NLC Applauds EPA Memorandum Assessing Local Government Financial Capability

January 18, 2013

By Carolyn Berndt

Last week, in a memorandum to the Regional Offices, the U.S. Environmental Protection Agency (EPA) announced a new dialogue with local governments to clarify how the financial capability of a community will be considered when developing schedules for municipal projects necessary to meet Clean Water Act (CWA) obligations.

The memorandum, "Assessing Financial Capability for Municipal Clean Water Act Requirements" is the result of numerous conversations with and input from communities across the country on the fiscal impact that regulatory compliance has on communities.

"We thank EPA for not only recognizing the vital role that all cities play in protecting our nation's water resources, but for realizing that as local governments continue to recover from the economic crisis, there are serious fiscal implications of regulatory compliance on our communities, our constituents and our taxpayers," said Mayor Ralph Becker of Salt Lake City and Second Vice President of the National League of Cities in a statement. "We look forward to engaging in this important dialogue with EPA on the affordability and expediency of bringing clean and safe water to our cities and towns."

The memo states that the 2 percent of median household income (MHI) indicator is just "one of many considerations that should be evaluated in determining the most appropriate [compliance] schedule. EPA expects that the full range of financial indicators as well as municipal-specific information will be considered when developing schedules." The memo seeks to ensure consistent implementation among the EPA Regions on this issue.

Becker raised this issue of affordability in congressional testimony last year, stating, "EPA guidance identifies 2 percent of median household income as the threshold for determining the affordability of rate or tax increases required to meet a regulatory requirement. This figure, however, often does not provide an accurate indicator of what all citizens across the economic spectrum of a community can afford. Therefore, we recommend and request that EPA consider the relative cost impact of meeting regulatory requirements on customers at the lower end of economic scale, where there simply is no discretionary income to absorb 50 to 200 percent utility rate increases."

In addition to examining the use of the MHI, over the course of the year EPA and local government representatives will discuss:

• How to expand the use of benchmark indicators of household, community and utility affordability, such as increasing arrearages, late payments, disconnection notices, service termination, and uncollected accounts;
• How to meet the obligation of the CWA by utilizing flexibilities in the statute and implementing regulations to prioritize necessary investments;
• How rate structures present both limitations and opportunities;
• How innovative financing tools, including public private partnerships, are related to affordability;
• How to facilitate consistent policy implementation at EPA Regional offices; and
• How other community specific factors, including obligations under the Safe Drinking Water Act, should be considered in developing appropriate compliance schedules.

This dialogue on community affordability builds upon the EPA Integrated Municipal Stormwater and Wastewater Planning Approach Framework (June 2012), which allows for an integrated planning approach to help local governments meet those requirements in an efficient and cost effective manner through sequencing and scheduling of projects.