EPA Permit Fee Incentive Rulemaking

Meeting # 1

July 13, 2006

Meeting Summary

Meeting Agenda

Introductions (all participants)

Background and EPA Perspective (Jim Hanlon)

Previous Efforts

PART Review

Summary of Current State Permit Fee Programs

Conferencing Tool Orientation (Len Bechtel)

Schedule and Mission (Len Bechtel)

July 13 -- Meeting #1: Planning Parameters/Assumptions

July 26 -- Meeting #2: Review of Potential Options/Propose Alternatives

August 9 -- Meeting #3: Narrowing Options

[EPA to schedule internal option selection]

August 22 -- Meeting #4: Review of Proposed Draft Rule Language

Planning Parameters/Assumptions (all participants)

Examples:

To the extent possible, maintain funding levels for core programs

Tie incentive to elements already in grant allocation formula

Provide lead time for states without fee programs to accomplish actions
necessary to establish such programs (e.g., coordinate with their
legislatures)

Develop an incentive that will provide a benefit, sufficient enough to
surpass any States’ cost-benefit analysis of this rulemaking,
encouraging states to establish or expand fee programs. 

Meeting Participants

NAME	AGENCY/Affiliation	EMAIL

Leonard Bechtel	EPA	Bechtel.Len@epa.gov

Gul Beg	EPA	Beg.Gul@epa.gov

Laura Blake	The Cadmus Group, Inc.	LBlake@cadmusgroup.com

James Blizzard	EPA Office of Congressional & Intergovernmental Relations
blizzard.james@epa.gov 

Elaine Brenner	EPA OWM -  Water Permits Division	Brenner.Elaine@epa.gov

Steve Brown	ECOS	sbrown@sso.org

Brian Cavanaugh	ME DEP	Brian.Cavanaugh@maine.gov

Vince Chavez	Washington State Department of Ecology	vcha461@ecy.wa.gov

Kristen Dunne	ECOS	kdunne@sso.org

Carolyn Gillette	The Cadmus Group, Inc.	CGillette@cadmusgroup.com

Ron Hammerschmidt	Kansas Department of Health and Environment
rhammers@kdhe.state.ks.us

Jim Hanlon	EPA HQ	Hanlon.Jim@epa.gov

Linda Eichmiller	ASIWPCA	l.eichmiller@asiwpca.org

Roger Larson	Wisconsin Department of Natural Resources
Roger.larsor@dnr.state.wi.us

Dennis Lau	Hawaii Department of Health	denis.lau@doh.hawaii.gov

Karl Mueldener	Kansas Department of Health and Environment
kmuelden@kdhe.state.ks.us

Duane Schuettpelz	Wisconsin Department of Natural Resources
duane.schuettpelz@dnr.state.wi.us

Susan Sylvester	Wisconsin Department of Natural Resources
susan.sylvester@dnr.state.wi.us

Mike Tate	Kansas Department of Health and Environment
mtate@kdhe.state.ks.us

Burt Tuxford	Virginia Department of Environmental Quality
brtuxford@deq.virginia.gov

Kyle Winter	Virginia Department of Environmental Quality
kiwinter@deq.virginia.gov

David Bullard	Georgia Department of Natural Resources
David_bullard@mail.dnr.state.ga.us

Robert Moyer	EPA OGC	Moyer.robert@epa.gov

Nizanna Bathersfield	EPA OWM – Water Permits Division
Bathersfield.nizanna@epa.gov



Background and EPA Perspective

Jim Hanlon, Director of EPA’s Office of Wastewater Management (OWM),
initiated the meeting by providing background information detailing
EPA’s motives for pursuing a rule that would assist in
creating/implementing “adequate” State permit fee programs.  EPA
also provided participants with its vision regarding the forthcoming
rule development process, including timelines.  He noted that he
previously provided similar information to representatives from the
Environmental Council of the States (ECOS), Association of State and
Interstate Water Pollution Control Administrators (ASIWPCA), National
Governors Association (NGA), and National Council of State Legislature
(NCSL) during a meeting at EPA in June.  

Hanlon said that EPA’s actions are influenced by the significance of
the language in the President’s FY07 budget directing EPA to develop a
final rule with regard to Section 106 grants that will establish
financial incentives for states that implement adequate NPDES permit fee
programs.  This ’07 budget language results from OMB’s Section 106
PART follow-up action items, one of which was providing additional
resources that could be made available to help support state CWA
implementation, if adequate fees were charged for the issuance of NPDES
permits.

In addition to the June 20th meeting, mentioned above, the rule
development process was also discussed with the ASIWPCA membership
during their March meeting in Washington, D.C.

As an initial step, EPA has reviewed and summarized existing state NPDES
permit fee programs, and determined that at least 42 states now have
some sort of permit fee structure in place.  Fees are charged for a
variety of permit types, including municipal permits, industrial
permits, stormwater discharges, and animal/agricultural permits.  Fees
can be of different types, such as: application; initial one time;
annual; and renewal.  The associated data analysis tried to capture not
only the dollar value of the fees assessed, but also a breakdown of
these fees into the permit types and categories.  

EPA could not collect detailed background information on the genesis of
the fee amounts.  However, based on conversations with several states,
EPA is aware that some states with fee programs have had fees in place
for 10 or more years, but for a variety of reasons have not been able to
increase fees despite increases in state costs of implementing the
program and issuing permits.  

Some permit fee programs are designed to fully fund or capture the cost
of issuing permits, while others are designed to only capture a portion
of the costs incurred.  EPA is aware of the fact that State permit
summary data collected thus far needs to be validated, in order to
ensure the establishment of an accurate State permit fee programmatic
baseline.  

EPA plans to provide a final regulation by December 31, 2006.  

There are a number of issues and questions, as follow below, that the
meeting participants need to consider throughout the establishment of
this rule.  

What is an “adequate” fee program?

What kind of financial incentives should be offered?

How should the financial incentive be structured in terms of size and
dollar value?

Should generated fees be limited?

With a final rulemaking target date of 12/31/06, should the incentive
program be implemented in FY 08, or should there be other implementation
dates to allow states that do not now have adequate fee programs to
develop such programs?

Finally, the intended result of this rulemaking is to provide additional
financial resources to implement the CWA.  Therefore, fees generated
should remain available for States to implement the CWA.  Some states
return permit fee revenue into the general fund and, while that revenue
is returned to the water program for some states, there are other states
that use that revenue to fund other state programs.

EPA’s target is to have a formal proposal ready for publication (to
solicit comment from the states and affected stakeholders) by the end of
August or early September 2006.  This target date will provide for an
adequate comment period and allow EPA reasonable time to consider
submitted comments, in order to publish a final rule by the target date
of 12/31/06.

Rulemaking Schedule and Mission

Mr. Bechtel, OWM’s Director of Planning, Information, & Resources
Management Staff, discussed the timeline for this rule’s development
process.  The plan is to provide a draft rule to states for comment by
early September 2006.  In order to meet this deadline, a total of four
meetings are planned, as follows:  

July 13 -- Meeting #1:  Planning Parameters/Assumptions

The purpose of the July 13 meeting was to seek various perspectives from
the meeting participants regarding the questions that EPA should
consider in the development of options, such as:

What are the important issues?

What are the important mechanical areas that EPA needs to think about?

What are the impacts that EPA should anticipate as they are developing
the options?

This July 13 meeting was a brainstorming session to elevate issues and
perspectives of importance to EPA staff, as they work toward developing
options for consideration.  

July 26 -- Meeting #2:  Review of Potential Options/Propose Alternatives

Between July 13 and July 26, EPA will start the process of formulating
options.  The goal of the July 26 meeting is to discuss the pros/cons of
the various proposed options and identify any suggested alternative
options meeting participants may propose at this meeting.  Before the
July 26 meeting, EPA will distribute the proposed 4-5 options. 

August 9 -- Meeting #3:  Narrowing Options

Between July 26 and August 9, EPA will, if needed, further refine the
options, based on discussions that occurred in the July 26th meeting. 
The August 9 meeting will involve additional discussion of the refined
options, if needed.  However, the primary purpose of the August 9
meeting is for meeting participants to provide EPA with further
clarification on States’ preferences as related to the various
options.

Between the August 9th and 22nd meetings, EPA will brief Agency Senior
Management on the developed/refined options, for purposes of senior
management decision-making, providing EPA with one recommended option to
move forward with.  EPA will then draft a rule, in preparation for the
August 22nd meeting.

August 22 -- Meeting #4:  Review of Proposed Draft Rule Language

At the August 22 meeting, participants will be asked to provide input on
the draft language.

EPA recognizes that this is an aggressive workload and schedule both for
EPA staff and other participants.  EPA appreciates the time and effort
that all participants will provide.  

Development of Planning Parameters/Assumptions (all participants)

EPA tasked the meeting participants with developing planning assumptions
that EPA will use as they develop the various options and alternatives
associated with the rule.    

Mr. Bechtel provided the following examples to help initiate and
facilitate an open exchange of ideas with the meeting participants:

To the extent possible, maintain funding levels for core programs

Tie incentive to elements already in grant allocation formula

Provide lead time for states without fee programs to accomplish actions
necessary to establish programs (e.g., coordinate with their
legislatures)

Develop an incentive that will provide a sufficient benefit to encourage
states to establish or expand fee programs

Ensure fees are flowing back into permit fee programs

State Identification of Perspectives and Issues that EPA Should Consider

State representatives provided the following suggestions for EPA’s
consideration throughout the development of this rule:

Option #1:	Maintain level of funding for core program

Option #2:	Modest increase in funding for core program

Option #3:	Do not touch other core categorical grant programs (e.g., 319
grants) at the expense of this rule

Option #4:	No decline in interest/support for the program

Option #5:	Needs to be fair to all parties (permittees, states, etc.)

Option #6:	Not all states would need exactly the same fee program
structure

Option #7:	Offer programmatic advantages (e.g., streamlining) in
addition to financial incentives

Option #8:	New permit fees should not merely replace current funding

Option #9:	Provide adequate lead time (phase-in period)

Option #10:	 State has option to include existing state expenditures as
equivalent to fee revenue

Option #11:	 Assume state funding, fee funding, and federal funding

Option #12: Do not penalize states that make the effort and fail

Option #13: Do not prescribe set fee determination/financial/collection
structure; give states flexibility

Option #14: Do not create incentive for states to return delegation to
EPA

Option #15: States should not be asked to collect fees if EPA does not
in non-delegated states

Option #16: Credit states for penalty collections

Option #17: Provide funding to help states get fee program up and
running (EPM account? IPA?)

Option #18: Offer customer (permittee) better service as a result of fee
program

Option #19: Strive for both collection and program efficiency

Option #20: Start with core permit types

Option #21: Core -- permitting, compliance, and enforcement (excludes
standards/monitoring)

Option #22: Assure that federal grant level of funding will be sustained

Summary of Discussion & Comments Made During the “Options”
Brainstorming Process

OMB directed EPA to provide an incentive for “adequate” permit fee
programs.  EPA will have to consider what constitutes an “adequate”
permit fee program (i.e., what is meant by “adequate?”).  For
example, is it full cost collections across all types of permits?  What
are the perspectives that the states have on what EPA should consider in
terms of defining “adequate?”

ECOS’ research indicates that states currently supply about 2/3 of the
funding for permit programs through state funds and permit fees (this
ratio is higher in some states and lower in others).  It could be argued
that this is an “adequate” amount?

Does special consideration need to be given for federal facilities? 
This issue was “tabled” for now.

EPA suggested initiating the incentive program 2 years after rule
issuance to give states time to work through the legislative process of
instituting a permit fee program.

Meeting participants stressed that the incentive must be attractive
enough to get legislative action.  How big of an incentive is necessary?
 Given EPA’s budget difficulties, EPA’s financial incentives are not
likely to be adequate enough for state legislatures to take action. 
Aside from financial incentives, what are the true incentives?

Meeting participants questioned the source of the financial incentive. 
Mr.  Bechtel explained that EPA is considering a variety of ways to
achieve a financial incentive, such as setting aside a portion of the
initial Section 106 allocation and allocating it to those states with an
adequate permit fee program.  Participants noted that most states will
likely not endorse a “disincentive” option for this rulemaking. 
Another option would be to designate portions of any future increases in
Section 106 funding for distribution to those states with adequate
permit fee programs.

Hawaii discussed a similar exercise that the State went through in the
mid-1990s.  At that time, the state legislature wanted the Hawaii
Department of Health to develop a permit fee program that would put
sufficient income back into the program to run it.  The Department found
that most of the fees would be paid by municipalities and power plants,
i.e., the largest dischargers.  When the Department presented the
figures to the legislature, the municipalities and power companies
lobbied against the fees and the Department.  Therefore, the Department
established a small equal fee for all permit holders.  Hawaii is also
concerned that if permit fees are collected to operate the program, the
legislature will cut their general fund by the amount generated by
permit fees.

Georgia indicated that their stormwater program does charge some permit
fees, but there are no permit fees for municipal or industrial permits. 
The water department is not sure why this is the case.  The issue is
periodically reviewed with no results.

The basis that many states use for instituting permit fees is that
better service (e.g., faster processing) will be provided to permittees
as a result.

Collecting permit fees partially assists in removing permit programs
from the problems incurred when tax revenues decline, affecting program
funding.  However, Louisiana experienced program funding cuts even
though they were fee funded.  

Another benefit to implementing an adequate permit fee program is the
ability to remove EPA from the permitting process.

Participants stressed that there needs to be a phase-in period for
states without permit fee programs to establish such programs before the
incentive program takes effect.

What is the extent of the support that a fee program would provide?  For
example, do states only need to collect fees to cover the costs of
processing applications?  What about compliance and enforcement?  What
about derivation of water quality standards (WQS), which has a direct
impact on what constitutes a permit – should WQS development also be
supported by permit fee revenues?

Regardless of the final incentive program that EPA develops, it should
not carry a mandate for a specific fee structure.

Mr. Bechtel noted that the overall goals of this rulemaking are to help
states with limited or no fee programs to expand existing fee programs
or implement new fee programs, and to reward states that already have
adequate permit fee programs in place.

Meeting participants inquired about permit fees charged (by EPA) for the
5 non-delegated states.  EPA does not charge permit fees because it
would cost more to run a permit fee program (on account of the limited
number of permittees) than would be collected in fees.

Mr. Bechtel asked meeting participants to consider how states with
limited or no permit fee programs could be encouraged to expand or
implement a fee program.  They commented that EPA may need to create
non-financial incentives, as financial incentives alone may not prompt
states to create an adequate permit fee program.  For those states that
do not yet have a permit fee program, one attractive incentive might be
to offer start-up costs for initiating the program.  Participants
commented that this could work well if the source of funding was a grant
that came out of the EPM account.  This could also be done through an
IPA.

Virginia conducted a permit efficiency study (mandated by the state
general assembly) to investigate the state’s interaction with
permittees over a 5-year cycle, including permitting and inspections. 
The state was required to investigate the development of new categories
of general permits that will ultimately reduce the permit fees being
collected by the state (fees for general permits are $600 every 5 years
as opposed to the thousands of dollars collected for individual
permits).

Water programs might like to see permit fees instituted or increased. 
However, this decision is up to the state legislature, not the water
programs.  Since many permit fees (e.g., municipal or power plants) will
be passed on to the public (i.e., in the form of taxes), state
legislatures may not want to impose increased taxes on the public
(through increased permit fees to permitees).

One idea that most meeting participants generally supported was a grant
to a state to assist them in working with constituencies in their state
to approach the legislature with a consensus opinion about either
increasing or creating a permit fee.  This option does not negatively
affect any of the states and would help those states that would like to
create a permit fee program, but lack necessary funding, begin to take
necessary actions toward developing such a program.

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