212

i) 2. Permit Continuance

The proposal required permitting authorities to suspend a
‘permit if the Administrator objected to the permit as a result of
a public petition under section 70.8(d). Upon further review,
EPA now believes that this provision would not meet the :
requirements section 505(b)(3) of the Act. The final rule states
that upon EPA objection as a result of a petition and after the
permit is issued, EPA shall modify, terminate, or revoke the
pernit. The permitting authority can thereafter issue a revised
permit meeting EPA’s objections. These provisions are as section
505(b) (3) of the Act stipulates and EPA has no discretion to do
otherwise. .

3. Grounds for an EPA Objection

The proposal allowed EPA to object to a permit if the
permitting authority failed to submit necessary information,
forms or notices to EPA. The final regulation expands this
provision by allowing EPA to object to a permit if the public
notice and comment ‘and affected State review requirements (under
section 502(b)(6) and 505{a)(2) of the Act), where applicable,
were not met. This is necessary to ensure that permitting .
authorities meet their obligation under the Act to provide
adequate opportunity for public participation and affected State

@ review. The regulations also specify that the Administrator may
only object if a proposed permit is not in compliance with the
applicable requirements or the requirements of part 70.

I. Section 70.9 ~ Fee Determination and Certification

The requirement that State operating permit programs
establish an adequate permit fee schedule is a key provision of
title V. The statute provides that an approvable permit program
require sources subject to part 70 to pay an annual fee (or the
equivalent over some other period) sufficient to cover all
"yeagonable (direct and indirect) costs" required to develop and
administer the permit program {502(b)(3)(A)]. The statute also
mandates that all fees required to be collected by a permitting
authority under title V must be used solely to support the permit
program (502(b) (3)(C)(iii)]. Following is a description of the
basis and purpose of the changes in section 70.9.

1. Permit Program Costs

The proposal required States to collect permit fees
sufficient to cover most, if not all, of a State’s costs of its
air pollution control program for stationary sources. After
review of public comment and further evaluation of section
502(b)(3) and its legislative history, the Administrator
concludes that all air pollution control program costs related to

eo stationary sources need not be recouped through operating permit



were QIAIED GAVINUNMEN IAL Pav ify wit AVENUT

SZ? WASHINGTON, D.C. 20460

JUN 27 1994

OFFICE OF
i) co . GENERAL COUNSEL

MEMORANDUM
SUBJECT: Reduction in the Level of a State’s Maintenance of
Effort As a Result of the Implementation of the Title v
Permit Progran
awe
FROM: Susanne M. Lee Seo
Attorney Advisor
Grants and Intergovernnental Division (2378)

TO: Jerry A. Kurtzveg, Director
Office of Program Management Operations
Office of Air and Radiation (6102)

This is in response to your raquest for our opinion

regarding whether, in order to meet the maintenance of effort
(MOE) requirements of Section 105(c) of the Clean Air Act (CAA),
States will be required to expend the same amount of non-Federal
funds for air pollution control programs during Fiscal Year 1995
as they expend in Fiscal Year 1994, notwithstanding the

r implementation of the Title V permit fee program during Fiseal
Year 1995.

It is our opinion that a State’s MOE level may be reduced to
reflect the transfer of activities previously funded through
Section 105 grants to the Title V program. A State must maintain

‘ the level of effort associated with recurrent expenditures for
activities that continue to he funded through Section 105 progran
grants. This principle applies not only to FY 1995 but to future
years as well. ;

Section 105(¢)(1) of the Clean Air Act (CAA) provides that |

. "No agency shall receive any grant under this section during any
fiscal year when its a

w. be

lesa than its expenditures ware for guch programs during the
preceding fiscal year." (Emphasis added.} Requilations
duplementing this provision provide that: “To receive funds under
section 105, an. agency must expend annually for

an amount of non-Federal funds at least
equal to such expenditures during the preceding fiscal year."
(Emphasis added.) 40 CPR 35.120. Because the phrase

6 . Printad on Recycled Paper



34

discretion to exempt one or more source categories (in whole or ‘
in part) from the requirement to obtain a permit "if the
Administrator finds that compliance with such requirements is
impracticable, infeasible, or unnecessarily burdensome on such
categories." The Act specifies that major sources may not be
exempted from these requirements.

‘The EPA initially proposed, consistent with thé authority
given in section 502(a), to allow States to exempt all nonmajor
sources (other than acid rain affected sources) from the
requirement to obtain a permit for 5 years from the date of State
program approval. The proposal made the exemption for nonmajor
sources in nonattainment areas contingent upon a showing by the
permitting authority that title Vv operating permits were not
necessary for the State to assure compliance with the
implementation plan obligations applicable to defined sources.
The EPA also reserved the ability to determine in future
rulemakings whether permitting obligations should be deferred for
nonmajor sources which become subject to new section 112
standards.

Section 70.3(b)(1) of the final part 70 regulations retains
most of the provisions of the proposal and provides States the
option of exempting all nonmajor sources (except for affected
sources and solid waste incineration sources) from the
xequirement to obtain a permit until EPA completes the rulemaking
described below on applying the permitting program to non-major
sources. As discussed below, EPA will complete this rulemaking
within five years of the date it first approves a State program
that defers such sources. A State may choose to provide the 5-
yaar temporary deferral to all “nonmajors" or to nonmajors only
in selected source categories. The deferral may not be extended
to any major source, as this is explicitly prohibited by section
S02(a) of the Act. As proposed, the final rule also specifies
that no affected source under the acid rain program can be
exempted from the requirement to obtain a title V permit, since
section 408(a) provides that permits shall be the vehicle for
implementation of the acid rain requirements of the Act.

One change in the proposal is that solid waste incineration
units that are nonmajor sources can be deferred only until the
time they are required to obtain permits under section 129(e) of
the Act. States should not be allowed to override the Act’s
specific schedule for permitting this specific source category.

The EPA finds that without this deferral, compliance with
the permitting requirements would be "impracticable, infeasible”
and “unnecessarily burdensome on these source categories" within
the meaning of section 502(a). Two independent and sufficient
reasons support EPA’s determination. The first was presented in
the preamble to the proposal, i.e., the burden on the permitting
authorities and EPA will make permitting all nonmajor sources in e@



- Ramp-up fees that are generated apart from a grant agreement but in advance of
Title V approval may, at the discretion of the jurisdiction, be used to subsidize an
agency's approved Title V fee schedule if certain criteria are met. The permitting
authority must assure that the fees: were obtained from sources subject to Title V
requirements; were collected or were to have been collected over a period subsequent to
enactment of the 1990 amendments to the Clean Air Act; are identifiable and available
for unrestricted use; and are, or will be, quantified and incorporated in the agency's four-
year demonstration of Title V fee adequacy. These fees may not be used for grant
matching purposes.

Q.

A.

What air program activities are eligible for fee coverage and what activities are
eligible for continued receipt of grants? Does there need to be a clear
differentiation?

Activities eligible for Title V permit fees are delineated in section 502(b)(3)(A) of the
Act and in 40 CFR 70.9, the final Title V operating permit program rule. Although the
Clean Air Act outlines expected Title V program activities, a state or local agency has
some flexibility in how it designs its Title V program and fee schedule. As a result, the
specific activities that are grant-eligible and those that are fee-related may vary among

jurisdictions. Generally, Tite V program activities are those which are necessary for the
of the Title V permits. EPA issued clarifying fee guidance

on August 4, 1993 and.a grant-fee matrix of activities on May 31, 1994. Since air grants
cannot be used to pay for Title V-related activities a clear differentiation will need to be

made.

.How should the Grant-Fee Matrix be used?

Regional offices and grant recipients should use the matrix as an information document
and general guide and not as a prescriptive checklist for differentiating between grant-
eligible and fee eligible activities. In some instances, the same activity could fall in
either category, depending on the design of the state or local Title V program. The
matrix can be expected to change over time as the nature of sources subject fo Title V
changes and as new grant initiatives emerge.







*

Can Section 105 Grants No Longer be Used for Title V-| ted Purpose:

’ Once EPA has given interim or final approval to the Title V operating permit

program of a state or local agency:

°

The ‘agency may no longer use section 105 funds for direct or indirect Title V
activities included: in the EPA-approved Title V program.

The agency must clearly identify in its grant workplan which air program activities
will continue to be funded with section 105 funds.

(fa section 105 grant has been awarded that provides funding for activities that
are part of the approved Title V pragram and no fonger grant-eligible, the agency
must revise its grant workplan to eliminate the Title V activities and, if
appropriate, may reinvest the freed-up grant funds in other grant-eligible program
areas.

fini 2 Content_and Procedures for the FY 199§ Grant Workplan

Many regional offices and section 105 grant applicants have expressed some

uncertainty about the contents of grant workplans for FY 1995 where the state or local

agency expects approval of a Title V program during the fiscal year. In these
instances, regional offices ‘may follow one of several acceptable approaches.

Approach A - Status Quo

The grant applicant develops a grant workplan that shows the full range of air
program activities planned during the course of the year. All sources and
amounts of funding are identified including the agency's operating permit fees.

Upon approval (or in anticipation of approval) of its Title V program, an agency
differentiates its Title V-related activities from the balance of its air program and
negotiates their removal from the grant. Regions and recipients also identify the
revised level of nonfederal support remaining for matching the federal grant as
a result of the removal of Title V-related resources.

ach 6 - Ex

As in approach A, a full activity workplan is developed. This approach, however,
expands the initial workplan submission to identify non-Title V program activities
for reinvestment or increased investment once the Title V program is approved,
the Title V activities removed, and grant funds are freed.



__ TITLE V PERMIT FEE ACTIVITIES

Emerging Activities and Programs

Emerging Activities and Programs

* Future determinations will need to be made
about the applicability of this matrix to those
Indian Tribes which administer EPA-approved

operating permit Programs.

* Development and implementation of voluntary
Programs for reducing air pollution and/or
addressing specific risks including indoor air, green |
Programs, and other voluntary energy conservation
Programs,

* Programs for assessing air quality maintenance/
air pollution control needs and for the
development and implementation of air quality
Programs on Indian fands.

* Programs for improving the transfer and
exchange of programmatic and technical
information among state and local programs
including information an emerging and innovative
technologies.

* Innovative personne! programs to promote
sharing of expertise and knowledge among state,
local, and federal agencies.

* Development of state programs for control of
ozone depleting substances; and for control of
carbon dioxide emissions.

* Support for regional associations of states and
interstate pollution control compacts,

* Participation in international studies, programs,
and agreements.



MATRIX OF TITLE V-RELATED
AND AIR GRANT-
ELIGIBLE ACTIVITIES

INFORMATION DOCUMENT

OFFICE OF AIR & RADIATION

MAY 31, 1994



TITLE V PERMIT FEE ACTIVITIES AIR GRANT ELIGIBLE ACTIVITIES
—_ aes eet ie na a th econ =

i

Implementing Applicable . Implementing Other Permit or
Requirements Regulatory Requirements
Tiled Tide}

| implementation and enforcement of permits issued
to Part 70 sources pursuant to Title I, Parts C/D,
and PSD/NSR sources.

Implementation and enforcement of state/local Development, implementation and enforcement of
minor new source review (NSR) permit for a Part | state/local minor NSR permit programs which are
H 70 source that is a minor source provided that such | not approved under 110(9)(2)(C).

H a state/local program is approved under section

310(@)G){C). -

| Implementation of section 111 NSPS through Part | Implementation of section 111 NSPS that are not
70 permits. part of Title ¥/Part 70 process including new
residemial wood heaters (if not incorporated as
part of Part 70 at the option of the state).

Section 112 . ion 112

| Implementation of specific Title 1, section 112 Asbestos NESHAP demolition and renovation
requirements through Purt 70 permits: activities (if not incorporated as part of the Part
20 program at the option of the state).

* NESHAPs [112(d), 1129)

} * 112(h) design and work practice standards

Development and implementation of specific Development and implementation of specific
} section 112 requirements through Part 70 permits: | section 122 requirements affecting minor sources
. of hazardous air pallutants.

j * 112(g) modificaticns for constructed,
Teconstrucied and modified major sources.

* 122(i) early reductions occurring within Part 70 . !
f sources, 112()) state/local air toxics activities not within the |
Part 70 process (i.¢., urban area toxics programs).

H * 112G) equivalent MACT determinations.

* 1120) state /local air toxics activities that take 312(r)(7) risk management plans or plan
place as part of Part-20 process. elements not developed as part of Part 70 process
(i.e, plans are developed prior to permit issuance,
* 112{r){7) risk management plans if plan is plans cover sources deferred from Part 70, etc.).
Seveloped as part of Part 70 process.



By contrast, the right-hand column of the matrix lists air program activities which can
Teasonably be expected to remain eligible for federal air grant assistance. This list, while as
comprehensive as possible, should not be viewed as absolute. The categories of activity used
for grants-eligible activities include:

Permit program development (including the Title V Program prior.to approval by EPA)
it review and issuance for non-Title V sources

Implementation of specific CAA Tegulatory requirements

Compliance/enforcement of CAA requirements not related to Title V

Administration of grant and other forms of assistance

CAA technical assistance to small business (outside of Title Vv)

General and emerging air Program activity

For Further Information

Questions on the matrix should be directed to William Houck in the Office of Program
Management Operations at 202-260-1754, Specific concerns related to the eligibility of program
expenses for Title V fee coverage and to Title V fee demonstrations should be directed ‘to Kirt
Cox at 919-541-5399 or Candace Carraway at 919-541-3189 in the Office of Air Quality
Planning and Standards.





grantee will have met the section 105 match requirement and remain eligible for at least
the same level of federal funding that it had been receiving before: This is the only.
percentage requirement under the Act that a recipient must meet. Recipients are not
obligated to increase their funding contribution to restore what might have been a
historically-evolved nonfederal percentage above 40%. However, even though only 40%
is required to meet the cost-sharing requirements, an amount above 40% may be required
in order to meet the maintenance of effort requirement. Therefore, a recipient may not
arbitrarily reduce its remaining nonfederal contribution simply because this funding level
is greater than 40% relative to the total. This is because the amount of funds contributed
constitutes the new maintenance of effort level and may not be reduced.

Q. Can the MOE be adjusted for reasons other than the accommodation of the changes
brought about by Title V?

A. Yes. An agency may request an adjustment of its MOE because of a nonselective
reduction in the expenditures of al! executive branch agencies (not just the air program)
of the applicable unit of government (€.g., state or local government). As part of the
revisions to Part 35, EPA is also considering other circumstances where MOE flexibility
may be needed.

Grant Fiscal Integrity

Q. Must a recipient continue to report its overall air program expenditures as part of
the section 105 grant?

A. To assure that federal funds do not supplant other available resources EPA can request,
as a condition for receipt of a section 105 grant, that a grantee describe all sources of

- support for the entirety of its air program activities.
Q. What financial integrity requirements must each grant recipient satisfy?
A. Permitting authorities and grant recipients will need to ensure the fiscal integrity of their

grant and fee operations in order to avoid the inappropriate commingling of funds. For
grants, EPA will rely upon the provisions in 40 CFR 31 including requirements that
procedures for the expenditure and accounting of funds must be well documented and
enable the clear tracing of funds. This includes adequate financial reporting, accounting
records, internal controls, and budget controls. The recipient’s workplan must also
comply with all applicable federal statutes and regulations.





General Air Program Activity

General Air Program Activity

Mohile Source Programs

Planning, development, implementation, or
oversight of mobile source control program
required by Titles 1 & 11 of the Clean Alr Act
including:

* Development of emissions inventories for
mobile sources, . .

* Planning, development and oversight of basic
and enhanced motor vehicle laspection/
malntenance (implementation should be paid by”
vehicle inspection fees).

* Planning, development and oversight of
oxygenated and alternative fuels programs for
motor vehicles (implementation expected to be
paid by non-grant/private secior resources),

* Planning, development and oversight of clean
vehicle programs (implementation expected to be
paid by non-grant/private sector resources).

* Development and enforcement of Stage I and
Stage Il vapor recovery/. refueling programs for
motor vehicle fuels including tanker truck
inspections (installation of cantrols expected to be
paid by non-grant/private sector resources).

* Integration of transportation and air-quality
related planning activities including transportation-
air quality analyses and determinations of
transportation conformity.

* Planning, development, and oversight of
transportation control measures (implementation
expected to be paid by non-grant/private or other
public sector resources). .



a ——— "
TITLE VPERMITFEE ACTIVITIES | _—_AIR GRANT ELIGIBLE ACTIVITIES

i
i
}
i
i

Administration of Title V Permit Fee Program

Administration of Other Revenue Programs

Design and modification, as necessary, of fee

f structure for part 70 sources.

Development, design, operation, demonstration,
collection, administration, and accounting of
permit and other fees for non-Part 70 sources.

Demonstration of fee schedules and projection of

l| revenues from fee collections from Part 70
f sources,

Development, design, operation, demonstration,
collection, administration, and accounting of other
fees, charges and {nancial mechanisms for
overall air program support including meeting
requirements for receipt and retention of federal
air grant assistance.

| Collection, administration, and accounting of fees
| for Part 70 sources including costs of performing
} self-auditing or audit by independent auditor of

fee collections and the adequacy of the fiscal

| management of the fee system.

Technical Assistance 10 Smail Business

Technical Assistance to Small Business

| Costs of the Small Business Assistance Prayram

attributable to Part 70 sources including that

! portion of costs related to:

H * Clearinghouse on compliance methods and

technologies including pollution prevention

l approaches.

* Establishment of CAA/small business

ombudsman and the provision of information on
source applicability, available assistance, and the
rights and obligations of small busiriess stationary
sources under the CAA.

| * Small Business Compliance Advisory Pancl.

Casts of the Small Business Assistance Progrum
attributable to non-Part 70 saurces including that
portion of costs related to:

* Clearinehouse on compliance methods and
technologies including pollution prevention
approaches.

* Establishment of CAA/small business
ombudsman and che provision of information on
source applicability, available assistance, and the
rights and obligations of small business stationary
sources under the CAA,

= Small Business Compliance Advisory Panel.



5
Satisfying the Nonfederal Match Requirement

Some state and local agencies anticipated using Title V fees to provide the
nonfederal matching funds for section 105 grants and have no alternative sources of
funds to meet the required 40 percent nonfederal matching requirement. For those
instances where an agency is no longer able to provide the nonfederal contribution
level for a section 106 grant:

° The agency may request a temporary waiver of the match requirement under
tules currently under development by EPA. J anticipate that these rules will be
desued before EPA's approval of the Title V programs.

fe} EPA may reduce the level of the federal award accordingly.

nt_of Ramp-Up Fees

Many jurisdictions have increased their existing fees in order to cover the costs
of developing an approvabie Title V program. (EPA has also been supporting and
encouraging these efforts since FY 1991 through the award of section 105 grants.)
Fees generated in advance of Title V program approval but used for development of
the Title V program are generally termed "ramp-up" fees. Depending on the
circumstances, in individual cases this revenue may be used towards grant match or
to subsidize an agency's post-approval Title V fee schedule. Specifically ~

° Ramp-up fees that are generated as part of a grant agreement should be
counted towards an agency’s grant matching and MOE requirements.

° Ramp-up fees that are generated apart from a grant agreement but in advance
of Title V approval may, at the discretion of the jurisdiction, be used to subsidize
an agency's approved Title V fee schedule if certain criteria are met. The
permitting’ authority must assure that the fees were obtained from sources
subject to Title V requirements; were collected or were to have been collected
over for a period subsequent to.enactment of the 1990 amendments to the Clean
Air Act, are identifiable and available for unrestricted use; and are to be
Quantified and incorporated in the agency's four-year demonstration of Title V fee
adequacy. This revenue cannot be used for grant cost-sharing purposes.

° At its discretion, a jurisdiction may also use ramp-up revenue that was generated
apart from a grant agreement, and has been accumulated prior to Title V
approval, for grant matching purposes. Such funds, if used for grant matching,
can only be expended on activities allowable in the grant workplan. Further,
these same funds cannot also be used to cover the costs of an approved Title

V program.



Investments and reinvestments would be subject to negotiation with the regional
office. If the workplan has identified the changes in activities and the retargeting
of resources explicitly and accurately, a renegotiation of the grant may not be
necessary.

Approach C - Incrementaj

‘Where early Title V program approval is anticipated, the applicant submits a
grant workpian that reflects only those air program activities that are clearly
section 105 eligible. EPA would provide an incremental award reflecting support
for only those activities.

Upon approval (or in anticipation of approval) of its Title V program, the applicant
renegotiates its award (or an‘additional award) with EPA to identify supplemental
areas of new or increased investment.

In all of the above approaches, every grant awarded to agencies with existing ~

or potential Title V responsibilities must be conditioned to provide that no activities that.
are part of an approved Title V program will be funded with section 105 funds.

omputing Maintena f Ett evel:

The Clean Air Act requires that all section 105 grantees must provide at least the

same level of nonfederai contribution as for the previous year. This "maintenance-of-
effort" or MOE level may include funding for activities that will become part of the Title
V program, upon EPA approval. Once an agency has accounted for the removal of its
Title V activities and resources from its section 105 grant workplan and agreement:

°

° The agency may request the ‘establishment of a new MOE level based upon all
the remaining air program activities that are recurrent in nature. | have attached
a Juné 27, 1994 opinion from the Office of General Counse! that provides the
basis for allowing a revised MOE level.

For requests that would lower the MOE, EPA will consider only those revisions
that are directly attributable to the impact of Title V.

However, an agency may still request an adjustment of its MOE because of a
nonselective reduction in state or local funding (.e., a reduction that applies to
all state or local programs, not just to the air program).

°°



» EPA expects each agency, if it has not already done so, to update and maintain a
financial management system to accomplish the above objectives. This includes the
necessary differentiation of air grant-eligible activities and expenditures from those which
are related to Title V. This should occur no later than upon approval of the Title V

program.

Each regional office will be expected to coordinate its review and oversight of each of
its recipients’ grant workplan and permit program submissions.



GRANT-FEE TRANSITION:
QUESTIONS and ANSWERS

Office of Air and Radiation

~® ; July 21, 1994



Hl

MATRIX OF TITLE ‘V-RELATED AND AIR GRANT-
ELIGIBLE

ACTIVITIES

Permit Program Development

Design/development of operating permit-program

f for Part 70 sources Preparation of -

initial program submittal; development of

| implementation agreement with EPA;

documentation of resources and legal authority;

taining of staff for Title V program

| implementation; development of necessary
regulations, policies, and procedures; development

| of modifications 10 program required by new

| Federal regulations or standards; integration with
other Clean Air Act programs (including Tile

| III/IV); development of data systems for racking

} Part 70 sources; development and oversight of

local Title V programs; development of model

permits.

Design/development of operating permit program |
for Part 70 sources (pricr to Title VY program
approval),

Development/revision of operating permit
Programs for other than Part 70 sources.

Determinations of program coverage ond source
applicability including: inventory of Part 70
Sources; establishment of criteria for deferrals of
/non-major sources, development of significance

|| levels for exempting required permit information;
development of capacity 10 emit restrictions for

| avoiding consideration as major source (eg,
creation of synthetic minors).

Identification of those sources subject fo any state !
Permitting requirements other than those in the |
state's Title V program,

Revisions to the SIP to the extent they are
necessary for the issuance and implementation of
|] Part 70 permits.

Preparation, adoption and revision of SIPs
necessary to implement permitting programs for
other than Part 70 sources. ~



Fey UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

fa REGION 6
SZ 3 1445 ROSS AVENUE, SUITE 1200
e DALLAS, TX 75202-2733 -

August 3, 1994.

Ms. Beverly Hartsock
Deputy Executive Director
\ Office of Air Quality
Texas Natural Resource
Conservation Commission
P. QO. Box 13087
Austin, TX 78711-3087

nN

Dear Ms. Hartso¢gk:

I am pleased to take this opportunity to provide you with a
copy of the Transition Guidance which we promised would be
forthcoming dur the State/U. S. Environmental Protection
Agency (EPA) meet. in Tulsa on July 12-13, 1994.

The enclosure contains three parts: a memorandum from
Mary Nichols, Assistant Administrator for Air and Radiation;
Grant-Fée Transition: Questions and Answers; and a copy of a
memorandum from Susanne Lee, Office of General Counsel. As you
familiarize yourself with the various sections, you will find
many of the State’s concerns to be addressed. We were most happy
with the guidance, which was the outcome of the efforts of the
Transition Workgroup. The workgroup was comprised of various
representatives from EPA Headquarters program offices, the Office
of General Counsel, the Inspector General‘s Office, the State and
Territorial Air Pollution Program Administrators, the State and
Lecal Air Pollution Control Officials, and the Regional Offices.
We believe the workgroup charge from Mary Nichols to clearly
outline transition guidelines while at the same time providing
Regions and States flexibility was achieved.
- If you will recall, one area where flexibility was stressed .
-was in the delineation of Title V funded activities versus
Section 105 funded activities. The transition guidance calls for ~.
Regions and States to use the grant/fee matrix as a general guide |
not a “prescriptive checklist". since EPA is providing for
flexibility in assessing the various activities as either fee
funded or grant funded, we are dependent upon your defining the
program activities. As we discussed in Tulsa, we are @
implementing a two-phased approach to developing grant workplans
in FY 95. Your program delineations will be needed before
Phase II workplan objectives can be developed and Implementation
Agreements finalized. JI am requesting that these assessments be
. provided to the Regional Office by October 1, 1994.

EPA Headquarters Library A, RecyeioaRecyctate ae



36

permits, there will likely be some burden in complying with these
requirements.

As stated above, EPA expects that the great majority of @
nonmajor sources will be small businesses. Some nonmajor sources
will in fact be either adjuncts to large corporations possessing
significant technical and legal expertise, or will have

independently acquired such resources and expertise. It is

therefore likely that there will be certain nonmajor sources for
which the requirements of the part 70 program may not be
unnecessarily burdensome. :

While the permitting requirements will be significantly less
burdensome for these sources, EPA has determined that it is not
feasible to subject these sources to different treatment for
purposes of this deferral. This is primarily because the class
of sophisticated nonmajor sources described above bears little or
no relation to the delineation of source "categories" as that
term is used in section 502(a). Rather, EPA believes that these
sources typically represent a small percentage of each of the
various categories of nonmajor sources. Given the anticipated
. lack of resources discussed above, it is not reasonable to expect
permitting authorities to sift through the large number of
nonmajor sources and select those for which the permit program
requirements will not be unnecessarily burdensome. Indeed, the
requirement to conduct such a survey would to a great extent

. undercut the benefits intended by this deferral, and would not be
justified by the minor gains in emission controls resulting fro r
the permitting of these few nonmajor sources. :

As already mentioned, States are free to apply the deferral
only te certain categories of nonmajor sources. The part 70
regulations therefore do not prevent a State from drawing
distinctions based upon which nonmajor sources have the resources

and expertise necessary to. comply with the permit program.

- Compelling States to permit nonmajor sources during the
early stages of the title V permitting program is not only
extremely burdensome for these sources, it is unnecessarily so.
Requiring nonmajor sources to be permitted at the beginning of "
the program would not provide major benefits to air quality and
might actually hinder implementation of the Act. The temporary
exemption for nonmajor sources poses few risks to progress in
improving air quality. By definition, these sources emit less
than major sources and are less significant contributors to air
quality problems. Furthermore, deferring pernitting requirements
does not defer a source’s obligation to comply with the
underlying substantive air pollution control requirements.
Nonmajor sources may be subject to NSPS or existing NESHAP
regulations that in general already contain many of the same
monitoring, recordkeeping, and reporting requirements that would

apply to major sources. .



" Section 105 (Genera

Q.

What are the nonfederal contribution requirements that a grantee must meet in
order to obtain or retain a section 105 grant? :

There are two major requirements that state and local agencies must meet in order to
receive section 105 funds: (a) each agency must expend annually for recurrent program

"expenses at least the level of nonfederal funds that it expended in the previous year (i.¢.,

its maintenance of effort),.and (b) pursuant to 1990 CAA changes, each agency must
cover at least 40% of the total recurring expenses of its section 105 air pollution control
program (i.e., the 40% match).

10S/ Title V Fiscal Relationship

Can Title V operating permit fees be used towards the nonfederal matching
requirements of the section 105 air grant program?

After a thorough review, EPA's General Counsel concluded that Tide V operating permit
fees cannot be used to meet the cost-sharing requirements of the section 105 air grant

program.

Section 502 of the Clean Air Act requires that sources subject to Title V permit
requirements pay an annual fee, or the equivalent over some other period, to the
applicable permitting authority. The fees the permitting authority collects must be
sufficient to cover all reasonable (direct and indirect) costs required to develop and
administer the Title V operating permit program. Since section 502 requires that Tide
V program costs be funded solely from required Title V fees and these fees be used only
for that purpose, Title V permit program costs cannot be funded through a section 105
grant and these costs are not allowable section 105 grant costs.”

- In order to qualify for cost-sharing, the costs incurred must be allowable costs under the

EPA grant. Since Title V program-costs are not allowable section 105 grant costs, the
fees used to pay for them cannot be used to meet the cost-sharing requirements of section
105... .

If an agency already had an operating permit program in place which charged
affected sources a fee, is the Title V fee only that portion which represents the
incremental change (i.e., the increase)? Can the original fee level be used as a basis

for matching purposes?

&



A.

GRANT-FEE TRANSITION:
QUESTIONS and ANSWERS

ev mmatic R b

What is the programmatic relationship between section 105 and Title V?

Section 105 air grants have been appropriated by Congress annually since 1963 to assist
air pollution control agencies (as defined in section 302(b)) in implementing programs
for the prevention and control of air pollution and in meeting national ambient air quality
Standards,

However, Title V of the 1990 Clean Air Act created an operating permit program
applicable to stationary sources of regulated air pollutants. It requires the owners of
affected sources to pay fees to the permitting agency to cover all reasonable direct and
indirect costs of the operating permit program.

Title V operating permit program costs will likely constitute a major portion, though not
necessarily all, of a jurisdiction's stationary source program expenses. The operating
permit program will be an integral component of an overall air quality maintenance and
attainment strategy. This strategy will also encompass activities related to non-Title Vv
Stationary sources, area sources and mobile sources.

Since an important distinction has been made in the Act that Title V activities can only
be supported by Title V fees, significant changes will need to be made in how air
pollution control agencies fund a Jarge portion of their air programs.

‘How are Title V operating permit program expenses to be covered?

Section 502(b)(3) directs that all affected sources pay an annual fee, or equivalent over
some other period, to the appropriate permitting authority. In most cases this will be the
traditional section 105 air pollution control agency. The permitting authority is to
recover fees in an aggregate amount sufficient to recover all reasonable (direct and
indirect) expenses related to developing and administering the permit program. While
Congress set a presumptive minimum fee rate for permitting authorities to meet ($25 per
ton adjusted annually per the CPI), a jurisdiction may collect less than this amount if it
provides a detailed cost justification.



114

Section 70.9(b) clarifies that there is a rebuttable .

presumption that a State fee schedule is adequate if it collects

n the agaregite an amount equal to or greater than the @
presumptive minimum program cost, which is $25/tpy of actual
enissions of reguiated pollutants (for presumptive fee ~
calculation). Evidence may be presented to rebut this

presumption and trigger the need for a more detailed fee adequacy
demonstration. The EPA believes that the use of a presumptive
minimum amount as a rebuttable presumption that the State is

covering its permit program costs is the best way to give meaning

to section 502(b)(3)(B) of the Act. A requirement that all State
programs prove that their fee schedules recoup theix permit |
program costs without regard for the presumptive minimum amount

is an impermissible reading of the Act because it makes section
$02(b)(3)(B) meaningless. The Administrator anticipates that
this presumption will be most useful during the initial round of
program approvals, until permitting programs develop and States

and EPA gain greater expertise in estimating program financial
needs and fee revenues.

3. "Regulated Pollutants”

The proposal set the presumptive minimum amount that a State
must collect to cover its permit program costs as $25/tpy of
regulated pollutants actually emitted by part 70 sources the
preceding year. The proposal was somewhat confusing as to what
pollutants would be considered “regulated pollutants" for this
purpose, in part because the proposal used the statutory term
"regulated pollutant" for purposes other than calculating the
presumptive minimum. To clarify the matter, "regulated air
pollutant" was added as a defined term for other than fee
purposes, and “regulated pollutant (for presumptive fee
calculation)" was redefined consistent with the Act’s definition.

The proposal requested comment on when a pollutant listed in
Section 112(b) becomes a regulated pollutant for fee purposes.
The following three alternatives were set forth: (1) at. the time
of enactment of the 1990 Act Amendments, (2) when EPA first
promulgates a MACT standard for that pollutant, or (3) when a
MACT standard for that pollutant first becomes applicable. to the
permitted source. The proposal adopted the second alternative.

The final rule adopts a slightly modified version of the
second alternative, i.e., a pollutant becomes a regulated
pollutant (for fee purposes) when EPA first promulgates a MACT
standard for that pollutant. In addition, if a pollutant is
regulated at a particular source, its emissions will be
considered for fee purposes even if a general standard has not
been issued.. The EPA continues to rely on the rationale in the
preamble supporting the second alternative. This alternative is
the most reasonable interpretation of the Act and makes the most
sense from a policy perspective.



General Air Program Activity

‘TITLE V PERMIT FEE ACTIVITIES AIR ACTIVITIES

General Air Program Activity

Preparation, planning, development, and adoption
of source-specific SIPs necessary for the issuance
of a Title V permit and implementation of the

|} permit provisions.

Preparation, planning, development, and adoption
of SIPs, including those for attainment and
maintenance of NAAQS, enactment of state or =f
local area-wide source reguistions, and enactment
of mobile or area source controls (excludes
source-specific SIPs required as past of Title V
program/Part 70 permit such as ddentification of
synthetic minor sources). SIP development
includes: the conduct of analyses of control options
and demonstration of alternative strategies and
regulatory approaches; development and
maintenance of emissions inventory for preparing
attainment and maintenance strategies and for
assessing progress in achieving necessary emissions
reductions for attaining NAAQS; and conduct of
area or regional modelling to assess and
demonstrate options. Also, includes the
designation/redesignation of nonattainment areas
and other procedural changes related to the
altainment and maintenance of NAAQS.

Establishment, operation, and maintenance of

that portion of a multiple site amblent monitoring

H network which Is necessary for the issuance of a

Title V permit or permits (as documented in the

permit issued to the source or group of sources)

| including any applicable source-specific NAMS,
SLAMS or PAMS monitor. This includes the cost

| of purchasing the monitor; collection, processing,

management arid review of data collected by the

¥ monitor; and quality assurance of the

H instrumentation.

Establishment, operation, and maintenance of
Multiple site ambient monitoring networks
designed to assess overall levels and trends within
the ambient air including the EPA required or
approved networks for NAMS, SLAMS, PAMS,
urban air toxics, and acid rain assessment
networks. This includes the cost of purchasing
monitoring equipment; collection, processing,
management and review of data callected by the
networks; and the quality assurance of the
networks and instrumentation (excludes ambient
moniloring specifically required by a Title V
permit).

Planning, establishment, and implementation of
programs for the development and training of

* state/locat stait to implement Title V and related
Title HI and [V requirements.

Planning, establishnient, and implementation of
programs for the development and training of
state/local staff to carry out Clean Air Act
requirements and Agency priorities not related to
the implementation of the Title V program.



37

Requiring nonmajors to obtain permits at the start of a
permitting program could hinder implementation of the Act. It
would stress the system by greatly increasing the number of
permits required to be processed. This additional stress would
make it more likely that errors would occur in permitting major
sources, which could adversely affect air quality. Concentrating
State permitting resources on major sources during the first
phase of the program will make more efficient use of those
resources.

Furthermore, deferring permitting requirements for nonmajor
sources temporarily does not just delay the permitting burden on
these sources, it will significantly decrease the burden. Once
the programs have been operating for several years and the
initial wave of permitting is completed, permitting staff will
have the time and experience necessary to assist nonmajor sources
which become subject to the permitting process.

Thus, the temporary exemption of minor sources furthers
important policy goals. The failure to defer nonmajors would
greatly increase the burden on those sources, would probably not
provide significant environmental benefits, would stress the
permitting system at its most vulnerable time, and might actually
hinder achievement of air quality gains. Deferring the
applicability of title V requirements to nonmajor sources
temporarily might even have a net air quality benefit to the
extent it facilitates bringing more major sources into compliance
earlier.

The EPA believes that the preceding analysis of the burden
on nonmajor sources is ample justification for the exemption
under section 502(a) being implemented here. This is
particularly so in light of the principle expressed in the

decision that a deferral of the applicability of
Act provisions requires far less justification than an outright
exemption (636 F.2d at 360, n. 86).

The burdens of the permitting program identified above,
-including the lack of adequate resources and technical and legal
expertise on the part of sources, as well as the potential
difficulty in obtaining technical and legal assistance fron
permitting authorities, are likely to continue for some
significant number of nonmajor sources beyond the early stages of
the program. Accordingly, EPA believes it would be unduly
burdensome, and in some cases onerous, to subject all such
sources to the full panoply of procedural and substantive
requirements embodied in the permit rules being promulgated
today. Although the Agency anticipates that many nonmajor
sources will qualify for general permits and thereby avoid the
greater burdens associated with obtaining specific permits, EPA
also believes it likely that a certain number of categories of
nonmajor sources should be permanently exempted from the permit



Other Title V-Related Program Costs

|__ TLE V PERMIT FEE ACTIVITIES __

GRANT ELIGIBLE ACTIVITIES |

Non-Title V Permit Program Costs

General alr program activities to the extent such
activities are necessary for the issuance and
implementation of Part 70 permits. These
include:

* Installation, operation, and maintenance of
f| emissions and ambient monitoring instrumentation
required in the Part 70 permit.

® Performance of ambient monitoring required in
f Part 70 permit.

° Emission testing on Part 70 sources required as
past of the Part 70 permit,

* Modeling and other impact analyses required as
W part of Part 70 permit.

* Development of emissions inventories required

with Part 70 permit provisions, to develop and
| maintain permit fee schedule),

“s Overhead and administrative costs directly
related to implementatian of EPA approved
f° state/local Title V operating permit program,

as part of Part 70 permit {e.g., to verily compliance

“| permitting program.

General and source-specific alr program
requirements necessary for the issuance and
implementation of a state operating permit for
other than a Part 70 source including:

* Installation, operation, and maintenance of
emissions and ambient monitoring instrumentation
required for non-Part 70 source.

* Performance of ambient monitoring required for |
non-Part 70 source.

* Emission testing on non-Part 70 sourees,

* Modeling and other impact analyses for a non-
Part 70 source,

* Development of emissions inventory data for
non-Part 70 sources or to verify compliance with
other than Part 70 permit provisions,

* Overhead and administrative costs directly
related to the implementation of a non-Title V



I of Additional Fea Revenu

The August 4, 1993 guidance on state fee schedules for ‘operating permits
programs under Title V notes that fee revenue needed to caver the feasonable direct
and indirect costs of the Title V permits program may not be used for any purpose
except to fund the Title V permits program. The guidance further notes, however, that
Title V does not limit a jurisdiction's discretion te collect fees pursuant to independent
state authority beyond the minimum amount required by Title V. Such funds may, at
the discretion of the jurisdiction, be used for grant matching purposes. These funds,
if used for grant matching, can be expended only on activities allowable in the grant
workplan. -

uring the F. tegrity_o| erati

Permitting authorities and grant recipients will need to ensure the fiscal integrity
of their grant and fee operations in order to avoid an inappropriate commingling of
funds. For grants, EPA will rely upon the provisions in 40 CFR 31 which -covers
standards for grantee financial management systems including:

° Procedures for expenditure and accounting of funds must be weil documented
and enable the clear tracing of funds. This includes adequate financtal reporting,
accounting records, internal controls, and budget controls.

° The recipient's workplan must comply with all applicable federal statutes and
. regulations.

EPA expects that-each agency, if it has not already done so, will update and
maintain a financial management system to accomplish the objectives noted above.
This includes the necessary differentiation of air grant-eligible activities and
expenditures from those related to Title V. This should occur no later than at the time

of approval of the Title V program.

. AS noted.above, 1 have attached a series of questions and answers to provide
additional, more detailed guidance on some of the issues outlined above. | also will
provide guidance on any additional transition issues that may arise. | am committed
to ensuring a smooth transition as state and local agency Title V programs are
approved and to providing, to the extent possible, the funding that these agencies need
to implement the Clean Air Act. Far further information on this guidance please contact
either Bill Houck in the Office of Air and Radiation at 202-260-1754 or Susanne Lee in
the Office of the General Counsel at 202-260-1484. .

‘Attachments

eo



MATRIX OF TITLE V-RELATED AND AIR GRANT-
ELIGIBLE ACTIVITIES |

Use of the Matrix

‘The matrix should be read and used in concert with the August 4, 1993, operating permit
fee guidance issued by the Office of Air Quality Planning and Standards, particularly the
explanatory cover memorandum. That memorandum sets forth principles which will help guide
the Agency’s review of the Title V fee program submittals. The matrix does not reinterpret the
Part 70 rule nor the Title V fee guidance. Rather the matrix Teaffirms those program activities
outlined by the guidance which are necessary for the development and implementation of a Title
V operating permit program and which EPA expects to be covered by Title V fees. Title V
operating permit program expenses cannot be eligible grant expenses.

Organization of the Matrix

The matrix consists of two columns of activities~ those which EPA considers necessary
for the issuance and implementation of Title V permits (and which EPA expects to be covered
by Title V permit fees)-- and those air program activities outside of Title V that would be
eligible for federal air grant assistance.

Activities are organized by functional! or substantive categories that are common to each
of the columns in order to better illustrate the impact of Title V on the overall air program
operations. The categories used, however, tend to reflect the functional aspects of Title V (i.e.,
program development, permit issuance, compliance, etc.). Because some portion of over-

* arching CAA activities like emissions inventory development, monitoring, etc., may be Title V-
related, some repetition may occur in the matrix.

The left-hand column of the matrix lists those program activities qudined in the Title V
fee guidance which are necessary for the development and implementation of a Title V operating
permit program and which EPA expects to be covered by Title V fees. Categories of Title V-
retated activity include:

Development of the Tide V operating permit program

Review and issuance of Title V permits

Implemention of specific CAA requirements applicable to Tide V
Compliance/enforcement of Tide V-related requirements
Administration of Title V fee program :

Title V-related small business technical assistance

Other activity necessary for Title V operations

@



Although this discussion of the regulation focuses primarily
upon future increases in the air programs, we believe it
indicates that the MOE provisions are to be applied only to the
Section 105 program expenditures. Once activities are required
to be included within the Title V program, and therefore are no
longer allowable in the 105 grant program, the MOE may be
recalculated to reflect only the expenditures associated with the
remaining Section 105 activities. .

While this interpretation is fully supported by the
statutory and regulatory provision cited above, we recommend that
a discussion of the issue be included in the preamble, and
perhaps in the text of the regulation itself, when the
Yegulations are promulgated providing a temporary waiver for

‘states fren the cost-sharing requirements of Section 105(a).

If you have any questions, please feel free to call me at
260-1484. .





_—

Implementing Applicable
Requirements

TITLE V PERMIT FEE ACTIVITIES . AIR GRANT ELIGIBLE ACTIVITIES
= as Sohne ere acheal eae ———- |

Implementing Other Permit or *
Regulatory Requirements

Tide TY
Assue Phase 11 permits and implement CEM

|] * Observe on-site tests of Phase 1] CEMs
including: pre-test. meetings; review of protocol,
records, and data integrity; and verification of
monitor performance.

* Conduct Phase Il CEM certification reviews
including monitoring plan and data acquisition
system review, and review of certification
application. .

requirements after Title V approval Including: ~

Tide ty

Assist in implementing Phase } Acid Rain
program activities Including:

* Develop infrastructure for implementation
(including: hiring, training and organizing staff;
installation and operation of data management
systems; and establishing links to national acid rain
data base).

* Observe on-site tests of Phase 1 CEMs including:
pre-test meetings; review af protocol, records, and
data integrity; and verification of monitor

performance.

* Conduct Phase I CEM certification reviews,
including monitoring plan and data‘ acquisition
system review; and review of application
certification prior to Tile V approval.

* Initiate Phase 1 CEM compliance activities for
sources missing deadlines.

* Participate in NO, permitting process @ Phase!
sources,

* Review, evaluate and act on Phase I NO,
averaging compliance plans.

* Assist in Phase I compliance activities through
field presence, oversight and support to EPA
enforement actions including NO”

Implement Phase II CEM activities occurring
prior to Title V approval including:

* Observe on-site tests of Phase J] CEMs
including: pre-test meetings; review of protocol,
records, and data integrity, and verification of

monitor performance.

* Conduct Phase 11 CEM certification reviews
including monitoring plan and data acquisition
system review, and review of certification
application.



Section 502 of the Clean Air Act requires that sources subject to Title V
permit requirements pay an annual fee, or the equivalent over some other
period, to the applicable permitting authority. The fees that the permitting
authority collects must be sufficient to cover all reasonable (direct and
indirect) costs required to develop and administer the Title V operating

Permit program. .

Any fee required to be collected under Title V must be used solely to.
cover the reasonable (direct and indirect) costs of the Title V program.

Because section 502 requires that Title V program costs be funded solely
from the fees collected and that the fees collected be used only for that
purpose, Title V permit program costs cannot be funded through a section
105 grant and these costs are not allowable sectian 105 grant costs.

tn order to quality for cost-sharing, the costs incurred must be allowable
costs under the EPA grant. Since Title V program costs are not allowable
section 105 grant costs, the fees used to pay for them cannot be used to
meet the cost-sharing requirements of section 105. :

bid ivi

Although the Clean Air Act outlines expected Title V program activities, a state

or local agency has some flexibility in how it designs its Title V program and fee
schedule. As a result, the specific activities that are grant-eligible and those that are
fee-eligible may vary among jurisdictions. EPA issued clarifying fee guidance on
August 4, 1993 and a grant-fee matrix of activitles on May 31, 1994. | have attached
a@ copy of the matrix. ;

°

Regiona! offices and grant recipients should use the matrix as an information
document and general guide and not as a prescriptive checklist for differentiating
between grant-eligible and fee-eligible activities. In some instances, the same
activity could fall in elther category, depending on the design of the state or focal
Title V program. Further, the nature and extent of Title V and section 105
program activities can be expected to change over time.

Until a state or local agency's Title V program is approved by EPA, that agency
has the option of using section 105 grant funds to assist in the development of

its Title V program.



35 “

the early stages of the program impracticable and infeasible.
The second reason, which by itself justifies deferral, is that
the requirement for nonmajor sources to obtain a title V permit
a@uring the early stages of the program would be "unnecessarily
burdensome" for these sources. This is because the anticipated
burden on permitting authorities and EPA, as described in the

. preamble to the proposal, would translate into a significant,
additional, and unnecessary burden on nonmajor sources if they
were required to be permitted.

Nonmajor sources will be disproportionately affected by the
administrative difficulties faced by the permitting authorities.
_ The great majority of nonmajor sources are small businesses, and
many are not currently subject to State air permit programs.
Nonmajor sources will require more assistance from permitting
authorities and EPA because of the relative lack of technical and
legal expertise, resources, as well as inexperience in dealing
with environmental regulation that characterizes most small
businesses. If permitting authorities become overburdened due to
a backlog of thousands of permits to be processed, nonmajor
sources will be unable to obtain additional technical and
’ procedural assistance from permitting authorities. Although the
small business technical assistance program should help these
sources, the small business program staff will also be assisting
small businesses that are major sources and will face the same
problems as permitting staff.

Difficulty in obtaining assistance will unnecessarily burden
nonmajor sources in various ways. For example, difficulty in
obtaining assistance from permitting authorities could make it
problematic, if not impossible, for some nonmajor sources to
submit a timely and complete application. If they fail to submit
a timely and complete application, they would lose the
“application shield," thereby forcing them to close or run the
risk of operating without a permit in violation of the Act.
Nonmajor sources’ inexperience with permitting and their relative
lack of technical and legal resources also make it more likely
that such sources will require more permit revisions soon after
permit issuance. If permitting authorities are overburdened, it
will be difficult for nonmajors to obtain permit revisions early
in the process. - This will prevent them from promptly making what
they believe are necessary changes. :

The EPA notes that some nonmajor sources would already be
permitted at the State level, and therefore would have some
experience with the permitting process and completing permit
applications. A State need not extend the deferral to these
sources. However, even these sources will have to deal with the
increased burdens flowing from the requirements of other titles
ef the Act. The EPA also notes that an alternative to deferral
under section 502(a) exists in the form of general permits.
However, even for source categories well-suited to general



33°

concepts include implementation principles utilized in regulatory

_ development.

Few comments were received on this proposed section;
however, several commenters supported EPA’s recognition of the
implementation principles contained in the proposal and urged
that the final regulation be as consistent. as possible with then.
One commenter suggested that environmental protection occur in .
conjunction with enhancing the productive capacity of the nation.

The Administrator agrees that enhancement of the nation’s
productive capacity is an important concept that should be
incorporated into the first implementation principle. This is
consistent with section 101(b)(1) of the Act which states that
among its goals is one to protect and enhance the quality of the
nation’s air resources so as to promote the public health and
welfare and the productive capacity of its population. The
Administrator expects these principles to guide subsequent
implementation of these final regulations as they have governed
regulation development.

B. Section 70.2 - Definitions

Many definitions of terms in other parts of the Act or EPA
regulations are utilized in part 70. In addition, a number of
new terms created in conjunction with developing the part 70
regulations are defined by this section. These new definitions
include terms necessary to communicate effectively the new
regulatory requirements.

Several significant comments were received on how the
definitions would be applied in various sections of the
regulation. In responding to these commenters, some important
changes to key definitions have occurred. Important changes were
made to definitions of “applicable requirement" and “regulated
pollutant." Several new terms, "section 502(b)(10) changes,"
“emissions allowable under the permit," "permit program costs,"
“part 70 program," and “regulated pollutant (for presumptive fee
calculation)," were added to the definitions. Separate
discussions of those changes are contained in the sections
describing the program areas where these definitions are
primarily used. In addition, some terms have either been moved
from the proposed definitions or added in response to comment for
exclusive use in a particular section. These include
administrative amendment (section 70.7), actual emissions
(section 70.9), and complete application (section 70.5).

¢. Section 70.3 - Applicability
1. Five-Year Exemption for Nonmajor Sources

Section 502(a) of the Act provides the Administrator the



A.

Can section 105 air grants be used to cover the development of a state’s Title V
operating permit program prior to its approval by EPA?

Yes. Section 105 grants can be used to assist in the ‘ramp-up’ or development of the
permitting agency's prospective Title V program prior to its approval by EPA. To be
an grants-eligible activity, of course, the Title V ramp-up activity must be included as
part of the recipient's approved section 105 grant workplan. (Note: EPA has been
awarding agencies air grants since FY 1991 to encourage the development of the Title
V program and supporting fee provisions.) Until EPA takes action to either approve
(including interim approval) or disapprove an agency’s Tide V program, that agency has
the option of using its section 105 grant funds to develop its Title V program.

/ Title V

When can air grants no longer be used to fund Title V-related program activities?

Once EPA has given interim or final approval to the Title V operating permit program
of a state or local agency, the agency may na longer use section 105 grant funds to cover
the reasonable direct and indirect costs of its Title V program activities except under
specific circumstances as delineated in EPA guidance.

If a section 10S grant has been awarded that provides funding for activities that are part
of the approved Title V program and no Jonger grant-eligible, the agency must amend
or revise its grant workplan to eliminate the Tide V activities and, if appropriate,
reinvest the freed-up grant funds in other grant-eligible program areas.

What are acceptable grant workplan content and procedures for FY 1995 where a
state or local agency expects Title V program approval subsequent to approval of
its grant workplan (but during the FY 1995 grant budget period)?

In these circumstances, a regional office may use any one of the following approaches:
Approach A- Status Quo
- The grant applicant develops a grant workplan that shows the full range of air

Program activities planned during the course of the year. All sources and amounts of
funding are identified including the agency’s operating permit fees.



program resources to the Title V program, the agency would be able to request a
temporary waiver of the match requirement under rules currently under development by
EPA.

Alternatively, if a recipient is not able to meet any of its match obligation because of the
removal of all of its nonfederal resources to Title V-- but the recipient anticipated that
it would be able to secure additional funding to retum to at least the 40% level during
the course of the grant budget period- the recipient could request that EPA defer the
recipient’s nonfederal contribution until Jater in the grant budget period. The recipient
would have to expend its nonfederal contribution within the approved budget period.

If the agency fails to meet the cost-sharing requirements because a waiver is not granted
or the agency is unable to pay the amount of cost-sharing that has been deferred during
the budget period, EPA may undertake the corrective actions set forth in 40 CFR 31.43.
Included are actions such as terminating, or annuling the current award, or withholding
future awards.

How is a recipient’s maintenance of effort (MOE) obtigation affected by approval
of its Tithe V program? :

OGC has concluded that a grant recipient's MOE level may be adjusted to reflect the
transfer of activities previously funded through section 105 grants to the Title V
program. A stale must maintain the level of effort associated with recurrent expenditures
for activities that continue to be funded through section 105 grants. OGC has indicated
that this principle applies to not only FY 1995 but future years as well.

Since the timing of Title V program approvals by EPA may vary and are uncertain,
adjustment of the MOE level may need to occur in the midst of a fiscal year and not
simply at its outset. Similarly,.as Title V programs become fully implemented, further

_adjustments to the MOE level may be necessary in subsequent years,

Many section 105 recipients have been contributing nonfedera) funds at a rate
greater than the required 40% nonfederal minimum. When resources related to
Title V have been removed from the section 105 equation, will these recipients be
required to maintain their farger historical matching Percentage or F only a 40%
contribution?

This question confuses the matching and maintenance of effort requirements. If, even
after adjustment for the removal of Title-V related resources, the grantee’s contribution
is at least 40% of the combined remaining nonfederal and federal grant funds, then the



Y Mey UNITED STATES ENVIRONMENTAL PROTECTION AGENCY:
ae "WASHINGTON, D.C. 20460

JUL 21 594
OFFICE OF
AIA AND RADIATION
MEMORANDUM
SUBJECT: Transition to Funding Portions of State and Local Air pe with Permit
Fees Rather than Federal Grants

“FROM: Mary D. Nichols cq. be
Assistant Administrator
for Air and Radiation
TO: Regional Administrators
Regions | - X

| expect that during FY 1995 we will give interim or final approval to many of the
state and local operating permit programs required by Title V of the Clean Air Act. The
fees that result from implementation of the permit programs will significantly aiter how, and
to what degree, state and local agencies use federal grant funds awarded under section
105 of the Act. The agencies will no longer be able to use federal grant funds for permit
program activities. Also, the agencies cannot use Title V fees to provide the nonfederal
matching funds required by section 105.

In many instances regional offices wil! need to negotiate state and local grant
workplans and award grants for FY 1995 well in advance of the Tite V program
approvals. EPA and grant recipients will need to develop operating procedures that will
facilitate a smooth transition from programs that now are funded largely by federal grants
and. siate and local general revenue funds to programs with major components that are
funded with Title V fees. | have summarized below general guidance to facilitate this
program transition. | have also attached a series of questions and answers that provide
additional clarification on certain aspects of the guidance inctuding when grant funds can
no longer be used for Title V-related purposes.

U 1 le
After a thorough review, EPA's General Counse! concluded that Title V opersting

permit fees cannot be used to meet the cost-sharing requirements of the section 105 air
grant program. .

&) Bate
Primed wit Soy(Cardia Vb On paper thet
Sean 50%,



“expenditures... for such programs” in Section 105(c) (i) refers
to “recurrent expenditures for air pollution control programs,"
which are further described in the regulatory text as “recurrent
section 105 program expenditures,” we believe a reasonable 7
interpretation of the MOE provisions is that they require States - eo

to maintain their effort associated with activities that are
included within the Section 105 grant program.

. As a result of the enactment of Section 502 of the CAA,
zany, but not all, activities previously funded through Section
10S program grants are now included within the Title V permit fee
program. Because the CAA requires that the permit program be
‘funded solely from the fees collected, and the fees collected are

to de used only for that purpose, pernit program activity costs
axe no longer allowable costs under the Section 105 program.
Thus, expenditures for permit activities are no longer “recurrent
section 105 program expenditures" for which the MOE level must be

maintained.

This interpretation is confirmed in the preamble to both the
- proposed and final air grant regulations. The proposed rule
described the MOE provisions as follows:

“...the proposed regulation clearly limits the
definition of ‘maintenance of effort’ to the
applicant ’s expenditures in an approved program, such

Vv.
Ast. This will allow the applicant to submit its entire
work program in a particular medium without fear of
being held to a more broadly defined maintenance of r )

effort requirement. Fo: 7 wv
Oo} _ wi

Ro submit its entire air pollution contro} work
program, and in future years EPA wil) require the
agency to maintain only the level of expenditures

Ww
Emphasis added. 47 FR 25912, 25514 (June 15, 1982).

A similar discussion is included in the preamble to the
' final regulation, 47 FR 44946, 44949 (Oct. 12, 1982), as well as
the following discussion regarding air pollution control grants
in particular:
“our new definition.,.allovs an agency to submit its :
entire air pollution control work program and (based on
its planning target, its previous year’s maintenance of
effort level, and program guidance) select those
v,
Aits_105 program for the vear, The next vear the agency .
: may_increase its expenditures for air pollution control
pregrams outside its approved 105 program, but EPA wil)

. Vi
. ." Emphasis

added. Id. at 44952.



{| __TIVLE V PERMIT FEE ACTIVITIES

Title V Permit Review/Issuance Activities

AIR GRANT ELIGIBLE ACTIVITIES _|

Other Permit Review/Issuance Activities

Review of permit application for permitting of
{| Part 76 sources © including; completeness review,
review of compliance plans, schedules and
f compliance certifications; development of permit
terms and conditions (including operational
flexibility); trading and compliance provisions;
permit limitations; separation of state-only
requirements; establishment of permit-equivalent
# SIP limitations; optional shield provisions; and
actual issuance of the permit. * (For the

of this matrix, such sources include:
Phase I, Title IV sources; as well as major snd
| non-major sources deferred by EPA but which a
| state opts to include tn Title V).

Review of applications end issuance of permits:

° For non-Part 70 sources;

* For deferred sources during the deferral period
approved by EPA rulemaking,

* Covering state/local-only requirements in Part
70 permits.

Activities in support of public, affected State, and
EPA review of permits including: notices of
issuance, renewal and significant modification and
the opportunity to comment; holding of public
hearings, as necessary; review of public comments
and preparation of responses, documentation of

f hearing records; and preparation af responses to
challenges on permit decisions.

Public participation activities associated with
permit issuance, renewal and modification for
other than Part 70 sources.

Post-permit issuance activity: following the
issuance of Title V permits- any revisions,
modifications, or reopenings necessary (including
analysis and processing necessary for reissuance);
and renewals of Title V permits.

Post-permit issuance activity for non-Part 70
sources.

Development of emission inventory compilation
requirements necessary for Title V permit
issuance, and any necessary equivalency and case-
by-case RACT determinations under Section 110
of the Clean Air Act if conducted as part of the
Part 70 permitting process.

Development of emission inventory compilation -
Tequirements, and any necessary equivalency and
case-by-case RACT determinations under Section |
110 of the Clean Air Act if conducted as part of a |
construction or non-Title V operating permit
process.



2

I realize the next two years will be challenging and, at
times, trying. Since we are breaking new ground, there may be
inatances where we don’t have all the answers. sBut, I feei

confident that the sound working relationships we have
established will serve us well in achieving our program goals
in a time of change. If you have any questions, please do not
hesitate to contact me at (214) 665-7200 or Terrie Mikus at

(214) 665-7208.
Br

- ley Meiburg
Director
Air, Pesticides and
Toxics Division (6T)

Enclosure



38
program. For others, a continuation of the deferral of program
applicability may well be appropriate. This is so despite the 7
support that will be offered through the Small Business Technica
Assistance Program established under section 507. While that
program will be beneficial to nonmajor sources, the extraordinary
number of nonmajor sources that could conceivably enter the
permit system at the expiration of the 5-year period, as many as
350,000 sources, could overwhelm the capacities of the State |
technical assistance programs.

To address these serious concerns, EPA will, within 3 years
of the first approval of a full or partial State permit program
that defers nonmajor sources, initiate rulemaking to determine
-whether to grant a further deferral from the permit program to
all or some specific categories of nonmajor sources. In :
addition, the rulemaking will consider whether to grant permanent
exemptions to any source categories for which there is a
sufficient record to support such an exemption. As part of this
rulemaking, EPA, in conjunction with affected sources, will
gather information which will enable the Agency to make exemption
or deferral determinations as appropriate. Moreover, the
rulemaking will consider whether the permitting program should be
structured more effectively for nonmajor sources that may be
brought into the program at that time. The Agency believes that
after several years of experience with the title V program, both :
EPA and the States will be in a better position to determine
whether the program may be structured more effectively for the e@
large number of small sources that may be covered by the program.
. The EPA will propose such a rule no later than 4 years following
\. approval of the first full or partial State permit program with a
deferral, and promulgate the rule prior to EPA’s first approval
of a State program that defers such sources. |

‘2. Nonattainment Area Demonstration Requirement for 5-Year
Exemption .

As mentioned above, the proposal made the 5-year deferral
for nonmajor sources in nonattainment areas contingent upon a
showing by the permitting authority that the State could
effectively enforce its SIP ebligations on such sources without
using federally~enforceable operating permits. State
representatives opposed having to make a demonstration for
deferring nonmajor sources in nonattainment areas.

The final rules do not include this requirement because such
a showing is not required by the Act. Section 502(a) of the Act
makes no distinction regarding treatment of exemptions in’
‘attainment areas versus nonattainment areas. The EPA also
determined that the proposed provision was impractical and
unnecessary. It would have demanded a significant amount of
resources from State agencies at a critical period in program
development. states said that it would have taken almost as much @



10

General Air Program Activity

i V PERMIT FEE ACTIVITIES _ 1.

AIR GRANT ELIGIBLE

General Air Program Activity

_

Emerging Activities and Programs

izonmeni mn ii

* State/local review of assurances by federal
entities as to the general conformity of their .
activities with an approved state implementation
plan (40 CFR 93 Subpart A); state/local
determination of conformity of their fedezally-
assisted actions (40 CFR 51).

* Environmental impact review.

* Land use and air quatity analyses.

Emerging Activities and Programs

} ° Public education and outreach concerning
implementation of the Title V program.

Planning, development, implementation of
emerging programs and initiatives required by the
Clean Air Act or agency priorities Includin;

* Public education and outreach concerning the
overall provisions of the Clean Air Act and the
specific provisions required for implementation of
non-Tide V provisions,

* Planning and implementation of specific
geographic or ecosystem approaches {including
multi-media support) and studies for addressing
specific air pollution problems within defined
geographic areas.

* Planning and implementation of pollution
prevention initiatives and strategies, market-based
approaches, risk analysis, not directly related to
implementation of a Title V-permit to a specific
Part 70 source.

* Promotion of public/private partnerships for
addressing specific air pollution problems.



113

fees. The rejection of the interpretation in the proposal is
based primarily on the fact that the Senate bill would have
required recovery of all stationary source air pollution control
program costs {S. Rep. No. 228, 10ist Cong., 1st Sess. 351
(1989)J, but the Senate bill was rejected by the Conference
Agreement in favor of the House bill. Although the Act. requires
recovery of fewer costs than the Senate bill, it leaves the
Agency some discretion in deciding which costs must be recouped.

The proposal was accurate in its conclusion that the fee
provisions of title V mandate that the permit fees be collected
in sufficient amount to support several air pollution control
program activities that are relevant to title V sources and
implemented through the operating permit program, This is clear
from the list of such activities in section 502(b) (3) (A) of the
Act, which includes some activities that are not strictly part of
the permitting program, but for which costs related to stationary
sources must be recovered. The final rule focuses more upon
permit program activities, rather than air program activities
more generally, in determining the minimum mandated amount for
fee collections. Because the nature of permitting related
activities can vary greatly from State to State, the EPA intends
to evaluate each demonstration individually using the definition
of “permit program costs" in the final regulation.

Finally, it should be noted that title V does not prevent a
State from developing a fee schedule that will result in the
collection of revenues in excess of those required to support the
permit program. The Administrator will consider the use of such
funds in reviewing the fee schedules proposed by States.

2. Role of the $25/tpy Presumptive Fee Amount

The proposal highlighted two "tests" for determining fee
schedule adequacy: the "program support test" (the fee schedule
would result in the collection of adequate revenues to support
all of the specified air program functions) and the "cost-per-ton
test" (the $25/tpy presumptive fee minimum). An environmental
group objected to this approach, claiming that it might give the
incorrect impression that a State program meeting the "cost-per-
ton test" would be approvable regardless of whether this amount
adequately funded its program.

Although EPA has consistently viewed program support as the
true measure of a fee schedule’s approvability, the Agency
acknowledges that the format of the proposal could have created
some uncertainty. For this reason, section 70.9(b) is
restructured to indicate that the program support test is the
basic measure of fee schedule approvability. Section
502(b) (3) (A) clearly requires that all State programs collect
enough in fees to cover their permit program costs.



TITLE V PERMIT FEE ACTIVITIES

Compliance/Enforcement of Title V
Requirements

UR GRANT ELIGIBLE ACTIVITIES
Compliance aod Enforcement of Other
Permit or Regulatory Requirements

| ° Review and certification of com
) schedules for Part 70 sources.

Compliance and enforcement activities (prior to
fillng of an administrative or judicial complaint

| oF order) to the extent the activities are related to

the enforcement of a Part 70 Permit, the
obligation to obtain a Part 70 permit, or the Part
70 permitting regulations. This includes:

® Development/administration of enforcement

I legislation, regulations, guidance, and policies.

pliance plans and

* Conduct and document inspections for

f determining compliance with Part 70 permit
| requirements and provisions including the

performance of necessary analyses and support
activities to verify source compliance with Part 70

| Permit requirements dnd provisions (e.g, stack

fests conducted/reviewed by permitting authority,
review of monitoring reports).

* Review and observation of CEM monitoring
plan, certification tests, and certification
application for Part 20 sources,

* Review of monitoring data for determining
compliance of Part 70 sources including CEM data

} and reports,

| 2 Making requests to Part 20 source for
information before or after violation is identified.

* Preparation and issua
letters of violation.

Development of case:
filing of an administrat
order.

's and referrals up until the
ive or judicial complaint or

nce of notices, findings, and

Compliance and enforcement activities including:

* Determining compliance of non-Part 70 sources |}
including sources permitted as synthetic minors if.
the state opts not to include these sources as part
of the Part 70 program;

* Part 70 sources following filing of administrative
or judicial compliant‘or order;

° State/local-only requirements on Part 70
sources.



A.

A.

Many of the activities and costs associated with a jurisdiction's existing stationary source
control program effort will become a part of its Title V program once that program is
approved by EPA. Tide V requirements will, in and of themselves, likely generate new
expenses. The Title V fee must be based upon the entire range of Title V-related
expenses and not just the incremental change. No portion of the fees necessary to cover
the full range of Title V-related program costs can be used for grant matching purposes.

Does this mean that a Jurisdiction cannot charge a Title V source a separate fee to
cover other than Title V-related air program expenses?

No. A jurisdiction is free to charge a Title V source a separate fee to cover air program
expenses other than those which are Title V-related (e.g., for state-only requirements).
A jurisdiction may choose to collect this fee along with the Title V-related fee but the
fees must be clearly be differentiated for administrative purposes.

Can fee revenue in excess of that required to meet Title V needs be used towards the
grant matching requirement?

The August 4, 1993 fee guidance for state Title V operating permit programs notes that

Tile V does not limit a jurisdiction's discretion to collect fees pursuant to independent

State authority beyond the minimum amount required by Title V. Such funds may, at the
discretion of the jurisdiction, be used for grant matching purposes. These funds, if used

for grant matching, can only be expended on activities allowable in the approved grant.
workplan. These funds should also be clearly differentiated from fees required to cover

Title V activities.

How should permit fees which are collected in advance of Title V program approval

be treated?

Permit fees generated in advance of Title V program approval but used for the
development of the Title’ V program are generally termed "ramp-up" fees. Depending
upon how the fee provisions were structured, this revenue may be used towards grant
match or to subsidize an agency's post-approval Title V fee schedule. Specifically:

- Ramp-up fees that are generated as part of a grant agreement (i.e., used to

support allowable grant activities) should be counted towards an agency's grant cost-
sharing requirements (matching and maintenance of effort).



- Upon approval (or upon anticipation of approval) of its Tite V program, an
agency differentiates its Title V-related activities from the balance of its air program and
negotiates their removal from the grant. Regions and recipients also identify the revised
level of nonfederal support remaining for matching the federal grant as a result of the
removal of Title V-related resources.

Approach B- Expanded Program

- As in approach A, a full activity workplan is developed. This approach,
however, expands the initial workplan submission to identify non-Title V program
activities for reinvestment or increased investment once the Title V program is approved,
the Title V activity removed, and grant funds are freed. .

: Investments and reinvestments would be subject to negotiation with the Region.
Depending upon how explicitly and accurately the recipient has identified the changes in
its activities and the retargeting of resources, a renegotiation of the grant may not be
necessary.

Approach C- Incremental

- Where early Title V program approval is anticipated, the applicant submits a grant
workplan which reflects only those air program activities which are clearly section 105
eligible. EPA would provide an incremental award reflecting support for orily those
activities.

- Upon approval (or upon anticipation of approval) of its Title V program, the
applicant renegotiates its award (or an additional award) with EPA to identify
supplemental areas of new or increased investment.

In all of the above approaches, every grant awarded to agencies with existing or potential

Title V responsibilities must be conditioned to provide that no activities that are part of an
approved Title V program will be funded with section 105 funds.

Impact.on Nonfederal Contribution Requirements

How is a recipient agency’s cost-sharing (match) requirement‘affected by approval
of its Title V program?

In those instances where an agency is no longer able to provide the necessary 40%
nonfedera] contribution level for a section 10S grant as a result of the transfer of air