Document ID: EPA-HQ-OW-2020-0426-0001
Agency: epa
Document Type: Notice
Title: Proposed 2020 Financial Capability Assessment for Clean Water Act Obligations
Posted Date: 2020-09-18T04:00Z

[Federal Register Volume 85, Number 182 (Friday, September 18, 2020)]
[Notices]
[Pages 58352-58358]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-20649]

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ENVIRONMENTAL PROTECTION AGENCY

[EPA-HQ-OW-2020-0426; FRL-10014-59-OW]

Proposed 2020 Financial Capability Assessment for Clean Water Act 
Obligations

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice; request for comment.

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SUMMARY: As part of EPA's commitment to implementing Clean Water Act 
(CWA) objectives in a sustainable manner, EPA continues to enhance our 
understanding of the issues surrounding financial capability 
assessments (FCA) and seeks ways to move past the 1997 FCA Guidance and 
the 2014 FCA Framework. Consistent themes have emerged during 
discussions with stakeholders, such as the benefit of expanding on the 
flexibility available under the existing 1997 FCA Guidance and ensuring 
a consistent approach for implementing these flexibilities. The 
proposed 2020 FCA embraces these stakeholder priorities and provides 
tools to more easily articulate local financial circumstances, while 
advancing the mutual goal to protect clean water. The 2020 FCA directly 
incorporates relevant portions of the 1997 FCA Guidance and the 2014 
FCA Framework as Appendices. When finalized, EPA expects to use the 
2020 FCA to support negotiations of schedules for implementing CWA 
requirements for municipalities and local authorities. EPA is 
requesting comment on approaches for assessing financial capability of 
communities to meet CWA obligations.

DATES: Comments must be received on or before October 19, 2020.

ADDRESSES: You may send comments, identified by Docket ID No. EPA-HQ-
OW-2020-0426, by the following method:
     Federal eRulemaking portal: https://www.regulations.gov/. 
Follow the online instructions for submitting comments.
    Instructions: All submissions received must include the Docket ID 
No. for this guidance. Comments received may be posted without change 
to https://www.regulations.gov/, including any personal information 
provided. For detailed instructions on sending comments and additional 
information on the guidance process, see the ``Submitting Your 
Comments'' heading of the SUPPLEMENTARY INFORMATION section of this 
document. Out of an abundance of caution for members of the public and 
our staff, the EPA Docket Center and Reading Room are closed to the 
public, with limited exceptions, to reduce the risk of transmitting 
COVID-19. Our Docket Center staff will continue to provide remote 
customer service via email, phone, and webform. We encourage the public 
to submit comments via https://www.regulations.gov/ or email, as there 
may be a delay in processing mail and faxes. Hand deliveries and 
couriers may be received by scheduled appointment only. For further 
information on EPA Docket Center services and the current status, 
please visit us online at https://www.epa.gov/dockets.

[[Page 58353]]

FOR FURTHER INFORMATION CONTACT: Sonia Brubaker, Office of Wastewater 
Management, Water Infrastructure Division (MC4204M), Environmental 
Protection Agency, 1200 Pennsylvania Ave. NW, Washington, DC 20460; 
telephone number: (202) 564-0120; email address: 
brubaker.sonia@epa.gov.

SUPPLEMENTARY INFORMATION:
I. Affordability of Water Services and the Financial Capability 
Assessment for Clean Water Act Schedule Development
    a. Why is the Agency requesting comments?
    b. What is the Agency requesting comments on?
    c. What should I consider as I prepare my comments for EPA?
    1. Tips for Preparing Your Comments
    2. Submitting Your Comments
II. Background on the Financial Capability Assessment Guidance and 
Framework
    a. EPA's Financial Capability Assessment Guidance and Framework
    b. EPA's Use of the 1997 FCA Guidance and the 2014 FCA Framework
    c. Stakeholder Feedback on EPA's Use of the 1997 FCA Guidance and 
the 2014 FCA Framework
    1. Congressional Direction
    2. Mayors, League of Cities, Counties, and National Water 
Associations Input
    3. Utility Feedback
III. EPA's Proposed 2020 Financial Capability Assessment
    a. Purpose of the Proposed 2020 Financial Capability Assessment
    b. Overview of the 2020 FCA
IV. Request for Public Comment

I. Affordability of Water Services and the Financial Capability 
Assessment for Clean Water Act Schedule Development

a. Why is the Agency requesting comments?

    Water infrastructure is essential for healthy communities and the 
success of our local and national economies. Ensuring that adequate 
drinking water, wastewater, and stormwater infrastructure (collectively 
referred to as water infrastructure) is in place is critical for all 
communities to thrive. Additionally, as communities grow, they must 
spend capital to increase capacity of their water infrastructure, thus 
further complicating investment in aging infrastructure. Too often, the 
toughest infrastructure challenges are found in low-income and resource 
constrained communities that lack enough investment in water 
infrastructure. Collaborating with local decision makers to help ensure 
the proper collection and treatment of domestic sewage and wastewater 
is vital to public health and clean water, which is a key part of our 
mission at the EPA. EPA engages with local, state, and national 
stakeholders to understand the challenges and successes that 
communities experience in maintaining, replacing, and increasing the 
capacity of their water infrastructure.
    Communities are facing substantial needs to invest in water 
infrastructure renewal, repair, and replacement. These investments are 
necessary to keep pace with the aging of critical water infrastructure, 
much of which is approaching or is already well past the end of its 
service life. Challenges associated with aging infrastructure can be 
exacerbated in economically stressed communities. A community may be 
relatively strong economically on the whole but have a significant 
number of low-income households, which further complicates matters. 
Overall, there is considerable variation across communities in terms of 
water infrastructure needs as well as the technical, managerial, and 
financial ability to make investments and meet public health and 
environmental regulatory obligations.
    EPA recognizes that a single customer, or ratepayer, pays for both 
drinking water and wastewater services and often sees these costs 
reflected on one bill. Costs for stormwater services also impact 
customers in many communities. EPA acknowledges that critical 
infrastructure investment needs, including Clean Water Act (CWA) 
obligations, impact many communities at the same time, making 
investment in infrastructure challenging in many areas across the 
country. To address these challenges, EPA is requesting comment on a 
proposed 2020 Financial Capability Assessment (2020 FCA), which would 
expand the metrics EPA uses to consider a community's financial 
capability to fund its water obligations. Specific questions for public 
comment are identified throughout the proposed 2020 FCA and are 
summarized in Section IV of this Federal Register document.
    The proposed 2020 FCA is intended to provide flexibility to 
communities and offer templates and calculations that local authorities 
can use in assessing their financial capability to implement control 
measures needed to meet CWA obligations. The 2020 FCA incorporates 
aspects of EPA's 1997 Combined Sewer Overflows--Guidance for Financial 
Capability Assessment and Schedule Development (1997 FCA Guidance) and 
EPA's 2014 Financial Capability Assessment Framework for Municipal 
Clean Water Act Requirements (2014 FCA Framework). Once finalized, EPA 
intends to use the 2020 FCA to evaluate the affordability of CWA 
control measures applicable to municipalities in both the permitting 
and enforcement context, including upgrades to publicly owned treatment 
works; control measures to address combined sewer overflows (CSOs), 
sanitary sewer overflows (SSOs), stormwater, and total maximum daily 
loads; and integrated planning. EPA does not intend to use this 
guidance to evaluate the affordability of the public health protections 
required by the Safe Drinking Water Act (SDWA), although EPA does 
employ compliance schedules in that context as well, where appropriate 
and consistent with protecting public health.\1\
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    \1\ The 2019 Safe Drinking Water Act settlement in U.S. v. City 
of New York and New York City Department of Environmental Protection 
includes a compliance schedule to complete $2.9 billion in capital 
improvements at the Hillview Reservoir in Yonkers, NY.
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    In addition, the 1997 FCA Guidance is substantively identical to 
the public sector sections of the 1995 Interim Economic Guidance for 
Water Quality Standards (1995 WQS Guidance) \2\ which is used for 
supporting revisions to designated uses, water quality standard (WQS) 
variances, and antidegradation reviews for WQS. EPA proposes to apply 
the options and flexibilities from Alternative 1 of the proposed 2020 
FCA to the consideration of economic impacts to public entities when 
making such WQS decisions and EPA seeks comment on this in Section IV 
of this Federal Register document.
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    \2\ The 1995 WQS Guidance uses a substantively identical two-
phased approach and data as the 1997 FCA Guidance, although the 
terminology of the two guidances is different. The 1997 FCA 
Guidance's terms Residential Indicator and Financial Capability 
Indicator are based on the same data and metrics as the 1995 WQS 
Guidance's terms Muncipal Preliminary Screener and Secondary Score, 
respectively. In the 1995 WQS Guidance, these indicators are brought 
together into a matrix to determine the degree of economic impact 
for a WQS decision whereas, the matrix in the 1997 FCA Guidance is 
used to determine a community's financial capability to support 
negotiations of schedules.
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b. What is the Agency requesting comments on?

    EPA is requesting public comment on the proposed 2020 Financial 
Capability Assessment. The proposed 2020 FCA implements a range of 
ideas generated from recent stakeholder engagement to better support 
affordability of water services in our nation's communities. This 
proposal explores how a customer's ability to pay for services impacts 
the affordability of capital

[[Page 58354]]

expenditures and operation and maintenance needed to ensure compliance 
with public health and environmental standards.
    This proposal references the financial capability indicators 
described in EPA's 1997 FCA Guidance. In addition to the 1997 FCA 
Guidance, this proposal also references the 2014 FCA Framework, 
developed in support of EPA's Integrated Planning Framework,\3\ to 
provide an aid for identifying key financial elements, including 
drinking water costs, that EPA may consider when working with 
communities to establish schedules for implementing CWA control 
measures. As part of EPA's commitment to implementing CWA objectives in 
a sustainable manner, EPA continues to enhance our understanding of the 
issues surrounding financial capability assessments and seeks ways to 
move past the 1997 FCA Guidance and the 2014 FCA Framework. Consistent 
themes have emerged during discussions with stakeholders, such as the 
benefits of expanding on the flexibility available under the existing 
1997 FCA Guidance and ensuring a consistent approach for implementing 
these flexibilities. The proposed 2020 FCA embraces these stakeholder 
priorities and provides tools to more easily articulate local financial 
circumstances, while advancing the mutual goal to protect clean water. 
The 2020 FCA directly incorporates relevant portions of the 1997 FCA 
Guidance and the 2014 FCA Framework as Appendices. When finalized, EPA 
expects to use the 2020 FCA to support negotiations of schedules for 
implementing CWA requirements for municipalities and local authorities.
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    \3\ US Environmental Protection Agency, Integrated Muncipal 
Stormwater and Wastewater Planning Approach Framework, May 2012. 
Accessible at https://www.epa.gov/npdes/integrated-municipal-stormwater-and-wastewater-planning-approach-framework.
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    EPA is committed to working with state, tribal, local, and non-
government partners to assist communities in meeting CWA obligations in 
a manner that recognizes unique local financial challenges. The 
proposed 2020 FCA sets forth two alternatives for assessing financial 
capability that a community may choose to employ. The first alternative 
adopts the residential indicator approach from the 1997 FCA Guidance, 
but adds elements to address how the lowest household incomes and other 
poverty indicators in a service area can be considered in addition to 
metrics from the 1997 FCA Guidance, such as a community's median 
household income (MHI). Additional information, such as a community's 
total water costs (i.e., costs for, wastewater, stormwater, and 
drinking water infrastructure investment) may also be submitted and 
will be considered when negotiating the length of an implementation 
schedule for a municipality's CWA obligations. The second alternative 
utilizes dynamic financial and rate models that evaluate the impacts of 
debt service on customer bills. These new tools should help standardize 
and advance the progress made in understanding and considering a 
community's financial capability.
    EPA seeks public comment on the proposed 2020 FCA, the metrics 
considered, and the thresholds for selected metrics. See Section IV of 
this Federal Register document for more information on the comments 
requested. In addition, EPA requests comments on the use of the same 
metrics and thresholds in Alternative 1 of the proposed 2020 FCA for 
use in WQS decisions using the proposed expanded matrix in Appendix D. 
This proposed matrix provides guidance on how to apply the options and 
flexibilities in the proposed 2020 FCA to the consideration of economic 
impacts to support WQS decisions related to public entities. EPA 
intends that the proposed expanded matrix for WQS decisions, along with 
the electronic spreadsheet tools for the public sector at https://www.epa.gov/wqs-tech/spreadsheet-tools-evaluate-economic-impacts-public-sector, which encompass the data inputs and calculations of the 
1995 WQS Guidance, would replace the worksheets and calculations for 
the public sector sections of the 1995 WQS Guidance. This replacement 
would then guide states and authorized tribes in determining the degree 
of economic impact for use in WQS decisions including revisions to 
designated uses, WQS variances, and antidegradation reviews.

c. What should I consider as I prepare my comments for EPA?

    1. Tips for Preparing Your Comments. When submitting comments, 
remember to:
     Identify the guidance by docket number and other 
identifying information (subject heading, Federal Register date, and 
page number).
     Follow directions--the agency may ask you to respond to 
specific questions or organize comments by referencing a Code of 
Federal Regulations (CFR) part or section number.
     Explain why you agree or disagree; suggest alternatives 
and substitute language for your requested changes.
     Describe any assumptions and provide any technical 
information and/or data that you used.
     Provide specific examples to illustrate your concerns and 
suggest alternatives.
     Explain your views as clearly as possible.
     Make sure to submit your comments by the comment period 
deadline identified.
    2. Submitting Your Comments. Submit your comments, identified by 
Docket ID No. EPA-HQ-OW-2020-0426, at https://www.regulations.gov. 
Follow the online instructions for submitting comments. Once submitted, 
comments cannot be edited or removed from regulations.gov. EPA may 
publish any comment received to its public docket. Do not submit to 
EPA's docket at https://www.regulations.gov any information you 
consider to be Confidential Business Information (CBI) or other 
information whose disclosure is restricted by statute. Multimedia 
submissions (audio, video, etc.) must be accompanied by a written 
comment. The written comment is considered the official comment and 
should include discussion of all points you wish to make. EPA will 
generally not consider comments or comment contents located outside of 
the primary submission (i.e., on the web, cloud, or other file sharing 
system). For additional submission methods, EPA public comment policy, 
information about CBI or multimedia submissions, and general guidance 
on making effective comments, please visit https://www.epa.gov/dockets/commenting-epa-dockets.
    The EPA is temporarily suspending its Docket Center and Reading 
Room for public visitors, with limited exceptions, to reduce the risk 
of transmitting COVID-19. Our Docket Center staff will continue to 
provide remote customer service via email, phone, and webform. We 
encourage the public to submit comments via https://www.regulations.gov/ as there may be a delay in processing mail and 
faxes. Hand deliveries or couriers will be received by scheduled 
appointment only. For further information and updates on EPA Docket 
Center services, please visit us online at https://www.epa.gov/dockets.
    The EPA continues to carefully and continuously monitor information 
from the Centers for Disease Control and Prevention (CDC), local area 
health departments, and our Federal partners so that we can respond 
rapidly as conditions change regarding COVID-19.

[[Page 58355]]

II. Background on the Financial Capability Assessment Guidance and 
Framework

a. EPA's Financial Capability Assessment Guidance and Framework

    EPA's 1997 FCA Guidance sets forth a two-phased approach for 
evaluating a National Pollutant Discharge Elimination System (NPDES) 
permittee's financial capability to implement CWA NPDES projects. In 
the first phase, the Residential Indicator (RI) calculates the cost per 
household as a percentage of MHI for the service area of the permittee 
using data collected by the U.S. Census Bureau. In the second phase, 
the Financial Capability Indicator (FCI) evaluates the municipality or 
wastewater utility's overall fiscal health and local demographics 
relative to national norms. The RI and FCI results are brought together 
in a matrix that evaluates the burden a proposed CWA program imposes on 
the municipality or utility (high, medium, or low). This two-phased 
approach is referred to as the Financial Capability Assessment (FCA). 
Though developed for use in assessing the affordability of CSO 
controls, EPA also has used the 1997 FCA Guidance when negotiating 
schedules to implement SSO controls.
    The 2014 FCA Framework was developed to encourage the use of the 
flexibility available under the 1997 FCA Guidance. Both the 1997 FCA 
Guidance and the 2014 FCA Framework were developed with extensive 
public input and are based on factors for consideration of financial 
capability \4\ as identified in the Combined Sewer Overflow (CSO) 
Policy, 59 FR 18688, 18894.\5\ As emphasized in both the 1997 FCA 
Guidance and the 2014 FCA Framework, the primary financial indicators 
in the 1997 FCA Guidance are a snapshot in time that might not present 
the most complete picture of a community's financial capability to fund 
its CWA obligations. However, the indicators did provide common 
benchmarks for financial burden discussions among the community, EPA, 
and state or tribal NPDES authorities. Communities were encouraged to 
submit any additional documentation that would create a more accurate 
and complete picture of their financial capability, whether as part of 
the first or second phase of the FCA calculation. Additional 
information that the community provided on its unique financial 
circumstances was considered so that schedules could take local 
considerations into account. Where appropriate, additional information 
encouraged to be considered pursuant to the 2014 Framework has been 
used to justify implementation schedules longer than the schedules 
suggested by the 1997 FCA Guidance baseline analysis.
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    \4\ These factors are: (i) Median household income; (ii) Total 
annual wastewater and CSO control costs per household as a percent 
of median household income; (iii) Overall net debt as a percent of 
full market property value; (iv) Property tax revenues as a percent 
of full market property value; (v) Property tax collection rate; 
(vi) Unemployment; and (vii) Bond rating.
    \5\ CWA 402(q) requires that each permit, order and decree shall 
conform with the CSO Policy.
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b. EPA's Use of the 1997 FCA Guidance and the 2014 FCA Framework

    Communities, in consultation with regulators and the public, are 
responsible for evaluating and selecting controls that will meet CWA 
requirements. After controls have been selected, an FCA is used to aid 
in assessing a community's financial capability as a part of 
negotiating implementation schedules under both permits and enforcement 
agreements. EPA has used both the 1997 FCA Guidance and the 2014 FCA 
Framework to support consent decree negotiations with over 100 
wastewater utilities throughout the United States and U.S. territories. 
The results of the FCA analyses provide an important benchmark for EPA 
decision-makers to consider in CWA permitting and enforcement actions 
to support consistency across the country.
    EPA does not view or use the 1997 FCA as a rigid metric that points 
to a given schedule length or threshold over which the costs are 
unaffordable. It is a common misconception that the FCA can be used to 
cap spending on CWA programs or projects at a percentage of MHI. The 
FCA does not remove obligations to comply with the CWA nor does it 
reduce regulatory requirements.\6\ Rather, EPA uses the FCA to assess a 
community's financial capability for the purpose of developing a 
reasonable implementation schedule that will not overly burden the 
community. In practice, EPA considers each community's financial 
capability on a holistic case-by-case basis, and MHI is only one of the 
metrics that EPA evaluates. EPA has approved implementation schedules 
for CWA municipal consent decrees that go beyond the general scheduling 
boundaries in the 1997 FCA Guidance to ensure CWA requirements are met 
while also taking the financial capability of the community into 
consideration. In these cases, the implementation schedules were 
determined to be reasonable based upon the baseline FCA calculation 
done in accordance with EPA's 1997 FCA Guidance and consideration of 
supplemental information that was submitted by the community, as 
encouraged by the 2014 FCA Framework.
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    \6\ If a permittee cannot meet water quality-based requirements 
of the CWA, the permittee should work with its state or authorized 
tribe to evaluate other tools, such as a revision to designated uses 
under 40 CFR part 131.
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c. Stakeholder Feedback on EPA's Use of the 1997 FCA Guidance and the 
2014 FCA Framework

1. Congressional Direction
    As part of the 2016 Appropriation, Congress directed EPA to 
contract with the National Academy of Public Administration (NAPA) \7\ 
to create a framework for ``community affordability.'' \8\ The contract 
gave NAPA one year to conduct an independent study to create a 
definition of, and framework for, community affordability for clean 
water infrastructure. NAPA surveyed both EPA staff and stakeholders 
through over 50 in-person interviews with approximately 100 
participants; electronic interviews; and a stakeholder roundtable that 
included the American Water Works Association (AWWA), the National 
Association of Clean Water Agencies (NACWA), the National League of 
Cities (NLC), the Brookings Institute, Center for Progressive Reform 
(CPR), the Natural Resources Defense Council (NRDC), and the U.S. 
Conference of Mayors (USCM).
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    \7\ NAPA was Chartered by Congress as an independent, non-
partisan organization to assist government leaders in building more 
effective, efficient, accountable, and transparent organizations. 
See http://www.napawash.org/.
    \8\ Senate Report 114-70 on the Department of the Interior, 
Environment, and Related Agencies Appropriations Bill, 2016, p. 54: 
``Community Affordability--Within the funds provided, the Committee 
directs EPA to contract with the National Academy of Public 
Administration--an independent, nonpartisan, nonprofit organization 
chartered by the U.S. Congress--to conduct an independent study to 
create a definition and framework for ``community affordability.'' 
The Academy shall consult with EPA, States and localities, and such 
organizations, including, but not limited to the National 
Association of Counties, the National League of Cities, and the U.S. 
Conference of Mayors; review existing studies of the costs and 
benefits associated with major regulations under such laws as the 
Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, the 
Comprehensive Environmental Response, Compensation, and Liability 
Act, and the Resource Conservation and Recovery Act; and determine 
how different localities can effectively fund municipal projects. 
The Academy shall submit a report with its findings, conclusions, 
and recommendations no later than 1 year after the date of contract 
with EPA.
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    NAPA issued its report, ``Developing a New Framework for Community

[[Page 58356]]

Affordability of Clean Water Services'' \9\ in October 2017. NAPA's 
report provided several recommendations to EPA, including:
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    \9\ Available at https://www.napawash.org/uploads/Academy_Studies/NAPA_EPA_FINAL_REPORT_110117.pdf.
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     Recommendations regarding EPA's 1997 FCA Guidance and the 
2014 FCA Framework:
    [cir] Recommendation to improve the RI and the FCI metrics in the 
1997 FCA Guidance; the metrics used should meet the following criteria:
    [ssquf] Readily available from publicly available data sources;
    [ssquf] Clearly defined and understood;
    [ssquf] Simple, direct, and consistent;
    [ssquf] Valid and reliable measures, according to conventional 
research standards; and
    [ssquf] Applicable for comparative analyses among permittees.
    [cir] Recommendation to include all water costs (Clean Water Act 
and Safe Drinking Water Act) and to focus on the income of the low-
income users rather than MHI when considering burdens to communities of 
the costs of CSO control measures.
    [cir] Recommendation to expand the socioeconomic components 
affecting the community's market conditions to include trends in 
population, relative wealth, economic growth, and other economic 
structural problems in the community.
     Recommendations regarding EPA's Integrated Planning 
Framework:
    [cir] Recommendation to provide additional technical assistance to 
municipalities seeking to develop integrated plans.
    [cir] Recommendation to allow municipalities to develop an 
integrated plan as a primary step for addressing regulatory 
requirements with ``formalized agreements'' between the municipality, 
the state, and EPA.
     Recommendations on EPA's cost/benefit analysis and 
financing for water infrastructure.
    In response to NAPA's report, EPA reviewed current guidances that 
address household and community financial capability within EPA's water 
program. Three guidance documents were reviewed:
     1995 Interim Economic Guidance for Water Quality 
Standards: Implemented by EPA's Office of Water, Office of Science and 
Technology and used for supporting revisions to designated uses, water 
quality standard (WQS) variances, and antidegradation reviews for WQS.
     1997 CSO Financial Capability Assessment Guidance and the 
2014 Financial Capability Assessment Framework: Implemented by EPA's 
Office of Water, Office of Wastewater Management and EPA's Office of 
Enforcement and Compliance Assurance, Office of Civil Enforcement to 
provide guidance for CWA schedule development in CWA permitting and 
enforcement actions.
     1998 Developing Affordability Criteria for Drinking Water 
Systems: Implemented by EPA's Office of Water, Office of Ground Water 
and Drinking Water and used to grant variances for compliance 
technology to small drinking water systems.
    In addition, EPA researched affordability at both the household and 
community level for essential services such as drinking water, 
wastewater, stormwater, housing, energy, and others.
2. Mayors, League of Cities, Counties, and National Water Associations 
Input
    The National Association of Counties, the National League of 
Cities, and the U.S. Conference of Mayors have expressed concerns 
regarding ``EPA's reliance on 2% Median Household Income to determine a 
community's financial capability.'' The groups are concerned that the 
MHI metric puts an ``unfair and oppressive financial burden on low- and 
middle-income citizens.''
    In April 2019, AWWA, NACWA, and the Water Environment Federation 
(WEF) jointly submitted a report to EPA titled ``Developing a New 
Framework for Household Affordability and Financial Capability 
Assessment in the Water Sector.'' \10\ The authors of the report 
requested that EPA consider changes to how the Agency takes 
affordability into account across its CWA and SDWA programs. The report 
proposed a new methodology for calculating financial capability using:
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    \10\ Available at https://www.awwa.org/Portals/0/AWWA/Government/DevelopingNewFrameworkForAffordabilityReport.pdf.
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     All water sector costs (drinking water, wastewater, and 
stormwater);
     Utility revenue and customer bills rather than the cost of 
CSO control measures;
     Lowest Quintile Income (LQI) and Federal Poverty Levels 
(FPL); and
     Forward-looking analysis/long-term cash flow forecasting.
3. Utility Feedback
    Individual utilities have met with EPA to discuss concerns 
surrounding affordability of providing drinking water, wastewater, and 
stormwater services. The utilities identified household affordability 
challenges in paying bills for these services as well as in the 
utility's ability to pay for infrastructure renewal along with costs of 
regular operation and maintenance and workforce needs.

III. EPA's Proposed 2020 Financial Capability Assessment

a. Purpose of the Proposed 2020 Financial Capability Assessment

    The proposed 2020 FCA advances the ability of communities to more 
accurately demonstrate the financial burdens they face and increases 
the transparency of EPA's considerations as it endeavors to 
consistently apply FCA methodologies across the country. With the 
proposed 2020 FCA, EPA intends to allow communities to easily submit 
information that may indicate the entire community's capability to fund 
CWA projects/programs. Specifically, the proposed 2020 FCA includes 
templates and calculations that communities can use when submitting 
information for consideration regarding LQI, drinking water costs, 
financial models or studies, and other relevant areas. The templates 
and calculations include references that direct the community to the 
applicable publicly available data sources.
    The proposed 2020 FCA sets forth two alternative general approaches 
for assessing a community's financial capability to carry out CWA 
control measures. The first alternative is the existing 1997 FCA 
methodology with expanded consideration of costs, poverty, and impacts 
on the population in the service area with incomes in the lowest 
quintile. The first alternative may be employed by the community or by 
EPA for the community, as it involves use of publicly available 
information. Communities with lower cost control measures or an ability 
to self-finance the cost of CWA controls may wish to employ the first 
alternative due to its simplicity.
    The second alternative is the development of a dynamic financial 
and rate model that looks at the impacts of rate increases over time on 
utility customers, including those with incomes in the lowest quintile. 
Communities with more expensive CWA obligations may choose to employ 
the second alternative, given its more sophisticated evaluation of 
affordability over time. However, if a community chooses the second 
alternative, it must conduct the analysis itself as it involves 
information known only to the community.
    For use in the first alternative, relevant portions of the 1997 FCA 
Guidance and the 2014 FCA Framework are included as Appendices to the 
FCA Supplement. While the structure of the

[[Page 58357]]

included 1997 FCA Guidance worksheets remains for the first 
alternative, the 2020 FCA also includes standardized instructions for 
how to define and submit certain additional costs into the portion of 
the RI calculation that looks at total CWA costs per household as a 
percent of MHI. EPA intends to not only consider MHI when calculating 
the impact of costs on a community's households but is proposing to 
also consider impacts to households in the lowest quintile. MHI is 
considered a key metric because it represents the mid-point of income 
in a geographical area determined by the American Community Survey 
(ACS). Median is used to express a ``middle'' value in a set of data. 
This ``middle'' value is also known as the central tendency. Median is 
determined by ranking the data from largest to smallest, and then 
identifying the middle so that there are an equal number of data values 
larger and smaller than the middle point. The median is generally used 
for skewed distributions and is typically used to derive at central 
tendency since it is not largely affected by outlier values. However, 
EPA recognizes that many communities have many customers that represent 
either end of the income spectrum. Some communities have a range of 
incomes but also have contiguous areas of population that have 
difficulty paying for their water services. For some communities, these 
challenges can be shown by looking at the community's LQI along with 
its MHI. As such, EPA intends to incorporate LQI as the basis of a key 
recommended critical metric when calculating the impact of costs on a 
community's households.
    Based on stakeholder feedback, EPA is basing its LQI metric on data 
that is available in the ACS. The ACS is conducted every year by the 
U.S. Census Bureau to provide up-to-date information about the social 
and economic conditions of communities. The annual updates include key 
socio-demographic information and can be provided to a fine level of 
geographic granularity with historic continuity. The ACS can produce 
data showing the quintiles of household income (each quintile defines 
the household income range for 20% of a community's households). Use of 
LQI as an FCA metric meets the following criteria proposed by NAPA:
     Readily available from publicly available data sources;
     Clearly defined and understood;
     Simple, direct, and consistent;
     Valid and reliable measures, according to conventional 
research standards; and
     Applicable for comparative analyses among permittees.
    The proposed 2020 FCA can help to ensure that local challenges 
related to low-income households are better reflected in CWA 
implementation schedules. The types of data provided in Alternative 1 
of the 2020 FCA are not exhaustive; and consistent with previous 
policy, EPA will consider any relevant financial or demographic 
information presented that illustrates the unique or atypical 
circumstances faced by a community.

b. Overview of the 2020 FCA

    Consideration of affordability requires certain information. 
Alternative 1 of the proposed 2020 FCA recommends analyzing both the 
first phase (RI) and the second phase (FCI) of the two-phased approach 
in the 1997 FCA Guidance as critical metrics and adds two new critical 
metrics: The Lowest Quintile Residential Indicator (LQRI) and the 
Poverty Indicator (PI). These four critical metrics would be calculated 
by EPA or the community and would be considered equally. It should be 
emphasized that these four recommended critical metrics might not 
present the most complete picture of a community's financial capability 
to fund its CWA requirements. However, these metrics do provide a 
common basis for financial burden discussions among the community, the 
state or tribe, and EPA. Since flexibility is an important aspect of 
the CWA, communities are encouraged to submit any additional 
documentation (other metrics) for consideration that would create a 
more accurate and complete picture of their financial capability. 
Alternative 2 of the proposed 2020 FCA recommends analyzing a financial 
and rate model in addition to calculating the Poverty Indicator Score.
    The proposed 2020 FCA also includes Other Metrics with Standardized 
Instructions, as well as Other Metrics with Submission of Information 
to be Determined by the Community. Significant consideration will be 
given to drinking water costs as well as the cost of meeting CWA 
obligations. Consideration of other metrics is permitted under either 
Alternative 1 or 2 and may support an implementation schedule that goes 
beyond the schedule benchmarks applicable to Alternative 1 in Exhibit 
6. However, EPA does not anticipate establishing implementation 
schedules that would exceed the useful life of the community's water 
infrastructure assets.\11\
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    \11\ Based on EPA's experience with water programs, the assumed 
useful life of water infrastructure assets for the purpose of 
financing is typically 30-40 years.
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Alternative 1: Recommended Critical Metrics With Established Thresholds 
and Instructions
     Residential Indicator--cost per household as a percentage 
of MHI
     Financial Capability Indicator--six socioeconomic, debt, 
and financial indicators used to benchmark a community's financial 
strength
     Lowest Quintile Residential Indicator--cost per low-income 
household as a percentage of the lowest quintile income
     Poverty Indicator--five poverty indicators used to 
benchmark the prevalence of poverty throughout the service area
Alternative 2: Recommended Critical Metrics
     Financial and Rate Models
     Poverty Indicator
Other Metrics With Standardized Instructions
     Drinking Water Costs
     Potential Bill Impact Relative to Household Size
     Customer Assistance Programs
     Asset Management Costs
     Stormwater Management Costs
Examples of Other Metrics With Submission Information Determined by the 
Community
 Unemployment Rates
 Debt Service Coverage Ratio
 Debt to Income Ratio
 Percent Population Decline, or Other Population Trends
 Locality Specific Information on Household Size, Including the 
Size of Households With Incomes In The Lowest Quintile
 State or Local Legal Restrictions or Limitations on Property 
Taxes, Other Revenue Streams, or Debt Levels
 Other Metrics as Determined by the Community
    Schedule Development
 Additional Considerations: Discharges to Sensitive Areas; Use 
Impairment; Public Health; Environmental Justice
 Schedule Development for Alternative 1
 Schedule Development for Alternative 2
 Schedule Development for Hypothetical Communities

    The proposed 2020 FCA is available at: https://www.regulations.gov/
, Docket ID No. EPA-HQ-OW-2020-0426. Throughout the document, EPA has 
identified specific questions for public comment.

[[Page 58358]]

IV. Request for Public Comment

    EPA requests public comment on the proposed 2020 FCA. Specifically, 
EPA is requesting comments on the following:
Requests for Comment on Overarching Matters
    1. Should EPA's previous FCA documents be consolidated into the 
2020 FCA, as proposed, or should EPA continue to use the 1997 FCA 
Guidance as the controlling guidance with the 2020 revisions serving as 
a supplement?
    2. In addition to the data sets that are discussed in this 
document, what other data sets are you aware of that meet NAPA's 
criteria as identified in the October 2017 report, ``Developing a New 
Framework for Community Affordability of Clean Water Services''?
    3. What additional resources are publicly available that can be 
used to assess financial capability (e.g., the ALICE Essentials Index 
\12\)?
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    \12\ Asset Limited, Income Constrained, Employed (ALICE) is 
measure of poverty that examines a subset of households that earn 
above the Federal Poverty Level, but not enough to afford a minimal 
household budget. See https://www.unitedforalice.org/.
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    4. What additional examples, calculations, or templates would you 
like EPA to develop to assist with assessing financial capability?
Requests for Comment on the Proposed FY2020 FCA Supplement
    5. EPA invites comment on the appropriateness of using the four 
recommended critical metrics to assess financial capability and what 
their relative importance in considering financial capability should 
be.
    6. What supplemental information is relevant to support 
implementation schedules that go beyond the proposed benchmarks in 
Exhibit 6?
    7. Is EPA distinguishing appropriately between critical and other 
metrics?
    8. EPA is seeking comment on the proposed methodology for 
calculating the ratio for lowest quintile household size to median 
household size.
    9. EPA invites public comment on whether adjusting the LQRI based 
on household size is appropriate or if there are other ways to 
calculate a residential indicator for LQI households.
    10. EPA is seeking comment on whether the same benchmarks for 
assessing the MHI Residential Indicator should be used for assessing 
the Lowest Quintile Residential Indicator (LQRI), as proposed, or if 
different benchmarks should be used.
    11. EPA is seeking comment on the list of proposed poverty 
indicators and on whether the bracketing of the middle 50% is an 
appropriate method to benchmark the proposed poverty indicators.
    12. EPA is seeking public comment on the proposed schedule 
benchmarks in Exhibit 6.
    13. What other resources, in addition to those listed in Section IV 
of the proposed 2020 FCA (Resources), are available to assist 
communities related to water infrastructure financing?
    14. EPA is seeking comment on whether additional detail can be 
provided to better understand implementation of Alternative 2.
    15. Should drinking water costs be considered as part of scheduling 
considerations and are there appropriate benchmarks for considering the 
contribution of drinking water costs to household burdens, such as a 
specific percentage of income?
Requests for Comment Related to Water Quality Standard Decisions
    16. EPA is also considering how the LQRI, PI, and other metrics and 
thresholds discussed in this Federal Register document could be used to 
support WQS decisions. EPA seeks comment on the use of these same 
metrics and thresholds under Alternative 1 for use in WQS decisions 
using the proposed expanded matrix in Appendix D. This proposed matrix 
provides guidance on how to apply the options and flexibilities of 
Alternative 1 in the proposed 2020 FCA to the consideration of economic 
impacts to support WQS decisions related to public entities. EPA 
intends that the proposed expanded matrix for WQS decisions, along with 
the electronic spreadsheet tools for the public sector at https://www.epa.gov/wqs-tech/spreadsheet-tools-evaluate-economic-impacts-public-sector, would replace the worksheets and calculations for the 
public sector sections of the 1995 WQS Guidance. This replacement would 
be used for determining the degree of economic impact for use in WQS 
decisions for the public sector. The proposed 2020 FCA does not revise 
the recommended methodology in the private sector sections of the 1995 
WQS Guidance. EPA is separately exploring whether there are practical 
methodologies available to increase the objectivity of the analyses 
recommended to determine the degree of economic impact on private 
sector entities when evaluating these same WQS decisions.

    Dated: September 4, 2020.
Andrew D. Sawyers,
Director, Office of Wastewater Management, Office of Water.
[FR Doc. 2020-20649 Filed 9-17-20; 8:45 am]
BILLING CODE 6560-50-P