UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
                                                                       WSG 124
                                                 Date Signed: November 17, 1998
                                       1 7 1998
MEMORANDUM

SUBJECT:    Drinking Water Infrastructure Grants - Territorial Set-Aside Program

FROM:       Robert J. Blanco, Director
             Implementation and Assistance Division (4606)
             Office of Ground Water & Drinking Water

TO:          Alexis         Director
             Water Division
             Region IX

             Kathy C, Callahan, Director
             Division of Environmental Planning &  Protection
             Region II

       The purpose of this memorandum is to provide you with direction on your development
    implementation of the Territorial Set-Aside Program which     provided for under Section
1452(j) of the      Drinking Water Act (SDWA).  The Office of Ground       and Drinking
Water (QGWDW) has recently published Final Guidelines on a similar program under the
SDWA - the Drinking Water Infrastructure Grants Tribal Set-Aside Program,            1 is a
copy of those Tribal guidelines. Since the Territorial and Tribal Set-Aside Programs are quite
similar in allowances, limitations, and program administration, our strategy has been to work
out the major issues via the Tribal Program and once certain of the appropriate direction for
that program, we would use  it as the foundation for the Territoria! program guidelines,

       The Tribal Guidelines were recently signed, copies have been forwarded  to Congress
under the Congressional Reform Act requirements, a notice of their availability            in
the        Register on October 29, 1998, and we can now        with the Territorial
program, I have decided, however, that development of formal guidelines for the Territorial
Program, as originally planned, is not mandatory. There are a few known differences
the two programs which I can address via this memorandum, but in general, I believe it is
sufficient to direct you to use the Tribal  Guidelines as a framework for developing your
Regional Territorial programs.

       As for the differences that I mentioned above, i believe      are four that are worthy of
note. The first is simply that the SDWA         that provides for the Territorial program is
different than that of the Tribal language.             2  is an excerpt from the SDWA that
       s the Territorial references. "

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                                                                           WSGF
                                                   Date Signed: November 17,1998
      The second involves the amount of funds available to the Territorial program.
Section (j) of the SDWA provides that a maximum of 0.33 percent of the "aggregate amount
made available to carry out this section" be made available for grants for the four Territories.
The "amount available" is the annual appropriation for section 1452 activities     the Tribal
Set-Aside and any funds that EPA sets      for: a) Health Effects Studies, b) Small Systems
Technical Assistance, c) Monitoring for Unregulated Contaminants, and d) Operator
Certification Reimbursement. In addition, the SDWA     not provide for any other funds
(such as external realtotments) to be       to the Territorial Program - 0,33 percent of the
"aggregate amount      available" is  the maximum allowed.

      The third involves the method of distributing the available funds among the four eligible
Territories, With the help of your staff, we have developed a formula that OGWDW will use to
allot the Territorial funds each year.  That formula is explained in detail in Attachment 3, along
with the actual allotments for FY1997,  FY1998 and FY1999,

      The fourth          is that under the Territorial program, Regions may      grants
directly to water        in the Territories, give a "program" grant to the  Territorial government,
or do a combination of the two. If the EPA         office chooses to            grants to
public water systems, the Region will be           for identifying         projects, for
prioritizing those projects, for selecting the ones to receive funding, and  for       and
administration of the grants.  Under this method, EPA Regions will be required to develop the
list of projects in consultation with the Territorial government, and will be required to give  all of
the systems in the Territory an opportunity to comment on the projects selected and  the
method of selecting those projects. The expectations are essentially the      as they are with
your Tribal program.

       If the EPA Regional office chooses to award a "program" grant to the Territorial
government, the Territory will be responsible for developing methods of  identifying and ranking
potential projects,     for selecting the ones to receive funding. The Territorial government
would then make subawards to eligible recipients for the individual projects. Under this
approach, the Territorial government's project ranking method must be       on the three
criteria identified in the SDWA: 1) projects to address the most serious risk to human health; 2)
projects necessary to ensure compliance with the requirement of the SDWA; and 3)  projects to
      systems most in     on a per household basis, in addition, the Territorial government
must establish a method of informing the water        and the              about their
program,     the methods of project identification, ranking and selection. Your offices will, of
course, have the authority to establish guidelines for,  and approve, such Territorial programs,

       In cases where you award a "program" grant to a Territorial government, you may allow
the Territory to use up to 4 percent of  the total "program" grant for its administration of the
Territorial program. We believe this is appropriate because it will be necessary for the Territory
to perform many of the functions that a      is required to perform under the State Revolving
Loan Fund program - identification and selection of projects, informing the general public of
their program and decisions, award of subgrants, and oversight of the subgrant projects.  As
the SDWA allows      to use up to 4 percent of their capitalization grants for program
administration, we       it is reasonable to provide the                for a Territory which
is administering a Set-Aside Program.

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                                                                       WSGF
                                                Date Signed: November 17,1998
      In general, the other provisions, allowances, limitations, and procedures that are
contained in the Tribal Set-Aside guidelines apply to the Territorial Program. This includes:

             regulatory authority,
             OMB Cost principles,
             cross-cutting federal authorities,
             schedule for allotment of funds,
             duration of availability of the funds     potential for an "internal" realiotment
             eligibility of profit vs non-profit      systems,
             creation of "new" water systems,
             newly identified water systems,
             eligible uses of the project funds,
             ineligible uses of funds (except for the allowance for 4% administration
             mentioned above)
             technical, financial & managerial capacity of a system,
             reimbufsmant of expenditures incurred prior to receipt of a Set-Aside grant,
             combining Territorial Set-Aside funds with other sources of money,
             matching requirements,
             project identification,
             project prioritization,
             unscheduled emergency projects,
       •     grant management and oversight, and
       •     reports to Headquarters.

       I ask that you proceed with development and implementation of your
Regional Territorial Set-Aside Programs, The new     (FY1999) funds, and the FY1997 and
FY199S funds that           in reserve for the Territorial program will be  reprogrammed to
you as soon as we receive authority from the Comptroller to do so,

       If you have any further questions,       give me a call on (202)260-7077, or have
your staff call Ray Enyeart on {202} 260-5551.
Attachments

CC;   Walter Andrews (Region 2}
       Bruce        (Reg«on2)
       Mark       (Region 2)
       Corine Li (RegionS)
       Jose Caratini (Region 9)

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                                                                            WSGF
                                                     Date Signed: November 17,1998



   The Printing                               Territorial
§1452{j)  Other       - Of the funds annually         under this       for grants to
States, the Administrator shall      allotments in accordance with        1443{a)(4) for the
Virgin Islands, the Commonwealth of the Northern        Islands, American Samoa,
Guam, The grants        as provided in this subsection may be provided by the Administrator
to the governments of such areas, to public water         in such      or to both, to be
used for the public water system expenditures         to in           (a)(2).  The grants,
and grants for the District of Columbia, shall not be deposited in State loan funds. The total
allotment of grants under this section for ail areas described in this subsection in any fiscal
year shall not exceed 0.33 percent of the aggregate amount made available to carry out this
section in that fiscal year.
The                  of section (a) (2) apply to        in the Virgin Islands, the
Commonwealth of the Northern        islands, American Samoa,    Guam.

§1452{a)(2)  Use of funds - Except as otherwise authorized by this title, amounts deposited
in a State loan fund, including loan repayments and interest earned on such amounts, shall be
used only for providing loans or loan guarantees, or as a source of reserve and security for
leveraged loans, the proceeds of which are          in a State loan fund           under
paragraph (1), or other financial assistance authorized under this section to community water
systems and nonprofit noncommunity      systems,  other than systems       by
agencies-_FJnancia| _agsjstanc^iyLnder thjsj^jrtJQQ may be      by a public water system
onlyjor expenditures f not including jDg^itoring,_ppefaji.pn, ...andjnaintenance
expenditures] of a tyj>e.gr category which the Administrator has determined^through
guidance.jtfjUJ^Iitate_CQgipJi_aiice__yfith.nationaJ...primaiv drinking waterjggulatjons
applicable to the system _undgr section ....... 141 2. or otherwise signiflcajTiHyJurther.ihe health
protection objectives of. this title. The funds .rna.v_ajso.be.usgd. to provide toans to a
syste.m^refgrredjpjn section 140114MB} foxlfaejayj^^
described in ..... sectig_n_14gi(4MB)(ilftin. The funjjsjshjiLLnA
real property or interests ...t|iere»n._unjess the acquisition is        tg_a._prQj6ct lathorS^gd
                                                 seller.  Of the amount credited to any
      loan fund           under this section in any      year, 15        shall be
solely for providing loan           to public water systems which regularly serve fewer than
10,000 persons to the extent such funds can be obligated for eligible projects of public water
systems,
                                                                       Attachment 2

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                              AND            FOR ALLOTTING
Formula: EPA will use a formula to calculate the annual allotment for the four Territories, The
SOWA says that EPA, "shall make allotments in accordance with section 1443(a)(4)". The
section referenced gives guidance to EPA on how it is to allot grant funds under the Public
Water System Supervision (PWSS) Program. That        instructs EPA to allot PWSS grant
funds on the      of population, geographical     the number of public      systems, and
other relevant factors,

After considering and analyzing many formula options, EPA has         a formula that:

      »      uses the five specific factors identified in the SDWA ~ population, geographical
             area, community water systems (CWS), nontransient noncommunity water
                    (NTNCWS), and transient noncommunity water        (TNCWS);

      •      provides each Territory with a           minimum allotment;

      •          information collected through the most recent Drinking Water Infrastructure
                   Survey (DWINS) as the "other relevant factor"

The information (or input data) to be used for each of the six factors will be taken from the
following sources.

      population - will be the popuation figures used in the calculation of the PWSS grants
      for the same year. These populations are          from the most current Census
      Bureau        that are available when the tentative PWSS  allotments are calculated.

                       - will be the geographical      information     in the calculation
       of the PWSS grants for the same year. These      will be obtained from the most
       current Statistical Abstract of the United      that is available when the tentative
       PWSS allotments are calculated.

       numbersof community wafer systems (CWS) - will be the number of systems used in
       the calculation of the PWSS grants for the      year. These numbers are obtained
       from the inventories that are contained in the      Drinking Water Information System
       (SDWIS) when the  tentative PWSS          are calculated.

       numbers of nontransient noncoirLmunlfyM3l&LsmMmsJ_NTNCWS} - will be a
       of the number of systems used in the calculation of the PWSS grants from the
       year. The PWSS grant formula     all current and active NTNCWs that are contained
       in SDWIS.  The NTNCWS inventories used In the Territorial program formula will only
       include  non-profit systems since only non-profit NTNCWSs are eligible to receive
       grants from the Territorial Program, The EPA Regional Offices and the Territories will
       be responsible for identifying which NTNCWSs are non-profit   will provide that
       information to  EPA  HQ prior to calculation of     year's allotments,
                                                                      Attachment 3

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                                                            - will be a        of the
      number of systems used in the calculation of the PWSS grants from the       year.
      The PWSS grant formula     all current and active TNCWs that are contained in
      SDWIS. The TNCWS inventories used in the Territorial Program formula will only
      include non-profit systems since only non-profit TNCWSs are eligible to receive grants
      from the Territorial Program.  The EPA Regional Offices and the Territories will be
      rssponsibie for identifying which TNCWSs are non-profit and will provide that
      information to EPA HQ prior to calculation of     year's allotments.

                        - the information for the infrastructure       of the
      wilt be obtained from the most current Drinking Water Infrastructure      Survey
      (DWINS). As the DWINS is currently required to be updated every four years, the
      same DWINS information will be used for at least four Territorial Program allotments,
      The most recent DWINS was published in January 1997.  We will use the information
      contained in that report for allotment of the FFY1997, FFY1998, FFY1999, FFY2000,
      and FFY2001 Territorial appropriations.  The next DWINS is scheduled to be published
      in February 2001,        on    scheduled      EPA would  first be     to use the
      2001 DWINS  report for allotment of the FY2002 Territorial Program budget request and
      appropriation. The February 2001 DWINS report would     be      for allotment of
      the FFY2003, FFY2004, and FFY2005 Territorial Program funds.

      formula structure - The Territorial Program formula will value the five traditional factors
      at 25% of their PWSS formula weights and the DWINS needs at 75%. The resultant
      individual weights will be: population - 5%, geographical     - 2.5%, combined CWS &
      NTNCWS -14%, TNCWS - 3.5%, and DWINS needs - 75%.  In addition, like the
      PWSS formula, the Territorial Program formula will provide each of the four Territories
      with a minimum allotment. The minimum shall be either $150,000 or 7,5% of the funds
      available for the Territorial program, whichever is greater. The intent of this minimum is
      to ensure          Territory has the ability to fund at     one project,      year,
      while at the same time trying to distribute as much of the money as        in
      accordance with the relative  needs of the public water systems in each Territory.

Schedule:  EPA HQ will use the formula 'twice  during each federal fiscal year. The first
calculation will be ajentatiye allotment and will be based on the President's budget request,
the most recent DWiNS, and the collection of the information necessary to run the  PWSS
grant formula. The budget submission historically occurs in late January or      February of
     year, and the PWSS grant formula information is collected  during the      timeframe.
However, since the NTNCWS and TNCWS        will be limited to the non-profit systems,
the inventory     for those categories will  be    to EPA Region's 2 and 9 for adjustment,
Once these adjustments are received, EPA HQ will calculate the tentative allotments- EPA's
goal will be to complete the calculation by late February or early  March of     year.

      EPA cannot guarantee that the Regional offices or Territories will actually receive the
level of funding identified in the tentative allotments, however, since they are      on the
amount of funds that are "requested" from Congress, The purpose of the         allotments
is to provide Territories and EPA's Regional offices with planning       on which to     their
        funding          for the coming fiscal year.
                                                                      Attachment 3

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       When EPA         its appropriation for the year, typically in late        or early fall,
EPA HQ will use the formula to calculate the final (actual) allotments for the year. We will use
the      PWSS formula and DWINS information to calculate the final allotments as was
to calculate the tentative allotments for the year, even if more current  information has become
available.  This practice will avoid major changes between the tentative and final allotments,
and will provide Regions and Territorial governments with as much stability as possible
between the planning and execution phases.  If the funds appropriated to EPA are the
as were requested in the President's budget, the final allotments will be the      as the
tentative allotments. The only thing that will       the     allotments to be different than the
tentative allotments is an appropriation that is different than the
Input Data for Distribution of FY1997.         and        Funds:

VI
AS
GU
NMI
Population1
97,000
82,000
181,000
54,000
Total Geo
Area1
171
90
217
189
CWS
132
21
10
30
NTMCWS2
79
0
0
0
TNCWS*
2
0
0
0
Needs Survey Needs
$223,100,000'
$22,500,000
5108,700,000
$35,100,000
              Population and Geographical area is same as was used to ca/co/ale the FY 1999 PWSS Grants
              This is most current data and was used each of the first three years,
              Includes only non-profit water systems since only the non-profit NTNCWSs and TMCWSs wi be
                   for project funding. Statistics on profit vs non-profit were provided by EPA Regional
              Offices,
Formula        for FY1997 and FY1998. and Tentative       for FY1999

VI
AS
GU
NMi
Total
FY 1997 (Actual)
At SRF Appropriation of
$1,275,000,000
$2,438,200
$310,900
$991,600
$403,700
$4,144.400
FY 1998 (Actual)
At SRF Appropriation of
$725,000,000
51,382,500
5178,300
$562,300
$228,900
$2,350,000
FY 1999(Tenfafwe)
At President's SRF Budget
Request of
$775,000,000
$1 ,449,000
$184,800
$589,300
$239,900
$2,463,000
                                                                           Attachment 3

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