions in memoranda,
guidance documents, or were published
in the Federal Register for public
comment. The requirements in these
policies are reflected in this interim
final rule.
A. Withholdings of Funds (40 CFR
35.3515 (b)(l)(i) Through (b)(l)(iii))
In order to avoid a withholding of
DWSRF program funds, each State is
required to: (1) Ensure that new
community water systems and new
nontransient, noncommunity water
systems demonstrate adequate
technical, managerial, and financial
capacity; (2) develop and implement a
strategy to assist existing systems in
acquiring and maintaining capacity; and
(3) adopt and implement a program for
certifying operators of community and
nontransient, noncommunity water
systems.
EPA published the Draft Guidance on
Implementing the Capacity
Development Provisions of the SDWA
Amendments for public comment in
February 1998 for a 60 day comment
period and published Final Guidance
(EPA-816-R-98-006) in July 1998. The
Final Guidance established national
policy regarding the implementation of
capacity development related provisions
of the SDWA including how EPA would
assess State capacity development
programs for purposes of making
withholding decisions.
This interim final rule reflects the
requirements in sections 1420(a) and
1452(a)(l)(G)(i) of the SDWA that EPA
withhold 20 percent of a State's
allotment unless the State has the legal
authority or other means to ensure that
all new community water systems and
new nontransient, noncommunity water
systems commencing operations after
October 1, 1999, demonstrate technical,
managerial, and financial capacity with
respect to each drinking water
regulation in effect, or likely to be in
effect, on the date of commencement of
operations.
EPA made the determination in the
Final Guidance on Implementing the
Capacity Development Provisions that,
for fiscal year 1999 allotments only,
States would receive 100 percent of
their allotments if they had the
necessary basis of authority (statutory
authority or other means) and were in
the process of a scheduled
administrative rulemaking, or were
otherwise developing implementing
authorities with a realistic schedule and
expectation to have fully functional
programs as of October 1, 1999. States
failing to meet this requirement at the
time of their capitalization grant awards
would have 20 percent of their
allotments "held back." This 20 percent
holdback of fiscal year 1999 allotments
would become a permanent withholding
for any State that could not demonstrate
by September 30, 1999, that it would
have a fully functional program in place
on October 1, 1999.
EPA also made the determination in
the Final Guidance on Implementing the
Capacity Development Provisions that,
for fiscal year 2000 allotments and
beyond, withholdings would be based
on an assessment of the status of the
State program as of October 1 of the
fiscal year for which the funds were
allotted. This interim final rule only
reflects the withholding provisions in
the Final Guidance for fiscal year 2000
allotments and beyond.
This interim final rule reflects the
requirements in sections 1420(c)(l) and
1452(a)(l)(G)(i) of the SDWA that EPA
withhold funds from any State unless
the State is developing and
implementing a strategy to assist public
water systems in acquiring and
maintaining technical, financial, and
managerial capacity. The amount of a
State's allotment that will be withheld
is 10 percent for fiscal year 2001, 15
percent for fiscal year 2002, and 20
percent for each subsequent fiscal year.
EPA made the determination in the
Final Guidance on Implementing the
Capacity Development Provisions that
withholdings would be based on an
assessment of the status of the State
strategy as of October 1 of the fiscal year
for which the funds were allotted. This
interim final rule reflects the
withholding provisions in the Final
Guidance.
EPA published the Public Review
Draft Guidelines for the Certification
and Recertification of the Operators of
Community and Nontransient
Noncommunity Public Water Systems
in the Federal Register (63 FR 15064)
for public comment on March 27, 1998,
and the Final Guidelines in the Federal
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Register (64 FR 5916) on February 5,
1999. This interim final rule reflects the
requirements in sections 1419(b) and
1452(a)(l)(G)(ii) of the SDWA that,
beginning on February 5, 2001 (two
years after the Operator Certification
Final Guidelines were published), EPA
will withhold 20 percent of a State's
allotment unless the State has adopted
and is implementing a program for
certifying operators of community and
nontransient, noncommunity water
systems that meets the requirements of
section 1419 of the SDWA.
This interim final rule also states that
the determination for withholdings will
be based on an assessment of the status
of the State program for each fiscal year.
After seeking comment, EPA will
finalize the specific process for
reviewing and making withholding
determinations for operator certification
program submittals and publish it in the
Federal Register. This process will be
included as part of the Operator
Certification Final Guidelines in Section
III (Program Submittal Process),
Subsection A (Submittal Schedule and
Withholding Process), which is
currently reserved in these Final
Guidelines.
B. Use of Examples of Projects Eligible
for Assistance From the Fund (40 CFR
35.3520(b))
During development of this interim
final rule, several commentors
expressed concern that the use of
examples of projects that are eligible for
assistance from the Fund could be
perceived as exclusionary. Specifically,
commentors were concerned that if
there is a project that falls under a
particular category but does not closely
match an example, then it could be
construed that the project would be
ineligible. The use of examples of
eligible projects is not exclusionary.
Examples of eligible projects are used
simply to clarify the types of projects
that fall under a particular project
category in order to improve the
readability of this interim final rule. For
instance, although water meters are not
included in this interim final rule as a
funding example under the transmission
and distribution project category, they
are eligible if owned and maintained by
a public water system. Questions about
the eligibility of specific types of
projects are generally handled by EPA
on a case by case basis.
C. Eligibility of Creation of New Public
Water Systems for Assistance From the
Fund (40 CFR 35.3520(b)(2)(vi))
Section 1452(a)(2) of the SDWA
authorizes a State to provide assistance
from the Fund to a public water system,
which is defined in section 1401 of the
SDWA as "a system for the provision to
the public of water for human
consumption through pipes or other
constructed conveyances, if such system
has at least 15 service connections or
regularly serves at least 25 individuals
* * *" Several States expressed
concern that this provision could be
interpreted to prevent them from
providing assistance to an entity (e.g.,
homeowners' association, township)
that has a public health problem and is
not currently a public water system, but
which would become a Federally
regulated public water system upon
construction of a piped system.
In response to State concerns, EPA
proposed a policy on the eligibility of
providing assistance from the Fund to
create a public water system. This
policy was published in the Federal
Register (63 FR 32208) on June 12, 1998,
for a 30 day comment period. EPA also
held a stakeholder meeting to discuss
the policy. After consideration of
comments, a final policy was published
in the Federal Register (63 FR 59299) on
November 3, 1998. The final policy
allows for assistance to be provided for
the creation of a Federally regulated
community water system to address an
existing public health problem caused
by unsafe drinking water provided by
individual wells or surface water
sources. This policy also applies to
situations where a new regional
community water system is created by
consolidating several existing systems
that have technical, financial, or
managerial difficulties.
A proposed project may only receive
assistance if the following conditions
are met: (1) Upon completion of the
project, the entity responsible for the
loan must meet the definition of a
Federal community water system; (2)
the project must be on the State's
priority list of projects eligible for
funding and must address an actual
public health problem with serious
risks; (3) the project must be limited in
scope to the specific geographic area
affected by contamination; (4) the
project can only be sized to
accommodate a reasonable amount of
growth expected over the life of the
facility—growth cannot be a substantial
portion of the project; (5) the project
must meet the same technical, financial,
and managerial capacity requirements
that the SDWA requires of all DWSRF
program assistance recipients; and (6)
the project must be a cost-effective
solution to the public health problem.
Condition (1) is specifically included
in § 35.3520(a)(2). The statement in
condition (2) that "the project must be
on the State's priority list of projects
eligible for funding," the statement in
condition (4) that "the project can only
be sized to accommodate a reasonable
amount of growth expected over the life
of the facility," and condition (5) are not
specifically included in § 35.3520
(b)(2)(vi) of this interim final rule
because the provisions in these
conditions are addressed in other
sections of the rule (§ 35.3555(c)(2),
§ 35.3520(e)(5), and § 35.3520(d)(2),
respectively) as general requirements
that all projects must meet to be eligible
for assistance.
The latter part of condition (2) stating
that a project "must address an actual
public health problem with serious
risks" and condition (6) are specifically
included in § 35.3520 (b)(2)(vi).
Condition (3) is clarified in
§ 35.3520(b)(2)(vi) by indicating that
projects to address existing public
health problems associated with
individual wells or surface water
sources must be limited in scope to the
specific geographic area affected by
contamination. Condition (3) is also
clarified in § 35.3520(b)(2)(vi) by
indicating that projects that create new
regional community water systems by
consolidating existing systems must be
limited in scope to the service area of
the systems being consolidated. The
latter part of condition (4) stating that
"growth cannot be a substantial portion
of the project" is specifically included
in §35.3520 (b)(2)(vi) of this interim
final rule as an additional test that
projects must meet to be eligible for
assistance. As noted earlier, a general
requirement for an applicant to receive
DWSRF program funding is that a
project must be sized only to
accommodate a reasonable amount of
growth expected over the life of the
facility. However, if a substantial
portion of a project to create a new
system involves funding capacity for
future populations anticipated by
reasonable growth projections, then the
project is not eligible. The purpose of
conditions (3) and (4) is to focus the use
of funds from the DWSRF program on
solving existing public health problems
rather than financing new development.
D. Ineligibility of Dams, Reservoirs,
Water Rights, and Future Population
Growth for Assistance From the Fund
(40 CFR 35.3520(e)(l) Through (e)(3)
and (e)(5))
During development of the DWSRF
Program Final Guidelines and this
interim final rule, many comments were
received on EPA's decision to make the
construction and rehabilitation of dams
and reservoirs and the purchase of water
rights ineligible for assistance from the
Fund. In making the decision to restrict
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48291
these types of projects and activities
from funding, EPA considered the intent
of Congress in passing the SDWA
Amendments and, in particular, the
required criteria of section 1452(a)(2)
that financial assistance under the
DWSRF program "* * * may be used
by a public water system only for
expenditures * * * of a type or category
which the Administrator has
determined * * * will facilitate
compliance with the national primary
drinking water regulations applicable to
the system under section 1412 or
otherwise significantly further the
health protection objectives of the Act."
EPA also considered the required
criteria of section 1452(b)(3)(A) of the
SDWA to focus limited dollars on
projects needed to address the most
serious risk to human health, to ensure
that the nation's drinking water is safe
through compliance with the national
primary drinking water regulations, and
to assist those systems with the greatest
economic need. Examples of such
projects include installation of filtration
facilities to help systems meet the
Surface Water Treatment Rule,
treatment technologies to meet SDWA
regulated contaminants, and
consolidation of systems that fail to
maintain adequate technical, financial,
and managerial capacity.
EPA believes that the foremost
purpose of the construction and
rehabilitation of dams and reservoirs
and the purchase of water rights is not
to improve drinking water quality, but
to satisfy demand for drinking water.
Providing DWSRF program assistance
for these types of projects will not
further the objectives Congress set out in
the SDWA to the same extent as the
other projects eligible under this interim
final rule. The position that the
construction and rehabilitation of dams
and reservoirs and the purchase of water
rights are ineligible for assistance from
the Fund has been maintained in this
interim final rule in § 35.3520 (e)(l)
through (e)(3).
The DWSRF Program Final
Guidelines and this interim final rule do
allow for specific exceptions to the
restrictions on using DWSRF program
funds for the purchase of water rights
and for the construction and
rehabilitation of reservoirs. The
exception to the restriction on the
purchase of water rights is for those
rights that are owned by a system that
is being purchased through
consolidation as part of a capacity
development strategy. The exceptions to
the restriction on reservoirs are finished
water reservoirs and those reservoirs
that are part of the treatment process
and are on the property where the
treatment facility is located.
The DWSRF Program Final
Guidelines and this interim final rule
limit the use of DWSRF program funds
for costs associated with population
growth. Section 1452(g)(3) of the SDWA
calls on EPA to publish guidance and
regulations as may be necessary to carry
out the program, including "guidance to
avoid the use of funds made available
under * * * [section 1452] to finance
the expansion of any public water
system in anticipation of future
population growth." In the legislative
history to the SDWA Amendments,
Congress explained that EPA is not to
implement this provision in a manner
that would"* * * preclude the use of
SRF financing for facilities with the
capacity necessary to meet the
objectives of the Safe Drinking Water
Act for the population to be served by
the facility over its useful life." [H.
Conf. Rep. No. 104-741, at 89 (1996).]
It is clear that Congress did not intend
for DWSRF program funds to be used to
expand drinking water facilities solely
in anticipation of future population
growth. However, when read together,
the language of the SDWA and its
legislative history demonstrate that
Congress did allow for the use of
DWSRF program funds to accommodate
a reasonable amount of population
growth, which at the time that funding
is provided, is expected to occur over
the useful life of a facility. This concept
is reflected in this interim final rule in
§35.3520(e)(5).
E. Inclusion of Eligible Project
Reimbursement Costs Within Loans (40
CFR 35.3525(a)(2))
Several States wanted to have the
flexibility to notify eligible privately-
owned and publicly-owned systems that
they will receive funding from the State,
allow those systems to move ahead with
construction, and then reimburse the
systems for costs incurred in the time
period between the notification and
execution of the loan agreement. This
flexibility would encourage systems to
move ahead with construction in order
to, for example, take advantage of
seasonal construction cycles. This
flexibility was particularly needed for
privately-owned systems which cannot
benefit from the refinancing provisions
under section 1452(f)(2) of the SDWA.
In response to State concerns, EPA
proposed a policy on the eligibility of
reimbursement of incurred costs for
approved projects. This policy was
published in the Federal Register (63
FR 32208) on June 12, 1998, for a 30 day
comment period. EPA also held a
stakeholder meeting to discuss the
policy. After consideration of
comments, a final policy was published
in the Federal Register (64 FR 1802) on
January 12, 1999. The final policy stated
that a project (for a privately-owned or
publicly-owned system) that has been
given approval, authorization to
proceed, or any similar action by the
State prior to initiation of construction
would be eligible for reimbursement for
construction costs incurred after such
State action, provided that the project
meets all of the requirements of the
DWSRF program and certain criteria.
Planning and design and associated pre-
project costs are eligible for
reimbursement regardless of when the
costs were incurred.
A project must be on the State's
fundable list, developed using a priority
system approved by EPA. However, a
project on the comprehensive list which
is funded due to the bypass of a project
on the fundable list may be eligible for
reimbursement of costs incurred after
the system has been informed that it
will receive funding. Projects receiving
reimbursement of incurred costs are also
subject to all other DWSRF program
requirements applicable to a recipient of
funds, including an environmental
review which must consider the impacts
of the project based on the pre-
construction site conditions. Failure to
comply with the State's environmental
review? process cannot be justified on
the grounds that costs have already been
incurred, environmental impacts have
already been caused, or contractual
obligations have been made prior to the
binding commitment. This interim final
rule reflects the provisions in the final
policy.
F. Assistance From the Fund for
Disadvantaged Communities (40 CFR
35.3525(b))
Section 1452(d) of the SDWA allows
a State to provide additional loan
subsidies to benefit communities
meeting the State's definition of
"disadvantaged" or which the State
expects to become "disadvantaged" as a
result of the project, provided that
"* * * for each fiscal year, the total
amount of loan subsidies made by a
State * * * may not exceed 30 percent
of the amount of the capitalization grant
received by the State for the year."
This interim final rule clarifies EPA's
interpretation of this provision which is
that the 30 percent allowance for loan
subsidies to disadvantaged communities
refers to the amount of loan subsidies
(e.g., loans which include principal
forgiveness, negative interest rate loans)
that can be provided from funds
associated with a particular fiscal year's
capitalization grant. If a State does not
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take the entire 30 percent allowance for
loan subsidies associated with a
particular fiscal year's capitalization
grant, it cannot reserve the authority to
take the remaining balance from future
capitalization grants. For example, if a
State indicates that it will use an
amount equal to 20 percent of the
amount of a capitalization grant for loan
subsidies, it cannot reserve the authority
to take an additional 10 percent from a
future capitalization grant. Loan
subsidies in the form of reduced interest
rate loans that are at or above zero
percent do not fall under the 30 percent
allowance.
A State must indicate in its Intended
Use Plan (IUP) how much of the 30
percent allowance in loan subsidies it
plans to make available to
disadvantaged communities. To the
maximum extent practicable, a State
must identify in its IUP the projects that
will receive disadvantaged assistance
and the respective amounts. A State can
then provide loan subsidies for those
projects it has identified in its IUP.
Because this approach provides a great
deal of flexibility to States, EPA believes
that there should be constraints on the
time period that States can have to
commit funds taken for loan subsidies.
Therefore, this interim final rule
requires States to commit capitalization
grant and required State match dollars
taken for loan subsidies in accordance
with the binding commitment
requirements in § 35.3550(e). In
addition, States must commit any other
dollars (e.g., principal and interest
repayments, investment earnings) taken
for loan subsidies to projects over the
same time period during which binding
commitments are made for the
capitalization grant from which the
allowance was taken.
G. Program Administration: Fees Paid
Directly by an Assistance Recipient (40
CFR 35.3530(b)(2))
Many States assess fees on assistance
recipients to supplement program
administration and other program costs.
Examples of these fees include annual
loan servicing fees, application fees,
loan origination fees, and processing
fees. A State may assess fees on an
assistance recipient which are paid
directly by the recipient (discussed in
this section). A State may also assess
fees on an assistance recipient and
provide the recipient with the funds for
the fees as principal in a loan (discussed
in the next section).
Fees assessed on assistance recipients,
which include interest earned on fees,
must be deposited into the Fund or into
an account outside of the Fund. If the
fees are deposited into the Fund, they
are subject to the authorized uses of the
Fund. If the fees are deposited into an
account outside of the Fund, they must
be used for program administration,
other purposes for which capitalization
grants can be awarded under section
1452, State match under sections 1452
(e) and (g)(2) of the SDWA, or combined
financial administration of the DWSRF
program and CWSRF program Funds
where the programs are administered by
the same State agency. Allowing fees to
be used for combined financial
administration enables States which
administer the CWSRF and DWSRF
programs under the same State agency
to combine eligible funds to pay costs
for financial oversight of the two
programs and thereby ease their
administrative burden. The uses of fees
assessed on assistance recipients as
provided in this interim final rule are
consistent with the program income
requirements of EPA's general grant
regulations at 40 CFR 31.25 and offer a
great deal of flexibility to States.
A State must provide information in
its IUP on the rates and uses of fees it
assesses on assistance recipients and
give an accounting of the total dollar
amount of funds it is holding in fee
accounts. A State must establish in its
Biennial Report that it has used the fees
only for eligible purposes and must
submit information on the total dollar
amount in fee accounts as part of the
detailed financial reports.
H. Program Administration: Fees
Included as Principal in a Loan (40 CFR
35.3530(b)(3))
A State may assess fees on an
assistance recipient and, within the
principal of a loan, provide the recipient
with the funds to pay the fees (i.e., the
recipient pays the fees from the
proceeds of the loan). EPA determined
that such fees are permissible if they
enable the State to make a loan which
"* * * facilitate(s) compliance with
national primary drinking water
regulations * * * or otherwise
significantly further(s) the health
protection objectives" of the SDWA
under section 1452(a)(2). However, this
interim final rule imposes requirements
and limitations on the amount and use
of fees included as principal in a loan.
Fees included as principal in a loan,
which include interest earned on fees,
must be deposited into the Fund or into
an account outside of the Fund. If the
fees are deposited into the Fund, they
are subject to the authorized uses of the
Fund. If the fees are deposited into an
account outside of the Fund, they must
be used for program administration or
other purposes for which capitalization
grants can be awarded under section
1452. Fees included as principal in a
loan cannot be used for State match
under sections 1452 (e) and (g)(2) of the
SDWA or combined financial
administration of the DWSRF program
and CWSRF program Funds. EPA
believes that the authorized uses for fees
included as principal in a loan offer a
great deal of flexibility to States.
After discussions with the State/EPA
SRF Work Group during meetings in
July 1998 and November 1998, the
following three specific limitations on
fees included as principal in a loan were
included in this interim final rule: (1)
Fees cannot be assessed on a
disadvantaged community which
receives a loan subsidy provided from
the 30 percent allowance in
§ 35.3525(b)(2); (2) fees cannot cause the
effective rate of a loan (which includes
both interest and fees) to exceed the
market rate; and (3) fees cannot be
assessed if the effective rate of a loan
could reasonably be expected to cause a
system to fail to meet the technical,
financial, and managerial capability
requirements under section 1452 of the
SDWA.
A State must provide information in
its IUP on the rates and uses of fees
included as principal in a loan and give
an accounting of the total dollar amount
of funds it is holding in fee accounts. A
State must establish in its Biennial
Report that it has used the fees only for
eligible purposes and must submit
information on the total dollar amount
in fee accounts as part of the detailed
financial reports.
I. Transfer and Cross-Collateralization
of Funds Between the DWSRF and
CWSRF Programs (40 CFR 35.3530 (c)
Through (d))
Section 302 of the SDWA authorizes
a State to transfer up to 33 percent of the
amount of a fiscal year's DWSRF
program capitalization grant to the
CWSRF program or an equivalent
amount from the CWSRF program to the
DWSRF program. The Department of
Veteran Affairs and Housing and Urban
Development, and Independent
Agencies Appropriations Acts, 1998 and
1999 (Pub. L. 105-65 and Pub. L. 105-
276, respectively) authorize cross-
collateralization between the DWSRF
and CWSRF programs.
EPA released a draft policy entitled
"Transfer/Cross-collateralization Policy
for the DWSRF and CWSRF" in June
1998 which specifies the provisions that
States must meet in order to gain EPA
approval for incorporating transfers and
cross-collateralization provisions into
their programs. This draft policy was
developed with substantial input from
EPA Regional staff, the State/EPA SRF
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48293
Work Group, and national stakeholder
organizations. The final policy will be
published in the Federal Register. This
interim final rule includes the transfer
and cross-collateralization requirements
for both the DWSRF program and the
CWSRF program.
/. Authorized Set-Aside Activities (40
CFR 35.3535(a)(2))
As in the DWSRF Program Final
Guidelines, set-aside funds may not be
used for projects or project-related costs
eligible for funding from the Fund or for
those projects or project-related costs
explicitly identified as ineligible for
assistance from the Fund in this interim
final rule. This requirement was
included in this rule because EPA
determined that projects that are eligible
for loans or other types of assistance
from the Fund should not also be
eligible to receive assistance from the
set-asides in the form of grants which
would not be required to be repaid. In
addition, set-aside funds should not be
used to provide assistance to projects
that are explicitly ineligible for
assistance from the Fund since it has
been determined that these types of
projects will not further the objectives
Congress set out in the SDWA to the
same extent as the projects that are
eligible in this interim final rule.
During development of this interim
final rule, several commentors indicated
that the requirement that set-aside funds
may not be used for any projects that are
eligible or explicitly ineligible for
assistance from the Fund is overly
restrictive because there are some
eligible project costs that States would
want the flexibility to be able to finance
from the set-asides. Specifically,
commentors noted that they wanted the
flexibility to provide grants to small
systems for drinking water
infrastructure planning and design as
part of a State's technical assistance
program, with the reasonable
expectation that as a result of a grant, a
recipient would then be in a position to
apply for a loan from the Fund at a
future time. In addition, commentors
wanted the flexibility to provide grants
to systems for projects that would assist
in implementation of capacity
development provisions.
In response to commentor concerns,
this interim final rule allows for two
exceptions to the requirement that a
State may not use set-aside funds for
those projects or project-related costs
that are eligible or explicitly ineligible
for assistance from the Fund. These
exceptions are: (1) A State may use set-
aside funds for project planning and
design costs for small systems, and (2)
a State may use set-aside funds for costs
associated with restructuring a system
as part of a capacity development
strategy. EPA believes that these
exceptions provide the flexibility that
commentors wanted.
K. State Program Management Set-Aside
Match Requirement (40 CFR
35.3535(d)(2))
Section 1452(g)(2) of the SDWA states
that"* * * each State may use up to an
additional 10 percent of the funds
allotted to the State under this section
[for specified purposes] * * * if the
State matches the expenditures with at
least an equal amount of State funds. At
least half of the match must be
additional to the amount expended by
the State for public water supervision in
fiscal year 1993." This interim final rule
states that "* * * a State is authorized
to use the amount of State funds it
expended on its PWSS program in fiscal
year 1993 (including PWSS match) as a
credit toward meeting its match
requirement. The value of this credit
can be up to, but not greater than, 50
percent of the amount of match that is
required. After determining the value of
the credit that it is eligible to receive, a
State must provide the additional funds
necessary to meet the remainder of the
match requirement. The source of these
additional funds can be State funds
(excluding PWSS match) or documented
in-kind services."
During development of this interim
final rule, commentors had questions
about how the match for the State
program management set-aside is
specifically calculated. Suggestions
were made to include a specific
example of how to calculate the match
requirement in this interim final rule.
Rather than include a lengthy example
within the text of this rule, EPA worked
to make the language describing the
match for the set-aside more clear than
it had been in the DWSRF Program
Final Guidelines. The Final Guidelines,
which can still serve as a resource for
States, does include a lengthy example
that States may refer to if they have any
questions.
Commentors also suggested that a list
of the specific types of in-kind services
that are eligible for a State to use to meet
the remainder of the match requirement
should be included in this interim final
rule. EPA determined that listing all of
the eligible types of in-kind services in
this interim final rule would be
unnecessarily limiting and that in-kind
services are sufficiently addressed in the
DWSRF Program Final Guidelines and
specific questions can be handled by
EPA on a case by case basis.
L. Reserving Set-Aside Funds (40 CFR
35.3540(d))
The DWSRF Program Final
Guidelines allowed States to "bank" (i.e.,
reserve) certain set-aside funds and/or
authority that it could not use in the
current year for use in future years to
give States flexibility in implementing
set-aside activities. Several early
capitalization grant applications
indicated that States were reserving a
high percentage of set-aside funds with
the intention of using only a small
percentage in the short-term and leaving
the remaining funds as undrawn
reserves. Because EPA was concerned
that reserved set-aside funds would sit
idle while needed infrastructure
projects went unfunded, a proposed
policy was developed to describe how
set-aside funds should be managed in
the DWSRF program. The proposal was
distributed to EPA Regional staff, States,
and the State/EPA SRF Work Group in
February 1998. After several rounds of
review? and comment, an interim final
policy entitled "Management of Set-
asides for the DWSRF Program" was
released and became effective on March
15, 1999.
The interim final policy allowed a
State to reserve set-aside funds from a
capitalization grant and expend them
over a period of time, provided that the
State identifies the amount of funds
reserved in the IUP and describes the
use of the funds in workplans approved
by EPA. With the exception of the local
assistance and other State programs set-
aside authorized under section 1452(k)
of the SDWA, a State may also reserve
the authority to take from future
capitalization grant awards those set-
aside funds that it has not included in
workplans. The State must identify in
its IUP the amount of authority reserved
from a capitalization grant for future
use.
States can submit annual or multi-
year workplans in accordance with
schedules identified by EPA Regional
staff to describe how funds will be used.
The length of workplans must be less
than four years, unless a longer term is
approved by EPA, and must be updated
if the State significantly changes
planned activities or budgets. This
interim final rule reflects the provisions
in the interim final policy.
M. State Match Requirement (40 CFR
35.3550(g))
This interim final rule reflects the
requirement in section 145 2(e) of the
SDWA that a State deposit into the
Fund an amount from State monies that
equals at least 20 percent of each
capitalization grant payment. However,
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this interim final rule does not include
the provision in section 1452(e) which
allowed States to defer their matching
requirement for fiscal year 1997
appropriations. Specifically, for grant
payments made to States from funds
appropriated in fiscal year 1997, States
were authorized to defer deposit of their
matching amount to no later than
September 30, 1999. This flexibility was
provided to those States that needed
additional time to secure State funding
for the required matching amount.
States were required to identify the
source of the matching funds in their
capitalization grant applications and to
agree to provide the State match for
grant payments already received from
fiscal year 1997 appropriations by
September 30, 1999. In addition, after
September 30, 1999, States could not
draw Federal dollars from the EPA
Automated Clearing House (ACH) for
projects until the deferred State match
had been expended and the States
reached proportionality with previously
drawn Federal dollars.
N. Preparation of an IUP (40 CFR
35.3555(a))
This interim final rule reflects the
requirement in the DWSRF Program
Final Guidelines that a State prepare an
annual IUP as long as the Fund or set-
aside accounts remain in operation.
During development of this interim final
rule, several commentors objected to
this requirement because they believe
that the SDWA only ties the preparation
of an IUP to the award of a
capitalization grant and is silent on
what is required of States after
capitalization ends. Section 1452(b)(l)
of the SDWA states that "after providing
for public review and comment, each
State that has entered into a
capitalization grant agreement pursuant
to this section shall annually prepare a
plan that identifies the intended uses of
the amounts available to the State loan
fund of the State." Thus, a State that has
entered into an agreement to receive a
capitalization grant under section 1452
must prepare an IUP each year,
regardless of whether it receives a
capitalization grant in that year.
In addition, section 1452(c) requires
that "the fund corpus shall be available
in perpetuity for providing financial
assistance under this section." This
provision shows that Congress intended
for State DWSRF programs to continue
after capitalization ends. The primary
means by which the public and EPA can
ensure that this provision and the intent
of Congress is satisfied is through
review of the IUP. Therefore, the
language in this interim final rule has
not been changed as a result of the
comments received.
O. Meaningful Public Review of the IUP
(40 CFR 35.3555(b))
Section 1452(b)(l) of the SDWA
requires a State to provide for public
comment and review during the
development of its IUP. Any State
process that solicits input from a variety
of interested parties, allows adequate
time for the public to comment, and
allows time for the State to address
major comments meets the SDWA's
public participation requirements for
the IUP. This interim final rule reflects
the requirement in the DWSRF Program
Final Guidelines that a State seek
"meaningful public review and
comment" during the development of
its IUP. During development of this
interim final rule, comments were
received that EPA should define the
term "meaningful public review."
This interim final rule does not
include specific requirements as to what
constitutes "meaningful public review?"
of the IUP. Due to the variation among
States, no single approach will work
under all conditions. However, at a
minimum, States should make an effort
to include interested parties, such as
environmental and public health
groups, that extend beyond those on
existing mailing lists when seeking
public review. In addition, as a guide,
States should strive to achieve the
following objectives when seeking
public review: (1) Assure that the public
has the opportunity to understand
official programs and proposed actions,
and that the State fully considers the
public's concerns; (2) assure that the
State does not make any significant
decision on any activity under section
1452 without consulting interested and
affected segments of the public; (3)
assure that the State action is as
responsive as possible to public
concerns; (4) encourage public
involvement in implementing section
1452; (5) keep the public informed
about significant issues and proposed
project or program changes as they arise;
(6) foster a spirit of openness and
mutual trust between the State and the
public; and (7) use all feasible means to
create opportunities for public
participation, and to stimulate and
support public participation.
P. Priority System Requirements in the
IUP (40 CFR 35.3555(c)(l))
This interim final rule requires that
the IUP "* * * include a priority
system for ranking individual projects
for funding that provides sufficient
detail for the public and EPA to readily
understand the criteria used for
ranking." During development of this
interim final rule, several commentors
indicated that EPA should not require a
State to include its priority system in
the IUP, but instead should allow a
State to provide a summary of the
priority system or a reference to where
the priority system can be found.
Commentors gave the following primary
reasons for not wanting to include the
priority system in the IUP: (1) Many of
the priority systems are complex and are
not readily understood by the public,
especially if the systems are in
regulation; (2) including the priority
system within the text of the IUP simply
elongates and clutters the IUP and
discourages people from reading it; and
(3) including the priority system gives
the impression to the public that the
State is seeking additional comments
when, in actuality, the priority system
has already undergone public review
and comment.
The language in this interim final rule
has not been changed as a result of the
comments received because EPA
believes that the public should be given
every opportunity to understand the
basis for ranking projects. EPA believes
that the language in this rule does not
preclude a State that has a very
complicated priority system which is
difficult for the public to understand
from developing a detailed summary
that describes the criteria used to assess
the priority for ranking individual
projects, including points. In addition, if
a State does not want to include the
priority system within the text of the
IUP, it can include the system as an
attachment that is distributed with the
IUP. Finally, a State can indicate in the
IUP that the priority system was
developed with public comment and
therefore it is not taking additional
comments, but the State is providing the
information so that the public can
understand the basis for ranking of
projects.
Q. Cash Draw Rules (40 CFR 35.3560
and 35.3565)
This interim final rule details the
specific requirements for how States
access capitalization grant funds
through the EPA ACH, which is a
Federal funds transfer system to
electronically deposit funds into a grant
recipient's bank account. In § 35.3560 of
this interim final rule, the general cash
draw rules are provided for how States
access capitalization grant funds
through the ACH, including the formula
for calculating the proportionate Federal
share. In § 35.3565 of this interim final
rule, the specific cash draw rules are
provided for how States access
capitalization grant funds through the
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ACH for each of the authorized types of
assistance from the Fund.
EPA published a Guide to Using
EPA's Automated Clearing House for the
DWSRF Program (EPA-832-B98-003) in
September 1998 to explain, in more
detail, the process States must use to
access capitalization grant funds
through the ACH. This Guide provides
easy to understand examples, using
sample capitalization grant amounts, of
how to calculate the proportionate
Federal share and how to calculate the
cash draw ratios for each of the types of
assistance from the Fund.
In the future, the EPA ACH will be
replaced by a new Federal funds
transfer system called the Automated
Standard Application for Payments
(ASAP). This change to ASAP will not
have any effect on the cash draw rules
in this interim final rule.
R. Audit Requirements (40 CFR
35.3570(b))
The DWSRF Program Final
Guidelines, published in February 1997
after release of the Single Audit Act
Amendments of 1996, reflected EPA's
previous audit strategy which was to
require annual independent audits of
the DWSRF program—a policy that was
consistent with requirements in the
CWSRF program. However, provisions
of the Single Audit Act Amendments of
1996 necessitated changes to this
strategy. Specifically, since independent
audits were not required by the Single
Audit Act Amendments of 1996, EPA
revised its audit strategy to request
voluntary agreements from States to
conduct these audits. The strategy was
based on EPA's belief that independent
audits of financial statements, beyond
the Single Audit Act, are important to
ensure the financial integrity of the
DWSRF program. On October 16, 1997,
a memorandum entitled "Clean Water
and Drinking Water State Revolving
Fund Financial Audit Strategy" was
released after discussions among
representatives from EPA Headquarters
and Regional Offices, the Office of the
Inspector General, the Office of
Management and Budget, and many
States.
Under the revised audit strategy for
the DWSRF program, a State must
comply with the provisions of the
Single Audit Act Amendments of 1996
and Office of Management and Budget's
Circular A-133 and Compliance
Supplement. States may agree to
implement, on an annual basis,
independent audits and document these
agreements in the Operating Agreements
or in other parts of the capitalization
grant agreements. These independent
audits are expected to be conducted
according to Generally Accepted
Government Auditing Standards
(GAGAS) and provide an auditor's
opinion on the DWSRF program
financial statements, reports on internal
controls, and reports on compliance
with section 1452 of the Act, applicable
regulations, and EPA's general grant
requirements. Based on a determination
by EPA, those States that do not conduct
independent audits will be periodically
audited by the EPA Office of Inspector
General.
For those States that conduct
independent audits, the audit report
should be completed and submitted to
EPA within one year of the end of the
fiscal year adopted by the State for the
DWSRF program. Specifically, copies of
the audit report should be submitted to
the EPA DWSRF Regional Coordinator
and to the Western Audit Division,
Divisional Inspector General for Audit.
This interim final rule reflects the
provisions in the revised audit strategy.
Exclusive of requirements associated
with the Single Audit Act, a State must
include detailed financial statements
presenting the financial status of the
DWSRF program in its Biennial Report.
S. Application of Federal Cross-Cutting
Authorities (Cross-Cutters) (40 CFR
35.3575)
There are a number of Federal laws,
executive orders, and government-wide
policies that apply by their own terms
to projects and activities receiving
Federal financial assistance, regardless
of whether the statute authorizing the
assistance makes them applicable.
These Federal cross-cutting authorities (i
cross-cutters) include Federal laws such
as the Endangered Species Act (ESA)
and the Age Discrimination Act (ADA).
A few cross-cutters apply by their own
terms only to the State as the grant
recipient because the authorities
explicitly limit their application to grant
recipients.
Federal cross-cutter requirements,
which include environmental review
requirements, must be applied to
projects and activities receiving Federal
dollars. Because each State's Fund
consists of an indistinguishable
combination of Federal, State, and
recycled monies, EPA determined that
Federal cross-cutter requirements must
be applied to projects identified by the
State whose cumulative funding is
equivalent to the amount of the
capitalization grant (i.e., equivalency
projects). The cross-cutter discussion in
the DWSRF Program Final Guidelines
resulted in some confusion among
States as to how cross-cutter
requirements must be applied to set-
aside activities.
Due to requirements related to the
deposit of funds in the DWSRF program,
almost all of the funds used to conduct
set-aside activities are Federal dollars.
Therefore, Federal cross-cutter
requirements must be applied to all set-
aside activities for which a State
provides assistance from capitalization
grant funds deposited into set-aside
accounts. However, in the case of most
set-aside activities, the cross-cutter
requirements will not be implicated
because of the nature of the activities
conducted under the set-asides. For
example, if a State makes an
expenditure from its set-aside accounts
for the salaries of State employees, the
requirements of cross-cutters such as the
ESA and the National Historic
Preservation Act (NHPA) are not
implicated.
This interim final rule reflects EPA's
determination that the requirements of
Federal cross-cutters must be applied to
all activities for which a State provides
assistance from capitalization grant
funds deposited into set-aside accounts,
to the extent that cross-cutter
requirements are applicable. The
requirements of Federal cross-cutters
must also be applied to all projects for
which a State provides assistance in
amounts up to the amount of the
capitalization grant deposited into the
Fund. Federal anti-discrimination law
requirements apply to all programs,
projects, and activities for which a State
provides assistance from the DWSRF
program. Minority and women's
business enterprise (MBE/WBE)
gprocurement requirements and
environmental review? requirements
(discussed in the following sections)
apply to specific types of DWSRF
program actions and are treated
separately in this interim final rule.
Generally, a State that elects to
impose the requirements of the Federal
cross-cutters to projects and activities in
amounts that are more than the amount
of the capitalization grant may only
credit this excess to meet future cross-
cutter requirements on assistance
provided from the respective accounts.
For example, if a State takes $2 million
from a $10 million capitalization grant
for set-aside activities and then
proceeds to apply cross-cutter
requirements to set-aside activities in an
amount equal to $2.5 million (because
the State has contributed $500,000 of its
own funds to these activities), the State
can only credit the excess $500,000 to
meet future cross-cutter requirements
for set-aside activities. A State cannot
use this excess $500,000 to meet future
cross-cutter requirements for projects
funded from the Fund.
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This interim final rule provides
clarification with respect to the role of
States in ensuring compliance with
Federal cross-cutters. Although EPA is
ultimately responsible for ensuring
compliance with Federal cross-cutters,
primarily through DWSRF program
oversight and approval, States review
the projects and activities being funded
under the program. Therefore, this
interim final rule indicates that States
are responsible for ensuring that
assistance recipients comply with the
cross-cutter requirements, including
initiating any required consultations
with State or Federal agencies
responsible for individual cross-cutters.
For example, before a Federally-assisted
action that may affect an endangered
species can begin, the Department of
Interior's Fish and Wildlife Service
must be consulted pursuant to section 7
of the ESA. States must notify EPA
when it is necessary for the Agency to
resolve any issues that may arise during
consultations with other Federal
agencies.
A list of the Federal cross-cutters that
apply to the DWSRF program is
provided in Appendix A of the DWSRF
Program Final Guidelines. This list is
subject to change.
T. Minority and Women's Business
Enterprise (MBE/WBE) Procurement
Requirements (40 CFR 35.3575(d))
The requirements for the participation
of MBE/WBEs apply to assistance
recipients under EPA's fiscal year 1993
Appropriations Act (Public Law 102-
389), which states that "the
Administrator of the Environmental
Protection Agency shall, hereafter, to
the fullest extent possible, ensure that at
least 8 per centum of Federal funding
for prime and subcontracts in support of
authorized programs, including grants,
loans and contracts * * * be made
available to business concerns * * *
owned or controlled by socially and
economically disadvantaged individuals
* * * [including] women."
This interim final rule requires that a
State negotiate a fair share goal with the
Regional Administrator (RA) of EPA for
the participation of MBE/WBEs. The fair
share goal must be based on the
availability of MBE/WBEs in the
relevant market area (i.e., availability of
MBE/WBEs State-wide or availability of
MBE/WBEs in particular geographic
areas of the State) to do the work under
the DWSRF program. Each
capitalization grant agreement must
describe how a State will comply with
MBE/WBE procurement requirements,
including how it will apply the fair
share goal to assistance recipients to
which the requirements apply and how
it will assure that assistance recipients
take the following six affirmative steps
described in the general grant
regulations at 40 CFR 31.36(e): (1)
Include small, minority and women's
businesses on solicitation lists; (2)
assure that small, minority and women's
businesses are solicited whenever they
are potential sources; (3) divide total
requirements, when economically
feasible, into smaller tasks or quantities
to permit maximum participation by
small, minority and women's
businesses; (4) establish delivery
schedules, when the requirements of the
work permits, which will encourage
participation by small, minority and
women's businesses; (5) use the services
of the Small Business Administration
and the Minority Business Development
Agency of the U.S. Department of
Commerce, as appropriate; and (6)
require the contractor to take the
affirmative steps in (1) through (5) if the
contractor awards subagreements.
Currently, the application of MBE/
WBE requirements in the DWSRF
program is described in a memorandum
released on November 5, 1998, entitled
"Application of Minority and Women-
Owned Business Enterprise
Requirements in the Clean Water and
Drinking Water State Revolving Fund
Programs" and in a memorandum
released on December 29, 1998, entitled
"FY 1999 MBE/WBE Terms and
Conditions." These memoranda were
released in response to the Supreme
Court decision in Adarand
Constructors, Inc. v. Pena, 515 U.S. 200
(1995), which was a case arising out of
the Department of Transportation. As a
result of that decision, it became
necessary to make changes in the
application of MBE/WBE procurement
requirements in all EPA grant programs.
These memoranda indicate that the
fair share goal may be based either on
the availability of MBE/WBEs State-
wide or on the availability of MBE/
WBEs in particular geographic areas of
the State to do the work for
procurement. The fair share goal applies
to all procurement activities undertaken
with assistance from the Fund or from
set-aside accounts up to the amount of
the capitalization grant (i.e., "identified
procurement activities"). The State may
elect to apply the fair share goal in place
for the year in which the DWSRF
program assistance is awarded to the
recipient or for the year in which the
procurement action occurs. The method
a State elects to use to apply the fair
share goal must be described in the
Operating Agreement or in another part
of the capitalization grant agreement.
For identified procurement activities,
the State must assure that the recipients
of funding for these activities take the
six affirmative steps as described in 40
CFR 31.36(e). A State must submit a
MBE/WBE Utilization Report (EPA
Form 5700-52A) to EPA within 30 days
after the end of each Federal fiscal
quarter.
EPA's Office of Small and
Disadvantaged Business Utilization
(OSDBU) is in the process of a
rulemaking to address the use of MBE/
WBE firms in procurements under EPA
financial assistance agreements and will
consolidate these requirements in a new
40 CFR part 33. This rulemaking process
will address the application of MBE/
WBE requirements in the DWSRF
program, including reporting
requirements. When the OSDBU's rule
is promulgated, the MBE/WBE
requirements in that rule will supercede
the requirements in this interim final
rule.
U. Environmental Review Requirements
(40 CFR 35.3580)
As stated previously, cross-cutter
requirements, which include
environmental review? requirements,
must be applied to all set-aside
activities for which a State provides
assistance from capitalization grant
funds deposited into set-aside accounts.
In § 35.3580 (c), it is indicated that a
State may elect to apply the procedures
at 40 CFR part 6 and related subparts,
which set out the requirements for EPA
actions which are subject to the
National Environmental Policy Act
(NEPA), or apply its own "NEPA-like"
State environmental review process
(SERF) for conducting environmental
reviews, provided that specific elements
are met. In implementing environmental
review requirements applicable to the
DWSRF program, EPA has taken an
approach similar to that of the CWSRF
program whereby States must develop
and implement environmental
provisions for projects and activities
receiving assistance.
EPA recognizes that there are types of
activities conducted under set-asides
that are not likely to have a potential
environmental impact. Therefore, in this
interim final rule, EPA has identified
types of set-aside activities for which a
State is not required to conduct
environmental reviews because they are
not likely to have a potential
environmental impact. A State does not
need to include provisions in its SERF
for excluding these types of activities.
EPA's Office of Federal Activities
(OFA) is currently revising 40 CFR part
6. However, this effort to revise 40 CFR
part 6 is not expected to affect the
environmental review requirement
provisions in this interim final rule or
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48297
the SERPs that are currently approved
and in effect in the States, since State
environmental review? procedures,
although they may be based on 40 CFR
part 6, are implemented under State
statutes and authorities.
VIII. Administrative Requirements
A. Executive Order 12866: Regulatory
Planning and Reviews
Under Executive Order 12866, (58 FR
51735 (October 4, 1993)) the Agency
must determine whether the regulatory
action is "significant" and therefore
subject to OMB review and the
requirements of the Executive Order.
The Executive Order defines
"significant regulatory action" as one
that is likely to result in a rule that may:
(1) Have an annual effect on the
economy of $100 million or more or
adversely affect in a material way the
economy, a sector of the economy,
productivity, competition, jobs, the
environment, public health or safety, or
State, local, or tribal governments or
communities;
(2) Create a serious inconsistency or
otherwise interfere with an action taken
or planned by another agency;
(3) Materially alter the budgetary
impact of entitlements, grants, user fees,
or loan programs or the rights and
obligations of recipients thereof; or
(4) Raise novel legal or policy issues
arising out of legal mandates, the
President's priorities, or the principles
set forth in the Executive Order.
It has been determined that this rule
is not a "significant regulatory action"
under the terms of Executive Order
12866 and is therefore not subject to
OMB review?.
B. Regulatory Flexibility Act (RFA), As
Amended by the Small Business
Regulatory Enforcement Fairness Act of
1996 (SBREFA), 5 U.S.C. 601 et seq.
Today's interim final rule is not
subject to the RFA, which generally
requires an agency to prepare a
regulatory flexibility analysis for any
rule that will have a significant
economic impact on a substantial
number of small entities. The RFA
applies only to rules subject to notice
and comment rulemaking requirements
under the Administrative Procedure Act
(APA) or any other statute. This rule is
not subject to notice and comment
requirements under the APA or any
other statute. This rule pertains to grants
which the APA expressly exempts from
notice and comment rulemaking
requirements. 5 U.S.C. 553(a)(2).
Moreover, the Safe Drinking Water Act,
as amended, also does not require EPA
to issue a notice of proposed rulemaking
prior to issuing this rule.
Although this interim final rule is not
subject to the RFA, EPA nonetheless has
assessed the potential of this rule to
adversely impact small entities subject
to the rule. The Agency has determined
that this rule does not adversely impact
small entities because small entities are
not subject to this rule.
C. Paperwork Reduction Act
The Office of Management and Budget
(OMB) has approved the information
collection requirements contained in
this rule under the provisions of the
Paperwork Reduction Act, 44 U.S.C.
3501 et seq. and has assigned OMB
control number 2040-0185. OMB
approved the information collection
requirements contained in the February
1997 DWSRF Program Final Guidelines.
This rule does not contain any
collection of information requirements
beyond those already approved. Since
this action imposes no new or
additional information collection,
reporting or record keeping
requirements subject to the Paperwork
Reduction Act, 44 U.S.C. 3501 et seq.,
no information request was submitted to
the OMB for review?. OMB has approved
ICR 2040-0185 for use with this rule
and authorized the inclusion of the
OMB control number in 40 CFR part 9.
An Agency may not conduct or
sponsor, and a person is not required to
respond to a collection of information
unless it displays a currently valid OMB
control number. The OMB control
numbers for EPA's regulations are listed
in 40 CFR part 9 and 48 CFR Chapter
15. EPA is amending the table in 40 CFR
part 9 of currently approved ICR control
numbers issued by OMB for various
regulations to list the information
requirements contained in this rule.
D. Unfunded Mandates Reform Act
Title II of the Unfunded Mandates
Reform Act of 1995 (UMRA), Public
Law 104-4, establishes requirements for
Federal agencies to assess the effects of
their regulatory actions on State, local,
and tribal governments and the private
sector. Under section 202 of the UMRA,
EPA generally must prepare a written
statement, including a cost-benefit
analysis, for proposed and final rules
with "Federal mandates" that may
result in expenditures to State, local,
and tribal governments, in the aggregate,
or to the private sector, of $100 million
or more in any one year. Before
promulgating an EPA rule for which a
written statement is needed, section 205
of the UMRA generally requires EPA to
identify and consider a reasonable
number of regulatory alternatives and
adopt the least costly, most cost-
effective or least burdensome alternative
that achieves the objectives of the rule.
The provisions of section 205 do not
apply when they are inconsistent with
applicable law. Moreover, section 205
allows EPA to adopt an alternative other
than the least costly, most cost-effective
or least burdensome alternative if the
Administrator publishes with the final
rule an explanation why that alternative
was not adopted. Before EPA establishes
any regulatory requirements that may
significantly or uniquely affect small
governments, including tribal
governments, it must have developed
under section 203 of the UMRA a small
government agency plan. The plan must
provide for notifying potentially
affected small governments, enabling
officials of affected small governments
to have meaningful and timely input in
the development of EPA regulatory
proposals with significant Federal
intergovernmental mandates, and
informing, educating, and advising
small governments on compliance with
the regulatory requirements.
Today's rule contains no Federal
mandates (under the regulatory
provisions of Title II of the UMRA) for
State, local, or tribal governments or the
private sector. The UMRA excludes
from the definition of "Federal
intergovernmental mandate" duties that
arise from conditions of Federal
assistance. Thus, today's rule is not
subject to the requirements of sections
202 and 205 of the UMRA. EPA has
determined that this rule contains no
regulatory requirements that might
significantly or uniquely affect small
governments. Small governments are
not subject to this rule, therefore it will
not significantly or uniquely affect
them. Many small governments will
actually benefit through receipt of
assistance from the DWSRF program.
Thus, today's rule is not subject to the
requirements of section 203 of the
UMRA.
E. National Technology Transfer and
Advancement Act
Section 12(d) of the National
Technology Transfer and Advancement
Act of 1995 ("NTTAA"), Public Law
104-113, section 12(d) (15 U.S.C. 272
note) directs EPA to use voluntary
consensus standards in its regulatory
activities unless to do so would be
inconsistent with applicable law or
otherwise impractical. Voluntary
consensus standards are technical
standards (e.g., materials specifications,
test methods, sampling procedures, and
business practices) that are developed or
adopted by voluntary consensus
standards bodies. The NTTAA directs
EPA to provide Congress, through OMB,
explanations when the Agency decides
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not to use available and applicable
voluntary consensus standards.
This action does not involve technical
standards. Therefore, EPA did not
consider the use of any voluntary
consensus standards.
F. Congressional Review Act
The Congressional Review Act, 5
U.S.C. 801 et seq., as added by the Small
Business Regulatory Enforcement
Fairness Act of 1996, generally provides
that before a rule may take effect, the
agency promulgating the rule must
submit a rule report, which includes a
copy of the rule, to each House of the
Congress and to the Comptroller General
of the United States. EPA will submit a
report containing this rule and other
required information to the U.S. Senate,
the U.S. House of Representatives, and
the Comptroller General of the United
States prior to publication of the rule in
the Federal Register. A major rule
cannot take effect until 60 days after it
is published in the Federal Register.
This action is not a "major rule" as
defined by 5 U.S.C. 804(2). This rule
will be effective August 7, 2000.
G. Executive Order 13132: Federalism
Executive Order 13132, entitled
"Federalism" (64 FR 43255, August 10,
1999), requires EPA to develop an
accountable process to ensure
"meaningful and timely input by State
and local officials in the development of
regulatory policies that have federalism
implications." "Policies that have
federalism implications" is defined in
the Executive Order to include
regulations that have "substantial direct
effects on the States, on the relationship
between the national government and
the States, or on the distribution of
power and responsibilities among the
various levels of government."
Under Section 6 of Executive Order
13132, EPA may not issue a regulation
that has federalism implications, that
imposes substantial direct compliance
costs, and that is not required by statute,
unless the Federal government provides
the funds necessary to pay the direct
compliance costs incurred by State and
local governments, or EPA consults with
State and local officials early in the
process of developing the proposed
regulation. EPA also may not issue a
regulation that has federalism
implications and that preempts State
law, unless the Agency consults with
State and local officials early in the
process of developing the proposed
regulation.
This interim final rule does not have
federalism implications. It will not have
substantial direct effects on the States,
on the relationship between the national
government and the States, or on the
distribution of power and
responsibilities among the various
levels of government, as specified in
Executive Order 13132. This interim
final rule mainly codifies and makes
minor changes to the DWSRF Program
Final Guidelines under which the
program has been operating since 1997.
Apart from the minor changes, this rule
adds new provisions that increase State
flexibility, so it does not have
federalism implications as that phrase is
defined for purposes of Executive Order
13132. Further, because this is a rule
that primarily conditions the use of
Federal assistance, it does not impose
substantial direct compliance costs on
the States. Thus, the requirements of
section 6 of the Executive Order do not
apply to this rule.
Although section 6 of Executive Order
13132 does not apply to this rule, EPA
did consult with representatives of State
governments in developing this rule.
Specifically, members of a State/EPA
SRF Work Group comprised of State
DWSRF managers, State CWSRF
managers, and managers of State
financial agencies were given the
opportunity to review? and comment on
drafts of this rule. In addition,
stakeholders, including representatives
from State government agencies and
State government organizations, were
given an opportunity to comment on a
draft of the rule which was posted on
the Internet for public comment. A
summary of the concerns raised during
that consultation and EPA's response to
those concerns is provided in section
VII. of this preamble.
H. Executive Order 13045: Children's
Health
Executive Order 13045, "Protection of
Children from Environmental Health
Risks and Safety Risks" (62 FR 19885,
April 23, 1997), applies to any rule that:
(1) Is determined to be "economically
significant" as defined under Executive
Order 12866, and (2) concerns an
environmental health or safety risk that
EPA has reason to believe may have a
disproportionate effect on children. If
the regulatory action meets both criteria,
the Agency must evaluate the
environmental health or safety effects of
the planned rule on children, and
explain why the planned regulation is
preferable to other potentially effective
and reasonably feasible alternatives
considered by the Agency.
This interim final rule is not subject
to Executive Order 13045 because it is
not "economically significant" as
defined under Executive Order 12866.
Further, it does not concern an
environmental health or safety risk that
EPA has reason to believe may have a
disproportionate effect on children.
I. Executive Order 13084: Consultation
and Coordination With Indian Tribal
Governments
Under Executive Order 13084, EPA
may not issue a regulation that is not
required by statute, that significantly or
uniquely affects the communities of
Indian tribal governments, and that
imposes substantial direct compliance
costs on those communities, unless the
Federal government provides the funds
necessary to pay the direct compliance
costs incurred by the tribal
governments, or EPA consults with
those governments. If EPA complies by
consulting, Executive Order 13084
requires EPA to provide to the Office of
Management and Budget, in a separately
identified section of the preamble to the
rule, a description of the extent of EPA's
prior consultation with representatives
of affected tribal governments, a
summary of the nature of their concerns,
and a statement supporting the need to
issue the regulation. In addition,
Executive Order 13084 requires EPA to
develop an effective process permitting
elected officials and other
representatives of Indian tribal
governments "to provide meaningful
and timely input in the development of
regulatory policies on matters that
significantly or uniquely affect their
communities."
Today's rule does not significantly or
uniquely affect the communities of
Indian tribal governments, nor does it
impose substantial direct compliance
costs on them. This rule only applies to
each of the 50 States and the
Commonwealth of Puerto Rico that
receive capitalization grants and are
authorized to establish a Fund under
section 1452 of the Safe Drinking Water
Act, as amended, 42 U.S.C. 300J-12.
Accordingly, the requirements of
section 3(b) of Executive Order 13084
do not apply to this rule.
/. Executive Order 12898:
Environmental Justice
Under Executive Order 12898,
"Federal Actions to Address
Environmental Justice in Minority
Populations and Low-Income
Populations," as well as through EPA's
National Environmental Justice
Advisory Council, EPA has undertaken
to incorporate environmental justice
into its policies and programs. EPA is
committed to addressing environmental
justice concerns, and is assuming a
leadership role in environmental justice
initiatives to enhance environmental
quality for all residents of the United
States. The Agency's goals are to ensure
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that no segment of the population,
regardless of race, color, national origin,
or income, bears disproportionately
high and adverse human health and
environmental effects as a result of
EPA's policies, programs, and activities,
and all people live in clean and
sustainable communities.
No action from this rule will have a
disproportionately high and adverse
human health and environmental effect
on any segment of the population. In
addition, this rule does not impose
substantial direct compliance costs on
those communities. Accordingly, the
requirements of Executive Order 12898
do not apply.
List of Subjects
40 CFR Part 9
Environmental protection, Reporting
and recordkeeping requirements.
40 CFR Part 35
Environmental protection, Drinking
water, Grant programs—environmental
protection, Public health, Safe drinking
water act, State revolving funds, Water
supply.
Dated: July 31, 2000.
Carol M. Browner,
Administrator.
For the reasons set out in the
preamble, EPA is proposing to amend
Title 40, chapter 1 of the Code of
Federal Regulations to read as follows:
PART 9—[AMENDED]
1. The authority citation for part 9
continues to read as follows:
Authority: 7 U.S.C. 135 etseq., 136-136y;
15 U.S.C. 2001, 2003, 2005, 2006, 2601-2671;
21 U.S.C. 331j, 346a, 348; 31 U.S.C. 9701; 33
U.S.C. 1251 etseq., 1311, 1313d, 1314, 1318,
1321, 1326, 1330, 1342, 1344, 1345 (d) and
(e), 1361; E.O. 11735, 38 FR 21243, 3 CFR,
1971-1975 Comp. p. 973; 42 U.S.C. 241,
242b, 243, 246, 300f, 300g, 300g-l, 300g-2,
300g-3, 300g-4, 300g-5, 300g-6, 300J-1,
300J-2, 300J-3, 300J-4, 300J-9, 1857 etseq.,
6901-6992k, 7401-7671q, 7542, 9601-9657,
11023, 11048.
2. In § 9.1 the table is amended under
the indicated heading by adding new
entries in numerical order to read as
follows:
§ 9.1 OMB approvals under the Paperwork
Reduction Act.
40 CFR citation
OMB control No.
Drinking Water State Revolving Funds.
35.3540 (c)
35.3545 (a)-(f)
35.3550 (a)-(p)
35.3555 (a)-(d)
35.3560 (a), (d)-(g)
35.3565 (a)-(f)
35.3570 (a)-(d)
35.3575 (a)-(e)
35.3580 (a)-(h)
35.3585 (b)-(c)
2040-0185
2040-0185
2040-0185
2040-0185
2040-0185
2040-0185
2040-0185
2040-0185
2040-0185
2040-0185
PART 35—STATE AND LOCAL
ASSISTANCE
3. Part 35 is amended by adding
Subpart L to read as follows:
Subpart L—Drinking Water State
Revolving Funds
Sec.
35.3500 Purpose, policy, and applicability.
35.3505 Definitions.
35.3510 Establishment of the DWSRF
program.
35.3515 Allotment and withholdings of
funds.
35.3520 Systems, projects, and project-
related costs eligible for assistance from
the Fund.
35.3525 Authorized types of assistance
from the Fund.
35.3530 Limitations onuses of the Fund.
35.3535 Authorized set-aside activities.
35.3540 Requirements for funding set-aside
activities.
35.3545 Capitalization grant agreement.
35.3550 Specific capitalization grant
agreement requirements.
35.3555 Intended Use Plan (IUP).
35.3560 General payment and cash draw
rules.
35.3565 Specific cash draw rules for
authorized types of assistance from the
Fund.
35.3570 Reports and audits.
35.3575 Application of Federal cross-
cutting authorities (cross-cutters).
35.3580 Environmental review
requirements.
35.3585 Compliance assurance procedures.
Appendix A to Subpart L—Criteria for
evaluating a State's proposed NEPA-like
process.
Subpart L—Drinking Water State
Revolving Funds
Authority: Section 1452 of the Safe
Drinking Water Act, as amended, 42 U.S.C.
300J-12.
§35.3500 Purpose, policy, and
applicability.
(a) This subpart codifies and
implements requirements for the
national Drinking Water State Revolving
Fund program under section 1452 of the
Safe Drinking Water Act, as amended in
1996. It applies to States (i.e., each of
the 50 States and the Commonwealth of
Puerto Rico) which receive
capitalization grants and are authorized
to establish a Fund under section 1452.
The purpose of this subpart is to ensure
that each State's program is designed
and operated in such a manner as to
further the public health protection
objectives of the Safe Drinking Water
Act, promote the efficient use of all
funds, and ensure that the Fund corpus
is available in perpetuity for providing
financial assistance to public water
systems.
(b) This subpart supplements section
1452 of the Safe Drinking Water Act by
codifying statutory and program
requirements that were published in the
Final Guidelines for the Drinking Water
State Revolving Fund program (EPA
816-R-97-005) signed by the Assistant
Administrator for Water on February 28,
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1997, as well as in subsequent policies.
This subpart also supplements general
grant regulations at 40 CFR part 31
which contain administrative
requirements that apply to
governmental recipients of
Environmental Protection Agency (EPA)
grants and subgrants. EPA will not
impose additional major program
requirements without providing an
opportunity for affected parties to
comment.
(c) EPA intends to implement the
national Drinking Water State Revolving
Fund program in a manner that
preserves for States a high degree of
flexibility to operate their programs in
accordance with each State's unique
needs and circumstances. To the
maximum extent practicable, EPA also
intends to administer the financial
aspects of the national Drinking Water
State Revolving Fund program in a
manner that is consistent with the
policies and procedures of the national
Clean Water State Revolving Fund
program established under Title VI of
the Clean Water Act, as amended, 33
U.S.C. 1381-1387.
§35.3505 Definitions.
The following definitions apply to
terms used in this subpart:
Act. The Safe Drinking Water Act
(Public Law 93-523), as amended in
1996 (Public Law 104-182). 42 U.S.C.
300f etseq.
Administrator. The Administrator of
the EPA or an authorized representative.
Allotment. Amount available to a
State from funds appropriated by
Congress to carry out section 1452 of the
Act.
Automated Clearing House (ACH). A
Federal payment mechanism that
transfers cash to recipients of Federal
assistance using electronic transfers
from the Treasury through the Federal
Reserve System.
Binding commitment. A legal
obligation by the State to an assistance
recipient that defines the terms for
assistance from the Fund.
Capitalization grant. An award by
EPA of funds to a State for purposes of
capitalizing that State's Fund and for
other purposes authorized in section
1452 of the Act.
Cash draw. The transfer of cash from
the Treasury through the ACH to the
DWSRF program. Upon a State's request
for a cash draw, the Treasury will
transfer funds to the DWSRF program
account established in the State's bank.
CWSRFprogram. Each State's clean
water state revolving fund program
authorized under Title VI of the Clean
Water Act, as amended, 33 U.S.C. 1381-
1387.
Disadvantaged community. The entire
service area of a public water system
that meets affordability criteria
established by the State after public
review? and comment.
Disbursement. The transfer of cash
from the DWSRF program account
established in the State's bank to an
assistance recipient.
DWSRF program. Each State's
drinking water state revolving fund
program authorized under section 1452
of the Act, as amended, 42 U.S.C. 300j-
12. This term includes the Fund and set-
asides.
Fund. A revolving account into which
a State deposits DWSRF program funds
(e.g., capitalization grants, State match,
repayments, net bond proceeds, interest
earnings, etc.) for the purposes of
providing loans and other types of
assistance for drinking water
infrastructure projects.
Intended Use Plan (IUP). A document
prepared annually by a State, after
public review? and comment, which
identifies intended uses of all DWSRF
program funds and describes how those
uses support the overall goals of the
DWSRF program.
Net bond proceeds. The funds raised
from the sale of the bonds minus
issuance costs (e.g., the underwriting
discount, underwriter's legal counsel
fees, bond counsel fee, and other costs
incidental to the bond issuance).
Payment. An action taken by EPA to
increase the amount of funds available
for cash draw? through the ACH. A
payment is not a transfer of cash to the
State, but an authorization by EPA to
make capitalization grant funds
available for transfer to a State after the
State submits a cash draw request.
Public water system. A system as
defined in 40 CFR 141.2. A public water
system is either a "community water
system" or a "noncommunity water
system" as defined in 40 CFR 141.2.
Regional Administrator (RA). The
Administrator of the appropriate
Regional Office of the EPA or an
authorized representative of the
Regional Administrator.
Set-asides. State and local activities
identified in sections 1452(g)(2) and (k)
of the Act for which a portion of a
capitalization grant may be used.
Small system. A public water system
that regularly serves 10,000 or fewer
persons.
State. Each of the 50 States and the
Commonwealth of Puerto Rico, which
receive capitalization grants and are
authorized to establish a Fund under
section 1452 of the Act.
§35.3510 Establishment of the DWSRF
program.
(a) General. To be eligible to receive
a capitalization grant, a State must
establish a Fund and comply with the
other requirements of section 1452 of
the Act and this subpart.
(b) Administration. Capitalization
grants must be awarded to an agency of
the State that is authorized to enter into
capitalization grant agreements with
EPA, accept capitalization grant awards
made under section 1452 of the Act, and
otherwise manage the Fund in
accordance with the requirements and
objectives of the Act and this subpart.
The State agency that is awarded the
capitalization grant (i.e., grantee) is
accountable for the use of the funds
provided in the capitalization grant
agreement under general grant
regulations at 40 CFR part 31.
(1) The authority to establish
assistance priorities and to carry out
oversight and related activities of the
DWSRF program, other than financial
administration of the Fund, must reside
with the State agency having primary
responsibility for administration of the
State's public water system supervision
(PWSS) program (i.e., primacy) after
consultation with other appropriate
State agencies.
(2) If a State is eligible to receive a
capitalization grant but does not have
primacy, the Governor will determine
which State agency will have the
authority to establish priorities for
financial assistance from the Fund.
Evidence of the Governor's
determination must be included with
the capitalization grant application.
(3) If more than one State agency
participates in implementation of the
DWSRF program, the roles and
responsibilities of each agency must be
described in a Memorandum of
Understanding or interagency
agreement.
(c) Combined financial
administration. A State may combine
the financial administration of the Fund
with the financial administration of any
other revolving fund established by the
State if otherwise not prohibited by
State law under which the Fund was
established. A State must assure that all
monies in the Fund, including
capitalization grants, State match, net
bond proceeds, loan repayments, and
interest are separately accounted for and
used solely for the purposes specified in
section 1452 of the Act and this subpart.
Funds available from the administration
and technical assistance set-aside may
not be used for combined financial
administration of any other revolving
fund.
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(d) Use of funds. (1) Assistance
provided to a public water system from
the DWSRF program may be used only
for expenditures that will facilitate
compliance with national primary
drinking water regulations applicable
under section 1412 or otherwise
significantly further the public health
protection objectives of the Act.
(2) The inability or failure of any
public water system to receive
assistance from the DWSRF program, or
any delay in obtaining assistance, does
not alter the obligation of the system to
comply in a timely manner with all
applicable drinking water standards and
requirements of section 1452 of the Act.
§35.3515 Allotment and withholdings of
funds.
(a) Allotment. (1) General. Each State
will receive a minimum of one percent
of the funds available for allotment to
all of the States.
(2) Allotment formula. Funds
available to States from fiscal year 1998
appropriations and subsequent
appropriations are allotted according to
a formula that reflects the infrastructure
needs of public water systems identified
in the most recent Needs Survey
submitted in accordance with section
1452(h)ofthe Act.
(3) Period of availability. Funds are
available for obligation to States during
the fiscal year in which they are
authorized and during the following
fiscal year. The amount of any allotment
not obligated to a State by EPA at the
end of this period of availability will be
reallotted to eligible States based on the
formula originally used to allot these
funds, except that the Administrator
may reserve up to 10 percent of any
funds available for reallotment to
provide additional assistance to Indian
Tribes. In order to be eligible to receive
reallotted funds, a State must have been
obligated all funds it is eligible to
receive from EPA during the period of
availability.
(4) Loss of primacy. The following
provisions do not apply to any State that
did not have primacy as of August 6,
1996:
(i) A State may not receive a
capitalization grant from allotments that
have been made if the State had primacy
and subsequently loses primacy.
(ii) For a State that loses primacy, the
Administrator may reserve funds from
the State's allotment for use by EPA to
administer primacy in that State. The
balance of the funds not used by EPA
to administer primacy will be reallotted
to the other States.
(iii) A State will be eligible for future
allotments from funds appropriated in
the next fiscal year after primacy is
restored.
(b) Withholdings.—(I) General. EPA
will withhold funds under each of the
following provisions:
(i) Capacity development authority.
EPA will withhold 20 percent of a
State's allotment from any State that has
not obtained the legal authority or other
means to ensure that all new
community water systems and new
nontransient, noncommunity water
systems commencing operations after
October 1, 1999, demonstrate technical,
financial, and managerial capacity with
respect to each national primary
drinking water regulation in effect, or
likely to be in effect, on the date of
commencement of operations. The
determination of withholding will be
based on an assessment of the status of
the State program as of October 1 of the
fiscal year for which the funds were
allotted.
(ii) Capacity development strategy.
EPA will withhold funds from any State
unless the State is developing and
implementing a strategy to assist public
water systems in acquiring and
maintaining technical, financial, and
managerial capacity. The amount of a
State's allotment that will be withheld
is 10 percent for fiscal year 2001, 15
percent for fiscal year 2002, and 20
percent for each subsequent fiscal year.
The determination of withholding will
be based on an assessment of the status
of the State strategy as of October 1 of
the fiscal year for which the funds were
allotted. Decisions of a State regarding
any particular public water system as
part of a capacity development strategy
are not subject to review by EPA and
may not serve as a basis for withholding
funds.
(iii) Operator certification program.
Beginning on February 5, 2001, EPA
will withhold 20 percent of a State's
allotment unless the State has adopted
and is implementing a program for
certifying operators of community and
nontransient, noncommunity public
water systems that meets the
requirements of section 1419 of the Act.
The determination of withholding will
be based on an assessment of the status
of the State program for each fiscal year.
(2) Maximum withholdings. The
maximum amount of funds that will be
withheld if a State fails to meet the
requirements of both the capacity
development authority and the capacity
development strategy provisions is 20
percent of the allotment in any fiscal
year. The maximum amount of funds
that will be withheld if a State fails to
meet the requirements of the operator
certification program provision and
either the capacity development
authority provision or the capacity
development strategy provision is 40
percent of the allotment in any fiscal
year.
(3) Reallotment of withheld funds.
The Administrator will reallot withheld
funds to eligible States based on the
formula originally used to allot these
funds. In order to be eligible to receive
reallotted funds under the withholding
provisions, a State must have been
obligated all funds it is eligible to
receive from EPA during the period of
availability. A State that has funds
withheld under any one of the
withholding provisions in paragraphs
(b)(l)(i) through (b)(l)(iii) of this section
is not eligible to receive reallotted funds
made available by that provision.
(4) Termination of withholdings. A
withholding will cease to apply to funds
appropriated in the next fiscal year after
a State complies with the specific
provision under which funds were
withheld.
§35.3520 Systems, projects, and project-
related costs eligible for assistance from
the Fund.
(a) Eligible systems. Assistance from
the Fund may only be provided to:
(1) Privately-owned and publicly-
owned community water systems and
non-profit noncommunity water
systems.
(2) Projects that will result in the
creation of a community water system
in accordance with paragraph (b)(2)(vi)
of this section.
(3) Systems referred to in section
1401(4)(B) of the Act for the purposes of
point of entry or central treatment under
section 1401(4)(B)(i)(III).
(b) Eligible projects.—(1) General.
Projects that address present or prevent
future violations of health-based
drinking water standards are eligible for
assistance. These include projects
needed to maintain compliance with
existing national primary drinking water
regulations for contaminants with acute
and chronic health effects. Projects to
replace aging infrastructure are eligible
for assistance if they are needed to
maintain compliance or further the
public health protection objectives of
the Act.
(2) Only the following project
categories are eligible for assistance
from the Fund:
(i) Treatment. Examples of projects
include installation or upgrade of
facilities to improve the quality of
drinking water to comply with primary
or secondary standards and point of
entry or central treatment under section
1401(4)(B)(i)(III)oftheAct.
(ii) Transmission and distribution.
Examples of projects include
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installation or replacement of
transmission and distribution pipes to
improve water pressure to safe levels or
to prevent contamination caused by
leaks or breaks in the pipes.
(iii) Source. Examples of projects
include rehabilitation of wells or
development of eligible sources to
replace contaminated sources.
(iv) Storage. Examples of projects
include installation or upgrade of
eligible storage facilities, including
finished water reservoirs, to prevent
microbiological contaminants from
entering a public water system.
(v) Consolidation. Eligible projects are
those needed to consolidate water
supplies where, for example, a supply
has become contaminated or a system is
unable to maintain compliance for
technical, financial, or managerial
reasons.
(vi) Creation of new systems. Eligible
projects are those that, upon
completion, will create a community
water system to address existing public
health problems with serious risks
caused by unsafe drinking water
provided by individual wells or surface
water sources. Eligible projects are also
those that create a new regional
community water system by
consolidating existing systems that have
technical, financial, or managerial
difficulties. Projects to address existing
public health problems associated with
individual wells or surface water
sources must be limited in scope to the
specific geographic area affected by
contamination. Projects that create new
regional community water systems by
consolidating existing systems must be
limited in scope to the service area of
the systems being consolidated. A
project must be a cost-effective solution
to addressing the problem. A State must
ensure that the applicant has given
sufficient public notice to potentially
affected parties and has considered
alternative solutions to addressing the
problem. Capacity to serve future
population growth cannot be a
substantial portion of a project.
(c) Eligible project-related costs. In
addition to costs needed for the project
itself, the following project-related costs
are eligible for assistance from the Fund:
(1) Costs for planning and design and
associated pre-project costs. A State that
makes a loan for only planning and
design is not required to provide
assistance for completion of the project.
(2) Costs for the acquisition of land
only if needed for the purposes of
locating eligible project components.
The land must be acquired from a
willing seller.
(3) Costs for restructuring systems that
are in significant noncompliance with
any national primary drinking water
regulation or variance or that lack the
technical, financial, and managerial
capability to ensure compliance with
the requirements of the Act, unless the
systems are ineligible under paragraph
(d)(2) or (d)(3) of this section.
(d) Ineligible systems. Assistance from
the Fund may not be provided to:
(1) Federally-owned public water
systems and for-profit noncommunity
water systems.
(2) Systems that lack the technical,
financial, and managerial capability to
ensure compliance with the
requirements of the Act, unless the
assistance will ensure compliance and
the owners or operators of the systems
agree to undertake feasible and
appropriate changes in operations to
ensure compliance over the long-term.
(3) Systems that are in significant
noncompliance with any national
primary drinking water regulation or
variance, unless:
(i) The purpose of the assistance is to
address the cause of the significant
noncompliance and will ensure that the
systems return to compliance; or
(ii) The purpose of the assistance is
unrelated to the cause of the significant
noncompliance and the systems are on
enforcement schedules (for maximum
contaminant level and treatment
technique violations) or have
compliance plans (for monitoring and
reporting violations) to return to
compliance.
(e) Ineligible projects. The following
projects are ineligible for assistance
from the Fund:
(1) Dams or rehabilitation of dams.
(2) Water rights, except if the water
rights are owned by a system that is
being purchased through consolidation
as part of a capacity development
strategy.
(3) Reservoirs or rehabilitation of
reservoirs, except for finished water
reservoirs and those reservoirs that are
part of the treatment process and are on
the property where the treatment facility
is located.
(4) Projects needed primarily for fire
protection.
(5) Projects needed primarily to serve
future population growth. Projects must
be sized only to accommodate a
reasonable amount of population growth
expected to occur over the useful life of
the facility.
(6) Projects that have received
assistance from the national set-aside for
Indian Tribes and Alaska Native
Villages under section 1452(i) of the
Act.
(f) Ineligible project-related costs. The
following project-related costs are
ineligible for assistance from the Fund:
(1) Laboratory fees for routine
compliance monitoring.
(2) Operation and maintenance
expenses.
§ 35.3525 Authorized types of assistance
from the Fund.
A State may only provide the
following types of assistance from the
Fund:
(a) Loans. (I) A State may make loans
at or below the market interest rate,
including zero interest rate loans. Loans
may be awarded only if:
(i) An assistance recipient begins
annual repayment of principal and
interest no later than one year after
project completion. A project is
completed when operations are initiated
or are capable of being initiated.
(ii) A recipient completes loan
repayment no later than 20 years after
project completion except as provided
in paragraph (b)(3) of this section.
(iii) A recipient establishes a
dedicated source of revenue for
repayment of the loan which is
consistent with local ordinances and
State laws or, for privately-owned
systems, a recipient demonstrates that
there is adequate security to assure
repayment of the loan.
(2) A State may include eligible
project reimbursement costs within
loans if:
(i) A system received approval,
authorization to proceed, or any similar
action by a State prior to initiation of
project construction and the
construction costs were incurred after
such State action; and
(ii) The project met all of the
requirements of this subpart and was on
the State's fundable list, developed
using a priority system approved by
EPA. A project on the comprehensive
list which is funded when a project on
the fundable list is bypassed using the
State's bypass procedures in accordance
with § 35.3555(c)(2)(ii) may be eligible
for reimbursement of costs incurred
after the system has been informed that
it will receive funding.
(3) A State may include eligible
planning and design and other
associated pre-project costs within loans
regardless of when the costs were
incurred.
(4) All payments of principal and
interest on each loan must be credited
to the Fund.
(5) Of the total amount available for
assistance from the Fund each year, a
State must make at least 15 percent
available solely for providing loan
assistance to small systems, to the
extent such funds can be obligated for
eligible projects. A State that provides
assistance in an amount that is greater
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48303
than 15 percent of the available funds in
one year may credit the excess toward
the 15 percent requirement in future
years.
(6) A State may provide incremental
assistance for a project (e.g., for a
particularly large, expensive project)
over a period of years.
(b) Assistance to disadvantaged
communities. (1) A State may provide
loan subsidies (e.g., loans which include
principal forgiveness, negative interest
rate loans) to benefit communities
meeting the State's definition of
"disadvantaged" or which the State
expects to become "disadvantaged" as a
result of the project. Loan subsidies in
the form of reduced interest rate loans
that are at or above zero percent do not
fall under the 30 percent allowance
described in paragraph (b)(2) of this
section.
(2) A State may take an amount equal
to no more than 30 percent of the
amount of a particular fiscal year's
capitalization grant to provide loan
subsidies to disadvantaged
communities. If a State does not take the
entire 30 percent allowance associated
with a particular fiscal year's
capitalization grant, it cannot reserve
the authority to take the remaining
balance of the allowance from future
capitalization grants. In addition, a State
must:
(i) Indicate in the Intended Use Plan
(IUP) the amount of the allowance it is
taking for loan subsidies;
(ii) Commit capitalization grant and
required State match dollars taken for
loan subsidies in accordance with the
binding commitment requirements in
§35.3550(e); and
(iii) Commit any other dollars (e.g.,
principal and interest repayments,
investment earnings) taken for loan
subsidies to projects over the same time
period during which binding
commitments are made for the
capitalization grant from which the
allowance was taken.
(3) A State may extend the term for a
loan to a disadvantaged community,
provided that a recipient completes loan
repayment no later than 30 years after
project completion and the term of the
loan does not exceed the expected
design life of the project.
(c) Refinance or purchase of local
debt obligations.—(1) General. A State
may buy or refinance local debt
obligations of municipal,
intermunicipal, or interstate agencies
where the debt obligation was incurred
and the project was initiated after July
1, 1993. Projects must have met the
eligibility requirements under section
1452 of the Act and this subpart to be
eligible for refinancing. Privately-owned
systems are not eligible for refinancing.
(2) Multi-purpose debt. If the original
debt for a project was in the form of a
multi-purpose bond incurred for
purposes in addition to eligible
purposes under section 1452 of the Act
and this subpart, a State may provide
refinancing only for the eligible portion
of the debt, not the entire debt.
(3) Refinancing and State match. If a
State has credited repayments of loans
made under a pre-existing State loan
program as part of its State match, the
State cannot also refinance the projects
under the DWSRF program. If the State
has already counted certain projects
toward its State match which it now
wants to refinance, the State must
provide replacement funds for the
amounts previously credited as match.
(d) Purchase insurance or guarantee
for local debt obligations. A State may
provide assistance by purchasing
insurance or guaranteeing a local debt
obligation to improve credit market
access or to reduce interest rates.
Assistance of this type is limited to local
debt obligations that are undertaken to
finance projects eligible for assistance
under section 1452 of the Act and this
subpart.
(e) Revenue or security for Fund debt
obligations (leveraging). A State may use
Fund assets as a source of revenue or
security for the payment of principal
and interest on revenue or general
obligation bonds issued by the State in
order to increase the total amount of
funds available for providing assistance.
The net proceeds of the sale of the
bonds must be deposited into the Fund
and must be used for providing loans
and other assistance to finance projects
eligible under section 1452 of the Act
and this subpart.
§35.3530 Limitations on uses of the Fund.
(a) Earn interest. A State may earn
interest on monies deposited into the
Fund prior to disbursement of
assistance (e.g., on reserve accounts
used as security or guarantees). Monies
deposited must not remain in the Fund
primarily to earn interest. Amounts not
required for current obligation or
expenditure must be invested in interest
bearing obligations.
(b) Program administration. A State
may not use monies deposited into the
Fund to cover its program
administration costs. In addition to
using the funds available from the
administration and technical assistance
set-aside under § 35.3535(b), a State may
use the following methods to cover its
program administration and other
program costs.
(1) A State may use the proceeds of
bonds guaranteed by the Fund to absorb
expenses incurred issuing the bonds.
The net proceeds of the bonds must be
deposited into the Fund.
(2) A State may assess fees on an
assistance recipient which are paid
directly by the recipient and are not
included as principal in a loan as
allowed in paragraph (b)(3) of this
section. These fees, which include
interest earned on fees, must be
deposited into the Fund or into an
account outside of the Fund. If the fees
are deposited into the Fund, they are
subject to the authorized uses of the
Fund. If the fees are deposited into an
account outside of the Fund, they must
be used for program administration,
other purposes for which capitalization
grants can be awarded under section
1452, State match under sections
1452(e) and (g)(2) of the Act, or
combined financial administration of
the DWSRF program and CWSRF
program Funds where the programs are
administered by the same State agency.
(3) A State may assess fees on an
assistance recipient which are included
as principal in a loan. These fees, which
include interest earned on fees, must be
deposited into the Fund or into an
account outside of the Fund. If the fees
are deposited into the Fund, they are
subject to the authorized uses of the
Fund. If the fees are deposited into an
account outside of the Fund, they must
be used for program administration or
other purposes for which capitalization
grants can be awarded under section
1452. Fees included as principal in a
loan cannot be used for State match
under sections 1452(e) and (g)(2) of the
Act or combined financial
administration of the DWSRF program
and CWSRF program Funds.
Additionally, fees included as principal
in a loan:
(i) Cannot be assessed on a
disadvantaged community which
receives a loan subsidy provided from
the 30 percent allowance in
§35.3525(b)(2);
(ii) Cannot cause the effective rate of
a loan (which includes both interest and
fees) to exceed the market rate; and
(iii) Cannot be assessed if the effective
rate of a loan could reasonably be
expected to cause a system to fail to
meet the technical, financial, and
managerial capability requirements
under section 1452 of the Act.
(c) Transfers. The Governor of a State,
or a State official acting pursuant to
authorization from the Governor, may
transfer an amount equal to 33 percent
of a fiscal year's DWSRF program
capitalization grant to the CWSRF
program or an equivalent amount from
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the CWSRF program to the DWSRF
program. The following conditions
apply:
(1) When a State initially decides to
transfer funds:
(i) The State's Attorney General, or
someone designated by the Attorney
General, must sign or concur in a
certification for the DWSRF program
and the CWSRF program that State law
permits the State to transfer funds; and
(ii) The Operating Agreements or
other parts of the capitalization grant
agreements for the DWSRF program and
the CWSRF program must be amended
to detail the method the State will use
to transfer funds.
(2) A State may not use the transfer
provision to acquire State match for
either program or use transferred funds
to secure or repay State match bonds.
(3) Funds may be transferred after one
year has elapsed since a State
established its Fund (i.e., one year after
the State has received its first DWSRF
program capitalization grant for
projects), and may include an amount
equal to the allowance associated with
its fiscal year 1997 capitalization grant.
(4) A State may reserve the authority
to transfer funds in future years.
(5) Funds may be transferred on a net
basis between the DWSRF program and
CWSRF program, provided that the 33
percent transfer allowance associated
with DWSRF program capitalization
grants received is not exceeded.
(6) Funds may not be transferred or
reserved after September 30, 2001.
(d) Cross-collateralization. A State
may combine the Fund assets of the
DWSRF program and CWSRF program
as security for bond issues to enhance
the lending capacity of one or both of
the programs. The following conditions
apply:
(1) When a State initially decides to
cross-collateralize:
(i) The State's Attorney General, or
someone designated by the Attorney
General, must sign or concur in a
certification for the DWSRF program
and the CWSRF program that State law
permits the State to cross-collateralize
the Fund assets of the DWSRF program
and CWSRF program; and
(ii) The Operating Agreements or
other parts of the capitalization grant
agreements for the DWSRF program and
the CWSRF program must be amended
to detail the method the State will use
to cross-collateralize.
(2) The proceeds generated by the
issuance of bonds must be allocated to
the purposes of the DWSRF program
and CWSRF program in the same
proportion as the assets from the Funds
that are used as security for the bonds.
A State must demonstrate at the time of
bond issuance that the proportionality
requirements have been or will be met.
If a default should occur, and the Fund
assets from one program are used for
debt service in the other program to cure
the default, the security would no
longer need to be proportional.
(3) A State may not combine the Fund
assets of the DWSRF program and the
CWSRF program as security for bond
issues to acquire State match for either
program or use the assets of one
program to secure match bonds for the
other program.
(4) The debt service reserves for the
DWSRF program and the CWSRF
program must be accounted for
separately.
(5) Loan repayments must be made to
the respective program from which the
loan was made.
§35.3535 Authorized set-aside activities.
(a) General. (1) A State may use a
portion of its capitalization grants for
the set-aside categories described in
paragraphs (b) through (e) of this
section, provided that the amount of set-
aside funding does not exceed the
ceilings specified in this section.
(2) A State may not use set-aside
funds for those projects or project-
related costs listed in § 35.3520(b), (c),
(e), and (f), with the following
exceptions:
(i) Project planning and design costs
for small systems; and
(ii) Costs for restructuring a system as
part of a capacity development strategy.
(b) Administration and technical
assistance. A State may use up to 4
percent of its allotment to cover the
reasonable costs of administering the
DWSRF program and to provide
technical assistance to public water
systems.
(c) Small systems technical
assistance. A State may use up to 2
percent of its allotment to provide
technical assistance to small systems. A
State may use these funds for activities
such as supporting a State technical
assistance team or contracting with
outside organizations or other parties to
provide technical assistance to small
systems.
(d) State program management. A
State may use up to 10 percent of its
allotment for State program
management activities.
(1) This set-aside may only be used
for the following activities:
(i) To administer the State PWSS
program;
(ii) To administer or provide technical
assistance through source water
protection programs (including a Class
V Underground Injection Control
Program), except for enforcement
actions;
(iii) To develop and implement a
capacity development strategy; and
(iv) To develop and implement an
operator certification program.
(2) Match requirement. A State must
provide a dollar for dollar match for
expenditures made under this set-aside.
(i) The match must be provided at the
time of the capitalization grant award or
in the same year that funds for this set-
aside are expected to be expended in
accordance with a workplan approved
by EPA.
(ii) A State is authorized to use the
amount of State funds it expended on its
PWSS program in fiscal year 1993
(including PWSS match) as a credit
toward meeting its match requirement.
The value of this credit can be up to, but
not greater than, 50 percent of the
amount of match that is required. After
determining the value of the credit that
it is eligible to receive, a State must
provide the additional funds necessary
to meet the remainder of the match
requirement. The source of these
additional funds can be State funds
(excluding PWSS match) or documented
in-kind services.
(e) Local assistance and other State
programs. A State may use up to 15
percent of its capitalization grant to
assist in the development and
implementation of local drinking water
protection initiatives and other State
programs. No more than 10 percent of
the capitalization grant amount can be
used for any one authorized activity.
(1) This set-aside may only be used
for the following activities:
(i) A State may provide assistance
only in the form of loans to community
water systems and non-profit
noncommunity water systems to acquire
land or conservation easements from
willing sellers or grantors. A system
must demonstrate how the purchase of
land or easements will protect the
source water of the system from
contamination and ensure compliance
with national primary drinking water
regulations. A State must develop a
priority setting process for determining
what parcels of land or easements to
purchase or use an established priority
setting process that meets the same
goals. A State must seek public review
and comment on its priority setting
process and must identify the systems
that received loans and include a
description of the specific parcels of
land or easements purchased in the
Biennial Report.
(ii) A State may provide assistance
only in the form of loans to community
water systems to assist in implementing
voluntary, incentive-based source water
protection measures in areas delineated
under a source water assessment
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48305
program under section 1453 of the Act
and for source water petitions under
section 1454 of the Act. A State must
develop a list of systems that may
receive loans, giving priority to
activities that facilitate compliance with
national primary drinking water
regulations applicable to the systems or
otherwise significantly further the
health protection objectives of the Act.
A State must seek public review and
comment on its priority setting process
and its list of systems that may receive
loans.
(iii) A State may make expenditures to
establish and implement wellhead
protection programs under section 1428
of the Act.
(iv) A State may provide assistance,
including technical and financial
assistance, to public water systems as
part of a capacity development strategy
under section 1420(c) of the Act.
(v) A State may make expenditures
from its fiscal year 1997 capitalization
grant to delineate and assess source
water protection areas for public water
systems under section 1453 of the Act.
Assessments include the identification
of potential sources of contamination
within the delineated areas. These
assessment activities are limited to the
identification of contaminants regulated
under the Act or unregulated
contaminants that a State determines
may pose a threat to public health. A
State must obligate funds within 4 years
of receiving its fiscal year 1997
capitalization grant.
(2) A State may make loans under this
set-aside only if an assistance recipient
begins annual repayment of principal
and interest no later than one year after
completion of the activity and
completes loan repayment no later than
20 years after completion of the activity.
A State must deposit repayments into
the Fund or into a separate account
dedicated for this set-aside. The
separate account is subject to the same
management oversight requirements as
the Fund. Amounts deposited into the
Fund are subject to the authorized uses
of the Fund.
§35.3540 Requirements for funding set-
aside activities.
(a) General. If a State makes a grant or
enters into a cooperative agreement with
an assistance recipient to conduct set-
aside activities, the recipient must
comply with general grant regulations at
40 CFR part 30 or part 31, as
appropriate.
(b) Set-aside accounts. A State must
maintain separate and identifiable
accounts for the portion of its
capitalization grant to be used for set-
aside activities.
(c) Workplans.—(1) General. A State
must submit detailed annual or multi-
year workplans to EPA for approval
describing how set-aside funds will be
expended. For the administration and
technical assistance set-aside under
§ 35.3535(b), the State is only required
to submit a workplan describing how it
will expend funds needed to provide
technical assistance to public water
systems. In order to ensure that funds
are expended efficiently, multi-year
workplan terms negotiated with EPA
must be less than four years, unless a
longer term is approved by EPA.
(2) Submitting workplans. A State
must submit workplans in accordance
with a schedule negotiated with EPA. If
a schedule has not been negotiated, the
State must submit workplans no later
than 90 days after the capitalization
grant award. If a State does not meet the
deadline for submitting its workplans,
the set-aside funds that were required to
be described in the workplans must be
transferred to the Fund to be used for
projects.
(3) Content. Workplans must at a
minimum include:
(i) The annual funding amount in
dollars and as a percentage of the State
allotment or capitalization grant;
(ii) The projected number of work
years needed for implementing each set-
aside activity;
(iii) The goals and objectives, outputs,
and deliverables for each set-aside
activity;
(iv) A schedule for completing
activities under each set-aside activity;
(v) Identification and responsibilities
of the agencies involved in
implementing each set-aside activity,
including activities proposed to be
conducted by a third party; and
(vi) A description of the evaluation
process to assess the success of work
funded under each set-aside activity.
(4) Amending workplans. If a State
changes the scope of work from what
was originally described in its
workplans, it must amend the
workplans and submit them to EPA for
approval.
(d) Reserving set-aside funds. (1) A
State may reserve set-aside funds from
a capitalization grant and expend them
over a period of time, provided that the
State identifies the amount of funds
reserved in the IUP and describes the
use of the funds in workplans approved
by EPA. For the administration and
technical assistance set-aside under
§ 35.3535(b), the State is only required
to submit a workplan to reserve funds
needed to provide technical assistance
to public water systems.
(2) With the exception of the local
assistance and other State programs set-
aside under § 35.3535(e), a State may
reserve the authority to take from future
capitalization grants those set-aside
funds that it has not included in
workplans. The State must identify in
the IUP the amount of authority
reserved from a capitalization grant for
future use.
(e) Fund and set-aside account
transfers. (1) A State may transfer funds
among set-aside categories described in
§ 35.3535(b) through (e) and among
activities within these categories,
provided that set-aside ceilings are not
exceeded.
(2) A State may transfer funds
between the Fund and set-asides,
provided that set-aside ceilings are not
exceeded. Set-aside funds may be
transferred at any time to the Fund. If
a State has taken payment for the set-
aside funds to be transferred to the
Fund, it must make binding
commitments for these funds within one
year of the transfer. Monies intended for
the Fund may be transferred to set-
asides only if the State has not yet taken
a payment that includes those funds to
be transferred in accordance with the
payment schedule negotiated with EPA.
(3) The capitalization grant agreement
must be amended prior to any transfer
among the set-aside categories or any
transfer between the Fund and set-
asides.
§35.3545 Capitalization grant agreement.
(a) General. A State must submit a
capitalization grant application to EPA
in order to receive a capitalization grant
award. Approval of an application
results in EPA and the State entering
into a capitalization grant agreement
which is the principal instrument by
which the State commits to manage the
DWSRF program in accordance with the
requirements of section 1452 of the Act
and this subpart.
(b) Content. In addition to the items
listed in paragraphs (c) through (f) of
this section, the capitalization grant
agreement must contain or incorporate
by reference the Application for Federal
Assistance (EPA Form 424) and other
related forms, IUP, negotiated payment
schedule, State environmental review
process (SERF), demonstrations of the
specific capitalization grant agreement
requirements listed in § 35.3550, and
other documentation required by the
Regional Administrator (RA). The
capitalization grant agreement must also
define the types of performance
measures, reporting requirements, and
oversight responsibilities that will be
required to determine compliance with
section 1452 of the Act.
(c) Operating agreement. At the
option of a State, the framework and
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procedures of the D WSRF program that
are not expected to change annually
may be described in an Operating
Agreement. The Operating Agreement
may be amended if the State negotiates
the changes with EPA.
(d) Attorney General certification.
With the capitalization grant
application, the State's Attorney
General, or someone designated by the
Attorney General, must sign or concur
in a certification that:
(1) The authority establishing the
DWSRF program and the powers it
confers are consistent with State law;
(2) The State may legally bind itself to
the proposed terms of the capitalization
grant agreement; and
(3) An agency of the State is
authorized to enter into capitalization
grant agreements with EPA, accept
capitalization grant awards made under
section 1452 of the Act, and otherwise
manage the Fund in accordance with
the requirements and objectives of the
Act and this subpart.
(e) Roles and responsibilities of
agencies. If more than one State agency
participates in the implementation of
the DWSRF program, the State must
describe the roles and responsibilities of
each agency in the capitalization grant
application and include a Memorandum
of Understanding or interagency
agreement describing these roles and
responsibilities.
(f) Process for evaluating capability
and compliance. A State must include
in the capitalization grant application a
description of the following:
(1) The process it will use to assess
the technical, financial, and managerial
capability of all systems requesting
assistance to ensure that the systems are
in compliance with the requirements of
the Act.
(2) If a State provides assistance to
systems that lack technical, financial,
and managerial capability, the process it
will use to ensure that the systems
undertake feasible and appropriate
changes in operations to comply with
the requirements of the Act over the
long-term.
(3) If a State provides assistance to
systems in significant noncompliance
with any national primary drinking
water regulation or variance, the process
it will use to ensure that the systems
return to compliance.
§35.3550 Specific capitalization grant
agreement requirements.
(a) General. A State must agree to
comply with this subpart, the general
grant regulations at 40 CFR part 31, and
specific conditions of the grant. A State
must also agree to the following
requirements and, in some cases,
provide documentation as part of the
capitalization grant application.
(b) Comply with State statutes and
regulations. A State must agree to
comply with all State statutes and
regulations that are applicable to
DWSRF program funds including
capitalization grant funds, State match,
interest earnings, net bond proceeds,
repayments, and funds used for set-
aside activities.
(c) Demonstrate technical capability.
A State must agree to provide
documentation demonstrating that it has
adequate personnel and resources to
establish and manage the DWSRF
program.
(d) Accept payments. A State must
agree to accept capitalization grant
payments in accordance with a payment
schedule negotiated between EPA and
the State.
(e) Make binding commitments. A
State must agree to enter into binding
commitments with assistance recipients
to provide assistance from the Fund.
(l) Binding commitments must be
made in an amount equal to the amount
of each capitalization grant payment
and accompanying State match that is
deposited into the Fund and must be
made within one year after the receipt
of each grant payment.
(2) A State may make binding
commitments for more than the required
amount and credit the excess towards
the binding commitment requirements
of subsequent grant payments.
(3) If a State is concerned about its
ability to comply with the binding
commitment requirement, it must notify
the RA and propose a revised payment
schedule for future grant payments.
(f) Deposit of funds. A State must
agree to promptly deposit DWSRF
program funds into appropriate
accounts.
(1) A State must agree to deposit the
portion of the capitalization grant to be
used for projects into the Fund.
(2) A State must agree to maintain
separate and identifiable accounts for
the portion of the capitalization grant to
be used for set-aside activities.
(3) A State must agree to deposit net
bond proceeds, interest earnings, and
repayments into the Fund.
(4) A State must agree to deposit any
fees, which include interest earned on
fees, into the Fund or into separate and
identifiable accounts.
(g) Provide State match. A State must
agree to deposit into the Fund an
amount from State monies that equals at
least 20 percent of each capitalization
grant payment.
(1) A State must identify the source of
State match in the capitalization grant
application.
(2) A State must deposit the match
into the Fund on or before the date that
a State receives each payment for the
capitalization grant, except when a State
chooses to use a letter of credit (LOG)
mechanism or similar financial
arrangement for the State match. Under
this mechanism, payments to this LOG
account must be made proportionally on
the same schedule as the payments for
the capitalization grant. Cash from this
State match LOG account must be
drawn into the Fund as cash is drawn
into the Fund through the Automated
Clearing House (ACH).
(3) A State may issue general
obligation or revenue bonds to derive
the State match. The net proceeds from
the bonds issued by a State to derive the
match must be deposited into the Fund
and the bonds may only be retired using
the interest portion of loan repayments
and interest earnings of the Fund. Loan
principal must not be used to retire
State match bonds.
(4) If the State deposited State monies
in a dedicated revolving fund after July
1, 1993, and prior to receiving a
capitalization grant, the State may credit
these monies toward the match
requirement if:
(i) The monies were deposited in a
separate revolving fund that
subsequently became the Fund after
receiving a capitalization grant and they
were expended in accordance with
section 1452 of the Act;
(ii) The monies were deposited in a
separate revolving fund that has not
received a capitalization grant, they
were expended in accordance with
section 1452 of the Act, and an amount
equal to all repayments of principal and
payments of interest from loans will be
deposited into the Fund; or
(iii) The monies were deposited in a
separate revolving fund and used as a
reserve for a leveraged program
consistent with section 1452 of the Act
and an amount equal to the reserve is
transferred to the Fund as the reserve's
function is satisfied.
(5) If a State provides a match in
excess of the required amount, the
excess balance may be credited towards
match requirements associated with
subsequent capitalization grants.
(h) Provide match for State program
management set-aside. A State must
agree to provide a dollar for dollar
match for expenditures made under the
State program management set-aside in
accordance with § 35.3535(d)(2). This
match is separate from the 20 percent
State match requirement for the
capitalization grant in paragraph (g) of
this section and must be identified as an
eligible credit, deposited into set-aside
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48307
accounts, or documented as in-kind
services.
(i) Use generally accepted accounting
principles. A State must agree to ensure
that the State and public water systems
receiving assistance will use accounting,
audit, and fiscal procedures conforming
to Generally Accepted Accounting
Principles (GAAP) as promulgated by
the Governmental Accounting
Standards Board or, in the case of
privately-owned systems, the Financial
Accounting Standards Board. The
accounting system used for the DWSRF
program must allow for proper
measurement of:
(1) Revenues earned and other
receipts, including but not limited to,
loan repayments, capitalization grants,
interest earnings, State match deposits,
and net bond proceeds;
(2) Expenses incurred and other
disbursements, including but not
limited to, loan disbursements,
repayment of bonds, and other
expenditures allowed under section
145 2 of the Act; and
(3) Assets, liabilities, capital
contributions, and retained earnings.
(j) Conduct audits. In accordance with
§ 35.3570(b), a State must agree to
comply with the provisions of the
Single Audit Act Amendments of 1996.
A State may voluntarily agree to
conduct annual independent audits.
(k) Dedicated repayment source. A
State must agree to adopt policies and
procedures to assure that assistance
recipients have a dedicated source of
revenue for repayment of loans, or in
the case of privately-owned systems,
assure that recipients demonstrate that
there is adequate security to assure
repayment of loans.
(1) Efficient expenditure. A State must
agree to commit and expend all funds as
efficiently as possible and in an
expeditious and timely manner.
(m) Use funds in accordance with
IUP. A State must agree to use all funds
in accordance with an IUP that was
prepared after providing for public
review and comment.
(n) Biennial report. A State must agree
to complete and submit a Biennial
Report that describes how it has met the
goals and objectives of the previous two
fiscal years as stated in the IlJPs and
capitalization grant agreements. The
State must submit this report to the RA
according to the schedule established in
the capitalization grant agreement.
(o) Comply with cross-cutters. A State
must agree to comply with all
applicable Federal cross-cutting
authorities.
(p) Comply with provisions to avoid
withholdings. A State must agree to
demonstrate how it is complying with
the requirements of capacity
development authority, capacity
development strategy, and operator
certification program provisions in
order to avoid withholdings of funds
under § 35.3515(b)(l)(i) through
§35.3555 Intended Use Plan (IUP).
(a) General. A State must prepare an
annual IUP which describes how it
intends to use DWSRF program funds to
support the overall goals of the DWSRF
program and contains the information
outlined in paragraph (c) of this section.
In those years in which a State submits
a capitalization grant application, EPA
must receive an IUP prior to the award
of the capitalization grant. A State must
prepare an annual IUP as long as the
Fund or set-aside accounts remain in
operation. The IUP must conform to the
fiscal year adopted by the State for the
DWSRF program (e.g., the State's fiscal
year or the Federal fiscal year).
(b) Public review requirements. A
State must seek meaningful public
review? and comment during the
development of the IUP. A State must
include a description of the public
review process and an explanation of
how it responded to major comments
and concerns. If a State prepares
separate lUPs (one for Fund monies and
one for set-aside monies), the State must
seek public review and comment during
the development of each IUP.
(c) Content. Information in the IUP
must be provided in a format and
manner that is consistent with the needs
of the RA.
(1) Priority system. The IUP must
include a priority system for ranking
individual projects for funding that
provides sufficient detail for the public
and EPA to readily understand the
criteria used for ranking. The priority
system must provide, to the maximum
extent practicable, that priority for the
use of funds will be given to projects
that: address the most serious risk to
human health; are necessary to ensure
compliance with the requirements of the
Act (including requirements for
filtration); and assist systems most in
need, on a per household basis,
according to State affordability criteria.
A State that does not adhere to the three
criteria must demonstrate why it is
unable to do so.
(2) Priority lists of projects. All
projects, with the exception of projects
funded on an emergency basis, must be
ranked using a State's priority system
and go through a public review process
prior to receiving assistance.
(i) The IUP must contain a fundable
list of projects that are expected to
receive assistance from available funds
designated for use in the current IUP
and a comprehensive list of projects that
are expected to receive assistance in the
future. The fundable list of projects
must include: the name of the public
water system; the priority assigned to
the project; a description of the project;
the expected terms of financial
assistance based on the best information
available at the time the IUP is
developed; and the population of the
system's service area at the time of the
loan application. The comprehensive
list must include, at a minimum, the
priority assigned to each project and, to
the extent known, the expected funding
schedule for each project. A State may
combine the fundable and
comprehensive lists into one list,
provided that projects which are
expected to receive assistance from
available funds designated for use in the
current IUP are identified.
(ii) The IUP may include procedures
which would allow a State to bypass
projects on the fundable list. The
procedures must clearly identify the
conditions which would allow a project
to be bypassed and the method for
identifying which projects would
receive funding. If a bypass occurs, a
State must fund the highest ranked
project on the comprehensive list that is
ready to proceed. If a State elects to
bypass a project for reasons other than
readiness to proceed, the State must
explain why the project was bypassed in
the Biennial Report and during the
annual review?. To the maximum extent
practicable, a State must work with
bypassed projects to ensure that they
will be prepared to receive funding in
future years.
(iii) The IUP may allow for the
funding of projects which require
immediate attention to protect public
health on an emergency basis, provided
that a State defines what conditions
constitute an emergency and identifies
the projects in the Biennial Report and
during the annual review?.
(iv) The IUP must demonstrate how a
State will meet the requirement of
providing loan assistance to small
systems as described in § 35.3525(a)(5).
A State that is unable to comply with
this requirement must describe the steps
it is taking to ensure that a sufficient
number of projects are identified to
meet this requirement in future years.
(3) Distribution of funds. The IUP
must describe the criteria and methods
that a State will use to distribute all
funds including:
(i) The process and rationale for
distribution of funds between the Fund
and set-aside accounts;
(ii) The process for selection of
systems to receive assistance;
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(iii) The rationale for providing
different types of assistance and terms,
including the method used to determine
the market rate and the interest rate;
(iv) The types, rates, and uses of fees
assessed on assistance recipients; and
(v) A description of the financial
planning process undertaken for the
Fund and the impact of funding
decisions on the long-term financial
health of the Fund.
(4) Financial status. The IUP must
describe the sources and uses of DWSRF
program funds including: the total
dollar amount in the Fund; the total
dollar amount available for loans,
including loans to small systems; the
amount of loan subsidies that may be
made available to disadvantaged
communities from the 30 percent
allowance in § 35.3525(b)(2); the total
dollar amount in set-aside accounts,
including the amount of funds or
authority reserved; and the total dollar
amount in fee accounts.
(5) Short- and long-term goals. The
IUP must describe the short-term and
long-term goals it has developed to
support the overall goals of the DWSRF
program of ensuring public health
protection, complying with the Act,
ensuring affordable drinking water, and
maintaining the long-term financial
health of the Fund.
(6) Set-aside activities, (i) The IUP
must identify the amount of funds a
State is electing to use for set-aside
activities. A State must also describe
how it intends to use these funds,
provide a general schedule for their use,
and describe the expected
accomplishments that will result from
their use.
(ii) For loans made in accordance
with the local assistance and other State
programs set-aside under
§ 35.3535(e)(l)(i) and (e)(l)(ii), the IUP
must, at a minimum, describe the
process by which recipients will be
selected and how funds will be
distributed among them.
(7) Disadvantaged community
assistance. The IUP must describe how
a State's disadvantaged community
program will operate including:
(i) The State's definition of what
constitutes a disadvantaged community;
(ii) A description of affordability
criteria used to determine the amount of
disadvantaged assistance;
(iii) The amount and type of loan
subsidies that may be made available to
disadvantaged communities from the 30
percent allowance in § 35.3525(b)(2);
and
(iv) To the maximum extent
practicable, an identification of projects
that will receive disadvantaged
assistance and the respective amounts.
(8) Transfer process. If a State decides
to transfer funds between the DWSRF
program and CWSRF program, the lUPs
for the DWSRF program and the CWSRF
program must describe the process
including:
(i) The total amount and type of funds
being transferred during the period
covered by the IUP;
(ii) The total amount of authority
being reserved for future transfer,
including the authority reserved from
previous years; and
(iii) The impact of the transfer on the
amount of funds available to finance
projects and set-asides and the long-
term impact on the Fund.
(9) Cross-collateralization process. If a
State decides to cross-collateralize Fund
assets of the DWSRF program and
CWSRF program, the lUPs for the
DWSRF program and the CWSRF
program must describe the process
including:
(i) The type of monies which will be
used as security;
(ii) How monies will be used in the
event of a default; and
(iii) Whether or not monies used for
a default in the other program will be
repaid, and if they will not be repaid,
what will be the cumulative impact on
the Funds.
(d) Amending the IUP. The priority
lists of projects may be amended during
the year under provisions established in
the IUP as long as additions or other
substantive changes to the lists, except
projects funded on an emergency basis,
go through a public review process. A
State may change the use of funds from
what was originally described in the
IUP as long as substantive changes go
through a public review process.
§35.3560 General payment and cash draw
rules.
(a) Payment schedule. A State will
receive each capitalization grant
payment in the form of an increase to
the ceiling of funds available through
the ACH, made in accordance with a
payment schedule negotiated between
EPA and the State. A payment schedule
that is based on a State's projection of
binding commitments and use of set-
aside funds as stated in the IUP must be
included in the capitalization grant
agreement. Changes to the payment
schedule must be made through an
amendment to the grant agreement.
(b) Timing of payments. All payments
to a State will be made by the earlier of
8 quarters after the capitalization grant
is awarded or 12 quarters after funds are
allotted to a State.
(c) Funds available for cash draw.
Cash draws will be available only up to
the amount of payments that have been
made to a State.
(d) Estimated cash draw schedule. On
a schedule negotiated with EPA, a State
must provide EPA with a quarterly
schedule of estimated cash draws for the
Federal fiscal year. The State must
notify EPA when significant changes
from the estimated cash draw schedule
are anticipated. This schedule must be
developed to conform with the
procedures applicable to cash draws
and must have sufficient detail to allow
EPA and the State to jointly develop and
maintain a forecast of cash draws.
(e) Cash draw for set-asides. A State
may draw cash through the ACH for the
full amount of costs incurred for set-
aside expenditures based on EPA
approved workplans. A State may draw
cash in advance to ensure funds are
available to meet State payroll expenses.
However, cash should be drawn no
sooner than necessary to meet
immediate payroll disbursement needs.
(f) Cash draw for Fund. A State may
draw cash through the ACH for the
proportionate Federal share of eligible
incurred project costs. A State need not
have disbursed funds for incurred
project costs prior to drawing cash. A
State may not draw cash for a particular
project until the State has executed a
loan agreement for that project.
(g) Calculation of proportionate
Federal share—(1) General. The
proportionate Federal share is equal to
the Federal monies intended for the
Fund (capitalization grant minus set-
asides) divided by the total amount of
monies intended for the Fund
(capitalization grant minus set-asides
plus required State match). A State may
calculate the proportionate Federal
share on a rolling average basis or on a
grant by grant basis.
(2) State overmatch, (i) The
proportionate Federal share does not
change if a State is providing funds in
excess of the required State match.
(ii) Federal monies may be drawn at
a rate that is greater than that
determined by the proportionate Federal
share calculation when a State is given
credit toward its match amount as a
result of funding projects in prior years
(but after July 1, 1993), or for crediting
excess match in the Fund in prior years
and disbursing these amounts prior to
drawing cash. If the entire amount of a
State's required match has been
disbursed in advance, the proportionate
Federal share of cash draws would be
100 percent.
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§ 35.3565 Specific cash draw rules for
authorized types of assistance from the
Fund.
A State may draw cash for the
authorized types of assistance from the
Fund described in §35.3525 according
to the following rules:
(a) Loans—(1) Eligible project costs. A
State may draw cash based on the
proportionate Federal share of incurred
project costs. In the case of incurred
planning and design and associated pre-
project costs, cash may be drawn
immediately upon execution of the loan
agreement.
(2) Eligible project reimbursement
costs. A State may draw cash to
reimburse assistance recipients for
eligible project costs at a rate no greater
than equal amounts over the maximum
number of quarters that capitalization
grant payments are made. A State may
immediately draw cash for up to 5
percent of each fiscal year's
capitalization grant or 2 million dollars,
whichever is greater, to reimburse
project costs.
(b) Refinance or purchase of local
debt obligations—(1) Completed
projects. A State may draw cash up to
the portion of the capitalization grant
committed to the refinancing or
purchase of local debt obligations of
municipal, intermunicipal, or interstate
agencies at a rate no greater than equal
amounts over the maximum number of
quarters that capitalization grant
payments are made. A State may
immediately draw cash for up to 5
percent of each fiscal year's
capitalization grant or 2 million dollars,
whichever is greater, to refinance or
purchase local debt.
(2) Portions of projects not completed.
A State may draw cash based on the
proportionate Federal share of incurred
project costs according to the rule for
loans in paragraph (a)(l) of this section.
(3) Purchase of incremental
disbursement bonds from local
governments. A State may draw cash
based on a schedule that coincides with
the rate at which costs are expected to
be incurred for the project.
(c) Purchase insurance for local debt
obligations. A State may draw cash for
the proportionate Federal share of
insurance premiums as they are due.
(d) Guarantee for local debt
obligations—(1) In the event of default.
In the event of imminent default in debt
service payments on a guaranteed local
debt, a State may draw cash
immediately up to the total amount of
the capitalization grant that is dedicated
for the guarantee. If a balance remains
after the default is satisfied, the State
must negotiate a revised cash draw
schedule for the remaining amount
dedicated for the guarantee.
(2) In the absence of default. A State
may draw cash up to the amount of the
capitalization grant dedicated for the
guarantee based on actual incurred
project costs. The amount of the cash
draw would be based on the
proportionate Federal share of incurred
project costs multiplied by the ratio of
the guarantee reserve to the amount
guaranteed.
(e) Revenue or security for Fund debt
obligations (leveraging)—(1) In the event
of default. In the event of imminent
default in debt service payments on a
secured debt, a State may draw cash
immediately up to the total amount of
the capitalization grant that is dedicated
for the security. If a balance remains
after the default is satisfied, the State
must negotiate a revised schedule for
the remaining amount dedicated for the
security.
(2) In the absence of default. A State
may draw cash up to the amount of the
capitalization grant dedicated for the
security using either of the following
methods:
(i) All projects method. A State may
draw cash based on the incurred project
costs multiplied by the ratio of the
Federal portion of the reserve to the
total reserve multiplied by the ratio of
the total reserve to the net bond
proceeds.
(ii) Group of projects method. A State
may identify a group of projects whose
cost is approximately equal to the total
of that portion of the capitalization grant
and the State match dedicated as a
security. The State may then draw cash
based on the incurred costs of the
selected projects only, multiplied by the
ratio of the Federal portion of the
security to the entire security.
(3) Aggressive leveraging. Where the
cash draw rules in paragraphs (e)(l) and
(e)(2) of this section would significantly
frustrate a State's leveraged program,
EPA may permit an exception to these
cash draw rules and provide for a more
accelerated cash draw. A State must
demonstrate that:
(i) There are eligible projects ready to
proceed in the immediate future with
enough costs to justify the amount of the
secured bond issue;
(ii) The absence of cash on an
accelerated basis will substantially
delay these projects;
(iii) The Fund will provide
substantially more assistance if
accelerated cash draws are allowed; and
(iv) The long-term viability of the
State program to meet drinking water
needs will be protected.
(f) Loans to privately-owned systems.
In cases where State monies cannot be
used to provide loans to privately-
owned systems, a State may draw 100
percent Federal monies for costs
incurred by privately-owned systems.
When Federal monies are drawn for
incurred costs, the State must deposit or
have previously deposited into the Fund
the required match associated with the
amount of cash drawn. Every 18
months, the State must submit
documentation showing that it has met
its proportionate Federal share within
the last 6 months. If a State is unable to
document that it has met its
proportionate Federal share, State match
deposited into the Fund must be
expended before Federal monies are
drawn for costs incurred by publicly-
owned systems until the State meets its
proportionate Federal share.
§35.3570 Reports and audits.
(a) Biennial report—(1) General. A
State must submit a Biennial Report to
the RA describing how it has met the
goals and objectives of the previous two
fiscal years as stated in the IlJPs and
capitalization grant agreements,
including the most recent audit of the
Fund and the entire State allotment. The
State must submit this report to the RA
according to the schedule established in
the capitalization grant agreement.
Information provided in the Biennial
Report on other EPA programs eligible
for assistance from the DWSRF program
may not replace the reporting
requirements for those other programs.
(2) Financial report. As part of the
Biennial Report, a State must present
the financial status of the DWSRF
program, including the total dollar
amount in fee accounts. This report
must, at a minimum, include the
financial statements and footnotes
required under GAAP to present fairly
the financial condition and results of
operations.
(3) Matters to establish in the biennial
report. A State must establish in the
Biennial Report that it has complied
with section 1452 of the Act and this
subpart. In particular, the Biennial
Report must demonstrate that a State
has:
(i) Managed the DWSRF program in a
fiscally prudent manner and adopted
policies and processes which promote
the long-term financial health of the
Fund;
(ii) Deposited its match (cash or State
LOG) into the Fund in accordance with
the requirements of § 35.3550(g);
(iii) Made binding commitments with
assistance recipients to provide
assistance from the Fund consistent
with the requirements of § 35.3550(e);
(iv) Funded only the highest priority
projects listed in the IUP and
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documented why priority projects were
bypassed in accordance with
§35.3555(c)(2);
(v) Provided assistance only to
eligible public water systems and for
eligible projects and project-related
costs under §35.3520;
(vi) Provided assistance only for
eligible set-aside activities under
§ 35.3535 and conducted activities
consistent with workplans and other
requirements of §35.3535 and
§35.3540;
(vii) Provided loan assistance to small
systems consistent with the
requirements of § 35.3525(a)(5) and
§35.3555(c)(2)(iv);
(viii) Provided assistance to
disadvantaged communities consistent
with the requirements of § 35.3525(b)
and§35.3555(c)(7);
(ix) Used fees for eligible purposes
under § 35.3530(b)(2) and (b)(3) and
assessed fees included as principal in a
loan in accordance with the limitations
in § 35.3530(b)(3)(i) through (b)(3)(iii);
(x) Adopted and implemented
procedures consistent with the
requirements of § 35.3530(c) and
§ 35.3555(c)(8) if funds were transferred
between the DWSRF program and
CWSRF program;
(xi) Adopted and implemented
procedures consistent with the
requirements of § 35.3530(d) and
§35.3555(c)(9) if Fund assets of the
DWSRF program and CWSRF program
were cross-collateralized;
(xii) Reviewed all DWSRF program
funded projects and activities for
compliance with Federal cross-cutting
authorities that apply to the State as a
grant recipient and those which apply to
assistance recipients in accordance with
§35.3575;
(xiii) Reviewed all DWSRF program
funded projects and activities in
accordance with approved State
environmental review? procedures under
§35.3580; and
(xiv) Complied with general grant
regulations at 40 CFR part 31 and
specific conditions of the grant.
(4) Joint report. A State which jointly
administers the DWSRF program and
the CWSRF program may submit a
report that addresses both programs.
However, programmatic and financial
information for each program must be
identified separately.
(b) Audit. (1) A State must comply
with the provisions of the Single Audit
Act Amendments of 1996, 31 U.S.C.
7501-7, and Office of Management and
Budget's Circular A-133 and
Compliance Supplement.
(2) A State may voluntarily agree to
conduct annual independent audits
which provide an auditor's opinion on
the DWSRF program financial
statements, reports on internal controls,
and reports on compliance with section
1452 of the Act, applicable regulations,
and general grant requirements. The
agreement to conduct voluntary
independent audits should be
documented in the Operating
Agreement or in another part of the
capitalization grant agreement.
(3) Those States that do not conduct
independent audits will be subject to
periodic audits by the EPA Office of
Inspector General.
(c) Annual review—(1) Purpose. The
purpose of the annual review is to
assess the success of the State's
performance of activities identified in
the IUP, Biennial Report (in years when
it is submitted), and Operating
Agreement (if used) and to determine
compliance with the capitalization grant
agreement, requirements of section 1452
of the Act, and this subpart. The RA will
complete the annual review according
to the schedule established in the
capitalization grant agreement.
(2) Records access. After reasonable
notice by the RA, the State or assistance
recipient must make available such
records as the RA reasonably considers
pertinent to review and determine State
compliance with the capitalization grant
agreement and requirements of section
1452 of the Act and this subpart. The
RA may conduct on-site visits as
deemed necessary to perform the annual
review?.
(d) Information management system—
(1) Purpose. The purpose of the
information management system is to
assess the DWSRF programs, to monitor
State progress in years in which
Biennial Reports are not submitted, and
to assist in conducting annual reviews.
(2) Reporting. A State must annually
submit information to EPA on the
amount of funds available and
assistance provided by the DWSRF
program.
§35.3575 Application of Federal cross-
cutting authorities (cross-cutters).
(a) General. A number of Federal
laws, executive orders, and government-
wide policies apply by their own terms
to projects and activities receiving
Federal financial assistance, regardless
of whether the statute authorizing the
assistance makes them applicable. A
few cross-cutters apply by their own
terms only to the State as the grant
recipient because the authorities
explicitly limit their application to grant
recipients.
(b) Application of cross-cutter
requirements. Except as provided in
paragraphs (c) and (d) of this section
and in § 35.3580, cross-cutter
requirements apply in the following
manner:
(1) All projects for which a State
provides assistance in amounts up to
the amount of the capitalization grant
deposited into the Fund must comply
with the requirements of the cross-
cutters. Activities for which a State
provides assistance from capitalization
grant funds deposited into set-aside
accounts must comply with the
requirements of the cross-cutters, to the
extent that the requirements of the
cross-cutters are applicable.
(2) Projects and activities for which a
State provides assistance in amounts
that are greater than the amount of the
capitalization grant deposited into the
Fund or set-aside accounts are not
subject to the requirements of the cross-
cutters.
(3) A State that elects to impose the
requirements of the cross-cutters on
projects and activities for which it
provides assistance in amounts that are
greater than the amount of the
capitalization grant deposited into the
Fund or set-aside accounts may credit
this excess to meet future cross-cutter
requirements on assistance provided
from the respective accounts.
(c) Federal anti-discrimination law
requirements. All programs, projects,
and activities for which a State provides
assistance are subject to the following
Federal anti-discrimination laws: Civil
Rights Act of 1964, as amended, 42
U.S.C. 2000d et seq.; section 504 of the
Rehabilitation Act of 1973, as amended,
29 U.S.C. 794; and the Age
Discrimination Act of 1975, as
amended, 42 U.S.C. 6102.
(d) Minority and Women's Business
Enterprise (MBE/WBE) procurement
requirements. A State must negotiate a
fair share goal with the RA for the
participation of MBE/WBEs. The fair
share goal must be based on the
availability of MBE/WBEs in the
relevant market area to do the work
under the DWSRF program. Each
capitalization grant agreement must
describe how? a State will comply with
MBE/WBE procurement requirements,
including how? it will apply the fair
share goal to assistance recipients to
which the requirements apply and how
it will assure that assistance recipients
take the following six affirmative steps:
(1) Include small, minority and
women's businesses on solicitation lists;
(2) Assure that small, minority and
women's businesses are solicited
whenever they are potential sources;
(3) Divide total requirements, when
economically feasible, into smaller tasks
or quantities to permit maximum
participation by small, minority and
women's businesses;
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(4) Establish delivery schedules, when
the requirements of the work permits,
which will encourage participation by
small, minority and women's
businesses;
(5) Use the services of the Small
Business Administration and the
Minority Business Development Agency
of the U.S. Department of Commerce, as
appropriate; and
(6) Require the contractor to take the
affirmative steps in paragraphs (d)(l)
through (d)(5) of this section if the
contractor awards subagreements.
(e) Complying with cross-cutters. A
State is responsible for ensuring that
assistance recipients comply with the
requirements of cross-cutters, including
initiating any required consultations
with State or Federal agencies
responsible for individual cross-cutters.
A State must inform EPA when
consultation or coordination with other
Federal agencies is necessary to resolve
issues regarding compliance with cross-
cutter requirements.
§35.3580 Environmental review
requirements.
(a) General. With the exception of
activities identified in paragraph (b) of
this section, a State must conduct
environmental reviews of the potential
environmental impacts of projects and
activities receiving assistance.
(b) Activities excluded from
environmental reviews. A State must
conduct environmental reviews of
source water protection activities under
§ 35.3535, unless the activities solely
involve administration (e.g., personnel,
equipment, travel) or technical
assistance. A State is not required to
conduct environmental reviews of all
the other eligible set-aside activities
under § 35.3535 because EPA has
determined that, due to their nature,
they do not individually, cumulatively
over time, or in conjunction with other
actions have a significant effect on the
quality of the human environment. A
State does not need to include
provisions in its SERF for excluding
these activities. Activities excluded
from environmental reviews remain
subject to other applicable Federal
cross-cutting authorities under
§35.3575.
(c) Tier I environmental reviews. All
projects that are assisted by the State in
amounts up to the amount of the
capitalization grant deposited into the
Fund must be reviewed in accordance
with a SERF that is functionally
equivalent to the review? undertaken by
EPA under the National Environmental
Policy Act (NEPA). With the exception
of activities excluded from
environmental reviews in paragraph (b)
of this section, activities for which a
State provides assistance from
capitalization grant funds deposited into
set-aside accounts must also be
reviewed in accordance with a SERF
that is functionally equivalent to the
review undertaken by EPA under the
NEPA. A State may elect to apply the
procedures at 40 CFR part 6 and related
subparts or apply its own "NEPA-like"
SERF for conducting environmental
reviews, provided that the following
elements are met:
(1) Legal foundation. A State must
have the legal authority to conduct
environmental reviews of projects and
activities receiving assistance. The legal
authority and supporting
documentation must specify:
(i) The mechanisms to implement
mitigation measures to ensure that a
project or activity is environmentally
sound;
(ii) The legal remedies available to the
public to challenge environmental
review determinations and enforcement
actions;
(iii) The State agency that is primarily
responsible for conducting
environmental reviews; and
(iv) The extent to which
environmental review responsibilities
will be delegated to local recipients and
will be subject to oversight by the
primary State agency.
(2) Interdisciplinary approach. A
State must employ an interdisciplinary
approach for identifying and mitigating
adverse environmental effects
including, but not limited to, those
associated with other cross-cutting
Federal environmental authorities.
(3) Decision documentation. A State
must fully document the information,
processes, and premises that influence
its decisions to:
(i) Proceed with a project or activity
contained in a finding of no significant
impact (FNSI) following documentation
in an environmental assessment (EA);
(ii) Proceed or not proceed with a
project or activity contained in a record
of decision (ROD) following preparation
of a full environmental impact
statement (EIS);
(iii) Reaffirm or modify a decision
contained in a previously issued
categorical exclusion (CE), EA/FNSI or
EIS/ROD following a mandatory 5 year
environmental reevaluation of a
proposed project or activity; and
(iv) If a State elects to implement
processes for either partitioning an
environmental review? or categorically
excluding projects or activities from
environmental review?, the State must
similarly document these processes in
its proposed SERF.
(4) Public notice and participation. A
State must provide public notice when:
a CE is issued or rescinded; a FNSI is
issued but before it becomes effective; a
decision that is issued 5 years earlier is
reaffirmed or revised; and prior to
initiating an EIS. Except with respect to
a public notice of a CE or reaffirmation
of a previous decision, a formal public
comment period must be provided
during which no action on a project or
activity will be allowed. A public
hearing or meeting must be held for all
projects and activities except for those
having little or no environmental effect.
(5) Alternatives consideration. A State
must have evaluation criteria and
processes which allow? for:
(i) Comparative evaluation among
alternatives, including the beneficial
and adverse consequences on the
existing environment, the future
environment, and individual sensitive
environmental issues that are identified
by project management or through
public participation; and
(ii) Devising appropriate near-term
and long-range measures to avoid,
minimize, or mitigate adverse impacts.
(d) Tier II environmental reviews. A
State may elect to apply an alternative
SERF to all projects and activities
(except those activities excluded from
environmental reviews in paragraph (b)
of this section) for which a State
provides assistance in amounts that are
greater than the amount of the
capitalization grant deposited into the
Fund or set-aside accounts, provided
that the process:
(1) Is supported by a legal foundation
which establishes the State's authority
to review projects and activities;
(2) Responds to other environmental
objectives of the State;
(3) Provides for comparative
evaluations among alternatives and
accounts for beneficial and adverse
consequences to the existing and future
environment;
(4) Adequately documents the
information, processes, and premises
that influence an environmental
determination; and
(5) Provides for notice to the public of
proposed projects and activities and for
the opportunity to comment on
alternatives and to examine
environmental review? documents. For
projects or activities determined by the
State to be controversial, a public
hearing must be held.
(e) Categorical exclusions (CEs). A
State may identify categories of actions
which do not individually,
cumulatively over time, or in
conjunction with other actions have a
significant effect on the quality of the
human environment and which the
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Federal Register/Vol. 65, No. 152/Monday, August 7, 2000/Rules and Regulations
State will exclude from the substantive
environmental review requirements of
its SERF. Any procedures under this
paragraph must provide for
extraordinary circumstances in which a
normally excluded action may have a
significant environmental effect.
(f) Environmental reviews for
refinanced projects or reimbursed
project costs. A State must conduct an
environmental review? which considers
the impacts of a project based on
conditions of the site prior to initiation
of the project. Failure to comply with
the environmental review requirements
cannot be justified on the grounds that
costs have already been incurred,
impacts have already been caused, or
contractual obligations have been made
prior to the binding commitment.
(g) EPA approval process. The RA
must review and approve any State
"NEPA-like" and alternative procedures
to ensure that the requirements for Tier
I and Tier II environmental reviews
have been met. The RA will conduct
these reviews on the basis of the criteria
for evaluating NEPA-like reviews
contained in Appendix A to this
subpart.
(h) Modifications to approved SERPs.
Significant changes to State
environmental review? procedures must
be approved by the RA.
§35.3585 Compliance assurance
procedures.
(a) Causes. The RA may take action
under this section and the enforcement
provisions of the general grant
regulations at 40 CFR 31.43 if a
determination is made that a State has
not complied with its capitalization
grant agreement, other requirements
under section 1452 of the Act, this
subpart, or 40 CFR part 31 or has not
managed the DWSRF program in a
financially sound manner (e.g., allows
consistent and substantial failures of
loan repayments).
(b) RA's course of action. For cause
under paragraph (a) of this section, the
RA will issue a notice of non-
compliance and may prescribe
appropriate corrective action. A State's
corrective action must remedy the
specific instance of non-compliance and
adjust program management to avoid
non-compliance in the future.
(c) Consequences for failure to
comply. (I) If within 60 days of receipt
of the non-compliance notice a State
fails to take the necessary actions to
obtain the results required by the RA or
fails to provide an acceptable plan to
achieve the results required, the RA may
suspend payments until the State has
taken acceptable actions. Once a State
has taken the corrective action deemed
necessary and adequate by the RA, the
suspended payments will be released
and scheduled payments will
recommence.
(2) If a State fails to take the necessary
corrective action deemed adequate by
the RA within 12 months of receipt of
the original notice, any suspended
payments will be deobligated and
reallotted to eligible States. Once a
payment has been made for the Fund,
that payment and cash draws from that
payment will not be subject to
withholding. All future payments will
be withheld from a State and reallotted
until such time that adequate corrective
action is taken and the RA determines
that the State is back in compliance.
(d) Dispute resolution. A State or an
assistance recipient that has been
adversely affected by an action or
omission by EPA may request a review?
of the action or omission under general
grant regulations at 40 CFR part 31,
subpart F.
Appendix A to Subpart L—Criteria for
Evaluating a State's Proposed NEPA-
Like Process
The following criteria will be used by the
RA to evaluate a proposed SERF:
(A) Legal foundation. Adequate
documentation of the legal authority,
including legislation, regulations or
executive orders and/or Attorney General
certification that authority exists.
(B) Interdisciplinary approach. The
availability of expertise, either in-house or
otherwise, accessible to the State agency.
(C) Decision documentation. A description
of a documentation process adequate to
explain the basis for decisions to the public.
(D) Public notice and participation. A
description of the process, including routes
of publication (e.g., local newspapers and
project mailing list), and use of established
State legal notification systems for notices of
intent, and criteria for determining whether
a public hearing is required. The adequacy of
a rationale where the comment period differs
from that under NEPA and is inconsistent
with other State review periods.
(E) Alternatives consideration. The extent
to which the SERF will adequately consider:
(1) Designation of a study area comparable
to the final system;
(2) A range of feasible alternatives,
including the no action alternative;
(3) Direct and indirect impacts;
(4) Present and future conditions;
(5) Land use and other social parameters
including relevant recreation and open-space
considerations;
(6) Consistency with population
projections used to develop State
implementation plans under the Clean Air
Act;
(7) Cumulative impacts including
anticipated community growth (residential,
commercial, institutional, and industrial)
within the project study area; and
(8) Other anticipated public works projects
including coordination with such projects.
[FR Doc. 00-19783 Filed 8-6-00; 8:45 am]
BILLING CODE 6560-50-P
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