vcr/i
United States
Environmental Protection
Agency
Office of Water
Washington, DC 20460
800B21001
January 2021
2021 Financial Capability Assessment
Guidance
January 2021
PRE-PUBLICATION NOTICE. The Director of EPA 's Office of Wastewater Management,
Andrew D. Sawyers, signed the following document on January 12, 2021, and EPA is submitting
it for publication in the Federal Register (FR). This document is not disseminatedfor purposes of
EPA's Information Quality Guidelines and does not represent an Agency determination or
policy. While we have taken steps to ensure the accuracy of this Internet version of the document,
it is not the official version. Please refer to the official version in a forthcoming FR publication,
which will appear on the Government Printing Office's govinfo website
(httos://www.aovin fo.aov/aDD/collection/fr). It will also appear on Regulations.gov
(https://www.reaulations.aov) in Docket No. EPA-HQ-OW-2020-0426. Once the official version
of this document is published in the FR, this version will be removed from the Internet and
replaced with a link to the official version.
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2021 Financial Capability Assessment Guidance, Prepublication version
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The statements in this document are intended solely as guidance. The contents of this document
do not have the force and effect of law and are not meant to bind the public in any way. This
document is intended only to provide clarity to the public regarding existing requirements under
the law or agency policies. EPA and State officials may decide to follow the guidance provided in
this document, or to act at variance with the guidance, based on an analysis of site-specific
circumstances. This guidance may be revised without public notice to reflect changes in EPA's
strategy for implementation of the Clean Water Act and its implementing regulations, orto clarify
and update the text. Mention of trade names or commercial products in this document does not
constitute an endorsement or recommendation for use.
Questions about this document should be directed to:
U.S. EPA Office of Wastewater Management
1200 Pennsylvania Avenue NW (4201M)
Washington, DC 20460
(202)566-1000
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Table of Contents
I. Summary
II. Background on the Financial Capability Assessment Guidance and Framework
a. EPA's FCA Guidance and Framework
b. EPA's Use of the 1997 FCA Guidance and 2014 FCA Framework
III. EPA's 2021 Financial Capability Assessment Guidance
a. Purpose of the 2021 FCA Guidance
b. Overview of the 2021 FCA Guidance
c. Alternative 1: Critical Metrics with Established Thresholds and Instructions
i. Residential Indicator
ii. Financial Capability Indicator
iii. Lowest Quintile Residential Indicator
iv. Poverty Indicator
v. Expanded FCA Matrix for Alternative 1
d. Alternative 2: Critical Metrics and Instructions
i. Financial and Rate Models
ii. Poverty Indicator
e. Other Metrics with Standardized Instructions
i. Drinking Water Costs
ii. Potential Bill Impacts Relative to Household Size
iii. Customer Assistance Programs
iv. Asset Management Costs
v. Stormwater Management Costs
vi. Comparisons to National Data
f. Other Metrics with Submission of Information Determined by the Community
g. Schedule Development
i. Environmental and Public Health Considerations
ii. Alternative 1 Schedule Development
iii. Alternative 2 Schedule Development
IV. Resources
V. Appendices
a. Appendix A - Residential Indicator Worksheets
b. Appendix B - Financial Capability Indicator Worksheets
c. Appendix C - Examples of Other Metrics
d. Appendix D -Recommended Expanded Matrices and Recommendations for WQS
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I. Summary
The objective of the Clean Water Act (CWA) is "to restore and maintain the chemical, physical,
and biological integrity of the Nation's waters."1 Municipal discharges that violate the CWA can
pose significant threats to public health and the environment. When a community is out of
compliance with the CWA, the Agency's expectation is that the community will achieve
compliance with the CWA as soon as practicable.2 When developing schedules to implement
control measures needed to meet CWA obligations (implementation schedules), EPA considers
public health and environmental considerations as well as a community's financial capability.
The public health and environmental considerations that EPA assesses when developing CWA
implementation schedules is discussed in Section lll.g, below, including environmental justice
and ways to mitigate environmental and public health impacts in low-income and minority
communities. EPA also encourages communities to utilize integrated planning3 and innovative
technologies, such as green infrastructure4, to achieve CWA compliance in a timely, flexible,
and cost-effective manner.
The 2021 Financial Capability Assessment Guidance (2021 FCA) is intended to provide options
and flexibilities to communities and offer templates and calculations that local authorities can
use when assessing their financial capability to implement control measures needed to meet
CWA obligations. The 2021 FCA incorporates aspects of EPA's 1997 Combined Sewer Overflows
- Guidance for Financial Capability Assessment and Schedule Development (1997 FCA Guidance)
and EPA's 2014 Financial Capability Assessment Framework for Municipal Clean Water Act
Requirements (2014 FCA Framework). Going forward, the 2021 FCA replaces the 1997 FCA
Guidance and will be used to evaluate a community's capability to fund CWA control measures
in both the permitting and enforcement context, including upgrades to publicly owned
treatment works; control measures to address combined sewer overflows (CSOs), sanitary
*33 U.S.C. § 1251.
2 The CSO Control Policy explains that NPDES authorities "should determine the appropriate vehicle (i.e., permit
reissuance, information request under CWA section 308 or State equivalent or enforcement action) to ensure that
compliance with the CWA is achieved as soon as practicable." 59 Fed. Reg. at 18690. The CSO Policy also requires
"each long-term CSO control plan to utilize appropriate information to address the following minimum [long-term
CSO control plan] elements. The plan should also include both fixed-date project implementation schedules (which
may be phased) and a financing plan to design and construct the project as soon as practicable." 59 Fed. Reg. at
18691.
3 Focusing on each CWA requirement individually may constrain a municipality from addressing its most serious
water quality issues first. Recognizing the limits of this approach, in 2012, EPA developed the Integrated Municipal
Stormwater and Wastewater Planning Approach Framework (Integrated Planning Framework) that offers a
voluntary opportunity for a municipality to develop an integrated plan to meet multiple CWA requirements.
Integrated Planning is a process that municipalities can use to achieve clean water and human health goals while
addressing aging infrastructure, changing population and rainfall patterns, and competing priorities for funding. On
January 14, 2019, the Water Infrastructure and Improvement Act (WIIA) (H.R. 7279) became law. WIIA added a
new Section 402(s) to the CWA to amend the CWA to include the 2012 Integrated Planning Framework.
4 Section 502 of the CWA defines green infrastructure as "...the range of measures that use plant or soil systems,
permeable pavement or other permeable surfaces or substrates, stormwater harvest and reuse, or landscaping to
store, infiltrate, or evapotranspirate stormwater and reduce flows to sewer systems or to surface waters."
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sewer overflows (SSOs), stormwater, and total maximum daily loads; and integrated planning.
Additionally, EPA intends to apply the options and flexibilities from Appendix D of the final 2021
FCA to the consideration of economic impacts to public entities for supporting revisions to
designated uses, water quality standard (WQS) variances, and antidegradation reviews for
WQS.
EPA is committed to working with state, tribal, local, and non-government partners to assist
communities in meeting CWA obligations in a manner that recognizes unique local financial
challenges. The 2021 FCA sets forth two alternatives for assessing financial capability that a
community may choose to employ. The first alternative adopts the Residential Indicator (Rl)
and the Financial Capability Indicator (FCI) from the 1997 FCA Guidance and adds two new
critical metrics to address how the low-income households and poverty prevalence within a
service area can be considered. The second alternative utilizes dynamic financial and rate
models that evaluate the impacts of debt service on customer bills. Additional information such
as a community's total water costs (i.e., costs for wastewater, stormwater, and drinking water
infrastructure investment) may also be submitted and will be considered when negotiating the
length of an implementation schedule for a community's CWA obligations. These new tools
should help standardize and advance the progress made in understanding and considering a
community's financial capability.
II. Background on the Financial Capability Assessment Guidance and Framework
a. EPA's FCA Guidance and Framework
EPA's 1997 FCA Guidance sets forth a two-phased approach for evaluating a National Pollutant
Discharge Elimination System (NPDES) permittee's financial capability to implement CWA
NPDES projects. In the first phase, the Rl calculates the cost per household as a percentage of
median household income (MHI) for the service area of the permittee using data collected by
the U.S. Census Bureau. In the second phase, the FCI evaluates the municipality or wastewater
utility's overall fiscal health and local demographics relative to national norms. The Rl and FCI
results are brought together in a matrix that evaluates the burden (high, medium, or low) a
proposed CWA program imposes on the municipality or utility. This two-phased approach is
referred to as the Financial Capability Assessment (FCA). While developed for use in assessing a
community's capability to fund CSO controls, EPA has also used the 1997 FCA Guidance when
negotiating schedules to implement SSO and other CWA control measures.
The 2014 FCA Framework was developed to encourage the use of the flexibility available under
the 1997 FCA Guidance. Both the 1997 FCA Guidance and the 2014 FCA Framework were
developed with extensive public input and are based on factors for consideration of financial
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capability5 as identified in the CSO Policy, 59 Fed. Reg. 18688, 18894.6 As emphasized in both
the 1997 FCA Guidance and the 2014 FCA Framework, the primary financial indicators found in
the 1997 FCA Guidance are a snapshot in time that might not present the most complete
picture of a community's financial capability to fund its CWA obligations. However, the
indicators did provide common benchmarks for financial burden discussions among the
community, EPA, and state or tribal NPDES authorities. Communities were encouraged to
submit any additional documentation that would create a more accurate and complete picture
of their financial capability, whether as part of the first or second phase of the FCA calculation.
Additional information that the community provided on its unique financial circumstances was
considered so that schedules could take local considerations into account. Where appropriate,
additional information has been considered and used to justify implementation schedules that
are longer than the schedules suggested by the 1997 FCA Guidance baseline analysis.
b. EPA's Use of the 1997 FCA Guidance and the 2014 FCA Framework
Communities, in consultation with regulators and the public, are responsible for evaluating and
selecting controls that will meet CWA requirements. After controls have been selected, an FCA
is used to aid in assessing a community's financial capability as a part of negotiating
implementation schedules under both permits and enforcement agreements. EPA has used
both the 1997 FCA Guidance and the 2014 FCA Framework to support consent decree
negotiations with over 100 wastewater utilities throughout the United States and U.S.
territories. The results of the FCA analyses provide an important benchmark for EPA decision-
makers to consider in CWA permitting and enforcement actions to support consistency across
the country.
EPA does not view or use the 1997 FCA Guidance as a rigid metric that points to a given
schedule length or threshold over which the costs are unaffordable. It is a common
misconception that the FCA can be used to cap spending on CWA programs or projects at a
percentage of MHI. The FCA does not remove obligations to comply with the CWA nor does it
reduce regulatory requirements.7 Rather, EPA uses the FCA to assess a community's financial
capability for the purpose of developing a reasonable implementation schedule that will not
overly burden the community. In practice, EPA considers each community's financial capability
on a holistic case-by-case basis, and MHI is only one of the metrics that EPA evaluates. EPA has
approved implementation schedules for CWA municipal consent decrees that go beyond the
5 These factors are: i) Median household income; ii) Total annual wastewater and CSO control costs per household
as a percent of median household income; iii) Overall net debt as a percent of full market property value; iv)
Property tax revenues as a percent of full market property value; v) Property tax collection rate; vi)
Unemployment; and vii) Bond rating.
6 CWA §402(q) requires that each permit, order, or decree for a discharge from a municipal combined storm and
sanitary sewer shall conform with the CSO Policy.
7 If a permittee cannot meet water quality-based requirements of the CWA, the permittee should work with its
state or authorized tribe to evaluate other tools, such as a revision to designated uses or a WQS variance under 40
C.F.R. Part 131.
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general scheduling boundaries in the 1997 FCA Guidance to ensure CWA requirements are met
while also taking the financial capability of the community into consideration. In these cases,
the implementation schedules were determined to be reasonable based upon the baseline FCA
calculated in accordance with EPA's 1997 FCA Guidance and consideration of supplemental
information that was submitted by the community, as encouraged by the 2014 FCA Framework.
III. EPA's 2021 Financial Capability Assessment Guidance
a. Purpose of the 2021 FCA Guidance
The 2021 FCA advances the ability of communities to more accurately demonstrate the
financial burdens they face and increases the transparency of EPA's considerations as it
endeavors to consistently apply FCA methodologies across the country. The 2021 FCA will allow
communities to easily submit information that may indicate the entire community's capability
to fund CWA control measures/programs. Specifically, the 2021 FCA includes templates and
calculations that communities can use when submitting information for consideration regarding
lowest quintile income (LQI), drinking water costs, financial models or studies, and other
relevant information. The templates and calculations include references that direct the
community to the applicable publicly available data sources.
The 2021 FCA sets forth two alternative approaches for assessing a community's financial
capability to carry out CWA control measures. The first alternative is the existing 1997 FCA
methodology with expanded consideration of costs, poverty, and impacts on the population in
the service area with incomes in the lowest quintile. The first alternative may be employed by
the community or by EPA for the community, as it involves use of publicly available
information. Communities with lower cost control measures or an ability to self-finance the
cost of CWA controls may wish to employ the first alternative due to its simplicity.
The second alternative is the development of a dynamic financial and rate model that looks at
the impacts of rate increases over time on utility customers, including those with incomes in
the lowest quintile. Communities with more expensive CWA obligations may choose to employ
the second alternative, given its more sophisticated evaluation of financial capability over time.
However, if a community chooses the second alternative, it must conduct the analysis itself as it
requires information known only to the community.
For use in the first alternative, relevant portions of the 1997 FCA Guidance are included as
Appendices to the 2021 FCA. While the structure of the included 1997 FCA Guidance
worksheets remains for the first alternative, the 2021 FCA also includes standardized
instructions and practice tips for how to define and incorporate certain additional costs into the
portion of the Rl calculation that looks at total CWA costs per household as a percent of MHI.
EPA intends to consider not only MHI when calculating the impact of costs on a community's
households but also will consider impacts to households in the lowest quintile. MHI represents
the mid-point of income in a geographical area determined by the American Community Survey
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(ACS). Median is used to express a "middle" value in a set of data. This "middle" value is also
known as the central tendency. Median is determined by ranking the data from largest to
smallest, and then identifying the middle so that there are an equal number of data values
larger and smaller than the middle point. The median is generally used for skewed distributions
and is typically used to derive at central tendency since it is not largely affected by outlier
values. However, EPA recognizes that many communities have customers at either end of the
income spectrum. Some communities have a range of incomes but also have contiguous areas
of population that have difficulty paying for their water services. For some communities, these
challenges can be shown by looking at the community's LQI along with its MHI. As such, EPA has
incorporated LQI into the LQRI, a critical metric for calculating the impact of costs on a
community's households.
Based on stakeholder feedback, EPA is basing its Alternative 1 critical metrics on data that is
available in the ACS. The ACS is conducted every year by the U.S. Census Bureau to provide up-
to-date information about the social and economic conditions of communities. The annual
updates include key socio-demographic information and can be provided to a fine level of
geographic granularity with historic continuity. The ACS can produce data showing the quintiles
of household income (each quintile defines the household income range for 20% of a
community's households). The Alternative 1 critical metrics meet the following criteria
proposed by the National Academy of Public Administration:8
• Readily available from publicly available data sources;
• Clearly defined and understood;
• Simple, direct, and consistent;
• Valid and reliable measures, according to conventional research standards; and
• Applicable for comparative analyses among permittees.
The 2021 FCA can help to ensure that local challenges related to low-income households are
better reflected in CWA implementation schedules. The types of data provided in Alternative 1
of the 2021 FCA are not exhaustive; and consistent with previous policy, EPA will consider any
relevant financial or demographic information presented that illustrates the unique or atypical
circumstances faced by a community.
b. Overview of the 2021 FCA
Consideration of financial capability requires certain information. Alternative 1 of the 2021 FCA
involves analyzing both the first phase (Rl) and the second phase (FCI) of the two-phased
approach in the 1997 FCA Guidance as critical metrics and adds two new critical metrics: the
Lowest Quintile Residential Indicator (LQRI) and the Poverty Indicator (PI). These four critical
8 NAPA issued a report titled "Developing a New Framework for Community Affordability of Clean Water Services"
in October 2017.
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metrics would be calculated by the community or EPA and would be considered equally. The
2021 FCA includes recommended implementation schedule benchmarks applicable to
Alternative 1 (Exhibit 6). It should be emphasized that these four critical metrics might not
present the most complete picture of a community's financial capability to fund its CWA
requirements. However, these metrics do provide a common basis for financial burden
discussions among the community, the state or tribe, and EPA. Since flexibility is an important
aspect of the CWA, communities are encouraged to submit any additional documentation
(other metrics) for consideration that would create a more accurate and complete picture of
their financial capability.
Alternative 2 of the 2021 FCA involves analyzing financial and rate models in addition to
calculating the Poverty Indicator Score. The 2021 FCA also includes Other Metrics with
Standardized Instructions, as well as Other Metrics with Submission of Information to be
Determined by the Community. Significant consideration should be given to drinking water
costs as well as the cost of meeting CWA obligations. Consideration of other metrics is
permitted under either Alternative 1 or 2 and may support an extended implementation
schedule. However, EPA does not anticipate establishing implementation schedules that would
exceed the useful life of the selected CWA control measures.9
Alternative 1: Critical Metrics with Established Thresholds and Instructions
• Residential Indicator - cost per household as a percentage of MHI
• Financial Capability Indicator - six socioeconomic, debt, and financial indicators used to
benchmark a community's financial strength
• Lowest Quintile Residential Indicator - cost per low-income household as a percentage of
the LQI
• Poverty Indicator - five poverty indicators used to benchmark the prevalence of poverty
within the service area
Alternative 2: Critical Metrics
• Financial and Rate Models
• Poverty Indicator
Other Metrics with Standardized Instructions
• Drinking Water Costs
• Potential Bill Impact Relative to Household Size
9 A community should submit all supporting data and documentation regarding the useful life of the selected CWA
control measures. Based on EPA's experience with Clean Water Act programs, the projected useful life of
wastewater infrastructure assets for the purpose of financing is typically 30-40 years. Additionally, Clean Water
State Revolving Loan Funds terms are typically limited to the "lesser of 30 years and the projected useful life (as
determined by the State) of the project to be financed with the proceeds of the loan." See 33 U.S.C. §
1383(d)(1)(A).
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• Customer Assistance Programs
• Asset Management Costs
• Stormwater Management Costs
Examples of Other Metrics with Submission Information Determined by the Community
• Unemployment Rates
• Debt Service Coverage Ratio
• Debt to Income Ratio
• Percent Population Decline, or Other Population Trends
• Locality Specific Information on Household Size, Including the Size of Households with
Incomes in The Lowest Quintile
• State or Local Legal Restrictions or Limitations on Property Taxes, Other Revenue Streams,
or Debt Levels
• Other Metrics as Determined by the Community
c. Alternative 1: Critical Metrics with Established Thresholds and Instructions
1. Residential Indicator
The community or EPA can calculate the Residential Indicator impact level (low, mid-range, or
high) by following the worksheets in Appendix A.10
2. Financial Capability Indicator
The community or EPA can calculate the Financial Capability Indicator impact level (weak, mid-
range, or strong) by following the worksheets in Appendix B.
3. Lowest Quintile Residential Indicator
The community or EPA can evaluate the financial burden of CWA costs for LQI households in its
service area by preparing a table to determine the Cost Per Lowest Quintile Household as a
Percent of the Upper Boundary of the LQI. The steps for performing this calculation are
described below. This analysis, based on easily acquired Census data, is consistent with and
builds off the structure of the Residential Indicator analysis. Exhibit 1 provides a template and a
sample calculation that computes the Cost per Household (CPH) and as a percentage of LQI.
10 In the mid-1990s EPA developed the 1% and 2% Residential Indicator benchmarks after conducting an analysis of
the costs of wastewater services as a percentage of household income using EPA's Municipality's Ability to Pay
Model (MABEL) database. The analysis also examined the National Wastewater User Fee Study of the Construction
Grants program database, which captured the annual residential expenditures as a percentage of median
household income. The 2% benchmark was calculated to be two standard deviations above the average
expenditure per household.
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Exhibit 1: Template (with Sample Numbers) for Calculation of Lowest Quintile Residential
Indicator
Calculation of Lowest Quintile Residential Indicator
1
Ratio of Lowest Quintile HH Size to
Median HH Size
70.2%
(unless
superseded
by local
information)
2018 value for United
States based on U.S.
Census Bureau Current
Population Survey data
2
Cost for Median Household
$860
Line 109 from FCA
Residential Indicator
Analysis
3
Cost for Lowest Quintile Household
$604
Line 1 * Line 2
4
Upper Limit of Lowest Income Quintile
for Service Area
$28,500
5-Yr ACS value for upper
boundary of lowest
quintile of household
income in service area
5
Cost as Percentage of Low-Income
Household
2.1%
(Line 3/Line 4) * 100
6
LQRI Impact Rating
High Impact
Based on Line 5 result,
select from below impacts.
Lowest Quintile Residential Indicator Benchmarks
Low Impact
Less than 1.0%
Mid-Range Impact
1.0% to 2.0%
High Impact
Above 2.0%
Ratio of Lowest Quintile HH Size to Median HH Size
While not always accurate, in general, water use is correlated with household size, and water
use dictates the amount of sewage service billed.11 National data indicates that lowest quintile
households are smaller than the middle or higher quintiles, largely because the lowest quintile
contains a disproportionate number of single person households with a single income. Table 1
below shows household size relative to income groups. The income groups approximate
quintiles, as the Census data used is from a different source that arrays the information by
11A Water Research Foundation study found that as of 2016 the average household (2.65 people) daily water use
was 138 gallons, while the average per capita usage was 58.6 gallons. The report notes that there is considerable
range in usage across the United States due to the influence of climate and weather patterns. See: Water Research
Foundation, "Residential End Uses of Water, Version 2: Executive Report," April 2016. Accessed at
httpsi//www. waterrf.org/research/proiects/residential-end-uses-water-version-2.
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$5,000 increments.12 Table 1 shows that the lowest income group (up to $24,999) has the
highest proportion of single-person households, and the highest proportion of single and two
person households. Six or more person households are the smallest proportion for the lowest
income group. Conversely, highest income households have the largest proportion of five or
more person households and the lowest proportion of single person households.
Table 1. Census Data on Household Size Distribution by Income Group
Household Size Distribution by Income Group 2018
$130,000 and over
$80,000 to $124,999
$50,000-$79,999
O $25,000 to $49,999
$0 to 24,999
5,000 10,000 15,000 20,000 25,000 30,000
I One person ¦ Two people
Four people ¦ Five people
I Seven people or more
Three people
I Six people
Total Number of Households (1,000s)
Source: U.S. Census Bureau, Current Population Survey, 2019 Annual Social and Economic Supplement.
Additionally, the U.S. Department of Housing and Urban Development (HUD) collects data on
the characteristics of housing units that are part of HUD's subsidized housing programs. Table 2
summarizes the data for 2018. About 4.6 million housing units are subsidized, serving 9.5
million people (an average of 2.1 people per housing unit). According to the 2018 5-Year ACS
data, there are about 119.7 million total occupied housing units (i.e., households) in the United
States, or 23.9 million households in each income quintile. The two largest programs show
between 1.7 people per unit (Section 8) and 2.3 people per unit (Housing Choice Vouchers).
HUD's 2018 subsidized housing program benefits are provided to households based on federal
poverty levels, tiered by household size. The limits for larger households are above the national
lowest quintile upper limit, but as shown above, some larger households do fall within the
lowest quintile.
12 The 2018 quintiles have been approximated based on the Census national 2018 quintile data for household
income.
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Table 2. HUD Data for Subsidized Housing Household Size
HUD SUPPORTED HOUSING UNITS 2018
Program Label
People per Unit
Number of
Units Reported
Number of
People
Public Housing
2.1
944,463
1,985,172
Housing Choice Vouchers
2.3
2,276,722
5,259,207
Mod Rehab
1.5
27,042
39,586
Project Based Section 8
1.7
1,214,021
2,063,641
RentSup/RAP
1.7
738
1,242
S236/BMIR
1.9
9,833
18,423
202/PRAC
1.1
123,134
132,933
811/PRAC
1.1
32,294
35,156
Summary of All HUD Programs
2.1
4,628,247
9,535,360
Source: U.S. Department of Housing and Urban Development, Office of Policy Development and
Research (PD&R). Assisted Housing: National and Local, 2018 U.S. Total - Based on Census 2010
Geographies. Data accessed at:
https://www. huduser. aov/portal/datasets/assthsa. htm!#2009-2019 data
For the U.S. overall, in 2018 the middle quintile household averaged 2.52 persons while the
lowest quintile averaged 1.77 persons, which equals 70.2% of the median sized household. In
Exhibit 1, above, the ratio of the size of a lowest quintile household13 relative to the middle
quintile of households is calculated using data from the U.S. Census Bureau Current Population
Survey (CPS). Once calculated, this ratio can be applied to the Cost Per Household from the Rl
calculation to estimate the Cost Per Lowest Quintile Household. The ACS does not have data
defining lowest quintile household size at local levels - thus making it difficult to differentiate
and calculate local ratios. EPA recognizes that some factors, such as age of infrastructure,
housing types (residential one family versus multi-family), and leaky pipes, may impact usage
and result in a different ratio. To the extent that a community provides EPA with additional
information on circumstances that are impacting usage in certain low-income communities, we
intend to use that information. Where local data is available, communities are encouraged to
calculate the local ratio using that data, and EPA will consider that ratio in lieu of the 70.2%
ratio based on national data. For EPA to consider this information, a community should submit
the ratio calculation and all supporting data.
13 Households include all occupied housing units regardless of whether they are owned or rented.
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The Bureau of Labor Statistics of the U.S. Department of Labor collects data on the details of
consumer spending, including for "water and other public services."14 This data can be used to
illustrate current differences in how a median household versus a household in the lowest
quintile are impacted by the cost of utilities. A compilation of this 2018 data by Michigan State
University15 shows:
• Lowest quintile income households spend $344 annually on all public utility services
(about 1.3 percent of income) while the middle quintile household spends $596 (about
1.15 percent of income).16
• For the lowest quintile, water and related services costs are about 14.2 percent of total
utility costs, while 15 percent for the middle quintile.17
• Rural consumer expenditures on utilities have consistently been a higher percentage
over time in comparison to urban consumer expenditures, and owners spend more than
renters.
• Since about 2009, water and sewer expenditures have increased less than the rate of
increase for the water and sewer consumer price index, indicating a decline in volume
used.
Although these numbers are a composite of more than just water and sewer bills, there is a
clear trend that shows that generally, lower quintile households spend more as a percentage of
their income than higher income households on utility services such as wastewater. EPA
intends to account for this difference by adjusting the LQRI based on the differences in
household size as a proxy for differences in water usage between the median and lowest
quintile households. An example of this adjustment is provided in Exhibit 1. EPA recognizes that
this adjustment may not be appropriate in all instances. For example, if low volume households
receive the same bill as high-volume households, then the adjustment provided in step 1 of
Exhibit 1 should be omitted from the calculation.
LQRI Benchmark Ranges
The benchmark ranges in Exhibit 1 are the same as are used for the Rl (see Appendix A -
Residential Indicator Worksheets). Including LQRI as a critical metric represents a change from
current practice of looking only at median income to evaluate residential impacts, even though
a median number means that 50% of the population will face higher impacts.
14 BLS's "water and other public services" category includes expenditures such as garbage and trash collection,
sewerage maintenance, and septic tank cleaning.
15 Janice A. Beecher, 'Trends in consumer expenditures and prices for public utilities," Institute of Public
Utilities/MSU, Revised February 25, 2020. Accessed on June 9, 2020 at httpi//ipu,rosu.edu/wp~
content/uploads/2020/02/IPU-MSU-CPI-CES-2020-l.pdf; [Beecher IPU/MSU Study],
16 Beecher IPU/MSU Study at Page 5. Data shown in the two graphics, based on the light blue blocks for lowest
quintile and 3rd quintile.
17 Id.
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4. Poverty Indicator
The community or EPA can calculate a Poverty Indicator Score by using the list of poverty
indicators in Exhibit 2 to benchmark the prevalence of poverty within its service area. These
poverty indicators are evaluated using a ±25% benchmark to national values, like the
methodology used to calculate the FCI. Using a ±25% MHI benchmark closely aligns with the
middle quintile of data for the parameter, which can characterize the "middle class" of
Americans. This bracketing of the middle 50% is a common methodology of identifying outliers
on either end of the data distribution.
[space intentionally left blank]
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Exhibit 2: Template for Calculation of the Poverty Indicator Score
Indicator
Strong
(3)
Mid-Range
(2)
Weak
(1)
Census
Data
Code
Rating
PI #1
Percentage of Population
with Income Below 200%
of Federal Poverty Level
More than
25% below
National
value
±25% of
National
value
More than
25% above
National
value
S1701
PI #2
Percentage of Population
with Income Below
Federal Poverty Level
More than
25% below
National
value
±25% of
National
value
More than
25% above
National
value
S1701
PI #3
Upper Limit of Lowest
Income Quintile
More than
25% above
National LQI
±25% of
National LQI
More than
25% below
National LQI
B19080
PI #4
Lowest Quintile Income
as a Percentage of
Aggregate Income
More than
25% below
National
value
±25% of
National
value
More than
25% above
National
value
B19082
PI #5
Percentage of Population
Receiving Food
Stamps/SNAP Benefits
More than
25% below
National
value
±25% of
National
value
More than
25% above
National
value
S2201
Sum of ratings
Poverty Indicator Score (Sum divided by 5)
Poverty Indicator Benchmarks
Low Impact (Above 2.5)
Mid-Range Impact (2.5 to 1.5)
High Impact (Below 1.5)
5. Expanded Financial Capability Assessment Matrix for Alternative 1
The Expanded FCA Matrix for Alternative 1, which incorporates the four critical metrics
described above, determines the overall burden level of the community's service area. The
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Expanded FCA Matrix gives equal consideration to the Rl, FCI, LQRI, and PI, first by combining Rl
and FCI to determine an FCA Burden, then by combining LQRI and PI to determine a Lowest
Quintile Burden, and finally by combining the FCA Burden and Lowest Quintile Burden to
determine the overall burden level for the community's service area.
Financial Capability Matrix
The Financial Capability Matrix determines the FCA Burden by combining Rl and FCI. The matrix
is included below as Exhibit 3.
Exhibit 3: Financial Capability Matrix
Financial Capability
Indicator
Residential Indicator
Low Impact (Below
1.0%)
Mid-Range (1.0% to
2.0%)
High Impact (Above
2.0%)
Strong (Above 2.5)
Low Burden
Low Burden
Medium Burden
Mid-Range (1.5 to
2.5)
Low Burden
Medium Burden
High Burden
Weak (Below 1.5)
Medium Burden
High Burden
High Burden
Lowest Quintile Burden Matrix
The Lowest Quintile Burden Matrix determines the Lowest Quintile Burden by combining LQRI
and PI. The Lowest Quintile Burden Matrix is included below as Exhibit 4.
Exhibit 4: Lowest Quintile Burden Matrix
Poverty Indicator
Lowest Quintile Residential Indicator
Low Impact (Below
1.0%)
Mid-Range (1.0% to
2.0%)
High Impact (Above
2.0%)
Low Impact (Above
2.5)
Low Burden
Low Burden
Medium Burden
Mid-Range
(1.5 to 2.5)
Low Burden
Medium Burden
High Burden
High Impact (Below
1.5)
Medium Burden
High Burden
High Burden
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Expanded FCA Matrix and Associated Schedule Recommendations
The Expanded FCA Matrix determines the overall burden level when combining all four critical
metrics (Rl, FCI, LQRI, and PI). The Expanded FCA Matrix is included below as Exhibit 5.
Exhibit 5: Expanded Financial Capability Assessment Matrix
FCA Burden
(Rl and FCI)
LQ Burden (LQRI and PI)
Low Burden
Medium Burden
High Burden
Low Burden
Low Burden
Low Burden
Medium Burden
Medium Burden
Low Burden
Medium Burden
High Burden
High Burden
Medium Burden
High Burden
High Burden
The results of the Expanded FCA Matrix correspond to the recommended implementation
schedule benchmarks in Exhibit 6, below. EPA has developed these schedule benchmarks to
account for the consideration of two new critical metrics, the LQRI and the PI. The schedule
benchmarks are based on EPA's experience negotiating over 100 CWA consent decrees with
communities of various sizes, including negotiations with communities that voluntarily
submitted additional financial and demographic information for consideration, consistent with
the 2014 FCA Framework, regarding lowest quintile income and poverty within their service
area. It is important to note that EPA evaluates financial capability on a continuum. Although
the Expanded FCA Matrix categorizes a community's overall burden level as "high, medium, or
low," this does not necessarily mean that schedules would be rigidly set according to the break
points between the categories. This is discussed in Section lll.g. (Schedule Development),
below.
Exhibit 6: 2021 FCA Recommended Implementation Schedule Benchmarks for Alternative 1
Expanded FCA Matrix Results
Recommended Implementation Schedule
Benchmarks
Low Burden
Normal Engineering/Construction Schedule
Medium Burden
Up to 15 years
High Burden
Up to 25 years (absent consideration of
additional information)
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In addition, the 1997 FCA Guidance is substantively identical to the public sector sections of the
1995 Interim Economic Guidance for Water Quality Standards (1995 WQS Guidance)18 which is
used for supporting revisions to designated uses, WQS variances, and antidegradation reviews
for WQS. EPA recommends the application of the options and flexibilities from Alternative 1 of
the 2021 FCA to the consideration of economic impacts to public entities when making such
WQS decisions. See Appendix D for more information on the application of Alternative 1 to
support such WQS decisions.
d. Alternative 2: Critical Metrics and Instructions
1. Financial and Rate Models
According to the CSO Policy, construction phasing for CSO controls should consider previous
and current residential, commercial, and industrial sewer user fees and rate structures.19 In
Alternative 2, EPA is providing an opportunity for those communities that wish to use financial
and rate model analyses to submit this more detailed information to assist in developing an
appropriate schedule for implementing CWA control measures.
Communities use financial and rate models to determine how to finance capital costs. Smaller
capital programs may be feasibly handled through the additional revenues generated by rate
increases (sometimes referred to as "pay-as-you-go" or "pay-go"), but large programs are
normally financed through a combination of pay-go and various forms of debt, such as bonds or
loans. Customers then pay for the additional costs of servicing the debt or pay-go financing
through increased rates. Lenders may impose conditions on the community, such as coverage
ratios, that may require additional increases in revenues and rates.
Cash flow forecasting is a useful tool that allows communities to determine, on an annual basis,
the revenue necessary to cover costs (including the costs of compliance projects) and to meet
debt covenants over the implementation period. The community should plan and allow for
uncertainty in deciding how to adjust water and sewer rates to finance the major capital
improvements. As mentioned above, communities may decide how much should be financed
through debt and how much should be directly paid for by sewer rates as the costs are
incurred. In evaluating potential rate increases, communities should also balance revenue
requirements against the likelihood that users will reduce usage or cease paying utility bills,
causing the yield of the revenues from the rate increase to be less than expected or desired,
potentially causing the community to experience "rate shock."20 In addition, within limits,
18 The 1995 WQS Guidance uses a substantively identical two-phased approach and data as the 1997 FCA
Guidance, although the terminology of the two guidances is different. The 1997 FCA Guidance's terms Residential
Indicator and Financial Capability Indicator are based on the same data and metrics as the 1995 WQS Guidance's
terms Muncipal Preliminary Screener and Secondary Score, respectively. In the 1995 WQS Guidance, these
indicators are brought together into a matrix to determine the degree of economic impact for a WQS decision
whereas, the matrix in the 1997 FCA Guidance is used to determine a community's financial capability to support
negotiations of implementation schedules.
19 CSO Policy, 59 Fed. Reg. 18688,18694 (April 19,1994).
20 Rate shock increases the difficulty of managing program implementation schedules, because financing is
contingent on an adequate revenue stream to support the debt service and additional coverage.
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communities have significant discretion regarding the timing of sewer rate increases. For
example, communities may elect to raise rates more than the absolute minimum necessary in
early years, thereby creating a cushion against economic uncertainties in later years and
providing a strong financial base for bond financing. These calculations inform the annual rate
increases and can help a community evaluate a suite of potential compliance schedules. EPA
has provided a list of resources related to water infrastructure financing and rate setting in
Section IV (Resources), below.
While useful, financial and rate models may be complicated or costly to develop, particularly for
mid-size or small communities, and may be difficult for a regulator to evaluate. For this reason,
EPA proposes that submission of this information is at the discretion of a community. This type
of information can be used as an analytic tool to assist in developing schedules for
implementing CWA control measures, in lieu of the critical metrics and schedule benchmarks
set forth under Alternative 1. Alternative 2 may be particularly useful in situations where the
community already uses such modeling for its internal financial planning or where multiple
constraints affect the community's ability to achieve compliance with the CWA (in terms of
costs or timing). However, EPA does not recommend the use of financial and rate model
analysis under Alternative 2 in lieu of Alternative 1 in WQS decisions. Instead, for WQS
decisions, the use of financial and rate models could be used in a manner similar to the other
metrics in Sections lll.e and 111 .f of the 2021 FCA, i.e., as additional information for consideration
in conjunction with the use of the critical metrics set forth under Alternative 1.
Communities can provide forward looking, year-by-year financial modeling of capital
expenditures necessary to meet CWA obligations to support a proposed schedule for
completing projects to bring the system into compliance. Such modeling is commonly used to
determine the revenues and rate increases necessary to support the financing of operations
and major projects. The typical steps in this process include:
• Determining revenue requirements based on operating costs, debt service payments,
asset management, and necessary capital expenditures;
• Allocating the costs of service to customer classes; and
• Developing a schedule of rates and charges.
Financial and rate models provided in the context of CWA compliance are normally in
spreadsheet form with multiple tabs, including inputs and assumptions, debt service schedules,
operations and maintenance costs, and schedule of necessary capital improvements. The
models are set up so that it is possible to evaluate alternative scenarios in terms of cost, length
of time to complete a program, or assumptions related to financing strategies. Simpler
modeling for smaller communities is possible based on the same concepts, if percentage
revenue increases will be passed through to a typical residential customer bill at the same rate
of increase.
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To assist EPA's review of modeling analyses, EPA recommends that communities submit the
following supporting data and documentation:
• Provide the last three years of financial reports for the wastewater water system.
• A summary of historical rate increases for the past five years.
• Model documentation (e.g., creator, peer review status, version).
• A summary of all model input assumptions and their bases, for example: bond rating,
ability to borrow, legislative caps on ability to borrow, selected funding mechanism,
access to Clean Water State Revolving Fund financing, ability to pay back debt, the
current operating cost and debt service baseline, current revenue, growth in customers,
and inflation in costs and household income.
• An identification of dollar values as either constant (year) or nominal dollars.
• A summary of the model results, explaining the community's view of the conclusions
relevant to its financial capability to implement the necessary work to achieve
compliance.
• A fully functional model of the scenarios presented, with all formulas and interactions
among separate worksheets intact. The model should include a tab that clearly lays out
the input assumptions used.
• A clear description of the baseline financial status and data in terms of year and source
documents that the modeling is built from. This should include the basis for the
residential bill that is used to evaluate impacts on households with median income
levels and households with incomes in the lowest quintile. In general, this will be similar
to the results in the Rl analysis but assumes only current costs.21
• All source and supporting documentation that was relied upon when developing the
model, including certified financial statements.
• Evaluation of multiple scenarios in terms of program length or other key assumptions
and uncertainties.
Communities and EPA have found a summary of scenarios such as the example shown below in
Exhibit 7 to be useful. Other examples would yield different results. To develop year-by-year
forward-looking rate model scenarios, such as those shown in Exhibit 7, a community should:
1. Include Rl and LQRI.
2. Determine whether the modeling will be in current dollars or inflated dollars. If inflated, the
modeled costs, including proposed capital expenditures, should be adjusted overtime. In
addition, MHI and LQI values should be escalated using the historic rate of increase of MHI
21 In general, EPA is finding that per household billed usage is in the range of 5 to 6 CCF (centum cubic feet, or one
hundred cubic feet). If the community serves a significant number of households in multi-family structures, then
the usage will likely be lower. EPA intends to accept the community's current "typical bill" usage assumption, if
consistent with nationwide averages, or real information on usage from actual billing. A community's inability to
obtain per household usage information for families living in multi-family structures that are not billed separately
for utilities does not preclude consideration of usage information from actual billing.
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and LQI or the Consumer Price Index (CPI). The community should provide the basis for all
escalation factor assumptions applied in the model.
3. Define a proposed end year for the completion of investments needed to meet CWA
obligations. Examining several alternative scenarios is preferred to better understand the
impact of various program lengths.
4. Incorporate existing debt service schedules as well as the assumed financing approach for
the proposed program costs. This would likely include a mix of already available reserves,
cash from incoming revenues, and new debt financing from either the municipal bond
market or state-subsidized funding sources.
5. Iterate through proposed capital investment schedules to develop model scenarios and
related revenue requirements.
6. Translate the revenue requirements into annual increases in rates and bills for customers.
Apply the annual percentage increases to the baseline or current average household bill.
Where local data is available, communities are encouraged to implement Alternative 2 using
local data. For EPA to consider this information, a community should submit all supporting data
and documentation, as described above.
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Exhibit 7: Examples of Rate Increase Scenarios and Household Impacts for Each Scenario
7.a. Example of Rate Increase Scenarios and Median Household Impacts for Each Scenario
Scenario:
Utility Proposed Scenario
Other Scenarios
End Year:
2047
2036
2041
Rate
CPH
MHI
Rate
CPH
MHI
Rate
CPH
MHI
Measure:
Inc.
(S)
(S)
Rl
Inc.
(S)
(S)
Rl
Inc.
(S)
(S)
Rl
2016
0%
566
64,814
0.9%
0%
566
64,814
0.9%
0%
566
64,814
0.9%
2017
7.5%
605
66,267
0.9%
5%
593
66,267
0.9%
5%
593
66,267
0.9%
2018
7.5%
647
67,753
1.0%
8.4%
639
67,753
0.9%
6.5%
629
67,753
0.9%
2019
7.5%
588
69,272
0.8%
8.4%
584
69,272
0.8%
6.5%
566
69,272
0.8%
2020
7.5%
629
70,825
0.9%
8.4%
630
70,825
0.9%
6.5%
601
70,825
0.8%
2021
7.5%
672
72,413
0.9%
8.4%
678
72,413
0.9%
6.5%
637
72,413
0.9%
2022
7.5%
719
74,037
1.0%
8.4%
731
74,037
1.0%
6.5%
675
74,037
0.9%
2023
7.5%
770
75,697
1.0%
8.4%
789
75,697
1.0%
6.5%
716
75,697
0.9%
2024
7.5%
824
77,394
1.1%
8.4%
850
77,394
1.1%
6.5%
760
77,394
1.0%
2025
7.5%
882
79,129
1.1%
8.4%
917
79,129
1.2%
6.5%
806
79,129
1.0%
2026
7.5%
944
80,903
1.2%
8.4%
990
80,903
1.2%
6.5%
856
80,903
1.1%
2027
5%
989
82,717
1.2%
8.4%
1,069
82,717
1.3%
6.4%
907
82,717
1.1%
2028
5%
1,037
84,572
1.2%
8.4%
1,154
84,572
1.4%
6.4%
962
84,572
1.1%
2029
5%
1,086
86,468
1.3%
8.4%
1,246
86,468
1.4%
6.4%
1,020
86,468
1.2%
2030
5%
1,138
88,407
1.3%
8.4%
1,345
88,407
1.5%
6.4%
1,082
88,407
1.2%
2031
5%
1,193
90,389
1.3%
8.4%
1,453
90,389
1.6%
6.4%
1,148
90,389
1.3%
2032
5%
1,251
92,416
1.4%
8.4%
1,570
92,416
1.7%
6.4%
1,218
92,416
1.3%
2033
5%
1,311
94,488
1.4%
8.4%
1,697
94,488
1.8%
6.4%
1,292
94,488
1.4%
2034
5%
1,374
96,607
1.4%
8.4%
1,834
96,607
1.9%
6.4%
1,372
96,607
1.4%
2035
5%
1,440
98,773
1.5%
8.3%
1,980
98,773
2.0%
6.4%
1,456
98,773
1.5%
2036
5%
1,510
100,988
1.5%
8.3%
2,139
100,988
2.1%
6.4%
1,545
100,988
1.5%
2037
5%
1,582
103,252
1.5%
0%
2,141
103,252
2.1%
6.4%
1,640
103,252
1.6%
2038
5%
1,659
105,567
1.6%
0%
2,144
105,567
2.0%
6.4%
1,741
105,567
1.6%
2039
5%
1,739
107,934
1.6%
0%
2,146
107,934
2.0%
6.4%
1,848
107,934
1.7%
2040
1.39%
1,764
110,354
1.6%
0%
2,148
110,354
2.0%
6.4%
1,962
110,354
1.8%
2041
1.39%
1,790
112,828
1.6%
0%
2,151
112,828
1.9%
6.4%
2,084
112,828
1.8%
2042
1.39%
1,816
115,358
1.6%
0%
2,153
115,358
1.9%
0%
2,086
115,358
1.8%
2043
1.39%
1,842
117,944
1.6%
0%
2,156
117,944
1.8%
0%
2,089
117,944
1.8%
2044
1.39%
1,869
120,588
1.5%
0%
2,158
120,588
1.8%
0%
2,091
120,588
1.7%
2045
1.39%
1,896
123,292
1.5%
0%
2,161
123,292
1.8%
0%
2,094
123,292
1.7%
2046
1.39%
1,923
126,056
1.5%
0%
2,164
126,056
1.7%
0%
2,097
126,056
1.7%
2047
0%
1,926
128,882
1.5%
0%
2,166
128,882
1.7%
0%
2,099
128,882
1.6%
Key: Rate Inc. = Annual Rate Increase for Wastewater
CPH = Annual Cost per Median Household for Wastewater and Storm Water Combined
MHI = Median Household Income
Rl = Residential Indicator (i.e., CPH as a percent of MHI)
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7.b. Example of Rate Increase Scenarios and Lowest Quintile Household Impacts for Each Scenario
Scenario:
Utility Proposed Scenario
Other Scenarios
End Year:
2047
2036
2041
Rate
CPLQH
LQI
Rate
CPLQH
LQI
Rate
CPLQH
LQI
Measure:
Inc.
(S)
(S)
LQRI
Inc.
(S)
(S)
LQRI
Inc.
(S)
(S)
LQRI
2016
0%
397
32,197
1.2%
0%
397
32,197
1.2%
0%
397
32,197
1.2%
2017
7.5%
425
32,919
1.3%
5%
416
32,919
1.3%
5%
416
32,919
1.3%
2018
7.5%
454
33,657
1.4%
8.4%
448
33,657
1.3%
6.5%
441
33,657
1.3%
2019
7.5%
413
34,412
1.2%
8.4%
410
34,412
1.2%
6.5%
398
34,412
1.2%
2020
7.5%
441
35,184
1.3%
8.4%
442
35,184
1.3%
6.5%
422
35,184
1.2%
2021
7.5%
472
35,973
1.3%
8.4%
476
35,973
1.3%
6.5%
447
35,973
1.2%
2022
7.5%
505
36,780
1.4%
8.4%
513
36,780
1.4%
6.5%
474
36,780
1.3%
2023
7.5%
540
37,605
1.4%
8.4%
554
37,605
1.5%
6.5%
503
37,605
1.3%
2024
7.5%
578
38,448
1.5%
8.4%
597
38,448
1.6%
6.5%
533
38,448
1.4%
2025
7.5%
619
39,310
1.6%
8.4%
644
39,310
1.6%
6.5%
566
39,310
1.4%
2026
7.5%
663
40,191
1.6%
8.4%
695
40,191
1.7%
6.5%
601
40,191
1.5%
2027
5%
694
41,092
1.7%
8.4%
750
41,092
1.8%
6.4%
637
41,092
1.5%
2028
5%
728
42,013
1.7%
8.4%
810
42,013
1.9%
6.4%
675
42,013
1.6%
2029
5%
763
42,955
1.8%
8.4%
874
42,955
2.0%
6.4%
716
42,955
1.7%
2030
5%
799
43,918
1.8%
8.4%
944
43,918
2.2%
6.4%
760
43,918
1.7%
2031
5%
838
44,903
1.9%
8.4%
1,020
44,903
2.3%
6.4%
806
44,903
1.8%
2032
5%
878
45,910
1.9%
8.4%
1,102
45,910
2.4%
6.4%
855
45,910
1.9%
2033
5%
920
46,939
2.0%
8.4%
1,191
46,939
2.5%
6.4%
907
46,939
1.9%
2034
5%
964
47,991
2.0%
8.4%
1,287
47,991
2.7%
6.4%
963
47,991
2.0%
2035
5%
1,011
49,067
2.1%
8.3%
1,390
49,067
2.8%
6.4%
1,022
49,067
2.1%
2036
5%
1,060
50,167
2.1%
8.3%
1,502
50,167
3.0%
6.4%
1,085
50,167
2.2%
2037
5%
1,111
51,292
2.2%
0%
1,503
51,292
2.9%
6.4%
1,151
51,292
2.2%
2038
5%
1,165
52,442
2.2%
0%
1,505
52,442
2.9%
6.4%
1,222
52,442
2.3%
2039
5%
1,221
53,618
2.3%
0%
1,506
53,618
2.8%
6.4%
1,297
53,618
2.4%
2040
1.39%
1,239
54,820
2.3%
0%
1,508
54,820
2.8%
6.4%
1,378
54,820
2.5%
2041
1.39%
1,256
56,049
2.2%
0%
1,510
56,049
2.7%
6.4%
1,463
56,049
2.6%
2042
1.39%
1,275
57,306
2.2%
0%
1,511
57,306
2.6%
0%
1,464
57,306
2.6%
2043
1.39%
1,293
58,591
2.2%
0%
1,513
58,591
2.6%
0%
1,466
58,591
2.5%
2044
1.39%
1,312
59,905
2.2%
0%
1,515
59,905
2.5%
0%
1,468
59,905
2.5%
2045
1.39%
1,331
61,248
2.2%
0%
1,517
61,248
2.5%
0%
1,470
61,248
2.4%
2046
1.39%
1,350
62,621
2.2%
0%
1,519
62,621
2.4%
0%
1,472
62,621
2.4%
2047
0%
1,352
64,025
2.1%
0%
1,521
64,025
2.4%
0%
1,474
64,025
2.3%
Key: Rate Inc. = Annual Rate Increase for Wastewater
CPLQH = Annual Cost per Lowest Quintile Household for Wastewater and Storm Water Combined
LQI = Upper Boundary of the Lowest Quintile Household Income
LQRI = Residential Indicator for Lowest Quintile Household (i.e., CPLQH as a percent of LQI)
EPA intends to use this information when developing schedules for implementing control
measures to work with communities to avoid rate shock and to avoid water utility rates that
represent an overly burdensome percentage of household income. Unlike Alternative 1, EPA
has not established benchmark percentages of household income for Alternative 2. However,
EPA intends to keep the percentage of household income spent on wastewater utility bills (and
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if added to the model, drinking water utility bills) within reasonable bounds when establishing
compliance schedules. EPA does not intend for such a schedule to exceed the useful life of the
selected CWA control measures. Communities are encouraged to provide local information to
EPA to support the prediction of a likely occurrence of rate shock. It is important to note that
other metrics, such as drinking water costs, may also impact rate shock. As mentioned above,
EPA does not recommend the use of financial and rate model analysis under Alternative 2 in
lieu of Alternative 1 in WQS decisions. Instead, for WQS decisions, the use of financial and rate
models could be used in a manner similar to the other metrics in Sections 111.e and lll.f of the
2021 FCA, i.e., as additional information for consideration in conjunction with the use of the
critical metrics set forth under Alternative 1.
2. Poverty Indicator
In addition to the Financial and Rate Model analysis, a community or EPA can calculate a
Poverty Indicator Score by using the list of poverty indicators in Exhibit 2, above, to benchmark
the prevalence of poverty within the service area.
e. Other Metrics with Standardized Instructions
Based on stakeholder feedback and EPA's experience, providing standardized instructions for
incorporating drinking water costs, potential bill impacts relative to household size, a
community's customer assistance program, asset management costs, and stormwater
management costs should increase transparency and clarity regarding how EPA considers these
factors. As noted above, other metrics may be considered under Alternative 1 and Alternative 2
and may support an extended implementation schedule, not to exceed the useful life of the
selected CWA control measures. Additionally, use of these other metrics under Alternative 1
and Alternative 2 may be considered in WQS decisions.
1. Drinking Water Costs
EPA recognizes that both clean water and drinking water costs are often covered through
charges on a single bill. For this reason, the 2021 FCA lays out a new way to incorporate a
community's drinking water obligations. Given the widespread, increasing costs of producing
reliable drinking water in communities, EPA is providing standardized instructions along with an
explanation of how it intends to develop implementation schedules that will account for the
significant impacts of drinking water obligations. Consideration of drinking water information
may result in an extended implementation schedule. However, EPA does not anticipate
establishing implementation schedules that would exceed the useful life of the selected CWA
control measures.
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Consideration of Drinking Water Costs under Alternative 1
Drinking water information is intended to be used in Alternative 1 to supplement the four
critical metrics and the results of the Expanded FCA Matrix. If information on drinking water
costs is submitted and supported by the documentation detailed below, under Alternative 1
EPA may permit a community to move from a "low burden" to a "medium burden" or from a
"medium burden" to a "high burden" in the 2021 FCA Implementation Schedule Benchmarks
(Exhibit 6). Or, if a community is already experiencing a high burden, EPA may use this
additional information to support a schedule beyond the schedule benchmarks in Exhibit 6, not
to exceed the useful life of the selected CWA control measures. Additionally, use of drinking
water costs in the same manner may be considered in WQS decisions.
If a community submits information on drinking water costs, EPA requests that the community
provide detailed descriptions and cost estimates for the drinking water requirements. The
community may also prepare and submit information on current drinking water rates and/or a
cost per household analysis for drinking water costs that is like the Rl calculation in Appendix A.
The community should also submit the following supporting documentation:
1. Describe the specific improvements and costs required.
2. Describe the underlying requirements for the drinking water improvements (for example,
are the drinking water improvements required by a state or federal permit, regulation, or
enforcement action?).
3. Describe the relationship of the wastewater system service area to the drinking water
system service area(s) geographically and in terms of households served.
4. If the drinking water system and wastewater system are operated by the same utility,
identify and explain any issues related to future financing and financial capability expected.
5. Provide the last three years of financial reports for the drinking water system.
6. Provide the current and approved future rate schedules for the drinking water system.
7. Propose an implementation schedule that integrates the CWA improvements and drinking
water improvements, including a detailed description of the proposed sequencing of the
improvements.
Consideration of Drinking Water Costs under Alternative 2
Drinking water information is intended to be used in Alternative 2 to evaluate the impacts of
rates for both wastewater and drinking water on household bills. If a community submits
information on drinking water costs as part of its financial and rate model, EPA requests that
the community provide detailed descriptions and cost estimates for the drinking water
requirements. The community should also submit the following supporting documentation:
1. Describe the specific improvements and costs required.
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2. Describe the underlying requirements for the drinking water improvements (for example,
are the drinking water improvements required by a state or federal permit, regulation, or
enforcement action?).
3. Describe the relationship of the wastewater system service area to the drinking water
system service area(s) geographically and in terms of households served.
4. If the drinking water system and wastewater system are operated by the same utility,
identify and explain any issues related to future financing and financial capability expected.
5. Provide the last three years of financial reports for the drinking water system.
6. Provide the current and approved future rate schedules for the drinking water system.
7. Provide a drinking water rate model analysis.
8. Provide all source and supporting documentation that was relied upon when developing the
drinking water rate model, including certified financial statements.
9. Propose an implementation schedule that integrates the CWA improvements and drinking
water improvements, including a detailed description of the proposed sequencing of the
improvements.
2. Potential Bill Impact Relative to Household Size
Another analysis that EPA and communities have found helpful, shown below by example in
Exhibit 8, evaluates the maximum potential bill impact relative to household size. Typically, as
household size increases, monthly water usage increases.22 One person households use
significantly less water than a three- or four-person household, but also have on average fewer
financial resources. Displaying data in this manner (i.e., by household size) provides a more
nuanced view of the impact of costs based on likely usage.
The data in Exhibit 8 is an example of how a community can evaluate the feasibility of a capital
improvement program relative to various household sizes, using the results of a modeling
program. This information allows EPA to understand the specific impact of program costs
relative to household size by comparing a table that shows the impacts of current rates on
various household sizes to a table that shows the impacts of future rates (incorporating
required program costs) on various household sizes. Tables like the ones shown in Exhibit 8 can
be created by following the below steps:
• To develop a table showing current rate impacts (see example in Exhibit 8.a):
o Obtain current data for Percent of Service Area per household size (column 2) and
MHI by household size (column 3), available in the ACS database.
22 A Water Research Foundation study found that as of 2016 the average household (2.65 people) daily water use
was 138 gallons, while the average per capita usage was 58.6 gallons. The report notes that there is considerable
range in usage across the United States due to the influence of climate and weather patterns. See: Water Research
Foundation, "Residential End Uses of Water, Version 2: Executive Report," April 2016. Accessed at
https://www,waterrf,org/research/proiects/residential-end-uses-water-version-2.
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o Using current rates, calculate the monthly household bill for each CCF usage column
(top portion of each row),
o Calculate impact for each CCF usage column (bottom portion of each row) by
multiplying the household bill by 12 to arrive at an annual bill, then dividing the
annual bill by the MHI for each household size,
• To develop a table showing modeled future rate impacts (see example in Exhibit 8,b):
o As part of the community's modeling, escalate MHI based on an inflationary
adjustment to the year at the end or highest point of the model (in the example in
Exhibit 8.b, this is 2047).
o Calculate the monthly household bill for each CCF usage column based on the rates
at the end or highest cost point in the community's model (in the example in Exhibit
8.b, this is the example community's 2047 modeled rates),
o Calculate impact for each CCH usage column by multiplying the household bill by 12
to arrive at an annual bill, then dividing the annual bill by the MHI for each
household size.
Exhibit 8: Example Showing Projected Impact of Program Costs by Household Size—
8. a - Table Showing Impacts of Current Rates on MHI
CCF
Household
Size
% of SA HHs
MHI (current)
per HW Size
2
3
4
5
6
7
8
9
1
26.83%
$30,540
0.75*
1.03*
1.30*
1.58%
1.85*
2.13*
2.40*
2.68%
2
33.76%
$64,063
0.3696
0.49*
0.6256
0.75%
0.88*
1.01*
1.15*
1.28%
3
16.33%
$72,063
0.3216
0.43*
0.55*
0.67%
0.79*
0.90*
1.02*
1.05%
4
13.37%
$87,972
0.26*
0.3696
0.45*
0.55%
0.64*
0.74*
0.8396
0.93%
5
6.37*
$88,630
0.26*
0.35*
0.4596
0.54%
0.64*
0.73*
0.83*
0.92%
6
2.22%
$63,028
0.36*
0.50*
0.63*
0.76%
0.90*
1.03%
1.17*
1.30%
7
1.11%
$4.8,621
0.47*
0.6496
0.8296
0.99%
1.16*
1.34%
1.51*
1.68%
Low
Medium
High
Burden
Burden
Burden
23 SA = Service Area; MHI = Median Household Income; CCF = Centum Cubic Feet.
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8,h- Table Showing Modeled Impacts of 2047 Rates on MHI
CCF
Household
Size
% of SA HHs
MHI
(escalated to 2047)
per HH Size
2
3
4
5
6
7
8
9
11
26.83%
$suae
1.65%
2.35%
3.0696
3.76%
4.47%
5.17%
5.88%
6.58%
2
33.76%
$107,376
0.79%
1.12%
1.46%
1.79%
2.13%
2.47%
2.80%
3.14%
3
16.33%
$120,786
0.70%
1.00%
1.30%
1.59%
1.89%
2.19%
2.49%
2.79%
4
13.37%
$147,450
0.57%
0.82%
1.06%
1.31%
1.55%
1.80%
2.04%
2.28%
5
6.37%
$148,S53
0.57%
0.81%
1.05%
1.30%
1.54%
1.78%
2.02%
2.27%
6
2.22%
$105,642
0.80%
1.14%
1.48%
1.82%
2.16%
2.51%
2.85%
3.19%
7
1.11%
$81,494
1.04%
1.48%
1.92%
2.36%
2.81%
3.25%
3.69%
4.13%
Low
Medium
High
Burden
Burden
Burden
EPA views this data as an additional way for communities to demonstrate the impacts of
program costs on various sizes of households. If the table with modeled future rates in
aggregate shows most cells in the low burden CPH category, then the program is relatively
affordable, as opposed to having most cells in the high burden CPH category. Based on the
extent of "high burden" cells, EPA may use this information to justify an extended
implementation schedule under Alternative 1 or Alternative 2. However, EPA does not intend
such schedule to exceed the useful life of the selected CWA control measures. Additionally, use
of this additional analysis may be considered in WQS decisions.
3. Customer Assistance Programs
Numerous drinking water and wastewater utilities have developed Customer Assistance
Programs (CAPs) that use bill discounts, special rate structures, and other means as an
approach to help financially constrained customers maintain access to drinking water and
wastewater services. These programs typically determine eligibility of individual households
relative to a percentage of the Federal Poverty Level. These programs help households address
issues with affordability and help protect public health throughout the community. They also
help ensure the utility can sustainably provide its core services, price services appropriately,
and preserve a broad customer base. However, these programs have costs for the community.
If a community has developed a CAP to assist individual households, EPA intends to consider
both the costs needed to administer the program as well as the revenue lost from the
assistance provided (discounted rates, collection fees foregone, improved water efficiency,
etc.).
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EPA intends to consider the following information if provided:
• Type of program,
• Program eligibilities,
• Number of customers participating in the program,
• Number of customers eligible for the program (if known),
• Program costs,24
• Revenue lost,
• How the program is funded,
• Program benefits, and
• Number of disconnections prevented (if known).
Submission of the above information would allow EPA to confirm that the appropriate CAP
costs are being included as part of a community's FCA. Such costs can be included in the
calculation of the Rl25 and LQRI under Alternative 1 and as part of a Financial and Rate Model
analysis under Alternative 2. To be considered, EPA requests that the community clearly
identify if CAP costs have been included in these sections of the FCA and the line items in which
these costs appear. Additionally, use of this additional analysis in the same manner may be
considered in WQS decisions.
4. Asset Management Costs
Asset management is a critical foundation for understanding near and long-term operational
and capital needs. This information forms the basis for capital planning and a capital funding
strategy. Asset management is the practice of managing infrastructure capital assets to
minimize the total cost of owning and operating them, while delivering the service level
customers desire. It helps answer the following three core questions for long-term
infrastructure planning:
1. What assets do you have and where are they located?
2. When do your assets need to be repaired or replaced?
3. How much is each asset going to cost you in the near-term and the long-term?
By implementing asset management practices, a community should have a clear picture of
infrastructure related expenses and future investment needs, which should inform the financial
planning process.
24 The New England Environmental Finance Center's Water Utility Customer Assistance Program Cost Estimation
Tool is designed to help water utilities estimate the costs of implementing a customer assistance program. See
httpsi//neefc,org/.
25 As current and projected Clean Water Act related expenses. See Appendix A, Worksheet 1, Lines Number 100
and 103.
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EPA intends to consider a community's asset management costs if the community can verify
that asset management practices are being implemented. These include:
• Implementing projects in the community's Capital Improvement Program,
• Inventorying assets,
• Linking maintenance schedules to the asset inventory,
• Assessing the condition and remaining useful life of the assets in the inventory,
• Determining the capital expenditures needed to replace assets, and
• Planning a funding and financing strategy for operation and maintenance and capital
expenditures.
Submission of information verifying the above practices should allow EPA to confirm that the
appropriate asset management costs are being included as part of a community's FCA. Such
costs may be reflected in the Rl and LQRI under Alternative 1 and as part of a Financial and Rate
Model analysis under Alternative 2. To be considered, EPA requests that the community clearly
identify when asset management costs have been included in these sections of the FCA and the
line items in which these costs appear. Additionally, use of this additional analysis in the same
manner may be considered in WQS decisions.
5. Stormwater Management Costs
EPA's continued commitment to Integrated Planning recognizes that many local governments
and authorities have increased investments in their stormwater infrastructure through capital
projects to rehabilitate existing systems, improve operation and maintenance, reduce
impermeable surfaces, make use of green infrastructure, and address additional regulatory
requirements. As programs are implemented to improve water quality and attain CWA
objectives, many state and local government partners find themselves facing difficult economic
challenges with limited resources and financial capability.
To be considered by EPA, the following information should be submitted for verification of
stormwater costs that are not within a community's wastewater-related funds:
• Identify the municipal fund that the stormwater activity is conducted within (for example,
identify whether stormwater management is in a separate stormwater enterprise fund,
incorporated into the wastewater enterprise fund, or conducted within the general fund).
• Describe the specific stormwater activities and associated costs (for example, provide costs
for stormwater program development, implementation, and enforcement as well as costs
for designing, building and maintaining stormwater infrastructure).
• Include supporting documentation for cost estimates.
• Describe the underlying requirement for the stormwater activities and costs (for example, is
this required by a state or federal permit, regulation or enforcement action?).
• Identify projected, current, and historical stormwater fees.
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Submission of the above information should allow EPA to confirm that the appropriate
stormwater costs are included as part of a community's FCA and will provide EPA with the
appropriate assurances that those expenditures will be made. Such costs may be reflected in
the Rl and LQRI under Alternative 1 and as part of a Financial and Rate Model analysis under
Alternative 2. To be considered, EPA requests that the community clearly identify when
stormwater management costs have been included in these sections of the FCA and the line
items in which these costs appear. Additionally, use of this additional analysis in the same
manner may be considered in WQS decisions.
6. Comparisons to National Data
For any of the other metrics submitted by a community, the community can provide a graphic
or chart that shows the community's data compared with county, state, and national data. An
example is shown below in Exhibit 9. This information would be used to assist EPA in assessing a
community's circumstances in relation to national averages and as compared to other
communities. Such a comparison can be used to highlight a community's unique or atypical
circumstances. Additionally, use of such comparisons in the same manner may be considered in
WQS decisions.
Exhibit 9: Graph comparing quintile distribution in city, county, state, and nationally
City
County
State
United States
$13,000 $51,000
$29,000
$89,000
$21,000
$42,000 $70,000 $115,000
$23,000 $43,000 $68,000 $107,000
$24,718 $47,229 $75,648 $121,613
$187,000
$222,000
$191,000
$229,035
$0
$50,000 $100,000 $150,000 $200,000 $250,000
Lowest Quintile
Third Quintile
Lower Limit of Top 5 Percent
Second Quintile
Fourth Quintile
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f. Other Metrics with Submission Information Determined by the Community
EPA continues to encourage communities to provide additional financial and demographic
information regarding the community's financial capability to implement CWA obligations or to
support WQS decisions. This information would supplement the information provided under
either Alternative 1 or Alternative 2. Examples of other metrics include:
• Unemployment Rates
• Debt Service Coverage Ratio
• Debt to Income Ratio
• Percent Population Decline, or Other Population Trends
• State or Local Legal Restrictions or Limitations on Property Taxes, Other Revenue Streams,
or Debt Levels
• Other Metrics as Determined by the Community
Additional examples of other metrics that may be submitted are listed in Appendix C. The
examples in Appendix C are not intended to be a complete list, nor a list of factors that will be
relevant in every community. Rather, it provides an illustration of information that may prove
useful in some instances. For such information to adequately illustrate that a community's
situation is atypical, EPA encourages communities to compare any additional information on
their circumstances to national averages or to that of other communities.
g. Schedule Development
When developing implementation schedules to construct control measures needed to meet
CWA obligations, a community should consider public health and environmental considerations
as well as financial capability. In addition to completing an analysis under Alternative 1 or 2 and
taking into account any other financial and demographic metrics, a community should consider
the following public health and environmental impacts when determining the sequencing and
priority of projects.
1. Public Health and Environmental Considerations
Discharges to Sensitive Areas: The CSO Policy states that a permittee's long-term control plan
(LTCP) should give the highest priority to "sensitive areas." Sensitive areas are identified by
NPDES permitting authorities. They include the following: Outstanding National Resource
Waters; National Marine Sanctuaries; waters with threatened or endangered species and their
habitat; waters with primary contact recreation; public drinking water intakes and their
designated protection areas; and shellfish beds. For discharges to sensitive areas, the CSO
Policy states that LTCPs should: prohibit new or significantly increased overflows; eliminate or
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relocate overflows; or, where elimination or relocation is not feasible, provide treatment to
meet WQS and regularly assess the feasibility of prohibition, relocation, or elimination.26
During the LTCP planning process, a community should characterize existing CSO conditions and
identify receiving waters that are sensitive areas. The LTCP should give priority to sensitive
areas and any implementation schedule should sequence projects to mitigate impacts on
sensitive areas as early as possible. Giving highest priority to sensitive areas might mean in
some cases that discharges to non-sensitive areas would be addressed later in the
implementation schedule than would be the case under a normal engineering and construction
schedule.
The identification of an area as "sensitive" is based on the designated use of a water body
established by a state or authorized tribe as part of a water quality standard. If a use is not
attainable for one of the reasons in 40 CFR 131.10(g) and is not an existing use (as defined in 40
CFR 131.3), a state or authorized tribe may revise the designated use with a supporting use
attainability analysis (UAA) and must then adopt the highest attainable use.
Use Impairment: LTCPs should also give priority to receiving waters that experience recurring
adverse impacts from the permittee on aquatic life, human health or aesthetics. Such waters
may be the subject of public concern. As a result of public participation and discussion with the
permitting authority, the community should develop an implementation schedule that gives
highest priority to waters with impaired uses and addresses them as soon as possible. As is the
case with sensitive areas, giving highest priority to certain use-impaired waters might mean
that discharges to other waters would be addressed later in the implementation schedule than
would be the case under a normal engineering and construction schedule.
Public Health: While SSOs cannot be permitted they can be the subject of CWA enforcement
actions. Even where an SSO does not reach a water of the United States, it can be a violation of
a permit obligation to properly maintain and operate a sewer system. Accordingly, where
basement backups of raw sewage and the ejection of raw sewage from manholes onto streets
are CWA permit violations, reducing exposure to this raw sewage should be a priority in any
schedule that is negotiated with the community to protect public health.
Environmental Justice: The guiding principle of environmental justice is the fair treatment and
involvement of all people regardless of race, color, culture, national origin, income, and
educational levels with respect to the development, implementation, and enforcement of
26 See 59 Fed. Reg. 18688,18696 (April 19,1994).
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protective environmental laws, regulations, and policies. Communities can use EPA's EJSCREEN
tool27 when assessing whether there may be environmental justice concerns within their
service area, such as areas with: minority and/or low-income populations; potential
environmental quality issues; and/or a combination of environmental and demographic
indicators that is greater than usual. Any implementation schedule should sequence projects to
mitigate public health and environmental impacts to areas with potential environmental justice
concerns as early as possible. For WQS decisions, in addition to completing an economic
analysis under Appendix D and considering any other financial metrics, a community or state is
strongly encouraged to consider opportunities to mitigate impacts of WQS decisions to areas
with potential environmental justice concerns. For example, EPA recommends communities to
sequence projects included in WQS variance requirements to mitigate impacts to areas with
potential environmental justice concerns as early as possible, to fully explore grants and loans
from all relevant sources (see Section IV Resources), or to consider Customer Assistance
Programs to help financially constrained customers.
2. Alternative 1 Schedule Development
This guidance does not dictate specific implementation schedules based on financial capability.
It does, however, provide recommended implementation schedule benchmarks in Exhibit 6 to
aid all parties in negotiating reasonable and effective schedules for implementation of CWA
controls. Exhibit 6 should be used after all four critical metrics in Alternative 1 have been
calculated, and the community's overall burden level has been determined using the Expanded
FCA Matrix.
It is important to note that EPA evaluates financial capability on a continuum. Although the
Expanded FCA Matrix categorizes burden as "high, medium, or low," this does not necessarily
mean that schedules would be rigidly set according to the break points between the categories.
For example, two communities whose total residential share of costs are 1.1% and 1.9% of MHI
are both categorized in the FCA Guidance as having a "medium" burden for the Rl. All other
things being equal, the appropriate schedules for those communities are likely to be different.
Similarly, all other things being equal, two communities whose residential share of costs are
1.9% and 2.1% of MHI would be more likely to have similar overall compliance timeframes,
even though one community is ranked as having a "medium" burden and the other as having a
27 EPA has developed an environmental justice mapping and screening tool called EJSCREEN. It is based on
nationally consistent data and an approach that combines environmental and demographic indicators in maps and
reports. Screening results should be supplemented with additional information and local knowledge to get a better
understanding of the issues in a selected location. EJSCREEN is available at httpsi//www, epa.gov/eiscreen.
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"high" burden. Finally, other metrics submitted by the community may affect the length of the
schedule regardless of where the community is on the "high, medium, and low" continuum.
As noted above, the four critical metrics under Alternative 1 might not present the most
complete picture of a community's financial capability to fund its CWA controls. Therefore,
communities are encouraged to submit any additional documentation (other metrics) that
would create a more accurate and complete picture of their financial capability. The 2021 FCA
includes Other Metrics with Standardized Instructions and Other Metrics with Submission of
Information to be Determined by the Community. Any other metrics that have been submitted
for consideration would supplement the four critical metrics and the Expanded FCA Matrix
results, and consideration of these metrics may result in implementation schedules that go
beyond the schedule benchmarks in Exhibit 6, not to exceed the useful life of the selected CWA
control measures. Additionally, the use of these additional metrics in the same manner may be
considered in WQS decisions.
Exhibit 10, below, describes four hypothetical schedule determinations where the four critical
metrics, other metrics, and environmental considerations were assessed together to develop
the implementation schedule.
[space intentionally left blank]
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Exhibit 10: Scheduling Development for Hypothetical Communities
Scheduling
Consideration
Community #1
Community #2
Community #3
Community #4
Engineering/
Construction
Schedule
9 years
9 years
9 years
9 years
Sensitive Areas
n/a
2 years to remove
discharges from
sensitive areas
n/a
n/a
Use Impairment
n/a
15 years
n/a
15 years
Environmental
Justice
EJ concerns
identified
n/a
n/a
EJ concerns
identified
Financial
Capability
2021 FCA Result
= Low Burden
(engineering
schedule)
2021 FCA Result =
Medium Burden
(up to 15 years)
2021 FCA Result =
High Burden (up to
25 years unless
justified by
additional
information)
2021 FCA Result =
High Burden (up
to 25 years unless
justified by
additional
information)
Drinking Water
Costs
n/a
2 additional years
n/a
2 additional years
Schedule:
9 years
(reduction of
discharges in EJ
areas within
first 3 years)
17 years
(removal of
discharge from
sensitive area
within first 2
years)
20 years
27 years
(reduction of
discharges in EJ
areas within first
5 years)
3. Alternative 2 Schedule Development
Unlike Alternative 1, EPA has not established benchmarks for the development of an
implementation schedule under Alternative 2. Instead, EPA will consider the impacts on both
households with a median household income and households with income in the lowest
quintile and plans to approve implementation schedules that seek to avoid rates that represent
an overly burdensome percentage of household income.
Under Alternative 2, communities are encouraged to submit any additional documentation
(other metrics) that would create a more accurate and complete picture of their financial
capability. The 2021 FCA includes Other Metrics with Standardized Instructions and Other
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Metrics with Submission of Information to be Determined by the Community. Any other metrics
that have been submitted for consideration would supplement the financial and rate model and
poverty indicator score and may result in an extended implementation schedule. However, EPA
does not anticipate establishing implementation schedules that would exceed the useful life of
the selected CWA control measures.
IV. Resources
EPA understands the importance of accounting for a community's capability to fund CWA
controls. EPA plans to work with communities during the negotiation process to identify
funding sources and financing strategies that can be used to reduce costs over time. Below is a
list of resources to assist communities related to water infrastructure financing.
• Compendiums and documents on rate setting and CAPs
o Drinking Water and Wastewater Utility Customer Assistance Programs:
https://www.epa.gov/waterfinancecenter/compendium~drinking~water~and~
wastewater-customer-assistance-proerams
o Water Infrastructure Financial Leadership:
https://www.epa.gov/waterfinancecenter/water~infrastructure~financial~leadership
• Funding sources
o Water Finance Clearinghouse: www.epa.eov/wfc
o Clean Water State Revolving Fund: https://www.epa.eov/cwsrf
o Drinking Water State Revolving Fund: https://www.epa.eov/dwsrf
o Water Infrastructure Finance and Innovation Act (WIFIA):
https://www.epa.gov/wifia
o The Environmental Justice Collaborative Problem-Solving (CPS) Cooperative
Agreement Program: https://www.epa.gov/environmental~iustice/environmental~
iustice~collaborative~problem~solving~cooperative~agreement
o Environmental Justice Small Grants Program:
https://www.epa.gov/environmentaliustice/environmental~iustice~small~grants-
program
o Source Reduction Assistance (SRA) Grant Program: https://www.epa.gov/p2/grant~
programs~pollution~prevention#sra
o CoBank's Rural Water and Wastewater Lending:
https://www.cobank.com/corporate/industry/water
o National Rural Water Association (NRWA)'s NRWA Rural Water Loan Fund:
https://nrwa.org/members/products~services-portfolio/ruraj~w3ter~loan~fund/
o Pisces Foundation Water Grant: https://piscesfoundation.org/what~we~do/water/
o Rural Water Loan Fund (RWLF): https://nrwa.org/members/products-services~
portfolio/rural~water~loan~fund /
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U.S. Army Corps of Engineers (USACE)'s Project Modifications for Improvement of
the Environment (CAP Section 1135):
for-lmprovements-to-the-Environment/
USACE's Emergency Streambank and Shoreline Protection:
https://www.mvr.usace.army.mil/Business-With-Us/Outreach-Customer-
U.S. Department of Agriculture (USDA)'s Water and Waste Disposal Guaranteed
Loan Program: https://www.rd.usda.eov/proerams-services/water-waste-disposal-
o USDA's Water & Environmental Programs (WEP):
USDA's Water & Wastewater Projects Revolving Fund Program:
https://www.rd.usda.eov/programs-services/revolvine-funds-for-financine-water-
USDA's Water & Waste Disposal Loan & Grant Program:
USDA's Water & Waste Disposal Predevelopment Planning Grants:
U.S. Department of Commerce - Economic Development Administration (EDA)'s
Investments for Public Works and Economic Adjustment Assistance Programs:
o EDA's Planning Program and Local Technical Assistance Program:
U.S. Department of Health and Human Services - Indian Health Service (IHS)'s
Sanitation Facilities Construction (SFC) Program: https://www.ihs.eov/dsfc/
U.S. Department of Housing and Urban Development (HUD)'s Community
Development Block Grant (CDBG) Program:
https://www.hud.eov/proeram offices/comm plannine/communitydevelopment
HUD's CDBG - Disaster Recovery Program:
HUD's Section 108 Loan Guarantee Program:
U.S. Federal Emergency Management Agency (FEMA)'s Hazard Mitigation Grant
Program (HMGP): s://www.fema.eov/grants/mitieation
FEMA's Public Assistance (PA) Grant Program:
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o FEMA's Pre-Disaster Mitigation (PDM) Grant:
https://www.fema.eov/grants/mitigation/pre-disaster
o FEMA's Flood Mitigation Assistance Program (FMA):
https://www.fema.gov/grants/mitigation/floods
o U.S. Small Business Administration (SBA)'s Business Physical Disaster Loans:
https://disasterloan.sba.gov/ela/lnformation/BusinessPhysicalLoans
• Environmental Finance Centers
o EPA Region 1 - University of Southern Maine https://neefc.org/
¦ Water and Wastewater Rates Analysis Model: The model can set water
and/or wastewater rates for the following year by projecting the utility's
expenses, revenues from rates, and fund balance. Data inputs are minimal.
¦ Water Utility Customer Assistance Program Cost Estimation Tool: Tool is
designed to help water utilities estimate the costs of implementing a
customer assistance program.
o EPA Region 2 - Syracuse University https://efc.syr.edu/
¦ In the About Us-^Environmental Finance Center Network tab, there is
information about trainings and webinars to encourage smarter
management of municipal finances and assets, and to help operators
conduct day-to-day operations more efficiently.
¦ In the Projects-^Drinking Water and Wastewater Infrastructure-^EFCN
Smart Management for Small Water Systems" tab, there are free workshops,
webinars and technical assistance on topics such as asset management,
financial management, and others for small water system operators, owners,
and municipal representatives.
¦ In the Projects-^Municipal Development-^Public Management and Finance
Program" tab, the website discusses how the Environmental Finance Center
delivers technical assistance to rural communities that are developing water
or wastewater infrastructure projects and other environmental improvement
projects. The EFC offers individualized technical assistance in funding and
financing advice, asset management guidance, and other topics.
o EPA Region 3 - University of Maryland https://www.efc.umd.edu/
¦ Municipal Online Stormwater Training (MOST) Center: The MOST Center is
meant to help communities bridge the gap in needed technical and financial
resources through a comprehensive training program to help municipalities
within the Chesapeake Bay Watershed access and implement innovative
stormwater management techniques to improve water quality in the Bay.
Formed based on the expressed need from many in the Chesapeake Bay that
are faced with limited capacity and resources for meeting stormwater
management obligations.
¦ Community Stormwater Projects: EFC works each year with several
communities in the region to revitalize their stormwater management and
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financing programs. Projects span across Maryland, Virginia, Pennsylvania,
and West Virginia.
¦ Small Public Water Systems: EFC is working to build managerial and financial
capacity of small public drinking water systems.
¦ Applying Asset Management to Stormwater: EFC is working with the City of
Scranton and the Scranton Sewer Authority to assess the City's current asset
management framework in addressing both combined sewer system and
separate storm sewer system.
o EPA Region 4 - University of North Carolina, Chapel Hill https://efc.sog.unc.edu/
¦ The main feature of this website is the Utility Financial Sustainability & Rates
Dashboards, which can be found within the Resources tab at the top of the
homepage. Within this dashboard for selected states, you can perform the
following:
• Rate Comparison: Compare a selected utility's median water and/or
sewer bill to all utilities in the state (or a host of other comparison
groups), as well as see the median financial capability of annual water
and/or sewer bills as a percentage of MHI. You can also raise rates to
see how metrics change.
• Characteristics: See selected demographic data for the town in which
the water and/or sewer utility operates, compared to total/median
demographic data for all utilities in the survey (or a host of other
comparison groups) as well as statewide. Demographic data includes:
number of systems, estimated number of connections, estimated
service population, average household size, median household
income; and poverty rate.
¦ In the homepage, scroll down and select either "Drinking Water" or
"Stormwater." From there, you can also see the most recent rate sheet
associated with your utility, as well as tables of rate structures and rates.
¦ There is also a simple template for utility financial planning, and several
presentations related to ratemaking and utility financial management.
o EPA Region 5 - Michigan Technical University http://eleic.ore/
¦ In the Resources-^Publications & Tools tab, the website list has a link to EPA
Water Finance Clearinghouse tool. EPA produced this tool for communities
to find funding for drinking-water, wastewater, and stormwater
infrastructure projects. It includes grant and loan opportunities searchable by
state. Communities can also access reports and guides, case studies,
webinars, and other useful information.
o EPA Region 6 - University of New Mexico http://southwestefc.unm.edu/
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¦ An "Asset Management Switchboard," which is a repository of
documentation and tools related to asset management:
https://swefcamswitchboard.unm.edu/am/
¦ Finance-related services the EFC provides:
• Asset Management
• Small Systems Project
• Water System Finance
o EPA Region 7 - Wichita State University
https://www.wichita.edu/academics/fairmount college of libera! arts and scienc
es/hugowall/efc/
¦ The Kansas City Development Project is a training program designed to teach
Kansas municipal officials and utility staff about the managerial and financial
aspects of running a water system. The Kansas Capacity Development project
seeks to build capacity for municipal officials and utility staff that make
financial decisions regarding their community's water utility. The project
includes conducting interactive trainings across Kansas, on topics such as
utility asset management, financial planning, and promotion of inter-local
cooperation.
¦ Professional development for water and wastewater professionals to further
the implementation of asset management concepts through networking with
other systems and content experts.
¦ Detailed guidance document on how to successfully form a sewer district in
Missouri in a way the average citizen can understand.
¦ Training to provide an overview of the importance of capital planning and
review the elements necessary to develop and implement a Capital
Improvement Program. Participants learn the details of putting together a
capital plan through checklist and matrix tools. Financial research
information is also provided on traditional and non-traditional funding
sources in order to provide options available for funding capital assets.
¦ EFC has curated all funding opportunities for watershed projects in one
place, organized by tags in a searchable database:
https://www.wichita.edu/academics/fairmount college of liberal arts and
sciences/hugowall/efc/news/meramec-funding-sources-landing-page.php
o EPA Region 8 - National Rural Water Association https://efc.nrwa.org/
¦ Rural Water Loan Fund: Low-cost loans for short-term repair costs, small
capital projects or replacement costs, or pre-development costs associated
with proposed water and wastewater projects. Systems must be public
entities serving up to 10,000 persons, or in rural areas with no population
limits.
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¦ National Rural Water Association has webinars, workshops and guidebooks
on sustainability utility management for small and rural water and
wastewater systems.
o EPA Region 9 - California State University, Sacramento https://www.efc.csus.edu
¦ The EFC provides asset management, stormwater funding and financing,
direct technical assistance, grant application assistance, and other services.
¦ Asset management: Tools for collecting, recording, and uploading asset data
in your municipal stormwater system. Additionally, there are training and
workshops on asset management and utility performance, as well as
indicators of financial and technical performance.
¦ Stormwater funding and financing: Toolkit to support asset management and
funding for municipal stormwater programs. Toolkit includes guidance report
and worksheets to help record data on system assets, as well as maintenance
needs and long-term costs. Additionally, there are guidance and tools for
evaluating benefits and costs in stormwater management, as well as
forums/workshops on topics of technical, managerial, and financial aspects
of stormwater management.
o EPA Region 10 - Rural Community Assistance Corporation
https://www.rcac.org/environmental/environmental-finance-center/
¦ The EFC provides the following services:
• Develops and provides financial modules and tools including a very
small system asset management plan.
• Collects and shares infrastructure finance resources that communities
can review or adapt and use to move forward with innovative
financial solutions.
• Develops and delivers hands-on, adult learner centered financial and
environmental training on topics that include source water
protection, tribal infrastructure financing and asset management.
• Provides direct technical assistance to small rural communities and
tribes as they plan for and work toward financial sustainability for
their environmental and public health utilities and facilities.
• Assists rural communities to build, improve, manage, operate, or
finance drinking water and wastewater systems. They help rural
communities access millions of dollars in grants and loans, and
trained thousands of individuals through customized on-site technical
assistance and workshops.
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V. Appendices
a. Appendix A - Residential Indicator Worksheets
b. Appendix B - Financial Capability Indicator Worksheets
c. Appendix C - Examples of Other Metrics
d. Appendix D - Recommended Expanded Matrices and Recommendations for WQS
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2021 FCA Guidance - Appendix A
Residential Indicator Worksheets UPDATED (2021)
This appendix contains an updated version of the steps necessary to prepare the
Residential Indicator. The worksheets and instructions are largely identical to the 1997
version. Since then, however, data sources have evolved, and this update recognizes the
inputs that can be found today. In addition, "Practice Tips" in text boxes are incorporated
to provide additional guidance on aspects of the Residential Indicator calculation that EPA
has found are common questions and can benefit from additional direction.
CRITICAL METRIC: THE RESIDENTIAL INDICATOR
The Residential Indicator measures the financial impact of the current and proposed
Clean Water Act controls on residential users. Development of this indicator starts with
the determination of the current and proposed wastewater system control costs per
household (CPH). Second, the service area's CPH estimate and the median household
income (MHI) are used to calculate the Residential Indicator. Finally, the Residential
Indicator is compared to established financial impact ranges to determine whether
required Clean Water Act controls will produce a possible high, mid-range or low financial
impact on the permittee's residential users. Worksheets are provided to aid in
developing the Residential Indicator.
a. Developing CPH Estimate
The first step in developing the CPH is to determine the permittee's total wastewater
treatment (WWT) and collection system costs by adding together the current costs for
existing wastewater treatment operations and the projected costs for any proposed
Clean Water Act controls. The next step is to calculate the residential share of the total
system costs. The final step is to calculate the CPH by dividing the residential share of
total costs by the number of households in the permittee's total wastewater service
area.
PRACTICE TIP: The total wastewater service area
should include all retail and wholesale areas served.
Current wastewater system costs are defined as current annual wastewater operating
and maintenance expenses (excluding depreciation) plus current annual debt service
(principal and interest). This fairly represents cash expenses for current wastewater
treatment operations. (Expenses for funded depreciation, capital replacement funds, or
other types of capital reserve funds are not included in current WWT costs, because they
represent a type of savings account rather than an actual operation and maintenance
expense.)
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2021 FCA Guidance - Appendix A
PRACTICE TIPS;
For a utility service area with wholesale custom t costs
should also include the wholesale customers' O&IVl and debt service
incurred to provide retail serv delivery of wastewater to the
prim; ty. This information can be inserted as an explicit line
item so that the calculation is transparent.
The permittee may provide more detailed breakout of O&IVI costs as
sub-parts. These may include historical average asset management
and payment-in-lieu of taxes (PILOT), Note that the permittee
should perform sensitivity analysis on the addition of PILOT to
determine the overall impact on residential households with and
without PILOT,
Estimates of total projected costs are made for any proposed Clean Water Act controls.
Any concerns about including specific proposed WWT projects, CSO or other Clean Water
Act controls in the projected costs, or the length of the planning period, should be
discussed with the appropriate NPDES permitting and enforcement authorities. These
costs should be provided in consistent year dollars and include projected increased
operation and maintenance expenses plus projected debt service costs for any proposed
WWT and the Clean Water Act controls. The information and calculations used to
develop the CPH and the Residential Indicator are presented in Worksheets 1 and 2 and
their instructions.
Worksheet 1 Instructions
Current Costs: Enter the requested data on lines 100 through 109 of Worksheet 1. The
operation and maintenance costs on lines 100 and 103 should include all significant cost
categories, such as labor, chemicals, utilities, administration, and equipment
replacement. Do not include depreciation on line 100 or line 103.
PRACTIC )ivide lines 100 and 103 into sub-lines to further
breakout utility costs (e.g., 100a; O&M Expenses for Core Service Area
City; 100b; O&IVI Expenses for Wholesale Community), An additional
line item can be provided for asset management, along with an
explanation of the basis for the value.
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Projected Costs: Projected costs for compliance are identified on Lines 103 and 104.
Costs should be provided in current dollars, preferably consistent with the year of the
most recent demographic and current financial data. Adjust the projected annual WWT
and Clean Water Act costs to current dollars using the appropriate cost indices,
preferably for the geographical region of permittee.
PRACTICE TIP; Future capital costs should be in the same year dollars
as the current cost data. Use the appropriate engineering
construction cost index to adjust projected capital costs or related
increased operations costs as necessary.
The annualized debt service cost information for the projected WWT facilities and
projected Clean Water Act controls (Line 104) can be calculated using an annualization
factor, which reflects the local borrowing interest rate and borrowing term of the
permittee. For example, if the adjusted projected debt costs (current dollars) are
$25,000,000 and typical borrowing terms include an interest rate of eight percent over
20 years, then costs can be annualized with the following calculation:
Annual Debt Service Costs = Adjusted Debt Costs x Annualization Factor
Annual Debt Service Costs = $25,000,000 x .1019 = $2,547,500
The annualization factor for the example is calculated using the following formula:
Interest Rate
Annualization Factor = - b Interest Rate =
(1 + Interest Rateyears - 1
08 +.08 =.1019
(1+ ,08)20 —1
Alternatively, annual debt service costs can be calculated in Excel spreadsheets using the
following formula:
= —PMT{Interest Rate, Term, Present Value of Projected Costs)
The annualized debt service cost for the projected Clean Water Act controls is entered on
line 104. Line 104 should include future cash-financed capital. Divide lines 101 and 104 into
sub-lines to further categorize debt service costs (e.g., 104a: Annual Revenue Bond Debt
Service; 104b: Annual Pay-Go Costs). Add the current and projected wastewater treatment
and projected CWA control costs to estimate the total WWT and CWA costs (line 102 + line
105).
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2021 FCA Guidance - Appendix A
PRACTIC debt service should be estimated based on the
source and type of debt or other financing expected to be used to pay
for necessary capital expenditures, including state clean water
revolving and pooled funds.
Residential Share: Calculate the residential share of the total cost (line 106) and enter on
line 107. The residential share of total costs (line 107) is computed by multiplying the
percent of total wastewater flow including infiltration and inflow attributable to residential
users by the total costs (line 106).
PRACTICE TIPS;
The residential share represents costs useholds, whether in
single-family homes or in multi-unit condominiums or apartment
buildings. Residential costs exclude the portion of expenses attributable
to commercial, governmer 1 industrial customers. Utilities that
treat multi-unit household as commercial accounts within the billing
system need to estimate the flows attributable to those households,
neral, the residential share is based on billed flow for residential
households. If supported by documentation, the residential share may
be adjusted for infiltration and inflow (l&l) based on how t ty
addresses l&l in its bills.
For example, for a permittee with the following characteristics:
The residential share of the total cost is:
Residential Wastewater Flow
Residential Share of Costs = Total Costs x
Total Wastewater Flow
Total Costs:
Residential Flow:
Total Flow:
$12,000,000
10.5 Million Gallons per Day
13.1 Million Gallons per Day
Residential Share of Costs = $12,000,000 x
10.5 Million Gallons per Day
= $9,600,000
13.1 Million Gallons per Day
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2021 FCA Guidance - Appendix A
Calculate the CPH (line 109) by dividing total residential share costs (line 107) by the
total number of households (line 108) in the permittee's total wastewater service area.
The Residential Share percentage in this example is 80.2 percent.
Data Sources
The permittee's latest audited financial reports (Comprehensive Annual Financial Report
or "CAFR") should be available to develop the current wastewater treatment costs. In
order to comply with accounting requirements, most permittees develop a combined
statement of revenues, expenses, and changes in fund balance. These financial reports
should be available directly from the permittee, or, in some states, from central records
kept by the state auditor or other state offices. The permittee may have a separate
financial report, or its financial data may be incorporated into a municipality's report.
Projected costs in the wastewater service area should be available through the
permittee's planning documents. Wastewater service area boundaries also should be
available from the utility, frequently in electronic format. The Census Bureau annually
collects American Community Survey data on the number of households by Census-
designated place. If the permittee's service area is relatively contiguous with political
boundaries, then do a search for "Census QuickFacts" with the name of the town or
county. Alternatively, Census Table B25002 (refer to
https://data.census.gov/cedsci/all?q=B25002 ) is a resource if a more nuanced estimate
is required. Note that "occupied housing units" equals households. The utility should
use the most recent 5-Year ACS Household data in its FCA calculations.
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2021 FCA Guidance - Appendix A
PRACTICE TIPS;
Note that the volume of residential usage may not only include volume
for residential customer accounts, but residential households may also
be served through multi-unit structures in commercial accounts, such as
apartment building ;us data can provide information on the
number of households in multi-family structures, providing a basis for
adjusting the residential usage. T dential share tends to be lower
for utilities with more commercial or industrial customers, and generally
highe aurban, predominately residential areas.
Particularly for more complex service areas, electronic Geographic
Information System (GIS) shapefiles can be analyzed with census
electronic files, to better characterize the service area households.
Many utilities already have GIS mappings of the service area to assist in
management of the system. In addition, note that in Census terminology,
a "household" is eq "occupied housing unit," so data
characterizing occupied housing units may be helpful to understanding
the nature of the utility's serv Jition, the permittee should
not use "residential customer" counts to estimate households, as more
than one household may occupy a residential customer site, and
households may live in commercial multi-unit customer properties.
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2021 FCA Guidance - Appendix A
COST PER HOUSEHOLD
Worksheet 1
Line Number
Current WWT Costs
• Annual Operations and
Maintenance Expenses
(Excluding Depreciation)
100
• Annual Debt Service
(Principal and Interest)
101
Subtotal of Current Costs
(Line 100 + Line 101)
102
Projected WWT and CWA
Costs (Current Dollars)
• Estimated Annual
Operations and
Maintenance Expenses
(Excluding Depreciation) 103
• Annual Debt Service
(Principal and Interest) 104
Subtotal of Projected Costs
(Line 103 Line 104) 105
Total Current and Projected
WWT and CWA Costs
(Line 102 Line 105) 106
Residential Share of Total
WWT and CWA Costs 107
Total Number of Households
in Service Area 108
Cost per Household
(Line 107 Line 108) 109
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2021 FCA Guidance - Appendix A
b. Developing the MHI Estimate
The second step in developing the Residential Indicator is to determine the median
household income (MHI) for the permittee's entire wastewater service area. Information
and calculations used to develop the MHI value are presented in Worksheet 2 and its
instructions.
1. Worksheet 2 Instructions
Enter the requested information on Worksheet 2, lines 201 through 203. MHI from the
latest Census data for households in the utility's service area. If the permittee's service
area is relatively contiguous with political boundaries, then do a search for "Census
QuickFacts" with the name of the town or county. Alternatively, Census Table B19013
(refer to https://data.census.gov/cedsci/all?q=B19013 ) is a resource if a more nuanced
estimate is required. The permittee should use the most recent 5-Year Average MHI
data in its FCA calculations.
PRACTICE TIP; For more complex service areas, electronic
Geographic Information System 1 lies ¦ alyzed with
census electronic shapefiles, allowing a more precise
characterization of the MHI for service area households. Many
utilities already have GIS mappings of the service area to assist in
management of the system.
On Worksheet 2, calculate the adjusted MHI by entering the most recent 5-Year census
MHI value on line 201. Then enter the MHI Adjustment Factor, if any, on line 202. Finally,
multiply the MHI (line 201) by the Adjustment Factor (line 202) and enter the Adjusted
MHI on line 203.
PRACTIC =neral, an adjustment factor is not required given
that the Census data is the mc o-date information available.
Identify the year of the Census data, and if an adjustment is made,
provi sxplanation.
If the permittee's service area includes more than one jurisdiction, it may be necessary
to develop a weighted MHI for the entire service area. The Bureau of Census's
designated MHI areas generally encompass most permittees' service areas. For this
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2021 FCA Guidance - Appendix A
reason, the calculation of a weighted MHI usually will not be necessary to reasonably
represent the permittee's MHI. When a weighted MHI must be calculated, a weight
would be assigned to each jurisdiction to reflect its share of the total households.
The following example illustrates how to develop a weighted MHI value. If a permittee
is a regional authority that serves three local jurisdictions, the weighted average MHI
would be calculated as follows:
Jurisdiction MHI Number of Households (HH)
A
$30,000
100,000
B
$45,000
25,000
C
$25,000
50.000
175,000
/ HHa \ ( HHb \ ( HHC \
Weighted MHI = MHIA + MHIB ) + MHIC -^7-
\Total HHJ \Total HHJ \Total HHJ
/100,000\ ( 25,000 \ ( 50,000 \
$30,000 + $45,000 + $25,000
1,175,000/ 1,175,000/ 1,175,000/
$17,143 + $6,429 + $7,143 = $30,715
Data Sources
Median household income is available for most communities from the latest annual
Census ACS data collection. In the few cases where a local jurisdiction's MHI is not
available, the surrounding county's MHI may be sufficient. The Census Bureau produces
annual 5-Year Average Median Household Income in Table B19013.
2. Developing the Residential Indicator
Worksheet 2 Instructions
To calculate the Residential indicator (line 205 of Worksheet 2), divide the total annual
control cost per household (line 109 transferred to line 204) by the Adjusted MHI (line
203) and multiply by 100.
Analyzing the Residential Indicator
The Residential Indicator will be used in the Expanded Financial Capability Matrix to help
permittees, and EPA and state NPDES authorities determine reasonable and workable
long-term wastewater system control schedules.
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2021 FCA Guidance - Appendix A
To assess the financial impact Clean Water Act controls may have on the permittee's
residential users, the Residential Indicator is compared to the financial impact ranges
that reflect EPA's previous experience with water pollution control programs. These
ranges are as follows:
Financial Impact
Residential Indicator (CPH as % MHI)
Low
Less than 1.0 Percent of MHI
Mid-Range
1.0 - 2.0 Percent of MHI
High
Greater than 2.0 Percent of MHI
When the Residential Indicator is less than 1.0 percent, between 1.0 and 2.0 percent,
and greater than 2.0 percent, the financial impact on residential users to implement the
Clean Water Act controls will be characterized as "low," "mid-range," and "high,"
respectively. Unless there are significant weaknesses in a permittee's financial and
socioeconomic conditions, second phase reviews for permittees that have a low
residential indicator score (less than 1.0) are unlikely to result in longer implementation
schedules. Permittees with low residential indicators may wish to forego the second
phase analysis and proceed with the normal engineering and construction
implementation schedule developed as part of the planning process.
In situations where a permittee believes that there are unique circumstances that would
affect the conclusion of the first phase, the permittee may submit documentation of its
unique financial conditions to the appropriate state NPDES and EPA authorities for
consideration.
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2021 FCA Guidance - Appendix A
RESIDENTIAL INDICATOR
Worksheet 2
Median Household Income (MHI) Line Number
• Census Year MHI 201
• MHI Adjustment Factor 202
• Adjusted MHI
(Line 201 x Line 202) 203
Annual WWT and CWA Control
Cost per Household (CPH)
(Line 109) 204
Residential Indicator:
Annual Wastewater and CWA
Control Costs per Household as a
percent of Adjusted Median
Household Income
(CPH as % MHI)
(Line 204 4- Line 203 x 100) 205
Residential Indicator Rating
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2021 FCA Guidance - Appendix B
Financial Capability Indicator Worksheets UPDATED (2021)
This appendix contains an updated version of the steps necessary to prepare the Financial
Capability Indicator. The worksheets and instructions are largely identical to the 1997
version. Since then, however, data sources have evolved, and this update recognizes the
inputs that can be found today. In addition, "Practice Tips" in text boxes are incorporated
to provide additional guidance on aspects of the Financial Capability Indicator that EPA has
found are common questions and can benefit from additional direction.
CRITICAL METRIC: PERMIITTEE FINANCIAL CAPABILITY INDICATORS
Selected indicators are assessed to evaluate the financial capability of the permittee.
These indicators will examine the permittee's debt burden, socioeconomic conditions,
and financial operations. The second-phase review examines three general categories of
financial capability indicators for the permittee:
• Debt Indicators - Assess current debt burden of the permittee or the
communities within the permittee's service area and their ability to issue
additional debt to finance the CSO controls. The indicators selected for this
purpose are:
o Bond Ratings (General Obligation and/or Revenue Bond Fund)
o Overall Net Debt as a Percent of Full Market Property Value
• Socioeconomic Indicators - Assess the general economic well-being of residential
users in the permittee's service area. The indicators selected for this purpose are:
o Unemployment Rate
o Median Household Income
• Financial Management Indicators - Evaluate the permittee's overall ability to
manage financial operations. The indicators selected for this purpose are:
o Property Tax Revenue Collection Rate
o Property Tax Revenues as a Percent of Full Market Property Value
Even though the financial capability analysis reflects current conditions, pending changes
in the service area should be considered in development of the second phase indicators.
For example, if the current unemployment rate is high, but there is a new plant opening
that will stimulate economic growth, the unemployment indicators for the service area
would need to be modified to reflect the projected impact of the new plant. The
permittee should submit documentation of such conditions to the appropriate EPA and
state NPDES authorities for consideration. When the permittee is a sanitary district, sewer
authority or similar entity, the second phase indicators related to property values and tax
revenues may not be applicable. In those circumstances, the permittee may simply use
the remaining indicators or submit other related documentation that will help assess its
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2021 FCA Guidance - Appendix B
financial capability to implement the necessary wastewater system controls.
A. DEBT INDICATORS
The debt indicators described below were selected to assess the current debt burden
conditions and the ability to issue new debt. These indicators are the bond rating and
overall net debt as a percent of full market property value. When these indicators are
not available for the permittee, other financial data which illustrates debt burden and
debt issuing capacity may be used to assess the permittee's financial capability in this
area.
1. Bond Rating (Worksheet 3)
The information needed to evaluate the bond ratings is presented in Worksheet 3.
Recent bond ratings for the permittee and service area communities summarize a bond
rating agency's assessment of a permittee's or community's credit capacity. General
obligation (G.O.) bonds are bonds issued by a local government and repaid with taxes
(usually property taxes). They are the primary long-term debt funding mechanism in use
by local governments. General obligation bond ratings reflect financial and
socioeconomic conditions experienced by the community as a whole.
"Revenue bond" ratings, by comparison, reflect the financial conditions and
management capability of the wastewater utility. They are repaid with revenues
generated from user fees. Revenue bonds are sometimes referred to as water or sewer
bonds. In some cases, these bonds may have been issued by the state on behalf of local
communities.
Bond ratings normally incorporate an analysis of a wide variety of quantitative and
qualitative financial capability indicators. These analyses evaluate the long-term trends
and current conditions for the indicators. The ultimate bond ratings reflect a general
assessment of the permittee's current financial conditions. However, if security
enhancements like bond insurance have been used for a revenue bond issue, the bond
rating may be higher than justified by the local conditions.
PRACTICE TIP: If the utility's rating was enhanced through
bond insurance, the uninsured rating should be stated in
the bond prospectus, and that value should be provided
in the FCA analysis.
Many small and medium-sized communities and permittees have not used debt financing
for projects and, as a result, have no bond rating. The absence of bond rating does not
indicate strong or weak financial health. When a bond rating is not available, this
indicator may be excluded from the financial analysis.
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2021 FCA Guidance - Appendix B
Worksheet 3 Instructions
Enter the most recent bond ratings on Worksheet 3, lines 301 and 302. Note that ratings
are requested for general obligation bonds and revenue bonds. When there are several
different bond ratings, enter the most recent bond rating on Line 303 as the summary
bond rating.
Data Sources
Municipal bond reports from rating agencies (e.g., Moody's Bond Record, Standard &
Poor's Corporation, and Fitch) provide recent ratings. Municipal bond prospectuses
typically list the bond rating in the upper-right corner of the cover page and within the
"Ratings" section of the report. General Obligation and Revenue Bond prospectuses are
available at: httpsi//emma.msrb.org/. Permittees also may have reports from rating
agencies summarizing updates of the rating status.
Benchmarks
Moody's Investor Services
"Baa" is the minimum investment grade rating. See Moody's on Municipals - an
Introduction to Issuing Debt for a description of bond ratings.
Moody's Investor Services' Rating
• Weak: Ba, B, Caa, Ca, C
• Mid-Range: Baa
• Strong: Aaa, AA, A
Standard & Poor's; Fitch
"BBB" is the minimum investment grade rating. See Standard & Poor's Municipal Finance
Criteria and Fitch's Rating Definitions for a description of bond ratings.
Standard & Poor's and Fitch Ratings
• Weak: BB, B, CCC, CC, C, D
• Mid-Range: BBB
• Strong: AAA, AA, A
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2021 FCA Guidance - Appendix B
BOND RATING
Worksheet 3
Line Number
Most Recent General
Obligation Bond Rating:
Date:
Rating Agency:
Rating: 301
Most Recent Revenue
(Water/Sewer or Sewer)
Bond:
Date:
Rating Agency:
Bond Insurance (Yes/No):
Rating: 302
Summary Bond Rating: 303
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2021 FCA Guidance - Appendix B
2. Overall Net Debt as a Percent of Full Market Property Value
Description
Overall net debt is debt repaid by property taxes in the permittee's service area. It
excludes debt which is repaid by special user fees (e.g., revenue debt). This indicator
provides a measure of the debt burden on residents within the permittee's service area
and measures the ability of local governmental jurisdictions to issue additional debt. It
includes the debt issued directly by the local jurisdiction and debt of overlapping entities,
such as school districts. This indicator compares the level of debt owed by the service
area population with the full market value of real property used to support that debt and
serves as a measure of financial wealth in the permittee's service area. Information
needed to develop overall net debt as a percent of full market value is identified on
Worksheet 4.
Worksheet 4 Instructions
Enter requested data on Worksheet 4, lines 401 - 405.
• Line 401 - Direct Net Debt - Enter the amount of each jurisdiction's general obligation
debt outstanding that is supported by the property in the permittee's service area.
General obligation bonds are secured by the "full faith and credit" of the community
and are payable from general tax revenues. This debt amount excludes general
obligation bonds that are payable from some dedicated user fees or specific revenue
source other than the general tax revenues. These general obligation bonds are called
"double-barreled bonds."
• Line 402 - Debt of Overlapping Entities - The Statistical Section of the community's
Comprehensive Financial Annual Report (CAFR) generally lists the outstanding debt
attributable to permittee's service area. If not, calculate the permittee's service area's
share of any debt from overlapping entities using the process illustrated below:
o Identify in Column A below each overlapping entity that has incurred debt that
must be partially supported by the permittee's service area. (Check the
Statistical Section of the community's Comprehensive Annual Financial Report
or State assessor's office for this information).
o Identify the total amount of tax-supported outstanding debt for each
overlapping entity in Column B. Money in a sinking fund is not included in the
outstanding debt since it represents periodic deposits into an account to
ensure the availability of sufficient monies to make timely debt service
payments.
o Identify the percentage of each overlapping entity's outstanding debt charged
to persons or property in the permittee's service area in Column C. The
percentage is based on the estimated full market value of real property of the
respective jurisdictions.
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2021 FCA Guidance - Appendix B
o Multiply the total outstanding debt of each overlapping entity by the
percentage identified for the permittee's service area (Column B x C).
o Add the figures in Column D to arrive at total overlapping debt for permittee's
service area.
(A)
(B)
(C)
(D)
Overlapping Entities
Outstanding Debt
Percent Chargeable to
Outstanding Debt
(less Sinking Fund)
Permittee's Service
Area
Attributable to
Permittee's Service
Area
County
$10,500,000
25%
$2,625,000
School District
$16,800,000
95%
$15,960,000
Total Overlapping
Debt
$18,585,000
• Line 403 - Overall Net Debt - Add lines 401 and 402.
• Line 404 - Market Value of Property - The property value should reflect the full market
value of real property excluding personal property within the permittee's service area.
It is possible that the tax assessed property value will not reflect full market value. This
occurs when the tax assessment ratio is less than one. In such cases the full market
value of property is computed by dividing the total tax assessment value by the
assessment ratio (the assessment ratio represents the percentage of the full market
value that is taxed at the established tax rate). For example, if the assessed value is
$1,000,000 and the assessment ratio is 50 percent then the full market value of real
property is $1,000,000/.50 = $2,000,000.
• Line 405 - Overall Net Debt as a Percent of Full Market Property Value - Divide line 403
by line 404 and multiply by 100.
Data Sources
Debt information is generally available in the Statistical Section of the permittee's CAFR.
In most cases the most recent CAFR is on file in the finance department of the
municipality's website. Overlapping debt is also generally provided in a community's
financial reports. Market value of real property is available in the Statistical Section of the
permittee's CAFR. If not, the property assessment data should be readily available
through the community, county or State's assessor office. The boundary of most
permittees' service areas generally conforms to one or more community boundaries.
Therefore, prorating community data to reflect specific service area boundaries is not
normally necessary for evaluating the general financial capability of the permittee.
Benchmarks
• Weak: Above 5%
• Mid-range: 2-5%
• Strong: Below 2%
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2021 FCA Guidance - Appendix B
OVERALL NET DEBT AS A PERCENT OF FULL MARKET PROPERTY VALUE
Worksheet 4
Line Number
Direct Net Debt
(G.O. Bond Excluding
Double-Barreled Bonds): 401
Debt of Overlapping
Entities (Proportionate
Share of Multijurisdictional
Debt): 402
Overall Net Debt
(Lines 401 + 402): 403
Full Market Value of
Property: 404
Overall Net Debt as a
Percent of Full Market
Property Value (Line 403
divided by Line 404 x 100): 405
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2021 FCA Guidance - Appendix B
B. SOCIOECONOMIC INDICATORS
The socioeconomic indicators are used to assess the general economic well-being of
residential users in the permittee's service area. The indicators used to assess economic
conditions are unemployment rate and median household income. When the permittee
has additional socioeconomic data, it may want to submit the data to the appropriate
EPA and state NPDES authorities to facilitate a better understanding of the permittee's
unique economic conditions. Several examples of this type of socioeconomic data could
be poverty rate, population growth, and employment projections.
1. Unemployment Rate
Unemployment information is entered on Worksheet 5. The unemployment rate is
defined as the percent of a permittee's service area residents on the unemployment rolls.
Worksheet 5 Instructions
Unemployment values are entered on lines 501 - 503 on Worksheet 5. If the
unemployment rate for a permittee's service area is not available, the unemployment
rate for the county in which the service area is located may be used as a substitute. On
line 503, enter the average national unemployment rate.
Data Sources
The Bureau of Labor Statistics (BLS) maintains current unemployment rate figures for
municipalities and counties with a population over 25,000. National and state
unemployment data are also available for comparison purposes. This information can
be obtained from the BLS Data Tools webpage at httpsi//www/bls.gov/data. The most
recent year of unemployment data can be used.
Benchmarks
Compare the permittee's unemployment values with the national average values.
National averages are readily available through the Bureau of Labor Statistics.
• Weak: More than 1 percentage point above the National Average
• Mid-ra nge: ± 1 percentage point of the National Average
• Strong: More than 1 percentage point below National Average
For example, if the national average unemployment rate is 6 percent, an unemployment
rate greater than 7 percent would be considered weak, while an unemployment rate less
than 5 percent would be considered strong.
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2021 FCA Guidance - Appendix B
UNEMPLOYMENT RATE
Worksheet 5
Unemployment Rate •
Permittee:
Line Number
501
Source:
Unemployment Rate - County
(use if permittee's rate is
unavailable):
502
Source:
Benchmark:
Average National
Unemployment Rate:
503
Source:
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2021 FCA Guidance - Appendix B
2. Median Household Income
Median household income (MHI) is defined as the median amount of total income dollars
received per household during a calendar year in a given area. It serves as an overall
indicator of community earning capacity. Worksheet 6 is used to present information for
this indicator.
Worksheet 6 Instructions
Median household income was discussed during the first phase assessment and is
presented on Worksheet 2. On line 601 of Worksheet 6, enter the adjusted MHI from
Worksheet 2 (line 203). Enter the national MHI value for the same year (line 602) and
enter the value on Line 604.
Data Sources
Median household income is available through Census Bureau ACS data at the following
website: httpsi//www.census.gov/data.html. Refer to Table B19013: "Median Household
Income in the Past 12 Months (in [Current Year] Inflation-Adjusted Dollars."
Benchmarks
Compare the permittee's MHI to the adjusted national MHI:
• Weak More than 25% below Adjusted National MHI
• Mid-Range ± of the Adjusted National MHI
• Strong More than 25% above Adjusted National MHI
Page 10 of 18
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2021 FCA Guidance - Appendix B
MEDIAN HOUSEHOLD INCOME
Worksheet 6
• Median Household
Income - Permittee (Line
203, Worksheet 2)
• Source
Benchmark
National MHI: 602
• Source:
Relationship to Benchmark
• Permittee MHI
Relationship to
National MHI
(Line 601/Line 602) 603
• Rating
(See table above)
Line Number
601
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2021 FCA Guidance - Appendix B
C. FINANCIAL MANAGEMENT INDICATORS
The financial management indicators used to evaluate a permittee's financial
management ability are property tax revenue as a percent of full market value of real
property and property tax revenue collection rate.
1. Property Tax Revenues as a Percent of Full Market Property Value
This indicator can be referred to as the "property tax burden" since it indicates the
funding capacity available to support debt based on the wealth of the community. It
also reflects the effectiveness of management in providing community services.
Worksheet 7 Instructions
Property tax burden is computed on Worksheet 7. The full market value of real property
was calculated in Worksheet 4, line 404. Enter the full market value on line 701. Enter the
most recent year's property tax revenue on line 702. General fund revenues are primarily
property tax receipts.
PRACTICE TIP: Property tax revenues should include both
current year collections and collections of payments in
arrears from prior \ ©ssments.
Data Sources
Property tax revenue collection data and market value of real property are generally
available in the Statistical Section of the permittee's CAFR. If not, property assessment and
tax revenue collection data should be readily available through the community, county or
state assessor's office. Occasionally, the assessment and tax revenue data of communities
partially serviced by the permittee may have to be prorated to provide a clearer picture of
the permittee's property tax burden.
Benchmarks
• Weak: Above 4%
• Mid-range: 2% - 4%
• Strong: Below 2%
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2021 FCA Guidance - Appendix B
PROPERTY TAX REVENUES AS A PERCENT OF FULL MARKET PROPERTY
VALUE
Worksheet 7
Line Number
Full Market Value of Real
Property (Line 404) 701
Total Property Tax Revenues 702
Property Tax Revenue as a
Percent of Full Market
Property Value
(702 4- 701 x 100) 703
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2021 FCA Guidance - Appendix B
2. Property Tax Revenue Collection Rate
The property tax revenue collection rate is an indicator of the efficiency of the tax
collection system and the acceptability of tax levels to residents.
Worksheet 8 Instructions
The property tax revenue collection rate is calculated on Worksheet 8. Total property
tax revenues collected was listed in Worksheet 7, Line 702. Enter this value on line
801. Enter the property taxes levied on line 802. Divide the property tax revenue
collected by the property taxes levied and multiply by 100 to present the collection
rate as a percentage on line 803.
Data Sources
Property taxes levied and property tax revenues are available in a community's annual
financial report (CAFR). Property taxes levied can also be computed by multiplying the
assessed value of real property (see Worksheet 4, Line 404) by the property tax rate
Occasionally, the assessment and tax revenue data of communities partially serviced
by the permittee may have to be prorated to provide a clearer picture of the
permittee's property tax revenue collection rate.
Benchmarks
• Weak: Below 94%
• Mid-range: 94-98%
• Strong: Above 98%
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2021 FCA Guidance - Appendix B
PROPERTY TAX REVENUE COLLECTION RATE
Worksheet 8
Line Number
• Property Tax Revenue
Collected (Line 702) 801
• Property Taxes Levied 802
• Property Tax Revenue
Collection Rate
(Line 8014-Line 802x100) 803
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2021 FCA Guidance - Appendix B
D. Analyzing Permittee Financial Capability Indicators
This section describes how the indicators in the second phase may be used to generate
an overall score of a permittee's financial capability. The indicators are compared to
national benchmarks to form an overall assessment of the permittee's financial capability
and its effect on implementation schedules in the long-term CSO control plan.
In situations where a permittee believes that there are unique circumstances that would
affect the conclusion of the second phase, the permittee may submit documentation of
its unique financial conditions to the appropriate EPA and state NPDES authorities for
consideration. The purpose of additional information is to clarify unique circumstances
which are not fairly represented by the overall scores of the selected indicators. An
example could be where a state or community imposes restrictions on property taxes.
Worksheet 9 Instructions
The indicators generated from the worksheets are compared to the state, national or
industry benchmarks presented in Table 2. Information compiled from Worksheets 3
through 8 is summarized in Column A on Worksheet 9. Score each of these values using
the rating standards in Table 2 and the following score benchmarks and enter the
appropriate number in Column B. The score definitions are:
Benchmarks Score
• Weak 1
• Mid-Range 2
• Strong 3
To calculate an average score for the indicators, total the values in Column B and divide
by the number of entries. Enter the average score on Line 907.
If it is not possible to develop one or more of the six indicators, the permittee should
explain why the indicator is inappropriate or unavailable. Since the point of the analysis is
to measure the overall financial burden of the wastewater system controls, the debt and
socioeconomic indicators are generally better measures of this burden than the financial
management indicators. Consequently, if one of the debt or socioeconomic indicators is
not available, the two financial management indicators should be averaged and used as a
single indicator to average with the available debt and socioeconomic indicators. This
averaging is necessary so that undue weight is not given to the financial management
indicators.
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2021 FCA Guidance - Appendix B
TABLE 2 Summary of Financial Capability Indicator Ratings
Indicator
Strong
Mid-Range
Weak
Bond Rating
AAA-A (S&P) or
BBB (S&P) or
BB - D (S&P) or
Aaa - A (Moody's) or
BAA (Moody's) or
Ba - C (Moody's) or
AAA - A (Fitch Ratings)
BBB (Fitch Ratings)
BB - D (Fitch Ratings)
Overall Net Debt as
a Percent of Full
Market Property
Value
Below 2%
2% - 5%
Above 5%
Unemployment
Rate
More than 1
Percentage Point
Below the National
Average
± 1 Percentage Point
of National Average
More than 1
Percentage Point
Above the National
Average
Median Household
Income
More than 25% Above
Adjusted National MHI
± 25% of Adjusted
National MHI
More than 25%
Below Adjusted
National MHI
Property Tax
Revenues as a
Percent of Full
Market Property
Value
Below 2%
2% - 4%
Above 4%
Property Tax
Collection Rate
Above 98%
94% - 98%
Below 94%
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2021 FCA Guidance - Appendix B
Summary of Permittee Financial Capability Indicators
Worksheet 9
Indicator
Bond Rating
(Line 303)
Column A: Column B: Line Number
Actual Value Score
901
Overall Net Debt as
a Percent of Full
Market Property
Value (Line 405) 902
Unemployment
Rate (Line 501) 903
Median Household
Income (Line 601) 904
Property Tax
Revenues as a
Percent of Full
Market Property
Value (Line 703) 905
Property Tax
Revenue Collection
Rate (Line 803) 906
Permittee Indicators
Score (Sum of
Column B 4- Number
of Entries) 907
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2021 FCA Guidance - Appendix C
Examples of Information Related to Residential Impacts:
1. Income distribution by quintile, geography or other breakdown, illustrating how income
distribution in the service area differs from comparable data on the national level or for
similar cities.
2. Where cities have adopted differential rates for low income customers, the income
distribution that led to that rate structure.
3. Information about service area poverty rates and trends.
4. Projected, current and historical sewer, and stormwater fees as a percentage of household
income, quintile, geography or other breakdown.
5. Information on sewer and water usage for various classes of ratepayers or by type of
dwelling unit.
6. Information on the percent of households who own versus rent.
Examples of Information Related to Financial Strength:
1. Historical population trends or population projections.
2. Service area unemployment data and trends, or other labor market indicators, including
unemployment on an absolute basis.
3. Rate or revenue models, including dynamic financial planning models showing the
projections of impacts over the program period. All revenue sources tied to CWA
obligations may be included as appropriate.
4. Rate determination studies used to develop and support recent rate increases.
5. Data and trends on late payments, disconnection notices, service terminations,
uncollectable accounts, or revenue collection rates.
6. Historical increases in rates or other dedicated revenue streams.
7. State or local legal restrictions or limitations on property taxes, other revenue streams or
debt levels.
8. Other costs or financial obligations, such as those that relate to drinking water or other
infrastructure, that significantly affect a permittee's ability to raise revenue.
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2021 FCA Guidance - Appendix C
9. Circumstances that may affect a permittee's bond rating. For instance, incurring debt
beyond certain thresholds may negatively impact the permittee's bond rating, thus reducing
the ability to raise capital.
10. Financial plans that show the implications of incurring additional debt for a permittee's
ability to secure financing, including projections of metrics such as debt ratios, debt service
coverage, debt per customer, days of cash on hand, days of working capital and other
metrics used by rating agencies. Such data should be benchmarked to metrics such as rating
agency medians and relative to similar entities. This will be especially relevant where the
permittee does not have a bond rating.
11. Extraordinary stressors such as those from natural disasters, municipal bankruptcies,
unusual capital market conditions, or other situations which impact a permittee's ability to
raise revenue or acquire needed financing. When such stressors occur, they may also
provide support for making changes to existing schedules.
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2021 FCA Guidance - Appendix D
Recommended Expanded Economic Impact Matrix and Corresponding
Recommendations for WQS Decisions
EPA intends that the recommended expanded matrix for water quality standards (WQS)
decisions in this Appendix, along with the electronic spreadsheet tools for the public sector at
https://www.epa.eov/was-tech/spreadsheet-tools-evaluate-economic-impacts-public-sector,1
would replace the worksheets and calculations for the public sector sections of the 1995 WQS
Guidance. This replacement would then guide states and authorized tribes in determining the
degree of economic impact for use in WQS decisions including revisions to designated uses,
WQS variances, and antidegradation reviews. This Appendix includes the expanded economic
impact matrix for WQS that incorporates the Municipal Preliminary Screener (MPS), Secondary
Score (SS), Lowest Quintile Residential Indicator (LQRI), and Poverty Indicator (PI) in a multi-
step approach. This Appendix does not revise the recommended methodology in the private
sector sections of the 1995 WQS Guidance.
Because the four recommended critical metrics set forth below might not present the most
complete picture of a community's financial capability, communities are encouraged to submit
any additional documentation that would create a more accurate and complete picture of their
financial capability. Financial and rate models in Alternative 2 (as discussed in Section lll.d) or
other metrics (as discussed in Sections lll.e and lll.f) could provide additional information for
consideration in conjunction with the use of recommended critical metrics in Alternative 1 to
support WQS decisions. However, EPA notes that it does not recommend the use of financial
and rate model analysis under Alternative 2 alone or in lieu of Alternative 1, in WQS decisions.
In addition to completing an economic analysis using this Appendix and considering any other
financial metrics, a community or state is strongly encouraged to consider opportunities to
mitigate impacts of WQS decisions to areas with potential environmental justice concerns. For
example, EPA recommends communities to sequence projects included in WQS variance
requirements to mitigate impacts to areas with potential environmental justice concerns as
early as possible, to fully explore grants and loans from all relevant sources (see Section IV
Resources), or to consider Customer Assistance Programs (CAPs) to help financially constrained
customers.
1 These electronic spreadsheet tools for the public sector encompass the data inputs and calculations of the 1995
WQS Guidance.
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2021 FCA Guidance - Appendix D
Step 1: Determine the Initial Economic Impact by Using Table 1
Table 1 used to determine the initial economic impact for the public sector is same as the
matrix for the public sector in the 1995 WQS guidance. To calculate the_Municipal
Preliminary Screener (MPS) and Secondary Score (SS) for use in this step,), please see the
electronic spreadsheet tools for the public sector at https://www.epa.gov/wqs-
tech/spreadsheet-tools-evaluate-economic-impacts-public-sector.
Table 1:
Municipal Preliminary Screener
(Cost Based on Median Household Income)
Secondary Score
(MPS)
(SS)
Below 1.0%
Between 1.0% to
2.0%
Above 2.0%
Below 1.5 (Weak
Impact Unclear
Substantial Impact
Substantial Impact
Economy))
Between 1.5 to 2.5
Impact Not Likely to
Impact Unclear
Substantial Impact
(Mid-range Economy)
be Substantial
Above 2.5 (Strong
Impact Not Likely to
Impact Not Likely to
Impact Unclear
Economy)
be Substantial
be Substantial
Step 2: Determine the Lowest Quintile Impact by Using Table 2
For more information on how to calculate the Lowest Quintile Residential Indicator and
Poverty Indicator, please see Alternative 1 in the 2021 FCA in Section lll.c.
Table 2:
Poverty Indicator
Lowest Quintile Residential Indicator
Low Impact (Below
1.0%)
Mid-Range (1.0% to
2.0%)
High Impact (Above
2.0%)
Low Impact (Above
2.5)
Impact Not Likely to
be Substantial
Impact Not Likely to
be Substantial
Impact Unclear
Mid-Range
(1.5 to 2.5)
Impact Not Likely to
be Substantial
Impact Unclear
Substantial Impact
High Impact (Below
1.5)
Impact Unclear
Substantial Impact
Substantial Impact
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2021 FCA Guidance - Appendix D
Step 3: Use the Expanded Economic Impact Matrix for WQS Decisions in Table 3 to combine
the results from the Initial Economic Impact (Table 1) and the Lowest Quintile Impact (Table
21
Table 3:
Initial Economic
Impact
(MPS and SS)
Lowest Quintile Impact
(LQRI and PI)
Impact Not Likely to
be Substantial
Impact Unclear
Substantial Impact
Impact Not Likely to
be Substantial
Impact Not Likely to
be Substantial
Impact Not Likely to
be Substantial
Impact Unclear
Impact Unclear
Impact Not Likely to
be Substantial
Impact Unclear
Substantial Impact
Substantial Impact
Impact Unclear
Substantial Impact
Substantial Impact
Recommendations for WQS Decisions based on the 2021 Expanded Economic Matrix
The following are recommended WQS Decisions after applying the Expanded Economic Impact
Matrix for WQS Decisions from Table 3. EPA notes that while the Expanded Economic Matrix
below categorizes the recommended WQS decisions as "does not support, unclear support, or
supports," this does not necessarily mean that WQS decisions would be rigidly set according to
the break points between the categories. Information on other metrics or from financial and
rate models analysis could provide additional information for consideration for supporting WQS
decisions. Further, EPA recommends that in addition to completing an economic analysis set
forth in this Appendix D and considering any other financial metrics, opportunities to mitigate
impacts of WQS decisions to areas with potential environmental justice concerns should be
considered (see discussion in the introduction of this Appendix).
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2021 FCA Guidance - Appendix D
Expanded Economic Impact Matrix for
WQS Decisions
Recommended WQS Decisions
Impact Not Likely to be Substantial
Does not support revisions to designated uses,
WQS variances, or antidegradation reviews
leading to downgrading of high quality water
Impact Unclear
Unclear support for revisions to designated
uses, WQS variances, or antidegradation
reviews leading to downgrading of high quality
water; Recommend evaluation of other
metrics (described in Sections lll.e and lll.f of
the 2021 FCA) or the financial and rate models
(described in Alternative 2 in Section lll.d)
Substantial Impact
Supports revisions to designated uses, WQS
variances, or antidegradation reviews leading
to downgrading of high quality water
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