Document ID: EPA-HQ-OW-2020-0426-0120
Agency: epa
Document Type: Notice
Title: Guidance: Final Updated Clean Water Act Financial Capability Assessment
Posted Date: 2023-02-03T05:00Z

[Federal Register Volume 88, Number 23 (Friday, February 3, 2023)]
[Notices]
[Pages 7436-7441]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-02288]

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ENVIRONMENTAL PROTECTION AGENCY

[EPA-HQ-OW-2020-0426; FRL-8421.1-01-OW]

Final Updated Clean Water Act Financial Capability Assessment 
Guidance

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice.

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SUMMARY: When municipal discharges cause violations of the Clean Water 
Act (CWA), the Environmental Protection Agency (EPA) sets a schedule 
for the municipality to address them as soon as possible. EPA considers 
factors such as public health, environmental protection, and a 
community's financial capability when developing schedules to implement 
the compliance measures. The updated Clean Water Act Financial 
Capability Assessment Guidance (FCA Guidance) may be used by 
municipalities when making certain water quality decisions and when 
developing or revising plans to dramatically reduce sewer overflows. 
The FCA Guidance describes the financial information and formulas the 
Agency intends to use to assess the financial resources a community has

[[Page 7437]]

available to implement controls to meet the requirements of the CWA. It 
also provides transparent benchmarks for negotiating schedules to put 
those controls in place and for states and authorized tribes to assess 
potential changes to water quality standards. This guidance also helps 
ensure national consistency in CWA implementation. The FCA Guidance 
replaces EPA's 1997 Combined Sewer Overflows--Guidance for Financial 
Capability Assessment and Schedule Development (1997 FCA Guidance) to 
evaluate a community's capability to fund CWA control measures in both 
the permitting and enforcement context. Additionally, Section III of 
the FCA Guidance is intended to assist states and authorized tribes in 
the consideration of economic impacts to public entities for supporting 
revisions to designated uses, water quality standard (WQS) variances, 
and antidegradation reviews for high quality waters. The FCA Guidance 
reflects EPA's consideration of public comments received in response to 
its February 23, 2022 Federal Register publication. The contents of 
this guidance document do not have the force and effect of law and are 
not meant to bind the public in any way. This document is intended only 
to provide recommendations to the public regarding existing 
requirements under the law or agency policies.

FOR FURTHER INFORMATION CONTACT: Ellen Tarquinio, Office of Wastewater 
Management, Water Infrastructure Division (MC4204M), Environmental 
Protection Agency, 1200 Pennsylvania Ave. NW, Washington, DC, 20460; 
telephone number: (202) 566-2267; email address: 
[email protected].

SUPPLEMENTARY INFORMATION:

I. Background and Use of the FCA Guidance
II. Overview of the Updated FCA Guidance
III. Public Comments Received and Changes from the February 2022 
Proposal
    1. Calculation of Lowest Quintile Income and Poverty Indicators
    2.Financial Alternatives Analysis
    3. General Compliance Schedule Benchmarks
    4. Application of the FCA Guidance to Water Quality Standards 
Decisions
IV. Conclusion

EPA's Clean Water Act Financial Capability Assessment Guidance

I. Background and Use of the FCA Guidance

    The FCA Guidance updates the Agency's approaches for assessing the 
financial capability of communities to fund CWA control measures. 
Section 402(q) of the CWA requires each permit, order, or decree issued 
pursuant to CWA Section 402 after December 21, 2000, for a discharge 
from a municipal combined storm and sanitary sewer, to conform to EPA's 
April 11, 1994 Combined Sewer Overflow Control Policy (CSO Policy). The 
CSO Policy states that ``[s]chedules for implementation of the CSO 
controls may be phased based on the relative importance of adverse 
impacts upon WQS and designated uses, priority projects identified in 
the long-term control plan, and on a permittee's financial 
capability.'' 59 FR 18694 (emphasis added). EPA considers each 
community's financial capability on a holistic case-by-case basis to 
ensure CWA requirements are met while also taking the financial 
capability of the community into consideration.
    The FCA Guidance builds on EPA's past practice for assessing a 
community's financial capability as a part of determining the 
appropriate schedule to implement CWA control measures,\1\ and provides 
additional metrics and templates that communities can use to more 
thoroughly demonstrate potential financial impacts. The guidance 
provides a planning tool for evaluating the financial resources a 
community has available to implement CWA controls. It also increases 
the transparency of EPA's considerations in applying FCA methodologies 
across the country in permitting and enforcement cases. EPA intends to 
also apply the Final FCA Guidance to the consideration of economic 
impacts to public entities when making WQS decisions on revisions to 
designated uses, WQS variances, and antidegradation reviews for high-
quality waters. Prior to this Guidance, EPA recommended the public 
sector sections of the 1995 Interim Economic Guidance for Water Quality 
Standards (1995 WQS Guidance) for evaluating WQS decisions, including 
revisions to designated uses, WQS variances, and antidegradation 
reviews for high-quality waters. Those sections of the 1995 WQS 
Guidance were substantively identical to the 1997 FCA Guidance that is 
being replaced with the updated FCA Guidance. Rather than create 
duplicative documents, EPA has determined that the FCA Guidance can 
support both schedule negotiations and certain water quality decisions. 
The FCA Guidance supplements the calculations and analyses in the 
public sector portion of the 1995 WQS Guidance with additional 
analyses, an expanded economic impact matrix, and recommendations to 
consider when making WQS decisions. EPA intends the FCA Guidance, 
together with the text in the public sector sections of the 1995 WQS 
Guidance, to guide states and authorized tribes in evaluating the 
economic impact of potential WQS decisions related to financial 
capability. The FCA Guidance does not revise the recommended 
methodology for the private sector found in the 1995 WQS Guidance.
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    \1\ Historically, EPA assessed financial capability using EPA's 
1997 FCA Guidance, EPA's 2014 Financial Capability Assessment 
Framework for Municipal Clean Water Act Requirements (2014 FCA 
Framework), and additional information submitted by communities.
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    The FCA Guidance metrics for financial capability assessments meet 
the following criteria recommended by the National Academy of Public 
Administration (NAPA): \2\
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    \2\ NAPA issued a report titled ``Developing a New Framework for 
Community Affordability of Clean Water Services'' in October 2017.
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     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.

II. Overview of the Updated FCA Guidance

    The FCA Guidance recommends two alternative approaches for 
assessing a community's financial capability to implement CWA control 
measures. Alternative 1 retains the Residential Indicator (i.e., 2% of 
MHI) and the Financial Capability Indicators from the 1997 FCA Guidance 
because they measure factors required under the Clean Water Act by the 
CSO Policy.\3\ In addition to these two metrics, the FCA Guidance 
provides a new metric called the Lowest Quintile Poverty Indicator that 
provides a methodology for consideration of the lowest quintile income 
and poverty in the community's service area. In addition to their use 
to assist in negotiating CWA compliance schedules, EPA recommends the 
application of the methodologies from Alternative 1 of the FCA Guidance 
for the consideration of economic impacts to public entities when 
making decisions on WQS variances and antidegradation reviews. In 
appropriate cases, these methodologies could also inform decisions 
about revisions to

[[Page 7438]]

designated uses, subject to additional analyses.
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    \3\ 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) nemployment; and (vii) bond rating. See 59 FR 18688, 18694, 
April 19, 1994.
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    The FCA Guidance also provides a discussion of and a template for a 
Financial Alternatives Analysis that expands on the Secondary Financial 
Considerations in EPA's 1997 FCA Guidance and the CSO Control 
Policy.\4\ The Financial Alternatives Analysis guides a community 
through consideration of programs that may help reduce financial 
impacts by lowering costs or assisting low-income residents. The 
Financial Alternatives Analysis is also consistent with EPA's 
Integrated Municipal Stormwater and Wastewater Planning Approach 
Framework (2012), which provides that integrated plans should include a 
financial strategy and capability assessment that ensures investments 
are sufficiently funded, operated, maintained and replaced over time 
and include consideration of current and planned rates and fees.\5\ The 
expanded Financial Alternatives Analysis is designed to help strengthen 
both CWA protections and water service affordability protections. It 
allows municipalities negotiating compliance schedules and certain WQS 
revisions to demonstrate actions to reduce or mitigate the financial 
impact of water service costs, particularly on the community's low-
income households, and to achieve compliance as expeditiously as 
possible.
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    \4\ The CSO Control Policy lists the following additional 
construction and financing schedule considerations for 
implementation plan scheduling: grant and loan availability; 
previous and current residential, commercial, and industrial sewer 
user fees and rate structures; and other viable funding mechanisms 
and sources of financing. See 59 FR 18688, 18694, April 19, 1994.
    \5\ In 2012, EPA developed the Integrated Municipal Stormwater 
and Wastewater Planning Approach Framework to offer a voluntary 
opportunity for a municipality to develop an integrated plan to meet 
multiple CWA requirements. On January 14, 2019, the Water 
Infrastructure Improvement Act (WIIA) (H.R. 7279) added a new 
section 402(s) to the CWA to include the 2012 Integrated Planning 
Framework.
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    For schedule development, the FCA Guidance provides a second option 
for assessing financial capability. Alternative 2 allows communities to 
develop a dynamic financial and rate model that looks at the impacts of 
rate increases over time on utility customers. EPA would review the 
financial and rate model along with the community's Lowest Quintile 
Poverty Indicator and Financial Alternatives Analysis in developing a 
compliance schedule.\6\
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    \6\ As discussed more fully in Section III.4, EPA does not 
recommend use of Alternative 2 alone for WQS decisions, but 
communities can provide financial and rate model data as additional 
information for consideration in conjunction with the Alternative 1 
critical metrics.
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    The FCA Guidance can help to ensure that local challenges related 
to low-income households are better reflected in CWA implementation 
schedules and certain water quality decisions. When additional relevant 
financial or demographic information is presented that illustrates the 
unique or atypical circumstances faced by a community, EPA plans to 
consider this information. The FCA Guidance continues to encourage 
communities to submit supplemental financial information. Templates and 
calculations are provided to submit drinking water costs and other 
relevant information. These templates and calculations include 
references to publicly available data sources that can be used for 
compiling this information. The FCA Guidance is available at: https://www.epa.gov/waterfinancecenter/clean-water-act-financial-capability-assessment-guidance.

III. Public Comments Received and Changes From the February 2022 
Proposal

    On September 18, 2020, EPA published a Proposed 2020 Financial 
Capability Assessment for Clean Water Act Obligations Guidance in the 
Federal Register for public comment.\7\ On January 12, 2021, EPA posted 
a pre-publication version of the FCA Guidance on the Agency's website. 
The pre-publication FCA was never published in the Federal Register and 
was withdrawn for review in accordance with the January 20, 2021 White 
House Memorandum, Regulatory Freeze Pending Review.\8\ On February 23, 
2022, EPA published a Proposed 2022 Clean Water Act Financial 
Capability Assessment Guidance (Proposed 2022 FCA Guidance) in the 
Federal Register for public comment.\9\ The Proposed 2022 FCA Guidance 
reflected EPA's consideration of public comments received in response 
to its September 2020 Federal Register publication, as well as feedback 
received through various stakeholder outreach sessions. EPA received 
2,976 comments on the Proposed 2022 FCA Guidance during the 60-day 
comment period. The main areas of comments and EPA's responses are 
described below.
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    \7\ 85 FR 58352 (September 18, 2020).
    \8\ See https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/20/regulatory-freeze-pending-review/.
    \9\ 87 FR 10193 (February 23, 2022).
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1. Calculation of Lowest Quintile Income and Poverty Indicators

    In the Proposed 2022 FCA Guidance, EPA offered two options for 
calculating a new metric intended to help assess the severity and 
prevalence of poverty in a community's service area. The Proposed 
Option 1 was to add a single new metric to the FCA, called the Lowest 
Quintile Poverty Indicator (LQPI), to be considered with the 
Residential Indicator and Financial Capability Indicator. The Proposed 
Option 2 was to add two new metrics, the Lowest Quintile Income 
Indicator (LQII) and the Poverty Indicator (PI). Based on public 
comments received, EPA has chosen Option 1. While both options 
effectively characterize the severity and prevalence of poverty in a 
community, comments received from several state co-regulators indicated 
that the formula in Option 1 was easier to implement.
    Several commentors also suggested incorporating more local data 
points into the LQPI, such as cost of living, to supplement the 
comparison of a community's lowest quintile income and other poverty 
factors against national benchmarks. EPA found that some of the 
recommended additional factors involved datasets that are not easily 
publicly accessible or not available at the service area level. The FCA 
Guidance retains the proposal's Lowest Quintile Poverty Indicator 
factors, which are readily available from publicly available data 
sources and provide a simple and consistent method to assess the 
severity and prevalence of poverty in a community. These factors are:
     Upper limit of lowest quintile income;
     Percentage of population with income below 200% of the 
Federal poverty level;
     Percentage of households receiving food stamps/SNAP 
benefits;
     Percentage of vacant housing units;
     Trend in household growth; and
     Percentage of unemployed population 16 and over in the 
civilian labor force.
    These factors identify community characteristics that provide a 
general understanding of the service area status. To supplement the 
Lowest Quintile Poverty Indicator, communities may provide information 
about local considerations that may not be fully captured by the 
approach detailed in the guidance.

2. Financial Alternatives Analysis

    EPA received both supportive and negative comments related to the 
Financial Alternatives Analysis. Supportive comments identified the 
Financial Alternatives Analysis as a tool to assist in achieving water 
quality benefits sooner while seeking to minimize financial burdens on

[[Page 7439]]

ratepayers, especially those from low-income households. The negative 
comments asserted that the Financial Alternatives Analysis was too 
resource-intensive and that it involved EPA in matters under local 
government purview such as utility management and rate setting. Many 
commentors asked EPA to clarify how a Financial Alternatives Analysis 
should be completed and how it will likely be reviewed.
    EPA plans to retain incentives for municipalities seeking extended 
compliance schedules or certain WQS revisions to describe their 
strategies for lowering costs and reducing impacts on low-income 
households through a Financial Alternatives Analysis. These strategies 
may include use of variable rate structures, consumer assistance 
programs, and applications for grants or subsidies from the Clean Water 
State Revolving Fund (CWSRF). Significant new sources of funding 
available from the Bipartisan Infrastructure Law create new 
opportunities for communities to secure funding to support CWA 
compliance. In response to comments, the guidance simplifies how the 
Financial Alternatives Analysis could be considered as part of schedule 
extension requests or certain WQS decisions and provides additional 
resources and templates for its completion. The Financial Alternatives 
Analysis walks communities through various financial alternatives and 
describes how these programs may, in some instances, mitigate financial 
impacts. The information gleaned from this step is intended to inform 
EPA's consideration of an extended CWA schedule or WQS decision related 
to economic impacts, particularly when the economic impacts affect low-
income households. In evaluating the Financial Alternatives Analysis, 
EPA expects to look comprehensively at the community's financial 
strategy, including, but not limited to, an analysis of the community's 
approach to covering costs through rate structure and design as well as 
its other initiatives to assist low-income customers while assuring 
necessary and timely compliance with environmental requirements.
    The FCA Guidance revises the Financial Alternatives Analysis based 
on input from commenters. Some commenters requested greater clarity on 
the steps to complete the Financial Alternatives Analysis. Other 
commenters asked that interpretation of the Financial Alternatives 
Analysis results be clearly explained and reproducible. In response, 
EPA is providing more explanation of how a Financial Alternatives 
Analysis may be completed and also is simplifying the method the agency 
intends to use to include the results of a Financial Alternatives 
Analysis in a financial capability assessment.
    In the FCA Guidance, EPA clarifies methods for completing a 
Financial Alternatives Analysis. The discussion of the Financial 
Alternatives Analysis has been expanded and an example financial 
alternatives worksheet is provided. Appendix C contains a more detailed 
discussion of financial alternatives, with explanations of how various 
alternatives may help to minimize the financial impacts of CWA 
controls, links to resources for implementing financial alternatives, 
and case studies. In addition, the FCA now provides a template to 
assist in documenting consideration of financial alternatives. It also 
makes clear that other documentation may be submitted instead if it 
provides a descriptive and thorough discussion of financial 
alternatives that have been implemented, are being planned or 
considered, or are not being pursued.
    Further, the FCA Guidance simplifies consideration of the Financial 
Alternatives Analysis by interpreting its result at the end of the 
analytical process rather than as an intermediary step. The Proposed 
2022 FCA Guidance recommended calculation of an Initial Lowest Quintile 
Poverty Indicator score and then adjustment of that score according to 
the outcome of the Financial Alternatives Analysis. Because adjustment 
of the Initial Lowest Quintile Poverty Indicator score involved 
evaluation of the adequacy of the Financial Alternatives Analysis, this 
analytical step increased uncertainty for stakeholders and regulators 
tasked with developing or evaluating the analysis. To address that 
issue, the FCA Guidance considers the results of the Financial 
Alternative Analysis at the end of the analytical process, as part of 
Exhibit 9. General Implementation Schedule Benchmarks, for schedule 
negotiations, and in Exhibit 13. Recommendations for Making WQS 
Decisions, for variances, use changes, and anti-degradation reviews. 
Because the Financial Alternatives Analysis provides key information 
about the extent of possible financial impacts and whether those 
impacts might outweigh the environmental impacts of extended 
noncompliance or water quality standards decisions, general benchmarks 
for compliance schedules tend to be shorter and recommendations for WQS 
decisions more conservative for communities without a comprehensive 
Financial Alternatives Analysis. This modification simplifies the FCA 
analysis while providing for consideration of the Financial 
Alternatives Analysis as part of a holistic financial strategy for 
balancing the financial and environmental impacts of extended CWA 
compliance schedules or potential changes to water quality standards.
    Some commenters suggested that the Financial Alternatives Analysis 
would require entities seeking schedule extensions or certain WQS 
decisions to ignore local legal restrictions. EPA has clarified the 
language in the FCA Guidance to address this perception. The FCA 
Guidance provides ideas for thinking creatively and broadly about how 
to help with rate impacts to residents, within legal boundaries. The 
information and resources contained in the FCA Guidance is intended to 
help communities understand and consider all their financial options 
related to the costs and timeframes of constructing and implementing 
CWA controls. From EPA's experience, some communities may not be aware 
of available resources and potential options for implementing certain 
financial alternatives. The combination of the information available in 
the expanded Appendix C, along with the availability of EPA technical 
assistance ([email protected]), may help some communities consider and 
pursue available alternatives.
    In most cases, communities will have considered or implemented at 
least some of the financial alternatives as general good practices of 
utility management. Performing the Financial Alternatives Analysis at 
the beginning of an FCA may help a community evaluate all costs 
associated with the implementation of CWA controls, such as reduced 
costs associated with low-interest loans, increased revenue from 
utility fees, or the costs associated with programs that assist low-
income households. Performing this analysis early will allow these 
costs to be accounted for in the Residential Indicator and Financial 
Capability Indicator. The FCA Guidance also recognizes that not all 
financial alternatives may be legally or practically feasible for all 
communities and that the ability to implement some financial 
alternatives may depend on state and local laws or other practical 
considerations related to the structure or organization of the 
permittee. Although certain financial or funding considerations listed 
in Appendix C may be prohibited by state law, there still may be 
alternative mechanisms to achieve the same goals. Appendix C provides 
examples of communities that

[[Page 7440]]

have encountered legal barriers yet were able to implement similar or 
analogous mechanisms to reduce financial impacts. When a community does 
not include available tools in its plan, a written explanation of the 
reasons for omitting them should be provided.
    While the Financial Alternatives Analysis is a valuable tool to 
balance the key goals of minimizing financial impacts and ensuring that 
residents benefit from CWA protections, EPA understands that the cost 
of completing the analysis may be a barrier for some communities. Some 
commenters raised concerns about limited resources available to some 
communities. To ensure that all communities, including underserved and 
low-income communities, have access to this tool, the FCA Guidance 
describes the support EPA is making available to assist with completing 
a Financial Alternatives Analysis, through EPA's Water Finance Center. 
If resource constraints remain, a community could provide information 
on current and planned efforts to reduce costs and relieve impacts on 
low-income residential households in a format that represents a good-
faith effort relative to the size of the community's service area. In 
addition, for small communities, particularly those serving less than 
3,000 persons, for which it may not be feasible to make a good faith 
effort to document the financial alternatives in Appendix C, EPA plans 
to be mindful of those resource constraints when developing compliance 
schedules and evaluating WQS decisions based on economic impacts.

3. General Compliance Schedule Benchmarks

    The Proposed 2022 FCA Guidance provided a general compliance 
schedule benchmark of up to 15 years for communities that demonstrate 
``medium'' FCA impacts. For communities demonstrating ``high'' FCA 
impacts, the proposal provided a general compliance schedule benchmark 
of generally up to 20 years, or as long as 25 years for unusually high 
impacts. Multiple commentors indicated that these timeframes were too 
short and are inconsistent with CWA consent decrees that include 
schedules longer than 25 years. On the other hand, several states 
commented that the compliance schedule benchmarks were reasonable 
guidelines.
    EPA recognizes that there are existing CWA compliance schedules (or 
modified compliance schedules) that go beyond the guidance's Exhibit 9 
General Implementation Schedule Benchmarks. Exhibit 9 provides 
guidelines for developing consistent and reasonably uniform 
implementation schedules across the nation in situations where 
permittee's CWA controls impose similar financial burdens. The general 
benchmarks are not intended to replace or prejudge the negotiations and 
deliberations involved to balance all environmental and financial 
considerations that influence the site-specific nature of the controls 
and implementation schedules. As was done under EPA's prior FCA 
guidance, the agency plans to consider implementation schedules that 
are different than the schedules suggested by the FCA Guidance's 
baseline analysis when circumstances justify departing from the general 
benchmarks.
    It is also important to consider human health and environmental 
impacts in addition to cost when considering extended schedules. EPA 
received comments that EPA should ensure that compliance schedules are 
no longer than necessary. The majority of comments from over 2,900 
individual commentors urged EPA not to delay compliance with the Clean 
Water Act. EPA is mindful that prolonging water quality impairments 
could exacerbate environmental justice concerns. The CWA requires that 
compliance schedules included in NPDES permits must ``require 
compliance as soon as possible.'' 40 CFR 122.47(a)(1). The CSO Policy, 
and CWA section 402(q) adopting the policy as law, also states that 
NPDES authorities should ensure that ``CWA requirements are complied 
with as soon as practicable.'' 59 FR 18688, April 19, 1994. As 
described in Section III.2 of this document, the Exhibit 9 General 
Implementation Schedule Benchmarks have been updated to consider 
whether a comprehensive Financial Alternatives Analysis was submitted 
as part of the financial capability assessment. The consideration of a 
financial strategy to reduce costs and relieve impacts on low-income 
households provides information about possible remaining financial 
impacts on a community. Without a Financial Alternatives Analysis, it 
will likely be harder for EPA to assess whether those impacts might 
outweigh the environmental impacts of extended noncompliance. While the 
overall ranges for ``medium'' and ``high'' FCA impact communities are 
the same as the Proposed 2022 FCA Guidance, the general compliance 
schedule benchmarks for compliance schedules without a comprehensive 
Financial Alternatives Analysis for each category are shorter than for 
communities within that category with a comprehensive Financial 
Alternatives Analysis. Overall, EPA believes that, for unusually high 
impacts and after consideration of available financial alternatives, 25 
years is a reasonable general scheduling benchmark that is consistent 
with the CWA and CSO Policy. In addition, several states co-regulators 
with experience using FCAs to aid in developing CWA compliance 
schedules commented that the general compliance schedule benchmarks 
were reasonable.

4. Application of the FCA Guidance to Water Quality Standards Decisions

    EPA received some comments that the application of the FCA Guidance 
to WQS decisions based on economic impacts was inconsistent with the 
applicable WQS regulations because the proposed methodologies were 
either too stringent or not stringent enough. The WQS regulations 
specify that economic factors may be considered for revisions to 
designated uses and WQS variances (40 CFR 131.10(g)(6)) and during 
antidegradation reviews (40 CFR 131.12(a)(2)). EPA's FCA Guidance does 
not and cannot change the WQS regulations that allow for consideration 
of economic factors in WQS decisions. However, it is EPA's intention 
for the FCA Guidance to serve as an update to EPA's 1995 WQS Guidance 
for public entities. The FCA Guidance recommends additional safeguards 
to ensure that WQS decisions that may potentially lower water quality 
are justified and that low-income households do not disproportionately 
bear the burden of such decisions.
    EPA received comments that the 2022 Proposed FCA Guidance was over-
prescriptive as applied to use attainability analyses/designated use 
revisions. Some commenters stated that the guidance was not clear 
enough on the distinction between WQS variances, use attainability 
analyses, and antidegradation reviews. Based on these comments, EPA 
revised the FCA Guidance to more thoroughly consider the legal, 
technical, and practical considerations unique to water quality 
standards. The FCA Guidance discusses the differences among WQS 
variances, revisions to designated uses, and antidegradation reviews, 
and provides step-by-step recommendations on how to perform the 
analysis and interpret the results in the context of these different 
WQS decisions.
    The metrics and thresholds in the 1995 WQS Guidance and Alternative 
1 of the FCA Guidance are based on an analysis of financial and 
economic data that reflect conditions during a particular period of 
time, i.e., a

[[Page 7441]]

``snapshot'' of financial and socio-economic data. As such, these 
metrics and analyses are well-suited and most appropriate for 
evaluating requests for WQS variances under 40 CFR 131.10(g)(6). The 
time-limited nature of a WQS variance ensures that changes in financial 
conditions would be considered if and when there is a request for a 
subsequent variance or at the time of reevaluation for a WQS variance 
with a duration longer than five years. Because the revision of a 
designated use (including a revision to a less stringent use 
subcategory) or allowing degradation of high-quality waters could have 
an environmental impact with a much longer timeframe, EPA recommends 
caution when making such WQS decisions using ``snapshot'' economic and 
financial information. EPA recommends states and authorized tribes 
first explore whether there are other factors under 40 CFR 131.10(g) 
that preclude attainment of the designated use when considering a 
revision to a designated use. Where states and authorized tribes choose 
to pursue a use change or degradation of high-quality water, EPA 
recommends an expanded multi-step approach to evaluate economic 
impacts. EPA has revised the FCA Guidance to better explain the 
distinction between a WQS variance and a revision to a designated use 
or antidegradation review. EPA also outlines how these recommendations 
relate to the objective of the CWA to ``restore and maintain the 
chemical, physical, and biological integrity of the Nation's waters.''
    Several commentors questioned why Alternative 2 was not recommended 
as a sole basis for supporting WQS decisions. Although financial and 
rate models may provide information on the impact of different rate 
scenarios over time, such information is insufficient to determine if 
required wastewater treatment projects necessary to meet water quality 
standards would result in substantial and widespread economic and 
social impacts. Financial and rate models also do not provide 
information about whether lowering of water quality would be necessary 
to accommodate important economic or social development. Furthermore, 
EPA is not aware of any specific thresholds or benchmarks that could be 
uniformly applicable across all communities to make WQS decisions. 
However, EPA agrees that financial and rate models can be helpful as 
supporting information for WQS decisions. The agency provided 
additional language in the FCA Guidance to better explain its views on 
financial and rate models in WQS decisions.
    The FCA Guidance does not alter EPA's review of changes to water 
quality standards. The CWA specifies that any state or tribal water 
quality standard must be submitted to EPA for review and approval or 
disapproval. 33 U.S.C. 1313(c). Adoption of a WQS variance or revision 
of a designated use is a change to water quality standards. In 
addition, EPA can object to an NPDES permit issued by an authorized 
state or tribe if the permit does not conform to the statute or 
regulations, including the lowering of water quality in high-quality 
waters without an adequate demonstration that such lowering of water 
quality is necessary for important economic or social development in 
the area in which the high-quality waters are located. See, e.g., 33 
U.S.C. 1311(b)(1)(C) and 1342. EPA will continue to evaluate WQS and 
NPDES permits as it has for decades in a transparent manner consistent 
with applicable statutes, regulations, guidance, and long-established 
policies.

IV. Conclusion

    The FCA Guidance outlines strategies for communities to support 
affordable utility rates while making water quality decisions and 
planning investments in water infrastructure that are essential to 
protecting clean water. EPA is committed to ensuring that all Americans 
have access to essential water services and clean water. This guidance 
provides a needed framework that can help achieve that goal for rural, 
suburban, and urban communities across the country. The more detailed 
financial analysis in the FCA Guidance will provide communities and EPA 
a clearer picture of a community's financial capability and strategies 
to protect low-income residents while achieving timely and equitable 
clean water protections. Federal funding initiatives and programs such 
as the Bipartisan Infrastructure Law (BIL), American Rescue Plan Act 
(ARPA), State Revolving Loan Funds (SRFs), Water Infrastructure Finance 
and Innovation Act (WIFIA) and others provide billions of dollars for 
state, local, territorial, and tribal governments. These resources 
create a historic opportunity for municipalities to address long-
standing challenges with shorter compliance schedules, providing water 
quality and public health improvements that deliver important social, 
environmental, and economic benefits to communities. EPA will continue 
to consider each community's financial capability on a holistic case-
by-case basis. Where appropriate, EPA has and will continue to consider 
supplemental information submitted by the community to negotiate 
reasonable and effective schedules for implementation of the CWA 
controls.

Andrew D. Sawyers,
Director, Office of Wastewater Management, Office of Water.
[FR Doc. 2023-02288 Filed 2-2-23; 8:45 am]
BILLING CODE 6560-50-P