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February 01, 2013
Community financial capability under CWA

State, city, and town officials who must produce the capital needed to undertake costly wastewater and stormwater projects to meet their obligations under the Clean Water Act (CWA) will find some consolation in Financial Capability Framework, a guidance memo recently released by EPA’s Office of Water.  Essentially, the framework provides direction to EPA regional offices on how to factor a community’s financial capability into the development of compliance schedules. 

“As programs to improve water quality and attain CWA objectives are implemented, many state and local government partners find themselves facing difficult economic challenges,” the EPA says.  “It is essential that long-term approaches to meeting CWA objectives are sustainable and within a community’s financial capability.”

Maintaining existing systems

The Agency notes that financial capability assessments are based on existing guidance (e.g., Combined Sewer Overflows:  Guidance for Financial Capability Assessment and Schedule Development).  However, communities have requested that the EPA provide further clarification on how financial capability is considered when developing schedules for municipal projects intended to bring those communities into compliance with statutory requirements.

The framework emphasizes that the CWA and EPA regulations and policies “allow local government to continue to maintain existing wastewater and stormwater systems while making progress on clean water goals in a manner that is sustainable and within a community’s financial capability.”

Rate adjustments

One issue of concern to communities involves their ability to adjust rates for low-income households while still being able to receive grant funding from the Agency.  The Agency responds that local officials have a great deal of latitude to adopt rate structures that ensure that lower income households continue to be able to afford vital wastewater services; however, it is important that the community validate adjusted rate structures.  The framework states:
“Where communities have adopted differential rates for low income customers, the income distribution that led to that approach may be valuable supplemental information that the community would choose to present as part of its financial analysis when determining the appropriate time frame for reaching compliance.  Examples of information that have been used in this context include poverty rates, income distribution by quintile, late payments, disconnection notices, service terminations, uncollectable accounts and average wastewater bill as a percentage of the median household income (MHI), although any information that the community believes is relevant may be presented.”

Other assessment topics

According to the framework, the EPA and representatives of local governments will continue a dialog on how a community’s financial capability is assessed.  In addition to approaches to rate adjustments, topics in these discussions will include:

  • How to meet CWA obligations 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
  • How other community-specific factors, including obligations under the Safe Drinking Water Act, should be considered in developing appropriate compliance schedules

The Office of Water states that it intends to develop a draft approach that elaborates on items listed in the framework.

The National League of Cities, the Water Environment Federation, and other organizations that support the work of communities in achieving clean water issued statements welcoming both the framework and EPA’s stated intention to build on it.

Click here for the framework.

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