Report To The President Demonstrating That The U.S. Environmental Protection Agency’s Civil Administrative Enforcement Activities, Investigations, And Other Actions Comply With The Small Business Regulatory Enforcement Fairness Act Of 1996, Including Section 223 Of The Act


REPORT TO THE PRESIDENT DEMONSTRATING
THAT THE U.S. ENVIRONMENTAL PROTECTION
AGENCY'S CIVIL ADMINISTRATIVE ENFORCEMENT
ACTIVITIES, INVESTIGATIONS, AND OTHER
ACTIONS COMPLY WITH THE SMALL BUSINESS
REGULATORY ENFORCEMENT FAIRNESS ACT OF
1996, INCLUDING SECTION 223 OF THE ACT

Submitted Under Section 10 of Executive Order 13892 "Promoting the Rule of Law
Through Transparency and Fairness in Civil Administrative Enforcement and

Adjudication"

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

WASHINGTON, DC

APRIL 2020

-------
Table of Contents

Executive Summary	i

1.	Background	1

1.1.	Executive Order 13892	1

1.2.	SBREFA Amendments of 1996, Including Section 223	1

1.3.	SBA Ombudsman Annual Report to Congress	2

2.	Scope of EPA's Section 223 Program	3

2.1.	Description of Program	3

2.1.1.	Small Business Compliance Policy	3

2.1.2.	Audit Policy	4

2.1.3.	eDisclosure	4

2.1.4.	New Owner Audit Policy	4

2.1.5.	Oil and Gas Audit Policies	5

2.1.6.	Small Local Governments Compliance Assistance	5

2.2.	2018 Refresh	5

3.	EPA Has Received an "A" Rating in the SBA ONO's Report to Congress Every Year
Since 2005 	5

3.1. Response to Comment Letters (Section 222 of SBREFA)	6

3.1.1.	Timeliness	6

3.1.2.	Quality	6

3.2	Non-Retaliation Policy	6

3.3	Compliance Assistance	7

3.4	SBREFA Notification	8

4.	Conclusion	8

-------
Executive Summary

The EPA has historically addressed the special circumstances of many small entities when
assessing penalties in enforcement actions. The agency's civil enforcement activities pre-date the
Small Business Regulatory Enforcement Flexibility Act (SBREFA) and have been woven into
the EPA's current program to consider the needs of small entities in enforcement actions
mandated under SBREFA Section 223. For example, the EPA's media penalty policies routinely
take into account an entity's "ability to pay" and size in determining a settlement penalty
amount.

More importantly for purposes of this Report, however, the EPA also has a robust program that
incentivizes the self-disclosure and timely correction of violations by providing for reduced
penalties when the criteria of the applicable policy are met. The EPA's Small Business
Compliance Policy by itself satisfies the requirement of SBREFA Section 223 to establish a
policy or program to reduce or waive civil penalties that includes conditions for obtaining a
penalty reduction or waiver or exclusions for small businesses or violations that meet certain
criteria. Notably, in a statement made on the Senate floor during Congressional consideration of
SBREFA, Senator Christopher Bond used the EPA's Small Business Policy as an example of the
kind of policy sought by the § 223 requirement. Senator Bond stated, "For example, the
Environmental Protection Agency has adopted a small business enforcement policy that satisfies
that section." Vol. 142 No. 46, 142 Cong. Rec. S 3242 (Friday, Mar. 29, 1996). Moreover, the
EPA has additional policies that provide incentives to businesses, small and large, to self-
disclose and correct violations.

In addition, the Small Business Administration's Office of the National Ombudsman (SB A
ONO) has awarded the EPA an "A" rating in its annual report to Congress every year since
2005. The SB A ONO routinely awards the EPA an "A" under all rating criteria, as well as an
overall "A" rating. The EPA's commitment to ensuring its civil administrative enforcement
activities, investigations, and other actions comply with SBREFA is affirmed by the
consistently high rating it receives from the SBA ONO.

-------
1. Background

1.1. Executive Order 13892

On October 9, 2019, President Trump signed Executive Order 13892 entitled "Promoting the
Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and
Adjudication" (E.O. 13892 or the E.O.). 84 Fed. Reg. 55,239 (Oct. 15, 2019). Section 10 of the
EO provides that

Within 180 days of the date of this order, each agency shall submit a report to the
President demonstrating that its civil administrative enforcement activities,
investigations, and other actions comply with SBREFA, including section 223 of that
Act. A copy of this report, subject to redactions for any applicable privileges, shall be
posted on the agency's website.

1.2. SBREFA Amendments of 1996, Including Section 223

The Small Business Regulatory Enforcement Fairness Act (SBREFA or the Act), signed into law
on March 29, 1996, is an amendment to the Regulatory Flexibility Act (RFA) of 1980 that is
designed to strengthen the RFA's analytical and procedural requirements. SBREFA applies to
federal regulatory enforcement agencies and is aimed at providing assistance to small businesses
and other small entities, making tools available for better understanding of the regulatory and
enforcement processes, and seeing that there is no unfair treatment relating to the regulatory
enforcement process.

The Act adopts the definition of "small entity" provided in the Small Business Act, 5 U.S.C.
Section 601, 15 U.S.C. Section 632, and Small Business Administration (SBA) regulations. This
includes small businesses, small governmental jurisdictions (population of less than 50,000), and
small organizations (e.g., not-for-profit organizations) that are not dominant in their field. The
SBA uses the North American Industry Classification System (NAICS) code to indicate whether
a business qualifies as a "small business" based on annual receipts or number of employees.1

While SBREFA contains provisions related to regulatory activity as well, the SBREFA subtitles
relevant to civil administrative enforcement are:

Section 222: Among other things, this section provides small businesses the means to comment
on agency enforcement actions. The Act created the office of the Small Business Ombudsman in
the Small Business Administration to oversee agency enforcement by working with regulatory
agencies to ensure that small businesses "subject to an audit, on-site inspection, compliance
assistance effort or other enforcement-related communication or contact by agency personnel"
have a means to comment on such enforcement activities and actions that agency personnel
undertake in conducting those activities. This section also requires that the SBA Ombudsman
report annually to Congress and evaluate the enforcement activities of agencies and "include a
rating of responsiveness to small businesses of the various regional and program offices of each
agency."

1 See https://www.sba.gov/document/support-table-size-standards.

-------
Section 223: This section of SBREFA requires agencies to establish a policy or program to
reduce or waive civil penalties for violations of statutory or regulatory requirements by small
entities. The agency may consider ability to pay in determining penalty assessments on small
entities. Subject to statutory and other requirements, the penalty reduction program shall include
conditions which may include, but not be limited to:

(1)	requiring the small entity to correct the violation within a reasonable correction
period;

(2)	limiting the applicability to violations discovered through participation by the small
entity in a compliance assistance or audit program operated or supported by the agency or
a State;

(3)	excluding small entities that have been subject to multiple enforcement actions by the
agency;

(4)	excluding violations involving willful or criminal conduct;

(5)	excluding violations that pose serious health, safety or environmental threats; and

(6)	requiring a good faith effort to comply with the law.

Each agency was required to report to Congress no later than two years after enactment of
SBREFA on: (1) the scope of its program or policy; (2) the number of enforcement actions
against small entities that qualified/failed to qualify for the program; and (3) the total amount of
penalty reductions and waivers.

1.3. SBA Ombudsman Annual Report to Congress

As noted above, Section 222 of SBREFA requires that the SBA Ombudsman report annually to
Congress and evaluate "the enforcement activities of agency personnel including a rating of the
responsiveness to small business of the various regional and program offices of each agency."
Copies of the SBA Office of the National Ombudsman's Annual Reports to Congress from
FY2013 through FY2017 are available on the SBA's webpage.2

The SBA Office of the National Ombudsman (SBA ONO) rates a federal agency based on the
agency's response to small entity comments submitted under Section 222 of SBREFA, as well as
the agency's response to an annual questionnaire. The rating is based on five criteria: (i)
timeliness in responding to small entity comments, (ii) quality of response to small entity
comments, (iii) non-retaliation policies, (iv) compliance assistance, and (v) SBREFA
notification. As discussed in further detail below, the SBA ONO has awarded the EPA an "A"
rating every year since 2005.

2 https://www.sba.gov/document/report-national-ombudsmans-annual-reports-congress.

2

-------
2. Scope of EPA's Section 223 Program

2.1. Description of Program

The EPA has historically addressed the special circumstances of many small entities when
assessing penalties in enforcement actions. The agency's civil enforcement activities pre-date
SBREFA and have been woven into the EPA's current program to consider the needs of small
entities in enforcement actions mandated under SBREFA Section 223. For example, the EPA's
media penalty policies routinely take into account an entity's "ability to pay" and size in
determining a settlement penalty amount.

2.1.1. Small Business Compliance Policy

The EPA issued its revised final "Small Business Compliance Policy" on April 11, 2000 (65 Fed.
Reg. 19,630). This Policy was originally issued in 1996 and titled the "Policy on Compliance
Incentives for Small Businesses" (61 Fed. Reg. 27,984). The Policy applies to all media
programs, including water, air, toxics and hazardous waste.

The Small Business Compliance Policy is available to companies with 100 or fewer employees
and provides penalty waivers as incentives to participate in on-site compliance assistance
programs and to conduct environmental audits to discover, disclose and correct violations.4 The
EPA will waive the entire civil penalty if a disclosing small business meets certain criteria,
including: (1) any voluntary discovery of the violation; (2) prompt disclosure of the violation;
and (3) correction of the violation within the specified period. More information is available on
the EPA's Small Business Compliance Policy webpage.5

Notably, in a statement made on the Senate floor during Congressional consideration of
SBREFA, Senator Christopher Bond used the EPA's Small Business Policy as an example of the
kind of policy sought by the § 223 requirement. Senator Bond stated, "For example, the
Environmental Protection Agency has adopted a small business enforcement policy that satisfies
that section." Vol. 142 No. 46, 142 Cong. Rec. S 3242 (Friday, Mar. 29, 1996).

3 The EPA submitted a report to Congress regarding its implementation of Section 223 of SBREFA in March 1998,
per Section 223(c) of the Act. (Attachment)

4 The EPA reserves the right to seek as a penalty the economic benefit experienced because of the violations, if that
amount puts similar businesses at a significant economic disadvantage. There are exceptions to the Policy for
imminent and substantial endangerment, criminal conduct, and recurrent violations by the same company.

5 https://www.epa.gov/compliance/small-business-compliance.

-------
2.1.2. Audit Policy

Entities with more than 100 employees can take advantage of EPA's Audit Policy, formally
titled "Incentives for Self- Policing: Discovery, Disclosure, Correction and Prevention of
Violations." The Audit Policy provides several major incentives for regulated entities to
voluntarily discover and fix violations of federal environmental laws and regulations. To take
advantage of these incentives, regulated entities must voluntarily discover, promptly disclose to
the EPA, expeditiously correct, and prevent recurrence of future environmental violations.

Under the Audit Policy an entity may receive up to a 100% reduction of gravity-based penalties
if all nine of the Audit Policy's conditions are met.6 The EPA retains its discretion to collect any
economic benefit that may have been realized as a result of noncompliance. More information
about the Audit Policy is available on the EPA's Audit Policy webpage.7

2.1.3. eDisclosure

In 2015, the EPA modernized implementation of its self-disclosure policies by creating a
centralized web-based "eDisclosure" portal to receive and automatically process self-disclosed
civil violations of environmental law.8 Under the automated eDisclosure system, large and small
businesses are able to resolve certain routine types of disclosures quickly.9 The EPA launched
the eDisclosure system to continue the benefits of self-disclosure policies and provide penalty
mitigation and other incentives for companies that self-police, disclose, correct and prevent
violations. These implementation changes made processing of disclosures faster and more
efficient, and saved time and resources for regulated entities and EPA. More information is
available on the eDisclosure Information Sheet.10

2.1.4. New Owner Audit Policy

In August 2008, the EPA announced the "Interim Approach to Applying the Audit Policy to New
Owners" (73 Fed. Reg. 44,991) ("New Owner Audit Policy"). The New Owner Audit Policy was
developed so that new owners could benefit from the tailored incentives (e.g., no penalties for
the period before the date of acquisition). Among other things, an eligible new owner must enter
into an audit agreement with the EPA and meet all the conditions of the New Owner Audit
Policy. More information is available on the EPA's New Owner Audit Policy webpage.11

6 Reduction of gravity-based penalties by 75% may be available where the disclosing entity meets all of the Audit
Policy's conditions except detection of the violation through a systematic discovery process.

7 https://www.epa.gov/compliance/epas-audit-policv.

8 See Notice of eDisclosure Portal Launch: Modernizing Implementation of EPA's Self-Policing Incentive Policies
(80 Fed. Reg. 76,476).

9 All self-disclosed civil violations, with the exception of new owner disclosures, must be made through the
eDisclosure portal. Although the EPA did not modify the substantive conditions in its Audit Policy or Small

Business Compliance Policy, the eDisclosure portal streamlines and modernizes the EPA's approach to handling
disclosures under these two policies.

10 https://www.epa.gov/compliance/edisclosure-information-sheet-december-2015.

11 https://www.epa.gov/compliance/epas-interim-approach-applving-audit-policv-new-owners.

-------
2.1.5. Oil and Gas Audit Policies

In 2019, the EPA finalized two audit programs specific to the oil and natural gas sector, one each
for new and existing owners. The programs are available to upstream exploration and production
sites where the EPA and states have seen significant noncompliance. The EPA believes that
offering additional flexibilities under a specific and tailored oil and gas audit program will make
it easier for the regulated community to self-disclose and correct violations, thereby providing
additional protection for public health and the environment. More details on these programs can
be found on under "Assuring Compliance" on the EPA's unconventional oil and gas webpage.12

2.1.6. Small Local Governments Compliance Assistance

The Small Local Governments Compliance Assistance Policy ("Small Communities Policy") (69
Fed. Reg. 3 1,278, June 2, 2004) revised and superseded the 1995 "Policy on Flexible State
Enforcement Responses to Small Community Violations." The Small Communities Policy
addresses the small government j uri sdiction component of "small entities." The Policy supports
states" use of enforcement flexibility to provide compliance incentives such as penalty waivers,
compliance assistance and enforcement agreements to address competing environmental
violations for small communities with a population of fewer than 2,500 residents.

2.2. 2018 Refresh

In May 2018, the EPA announced a "refresh"13 of its self-disclosed violations policies.
Specifically, the EPA took steps to enhance and promote:

(a) its already highly successful online "eDisclosure" program;

(b) the additional flexibility that is available to new owners who self-disclose violations; and

The renewed emphasis on encouraging regulated entities to voluntarily discover, promptly
disclose, expeditiously correct, and take steps to prevent recurrence of environmental violations
was part of the EPA's efforts to address noncompliance in an efficient and timely manner.

3. EPA Has Received an "A" Rating in the SBA ONO's Report to Congress Every
Year Since 2005

The SBA ONO has awarded the EPA an "A" rating in its annual report to Congress every
year since 2005. Moreover, the SBA ONO routinely awards the EPA an "A" under all rating
criteria, as well as an overall "A" rating. The EPA's commitment to ensuring its civil
administrative enforcement activities, investigations, and other actions comply with
SBREFA is affirmed by the consistently high rating it receives from the SBA ONO. This

12 https ://www.eoa. gov/uo g#compliance.

13 https://www.epa.gov/compliance/epa-announces-renewed-emphasis-self-disclosed-violation-policies.

-------
section summarizes the criteria used by the SBA ONO to evaluate federal agencies'
compliance with SBREFA.

3.1. Response to Comment Letters (Section 222 of SBREFA)

The Office of Civil Enforcement in the Office of Enforcement and Compliance Assurance is the
point of contact for the SBA ONO when a small entity comments under Section 222 of SBREFA
on an EPA enforcement action. The Office of Civil Enforcement works closely with the
appropriate headquarters or regional office, as well as the EPA's Asbestos and Small Business
Ombudsman, to respond to the comment and any additional questions asked by the SBA ONO.
The EPA routinely receives an "A" for both its timeliness and quality of its responses. The SBA
ONO highlighted the EPA as an "Exemplary Agency" for these reasons in its FY2015 Annual
Report to Congress.14

3.1.1. Timeliness

The SBA ONO assigns an "A" grade if the average response time to comments is 30 business
days or less. The EPA routinely meets this 30-business day deadline, and makes every effort to
respond to each comment as soon as possible. As indicated by the EPA's "A" rating in the past
several years of SBA Annual Reports to Congress, the EPA consistently responds to comments
under Section 222 of SBREFA in a timely manner.

3.1.2. Quality

The SBA ONO separately rates how substantively the federal agency responds to a comment, as
well as whether a high-level representative provides the response. The EPA responds thoroughly
to comments submitted under Section 222 of SBREFA, as indicated by the "A" rating it has
received for this criterium for several years. The EPA responses, while recognizing that the
agency is prohibited from discussing enforcement sensitive information, typically provide
detailed information about the underlying public health and environmental program at issue, as
well as the particular facts of the situation. In addition, each response addresses the specific
additional questions posed by the SBA ONO. Most often the EPA response is signed by the
Director of the Office of Civil Enforcement, a member of the Senior Executive Service,
indicating that a high-level official has reviewed the concerns raised in the comment.

3.2 Non-Retaliation Policy

The SBA ONO also grades a federal agency on whether it has a non-retaliation policy which is
accessible not only to agency employees, but also the public. The EPA has received an "A"
rating due to its longstanding policy prohibiting retaliation against any member of the regulated
community. The Office of Enforcement and Compliance Assurance has formally re-affirmed this
policy in writing three times in the past 20 years, including as recently as May 2019. The 2019
memorandum clearly sets forth the EPA's non-retaliation policy and instructs that every effort be
made to avoid even the appearance of retaliatory action. The EPA is not aware of a single
instance of retaliation in the history of the EPA's enforcement program.

14 https://www.sba.gov/sites/default/files/2019-04/ONQ 2015.pdf (p. 32).

-------
The memorandum was distributed to EPA's enforcement and compliance assurance personnel
nationwide, and is available to all EPA employees and the public.15 In addition, the U.S. EPA
Small Business Resources Information Sheet explains that EPA will not retaliate if a small
business comments under SBREFA on an enforcement action taken against it.16 The Information
Sheet is routinely provided to small businesses at the time of initial contact (e.g., site visit,
inspection, etc.) and is available on the EPA's internet site.

3.3 Compliance Assistance

The EPA's robust compliance assistance program, including the issuance of Small Entity
Compliance Guides (SECGs) required by SBREFA Section 212, has received an "A" rating for
several years.

For example, the EPA has a "Small Business and Enforcement" webpage which provides
information on SBREFA, as well as a link to the Small Business Compliance Policy discussed
above.17 Under "Small Business" on the "Compliance Assistance Documents" webpage there are
additional links to information on Small Business Compliance. SECGs. and Office of Small
Business Programs eNews.18 The Small Businesses Resources Information Sheet noted above
contains substantial information regarding resources available to small business.19

The EPA's Asbestos Small Business Ombudsman (ASBO), located within the Office of Small
and Disadvantaged Business Utilization, serves as a small business advocate and liaison for the
small business community in terms of regulatory development and compliance assistance. The
ASBO supports a national EPA Small Business Ombudsman hotline for small business and trade
associations to contact ASBO for assistance on EPA rules that may impact them. Additionally,
ASBO provides oversight and support to the state Small Business Environmental Assistance
Programs (SBEAPs), located throughout the country, with grant funding and staff support for the
NationalSBEAP.org website, collaborative resources, and annual training event, the EPA's
partnership with the state SBEAPs is an important way the agency supports environmental
compliance assistance provided directly to small businesses.

As required by Section 212 of SBREA, the EPA has published an SECG for every rule for which
the agency has prepared a final regulatory flexibility analysis under Section 604 of the
Regulatory Flexibility Act (RFA), and submits an Annual Report on Small Entity Compliance
Guides to the U.S. Senate Committee on Small Business and Entrepreneurship and the House
Small Business Committee. To date, the EPA has completed over 20 SECGs, which are
reviewed and revised as needed. The EPA ensures that these SECGs are readily available to

15 See, e.g., https://www.epa.gov/enforcement/reaffirming-epas-policY-and-practice-against-using-enforcement-
retailation. and https://www.epa.gov/enforcement/small-businesses-and-enforcement.

16 https://www.epa.gov/compliance/small-business-resources-information-sheet.

17 https://www.epa.gov/enforcement/small-businesses-and-enforcement.

18 https://www.epa.gov/compliance/resources-and-guidance-documents-compliance-assistance.

19 The EPA also reaches small businesses through the EPA-funded Compliance Assistance Centers program. A
variety of the Centers provide information useful to small businesses, including Centers for agricultural businesses,
construction companies, automotive recyclers, auto body shops, healthcare facilities, metal finishers, and others. The
Centers can be accessed at: https://www.epa.gov/compliance/compliance-assistance-centers.

-------
affected regulated entities by posting them in multiple, easily identified locations on the agency's
website. Most of EPA's SECGs may be found at https://www.epa.gov/reg-flex. Nationally, the
EPA distributes its SECGs to known industry contacts, including small entities, trade
associations and industry leaders affected by particular rules. SECGs are also provided to the
EPA's various regional offices for direct distribution to their small entity contacts.

3.4 SBREFA Notification

The EPA's efforts to ensure that every small business is informed of its right to contact SB A and
comment on an enforcement action has also been awarded an "A" rating for several years. The
EPA routinely provides every small business with the above noted Information Sheet at the time
the EPA initiates enforcement contact (e.g., during an inspection). The Information Sheet
informs small businesses of their right under SBREFA to submit comments to the SBA about
agency enforcement actions, and provides SBA contact information. In addition, the EPA "Small
Businesses and Enforcement" webpage noted above includes a link to the SBA ONO webpage,
among other things.

4. Conclusion

The EPA's civil administrative enforcement activities, investigations and other enforcement
actions comply with SBREFA, including Section 223 of the Act. The EPA has a robust
compliance incentive program, which includes a policy specifically for small entities that
reduces or waives penalties for self-disclosed, timely corrected violations when the applicable
criteria are met. In addition, for over ten years the SBA Office of the National Ombudsman has
recognized the EPA's exemplary efforts to respond to small business concerns and fulfill its
obligations under SBREFA by awarding the EPA the highest "A" rating in its annual report to
Congress, demonstrating that EPA has consistently complied with SBREFA's enforcement
requirements.

-------
THE SMALL BUSINESS REGULATORY ENFORCEMENT FAIRNESS ACT
SECTION 223 PENALTY REDUCTION PROGRAM FOR SMALL ENTITIES

REPORT

TO CONGRESS

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

WASHINGTON, DC

MARCH 1998

-------
Table of Contents

Page Number

Executive Summary	 4

1.0 Background	6

1.1 Statutory Requirements of Section 223 	6

2.0 Scope of EPA's Program	6

2.1	Description of Program	6

2.1.1	Policy on Compliance Incentives for Small Businesses 	 7

2.1.2	Incentives for Self-Policing: Discovery, Disclosure, Correction

and Prevention of Violations	9

2.1.3	Policy on Flexible State Enforcement Responses to Small

Community Violations	10

2.1.4	State Implementation of Penalty Reduction Program 	 11

2.2	EPA's Program in the Context of its Compliance Assurance Activities	11

2.2.1	On-site Compliance Assistance	12

2.2.2	Guidance on Conducting Compliance Assessments	12

2.3	Promoting the Penalty Reduction Program	13

2.3.1	Promoting the Small Business Policy	13

2.3.2	Promoting the Audit Policy	16

2.3.3	Promoting the Small Communities Policy	17

3.0 Results of Program 	17

3.1 Small Entity Use of EPA's Program as Reported by EPA Regions	 17

2

-------
3.1.1	Summary	17

3.1.2	Data Summary	 18

3.2 Small Entity Use of State Penalty Reduction Programs	18

4.0 Conclusion 	 19

3

-------
Executive Summary

EPA is pleased to submit this Report to Congress in compliance with §223 of the Small Business
Regulatory Enforcement Fairness Act of 1996 (SBREFA). §223 requires that EPA design and
implement a policy or program to support the rights of small entities in enforcement actions,
specifically by providing for the reduction, and, under appropriate circumstances, the waiver of
civil penalties for certain violations by small entities. EPA has historically addressed the special
circumstances of many small entities when assessing penalties in enforcement actions. For
example, penalty policies long in place for air, water, and land protection programs provide for
reduction in penalties based on "ability to pay." The Enforcement Response Policy for Clean
Air Act §507 Small Business Assistance Programs, issued August 12, 1994, also applies to small
businesses in potential enforcement situations. Many EPA activities providing enforcement
flexibility for small entities pre-date SBREFA, and they provide the platform on which the
Agency has mounted its program in response to the §223 mandate.

EPA's program to reduce or waive penalties for small entities consists of the following three
policies:

EPA's I'inal Policy on Compliance Incentives for Small Businesses (Small Business Policy)
issued May 20, 1996, applies to companies with 100 or fewer employees and provides
penalty waivers as incentives to participate in on-site compliance assistance programs or
to conduct environmental audits to discover, disclose, and correct violations. Under this
policy, small entities are able to discover violations and achieve compliance with
minimal risk of penalty. This policy explicitly recognizes State policies that, consistent
with Small Business Policy terms, also provide penalty mitigation or waiver for small
entities.

Companies with more than 100 employees, but which are nevertheless considered "small

entities" under the Small Business Administration (SB A) definition of "small business,"
(See 61 Fed. Reg. 3280 (1996)), can use the Agency's policy on Incentives for Self-
Policing: Disclosure, Correction, and Prevention of Violations (Audit Policy). The
Audit Policy, issued December 1995, reduces penalties for entities of all sizes who find
violations through an environmental audit or systematic procedure reflecting the entity's
due diligence, promptly disclose the violations in writing, and correct those violations.

To address the needs of small communities, in November, 1995, EPA issued its Policy on
Flexible State Enforcement Responses to Small Community Violations (Small
Communities Policy), which provides small communities not only the tools and flexibility
they need to achieve environmental compliance on a diligent but sensible schedule, but
also penalty relief.

EPA has started to promote more aggressively the understanding and use of its penalty reduction
program both internally and externally.

4

-------
As of the end of fiscal year 1997 small entities had just begun to make use of EPA's penalty
reduction program. EPA Regions report that of 149 small entities applying for penalty relief, 95
qualified for the program and were granted relief; 10 were ineligible; and 44 cases are still under
review. These figures may understate the number of small entities currently applying for and
receiving penalty mitigation. States are responsible for the vast majority of environmental
programs. Due to delegation of enforcement programs to States, small entities have been going
directly to their State regulators to seek relief. EPA expects applications to grow over time as
both administrators and potential beneficiaries become more familiar with the program. Since
this is a new program, EPA Regions are still determining how to effectively implement it in their
Regions. Similarly, the regulated community may not yet be adequately familiar with it to
recognize its benefits.

Under EPA's program the Government has so far mitigated (i.e., reduced or waived) penalties
assessed against small entities by over $896,470. This number substantially underestimates the
full amount of the reduction, however. In some cases, a small entity has qualified for the policy
but the amount of penalty mitigation is still under review. In other cases, it is not possible to
calculate the exact dollar amount of penalties reduced under EPA's policies.

EPA anticipates that States will play a major role in the implementation of incentive policies. A
number of States, in fact, have implemented incentive policies or programs to reduce penalties
for small entities. So far 565 small entities have been found eligible for penalty waiver or
reduction under State policies. States did not generally provide information on the dollar
amount of penalties mitigated under this program.

To increase the benefits of the program EPA must continue aggressively to inform the regulated
community, States, and other assistance providers about the availability of penalty reductions to
small entities. Realistically, however, many small entities aware of the program may choose not
to call attention to themselves by coming forward to seek penalty reduction despite EPA's best
efforts to encourage them to participate.

-------
1.0	Background

1.1	Statutory Requirements of Section 223

Section 223 of the Small Business Regulatory Enforcement Fairness Act (SBREFA) requires
agencies to establish a policy or program to reduce or waive civil penalties for violations of
statutory or regulatory requirements by small entities. The agency may consider ability to pay
in determining penalty assessments on small entities. Subject to statutory and other
requirements, the penalty reduction program shall include conditions which may include, but not
be limited to:

(1)	requiring the small entity to correct the violation within a reasonable correction
period;

(2)	limiting the applicability to violations discovered by participation in a compliance
assistance or audit program operated or supported by the agency or state;

(3)	excluding small entities that have been subject to multiple enforcement actions by the
agency;

(4)	excluding violations that involve willful or criminal conduct or pose serious health,
safety or environmental threats;

(5)	requiring a good faith effort to comply with the law.

The agency must report to Congress no later than two years after enactment of SBREFA on 1)
the scope of its program or policy; 2) the number of enforcement actions against small entities
that qualified/failed to qualify for the program; and 3) the total amount of penalty reductions and
waivers.

2.0	Scope of EPA's Program

2.1	Description of the Program

EPA has historically addressed the special circumstances of many small entities when assessing
penalties in enforcement actions. Its activities, in fact, pre-date SBREFA and have been woven
into the Agency's current program to consider the needs of small entities in enforcement actions
mandated under SBREFA §223. EPA's media penalty policies routinely take into account an
entity's "ability to pay" in determining a settlement penalty amount. In August 1994, EPA
issued the Enforcement Response Policy for Clean Air Act Section 507 Small Business
Assistance Programs (Section 507 Enforcement Response Policy) which provides a limited grace
period during which a small business may correct violations revealed during assistance visits
from a State Small Business Assistance Program (SBAP) established under the Clean Air Act

6

-------
Amendments without penalties being assessed.

EPA expanded the applicability and scope of this policy in issuing its Final Policy on
Compliance Incentives for Small Businesses on May 20, 1996. This policy applies to companies
with 100 or fewer employees and provides penalty waivers as incentives to participate in on-site
compliance assistance programs and to conduct environmental audits to discover, disclose and
correct violations. Under this policy, small entities are able to discover violations and achieve
compliance with minimal risk of penalty. This policy explicitly recognizes consistent state
policies that provide penalty mitigation or waiver for small entities.

Companies with more than 100 employees, but which are still considered "small entities" under
the Small Business Administration (SBA) definition of "small business" (See 61 Fed. Reg. 3280
(1996)), can use the Agency's Incentives for Self-Policing: Disclosure, Correction, and
Prevention of Violations policy (Audit Policy). The Audit Policy, issued December 1995,
provides penalty reduction for entities of all sizes who find violations through an environmental
audit or systematic procedure reflecting the entity's due diligence, promptly disclose the
violations in writing and correct those violations.

To address the needs of small communities, in November 1995, EPA issued its Policy on
Flexible State Enforcement Responses to Small Community Violations (Small Communities
Policy), which provides small communities both the tools and flexibility they need to achieve
environmental compliance on a diligent but sensible schedule and provides penalty relief.

2.1.1 Policy on Compliance Incentives for Small Businesses

Purpose. The Policy on Compliance Incentives for Small Businesses was issued on May 20,
1996 and became effective June 10, 1996. EPA's policy applies to all media programs,
including water, air, toxics and hazardous waste. The purpose of the policy is to promote
environmental compliance among small businesses by providing them incentives to participate in
on-site compliance assistance and conduct environmental audits. Further, it encourages small
businesses to expeditiously remedy all violations discovered through compliance assistance and
environmental audits by providing a settlement penalty policy that reduces or waives penalties
for these behaviors and by providing guidance for states and local governments to offer these
incentives.

EPA anticipates that States, who are partners in enforcement and compliance assurance and
delegated the authority for these activities, will be the primary implementers of EPA's or a
consistent State policy.

In a statement made on the Senate floor during Congressional consideration of SBREFA, Senator
Christopher Bond used EPA's Small Business Policy as an example of the kind of policy sought
by the §223 requirement. Senator Bond stated, "For example, the Environmental Protection
Agency has adopted a small business enforcement policy that satisfies that section." Vol. 142
No. 46, 142 Cong Rec S 3242 (Friday, March 29, 1996).

-------
Applicability. The policy applies to small entities defined as a "person, corporation, partnership
or other entity who employs 100 or fewer individuals" company-wide. EPA's definition is
based on a simplified definition of small businesses that are eligible for assistance by SBAPs
established under §507 of the Clean Air Act.

Criteria for Penalty Mitigation. EPA will waive a civil penalty if a small entity satisfies all of
the following criteria:

1)	The small entity has made a good faith effort to comply with applicable environmental
requirements as demonstrated by either:

•	receiving on-site compliance assistance from a government or government-supported
program during which the violations are detected; or

•	conducting an audit and promptly disclosing in writing within ten days the violations
discovered during the audit to the appropriate regulatory agency.

2)	In the past three years, the small business was not subject to an enforcement action for the
current violation, and the small business has not been subject to two or more enforcement actions
for environmental violations in the past five years.

3)	The business must correct the violation and remedy any harm associated with it within six
months of its discovery. Small businesses which use pollution prevention technologies to fix
the violation receive an additional six months to comply.

4)	There is lack of harm and lack of criminal conduct including:

•	the violation has not caused actual serious harm to public health, safety or the
environment;

•	the violation is not one which may present an imminent and substantial endangerment to
public health or the environment;

•	the violation does not present a significant health safety or environmental threat; and

•	the violation does not involve criminal conduct.

If a small business meets all of the criteria, except for the need of a longer corrections period,
EPA will waive up to 100% of the gravity component of the penalty. (The gravity component
of the penalty includes everything except the economic benefit amount and considers factors
such as the harm posed by, seriousness, and duration of the violation.) In the rare instance
where the small business has obtained a significant economic benefit from the violation, such
that it puts its competitors at a serious marketplace disadvantage, the Agency may seek the full
amount of any economic benefit associated with the violation. EPA anticipates that if all the
criteria are met, including the corrections period, penalties based on the economic benefit of
noncompliance will be collected infrequently.

8

-------
2.1.2 Incentives for Self-Policing: Discovery, Disclosure, Correction, and Prevention of
Violations

This policy, known as EPA's Audit Policy, issued December 22, 1995 and effective January 22,
1996, is applicable to entities of all sizes. This policy is part of EPA's program to waive
penalties for entities who may not meet the definition of "small" in EPA's Small Business
Policy, but who meet the definition of small under the SBA size standards. The policy
encourages regulated entities to discover voluntarily, promptly disclose, correct, and prevent
violations of Federal environmental law found through voluntary environmental audits or efforts
that reflect a regulated entity's due diligence. If appropriate criteria are met, EPA will not seek
gravity-based penalties and will not generally recommend criminal prosecution against the
regulated entity.

Eligibility

1) Violations, which have or may have occurred, must be identified through an environmental
audit or due diligence, e.g., compliance management programs which train and motivate staff to
prevent, detect, and correct violations on a daily basis.

2) The violation must be identified voluntarily, not through a monitoring, sampling, or auditing
procedure that is required by statute, regulation, permit, judicial or administrative order, or
consent agreement. Disclosure of the violation must be made within ten days of discovery, in
writing.

3) The violation must be discovered and disclosed independent of a government or third-party
plaintiff.

4) The entity must correct the violation within 60 days or provide written notice where violations
may take longer to correct.

5) The regulated entity must take steps to prevent a recurrence of the violations.

6) The same or closely related violation must not have occurred within the past three years at the
same facility or be part of a pattern of violations by the regulated entity over the past five years.

7) Violations which may pose imminent and substantial endangerment or resulted in serious
harm are not eligible.

8) The regulated entity must cooperate with EPA and provide information necessary to
determine the applicability of the policy.

-------
Penalty mitigation criteria

1) EPA will waive gravity-based penalties up to 100% for disclosures identified through audits
or due diligence that meet the conditions of the policy. EPA reserves the right to collect any
economic benefit that may have been realized as a result of noncompliance, even where
companies meet all other conditions of the policy. Economic benefit may be waived where the
Agency determines that it is insignificant.

2) EPA will reduce gravity-based penalties by 75% for a violation that is voluntarily discovered,
promptly disclosed and expeditiously corrected if it was not found through an environmental
audit or documented due diligence.

3) EPA will not recommend criminal prosecution for an entity who discovers, discloses and
corrects violations though audits or due diligence and satisfies all the conditions of the policy.

2.1.3 Policy on Flexible State Enforcement Responses to Small Community Violations

The Small Communities Policy was issued in November 1995 and authorizes States to respond to
violations with flexibility and compliance assistance and allows communities to put their
resources into fixing the worst environmental problems first, rather than paying a penalty.
Communities must correct their violations expeditiously, but may prioritize among competing
environmental mandates on the basis of comparative risk. States may provide additional
incentives to communities and local governments to request compliance assistance by waiving
all or part of a penalty for a small community's violations if certain criteria are met. Further,
EPA will not generally pursue a separate Federal civil action for penalties or additional
injunctive relief.

Eligibility

The policy applies to small communities unable to satisfy all environmental mandates without a
State's compliance assistance. These communities must comprise fewer than 2,500 residents
and should be: non-profit, government entities that own facilities that supply municipal services.
States should use measures of administrative, technical and financial capacity when determining
whether communities which meet the conditions of this policy.

Provisions of Policy

1) The State must have in place an adequate process to determine which communities can
participate. It must:

• assess a community's good faith and environmental compliance status.

• determine a community's administrative, technical, and financial capacity to comply.

-------
2) A community must enter into an enforceable agreement establishing a prioritized schedule
based on risk that requires compliance with all environmental mandates as quickly as is
reasonable. If the small community cannot correct all of its violations within 180 days of the
State's offer of compliance assistance, the State should begin implementing a written and
enforceable compliance agreement and schedule.

3) A State may waive all or part of the penalty if the community is working diligently and in
good faith to achieve compliance. This allows communities to devote scarce resources to
correcting environmental problems rather than paying a penalty.

4) The policy does not apply to: a) criminal violations; or b) violations that create an imminent
and substantial endangerment to public health and the environment (these must be corrected
immediately).

2.1.4 State Implementation of Penalty Reduction Program

In most media programs, States may become authorized to have the primary environmental
enforcement responsibility in that State. EPA's penalty reduction policies recognize that States
are partners in enforcement and compliance assurance and anticipate that two of the policies,
the Small Business Policy and the Small Communities Policy, will be implemented primarily by
the States. In implementing the enforcement and compliance assurance program, States are the
primary providers of on-site compliance assistance. In particular, EPA will defer to State
actions in delegated or approved programs that are generally consistent with the criteria set forth
in the Small Business Policy. One purpose of the policy, in fact, is to provide guidance for
States and local governments to offer the incentives set out in the Small Business Policy.

The Small Communities Policy was written in consultation with and directly for State
implementation, as States are the entities generally enforcing against small communities and
local governments. EPA intended for States to use its policies as models and adopt penalty
reduction and incentive policies that provide small entities incentives and opportunities to come
into compliance with environmental requirements and face relatively low risk of having
enforcement penalties assessed against them.

2.2 EPA's Program in the Context of its Compliance Assurance Activities

EPA's program to reduce penalties for small entities should be viewed in context of its
enforcement and compliance assurance program. The core program includes the following
components: 1) compliance assistance; 2) compliance incentives ; 3) compliance monitoring
(e.g., inspections); 4) enforcement actions; and 5) program leadership and evaluation (including
data management). States, Tribes and the Federal government implement these core
components.

-------
Compliance incentives promote new ways to improve environmental performance, such as
encouraging activities by regulated entities to voluntarily discover, disclose, and correct
violations before they are identified by the government for enforcement investigation or
response. EPA's penalty reduction program is an example of compliance incentives. The
program provides incentives for small entities to receive compliance assistance to ensure that
environmental requirements are widely known and understood by the regulated community and
that they are being implemented correctly.

Compliance assistance consists of information and technical assistance provided to the regulated
community to help it meet the requirements of environmental law. First and foremost,
compliance assistance ensures that the regulated community understands its obligations by
providing clear and consistent descriptions of regulatory requirements. Compliance assistance
can also help regulated industries find cost-effective ways to comply through the use of pollution
prevention and other innovative technologies.

Compliance assistance encompasses a broad spectrum of activities, including outreach materials,
providing information on regulatory requirements, conducting on-site visits and answering
general inquiries to hot lines or information centers. Two types of compliance assistance are
most relevant to EPA's program for reducing penalties for small entities: on-site compliance
visits by a federal, State or local government-sponsored program, and guidance and outreach
materials on conducting self-audits, self-inspections or systematically undertaking due diligence,
e.g., environmental management systems.

2.2.1 On-site Compliance Assistance

On-site assistance includes assistance provided by field personnel, including compliance
inspectors. EPA expects that States and local governments will be the primary providers of
direct assistance to the regulated community. Still, while EPA believes that direct, on-site
individual assistance is primarily a State and local function, there is an appropriate role for EPA
Regions to provide some on-site assistance to individual entities in certain circumstances. The
Region may fulfill a role similar to the State, but concentrates on different areas or assists a State
that lacks capacity in a priority area. For example, EPA may choose to provide compliance
assistance in a particular sector or geographic area, or both, or take a multimedia approach to
compliance assistance. In some instances, the Region directly implements a program in a non-
delegated State or on tribal lands. Where appropriate, the Region's compliance assistance
efforts should be linked to EPA's compliance incentives policies. For priority small business
sectors, e.g., dry cleaning, small chemical preparation facilities, and auto services repair, many
Regions provide on-site compliance assistance to facilities.

2.2.2 Guidance on Conducting Compliance Assessments

EPA, both independently and in conjunction with the States, has developed and continues to
develop a number of self-audit/self-inspection guidances that small entities can use to qualify for

-------
the penalty reduction provided by EPA's incentive policies. Some of these protocols are geared
specifically to small entities and some apply generically to all-sized entities. Here is only a
small example of the publications geared in particular to small entities, though available to all-
sized entities, to facilitate compliance assessment at their facilities.

Multimedia Inspection Guidance for Dry Cleaners - This document assists field personnel in
State, local, and EPA Regional offices to conduct multimedia inspections and compliance
assessments of dry cleaners. A multi-media inspection checklist is included in the Guidance for
on-site visits. The document is also used by the dry cleaning industry.

Multimedia Compliance/Pollution Prevention Assessment Guidance for
Lithographic Printing Facilities - This guidance kelps Regions and States
determine the compliance status of printing facilities and identify ways to
bring them into compliance and go beyond compliance. The document is
provided to the printing community for conducting
self-assessments/self-audits.

Consolidated Environmental Screening Checklist for Auto Service and Repair Shops w/Suyyort
Documentation - This screening checklist lists the major environmental regulatory requirements
associated with this industry. A support booklet is available with the checklist to assist users in
how to use the checklist and including more information for each requirement, and where to
seek further assistance.

Environmental Management Systems: An Imylementation Guide for Small and Medium Sized
Organizations - Developed under a grant from EPA, this guide facilitates the development of
environmental management systems among small and medium sized organizations;

2.3 Promoting the Penalty Reduction Program

In order for EPA's compliance incentives program to motivate the regulated community and
encourage small entities to utilize these incentives to come into compliance, small entities and
assistance providers working with small entities need to know about and understand the policies.
Therefore, actively promoting the program is integral to its success. EPA is beginning to market
its penalty reduction program for small entities.

2.3.1 Promoting the Small Business Policy

EPA is undertaking to increase use of the Small Business Policy both internally and externally.

-------
Internally, EPA is developing ways to facilitate the use of the Small Business Policy by Agency
personnel and States. This approach seems to have been successful for the Audit Policy and
might entail the development of tools to assist the Regions and States understand the policy,
model documents to use as templates and streamlined administrative procedures to process
disclosures under the Small Business Policy.

To increase the use of the Small Business Policy outside the Agency, EPA has developed a Small
Business Policy Marketing Plan which will be used in conjunction with a Small Business Policy
Marketing Strategy. EPA's marketing strategy includes the following activities:

Activities Undertaken

• Press Release and Distribution of Policy

On June 14, 1995 EPA Assistant Administrator Steve Herman held a trade press event to
announce the issuance of the Small Business Policy. Press releases on the policy were
sent to major newspapers across the country. The Policy was announced in the Federal
Register. Press releases, facts sheets and copies of the policy were sent to State and
local government contacts and State media enforcement organizations as well as small
business trade associations. Information was sent to Members of Congress, other
government agencies such as the Small Business Administration and the Department of
Justice.

• Incorporation in Regional Enforcement and Compliance Assurance Priorities

In formal planning of their annual national enforcement and compliance assurance
responsibilities, Regions must make it a priority to identify and test inducements to use
the Policy on Compliance Incentives for Small Businesses.

• Invitational Form Letters and Fact Sheets to Small Businesses and Stakeholders

The Office of Compliance has sent a form letter and fact sheet to small business
industry sectors facing new halogenated solvent air compliance requirements informing
them about the upcoming requirements and the availability of the Small Business Policy.
Information was also sent to related trade associations and small business assistance
providers. Letters were distributed in EPA's Small Business Ombudsman Update
Newsletter. EPA intends to target other small business industry sectors for letters of this
sort.

• Publication in the Small Business Ombudsman Update Newsletter

Upon issuance, and periodically thereafter, EPA has issued a fact sheet and articles on the

-------
Small Business Policy in the Small Business Ombudsman Update newsletter. This
newsletter and attachments are sent semi-annually to approximately 500 small business
trade associations and 15,000 other persons interested in small business environmental
issues, including small businesses, State agency personnel and Congressional contacts.

•	Website Availability and Links

The Small Business Policy is up on EPA's Office of Enforcement and Compliance
Assurance Website with links to the Small Business Ombudsman's Small Business
Website, the Office of Air Quality Planning and Standard's Small Business Assistance
Program Website and EPA's Small Business Compliance Assistance Centers.

•	Article in Audit Policy Update

An article on the Small Business Policy will be included in the March 1998 edition of the
Audit Policy Update which is distributed to trade groups, companies, EPA, State
organizations, and other stakeholders.

•	Meetings and Conferences

EPA and the States and small business trade associations have discussed implementation
of the Small Business Policy at a number of meetings and conferences, including but not
limited to: Annual State Small Business Ombudsman/Small Business Assistance Program
Conferences, Annual Conference of Small Business Development Centers, annual
meetings with Regional Small Business Liaisons, 1997 Fall National Pollution
Prevention Roundtable Conference, and numerous Regional meetings with trade
associations and State enforcement and compliance assistance personnel.

Future Activities

•	Marketing Plan for Contacting Appropriate Small Entities and Interested Stakeholders

EPA is planning to identify and directly contact small businesses, and to identify
stakeholder organizations or groups with established relationships with the small business
community and which can deliver information on the Small Business Policy to targeted
businesses.

•	Brochure

A one page trifold color brochure that provides a general policy overview and list of
contacts.

•	Small Business/Audit/Small Community Policies Combination Brochure

15

-------
A brochure that addresses all three polices from a case study perspective.

• Journal Article

A formal presentation of the policy, its background, application and case studies that is
appropriate for use in formal journal publications

• Slide Presentation

EPA now has a draft slide presentation for internal and external audiences based in part
on using policy case studies.

• Website Links

Internet links for key websites, e.g., OSHA, National Institute of Standards and
Technology's Manufacturing Extension Programs, trade associations, etc.

2.3.2 Promoting the Audit Policy

EPA has marketed its Audit Policy very successfully since its promulgation in interim
form in April 1995 and in final form in December 1995. This success has not been
accomplished simply by waiting for the regulated community to decide to disclose
violations, but instead EPA has taken aggressive steps to: (1) educate the general public
about the policy; (2) conduct outreach to particular industry sectors; and (3) encourage
disclosures from specific companies that can benefit from the policy.

• Audit Policy Update

To educate the public generally, EPA publishes an Audit Policy Update newsletter that
reports on recent efforts to implement the policy and provides names and phone numbers
for contacts. This newsletter is available on the Internet and is also distributed in hard
copy to EPA and other stakeholders.

• Audit Policy Interpretive Guidance

EPA also published the Audit Policy Interpretive Guidance, a series of questions and
answers concerning some of the most common and significant issues arising when
applying the policy. This publication is distributed broadly in hard copy and on the
Internet.

• Outreach to Industry Sectors

-------
EPA has encouraged its Regional offices to consider approaches like the "maquiladora"
and steel Mini-Mill efforts. Regions identified regulated sectors of concern and
affirmatively marketed the Audit Policy as a useful tool for those entities to consider.

Such marketing has included inviting industry representatives entities to a conference
where compliance obligations and the Audit Policy are explained, sending letters stating
EPA's intention to conduct spot inspections in the near future, and other outreach efforts.
EPA has sent information on a major settlement, including a copy of a model settlement,
to other companies in the industry in an effort to educate them about their ability to
disclose and resolve any potential violations. EPA regularly speaks about the policy's
benefits at conferences to States, trade associations, law firms, public interest groups, and
other organizations.

2.3.3 Promoting the Small Communities Policy

EPA's predominant efforts to market the Small Communities Policy involve the issuance of
grants to States seeking support for efforts to provide multi-media compliance assistance to small
communities in a manner consistent with EPA's Small Communities Policy. In 1996 EPA
awarded a grant of $35,000 to South Dakota to pilot the policy and develop community action
plans. The Office of Compliance recently solicited pre-proposals from States through a Federal
Register notice and awarded grants to Washington and Missouri, of $60,000 and $55,000
respectively, for implementation of the policy.

EPA plans, in addition, to develop a formal marketing strategy, similar to that developed for the
Small Business Policy, to identify the audiences in need of information on the Small
Communities Policy and the specific approaches and material to be used in the policy's
dissemination.

3.0 Results of Program

3.1 Small Entity Use of EPA's Program as Reported by EPA Regions
3.1.1 Summary

As of the end of fiscal year 1997 small entities had just begun to make use of EPA's penalty
reduction program. EPA Regions report that of 149 small entities applying for penalty relief, 95
qualified for the program and were granted relief; 10 were ineligible; and 44 cases are still under
review. These figures may understate the number of small entities currently applying for and
receiving penalty mitigation. States are responsible for implementing the vast majority of
environmental programs. Due to delegation of enforcement programs to States, small entities
have been going directly to their State regulators to seek relief (see 3.2, below). EPA expects
applications to grow over time as both administrators and potential beneficiaries become more
familiar with it. Since this is a new program, EPA Regions are still determining how to
effectively implement it in their Regions. Similarly, the regulated community may not yet be

-------
adequately familiar with it to recognize its benefits.

To be realistic, however, the Agency must acknowledge that any incentive-based program is
subject to counter-incentives that may limit the number of entities stepping forward. For
example, since relatively few enforcement actions are taken against small entities (both as a
proportion of the total number of small businesses and in comparison to the number of high-
profile actions taken against larger companies), small entities may not fear the threat of
enforcement to the same degree as larger companies. If they do not fear enforcement, neither
are they motivated to take steps to avoid an enforcement-based penalty. Despite EPA's
incentive policies, some small businesses may still prefer not to come forward voluntarily at the
risk of regulatory scrutiny. Still, EPA believes that aggressively marketing the program to its
Regions, assistance providers, and the regulated community could increase the number of small
entities taking advantage of the program.

Small entities have received over $896,470 in penalty reduction or elimination due to EPA's
program. This number, however, does not tell the whole story. In some cases, the small entity
has qualified for the policy but the amount of penalty mitigation is still under review. In other
cases, it is not possible to calculate the exact dollar amount of penalties reduced under EPA's
policies. This holds particularly true for the Small Communities Policy. It was not possible to
quantify the dollar amount of penalties that have been mitigated through use of this policy.

Since States do not expect to recover a penalty from small communities using the Small
Communities Policy, States rarely, if ever, will go through the labor-intensive effort of
calculating penalties for the numerous violations identified in small communities in these cases.
Thus, this report can not capture the likely hundreds of thousands of dollars of penalties that
communities could have been assessed and had waived.

3.1.2 Data Summary

A chart of the numeric results of Regional implementation of EPA's penalty reduction program
through the end of fiscal year 1997 follows:

Use of Penalty Reduction Program by Small Entities through FY97

#of small
entities not
qualifying for
program

# of small
entities

receiving relief
under the
program

# of cases still
under

consideration as
to eligibility

dollar amount of

penalties

reduced

$896,470

3.2 Small Entity Use of State Penalty Reduction Programs

-------
As discussed above, EPA anticipates that States will play a major role in the implementation of
incentive policies. EPA does not formally track State implementation of penalty reduction
policies. For purposes of this report, EPA received clearance from OMB for a voluntary
information request to the States on their penalty reduction programs. A discussion of State
implementation of penalty reduction policies follows.

A total of 33 States responded to EPA's questionnaire concerning incentive policies or programs
for small businesses. Of the States that responded, 14 States have policies or programs
specifically geared to small entities. These programs vary in nature and scope. Some programs
mirror EPA's §507 Enforcement Response Policy and are limited to air violations. Some
programs are modeled on EPA's Small Business Policy. Other programs may be modeled in
part on the Small Business Policy but include provisions that are inconsistent with EPA's policy,
such as complete penalty immunity or penalty relief without receipt of on-site compliance
assistance or an audit. One State said that it was in the process of developing a policy for small
entities. Two other States responded that they were considering developing such a policy. Five
States responded that they had general policies that provided penalty relief for all size and types
of entities.

Not all States that have penalty reduction policies or programs specifically for small entities were
able provided numbers indicating use of the policies or total dollar amount of penalties waived.
In three States with policies, no small entities requested relief under those policies. State data
on entities who qualified under their programs shows that 565 small entities qualified for penalty
waiver or reduction under State policies. This figure does not take into account the number of
communities that entered into agreements with States under the Small Communities Policy (see
3.1.2, supra). In the future, EPA may have more information on State incentive programs.
EPA has provided a grant in 1998 to the National Conference of State Legislatures to study State
incentive activities.

4.0 Conclusion

Small entities have begun to take advantage of EPA's penalty reduction program. EPA is
aggressively marketing its penalty reduction program both internally and externally to the
regulated community, States, and other assistance providers to increase utilization of the
program. EPA's program of policies to mitigate penalties for minor, first-time offenses is an
important component of a strong and growing network of support for small entities as they seek
to fully understand and comply with environmental regulations.

-------