EPA Permit Fee Incentive Program Rulemaking

State/EPA  Meeting # 3

August 22, 2006

Meeting Summary

Meeting Agenda

Review Meeting Minutes from July 26th

Discussion on Likely Parameters for Option Development

General Discussion and Questions

Identification of Next Steps

meeting Participants

NAME	AGENCY/AFFILIATION	EMAIL

Leonard Bechtel	EPA Office of Wastewater Management	bechtel.len@epa.gov

Gul Beg	EPA Office of Wastewater Management	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

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

William Creal	Michigan Department of Environmental Quality
crealw@michigan.gov

Linda Eichmiller	ASIWPCA	l.eichmiller@asiwpca.org

Lena Ferris	EPA Office of Wastewater Management	ferris.lena@epa.gov

Bonnie Lovelace	Montana Department of Environmental Protection
blovelace@mt.gov

Chuck Corell	Iowa Department of Natural Resources
chuck.corell@dnr.state.ia.us

Kristen Dunne	ECOS	kdunne@sso.org

Andrew Fisk	ME DEP	andrew.fisk@maine.gov

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

Terry Griffith	EPA Region 8	griffith.terry@epa.gov

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

Mel Langdon	Alaska Department of Environmental Conservation
mel_langdon@dec.state.ak.us



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

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

Sharon Morgan	Alaska Department of Environmental Conservation
sharon_morgan@dec.state.ak.us

Bev Poston	Washington State Department of Ecology	bpos461@ecy.wa.gov

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

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

Melissa Porterfield	Virginia Department of Environmental Quality
msporterfield@deq.virginia.gov



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



Review Meeting Minutes from July 26th

Mr. Len Bechtel, Director of EPA Office of Wastewater Management’s
(OWM) Planning, Information, and Resources Management Staff (PIRMS),
asked the meeting participants for corrections or additions to meeting
summary #2 before its finalization in the formal record of this
rulemaking initiative.  One change was proposed, which was to correct
the spelling of a particular participant’s name.  Meeting participants
should e-mail Mr. Bechtel with any additional comments they may have on
the second meeting summary.  All meeting summaries will be included in
the docket when EPA publishes the draft NPDES Permit Fee Incentive Rule.

Discussion on Likely Parameters for Option Development

Mr. Bechtel provided an update on progress since the last meeting.  EPA
has spent a significant amount of time developing materials to inform
EPA management of items discussed during the first two meetings.  Mr.
Bechtel confirmed that he and his staff have received direction from EPA
management to proceed with developing the rule.  EPA still intends to
finalize the rule by December 31, 2006.  However, EPA realizes that
additional negotiations may need to take place as feedback is received
from OMB and through the comment period.  Any direction regarding a
deadline date that is provided by the appropriations committee, in the
final appropriation bill language, may also impact the timeline.

EPA anticipates a significant amount of discussion between OMB and the
Agency once OMB receives the draft rule.  EPA continues to feel strongly
about allowing at least 60 days for the open comment period for the
proposed rule.  When the proposed rule is released, EPA may also include
language in the Federal Register notice that summarizes the options that
EPA decided not to pursue and associated justifications.  EPA wants the
final option to be as practical as possible; input from states and the
regulated community is critical to achieving this.

Since the last meeting, ASIWPCA held its annual meeting (in New
Orleans), where the permit fee incentive program was discussed.  Mr. Ben
Grumbles, the Assistant Administrator of EPA’s Office of Water, was a
featured speaker at the meeting.  In response to a question about the
permit fee incentive program, Mr. Grumbles commented that the outlook
for an increase in Section 106 Program funding, at least in the near
term, is not good.  Mr. Grumbles also recognized that many of the states
are experiencing similar budgetary problems.  Further, he recognized
that significant work remains in the area of water quality, and that
current resources need to be supplemented either by identifying program
efficiencies and/or new revenue sources. 

Mr. Grumbles considers the permit fee incentive program to be one among
a number of actions that EPA will take in the next several years to
produce alternate funding mechanisms and encourage program efficiencies.
 Mr. Grumbles feels strongly about moving forward with the incentive
program because of the program’s potential to help at least some
states who are looking to establish permit fees or raise current fees;
he believes it to be EPA’s obligation to try to create an environment
in which states can be successful in creating permit fee programs.

At the ASIWPCA meeting, Mr. Grumbles also announced that Mr. Michael
Dean had been hired by the OW Immediate Office to help promote new ways
of approaching infrastructure financing and other services.  Mr. Dean
will be working closely with the Office of Ground Water and Drinking
Water and the Office of Wastewater Management to develop options for
raising revenue and increasing efficiency.  The permit fee incentive
program should not be seen as an isolated requirement mandated by the
federal government.  Rather, it is the first among many steps EPA hopes
to take to help create an environment in which EPA and states have the
resources to execute water quality activities.

Mr. Grumbles has provided some direction on which permit fee incentive
options (discussed during the previous meeting) OWM should consider when
developing the draft rule.  EPA is currently refining the options based
on the parameters received from Mr. Grumbles.  For example, Mr. Grumbles
requested that the amount of funding in play for the incentive be
between 3% and 5% of the total Section 106 allocation, depending on the
final allocation.  Additionally, there will likely be a fairly high
threshold for the definition of “adequate” (in terms of adequate fee
programs), at least in the long-term.  EPA is still debating whether to
start with a low threshold and build up, but it is likely that the
threshold will be fairly high (i.e., permit fees collected will need to
be at least 50% of total permitting, compliance, and enforcement costs).

Mr. Grumbles is also very sympathetic to the notion of preserving the
base Section 106 program funding and understands the importance of
providing a stable source of revenue for state water quality programs.

EPA is currently using Mr. Grumbles’ guidance to prepare required
provisions in the rule and refine several of the options.  Mr. Grumbles
will select one final option for the proposed rule; however, the Federal
Register notice on the draft rule will likely include discussion of at
least one other option considered by OWM for comment purposes.

While progress is being made, EPA does anticipate some delay once the
draft rule language is delivered to OMB.  There is a possibility that
the December 31, 2006 target will not be met, but EPA is still moving
ahead with this as the intended deadline.  Mr. Bechtel and his staff
anticipate getting an options paper to Mr. Grumbles by next week.  After
receiving his feedback, the draft rule will undergo an internal review,
which will take several weeks, before delivery to OMB in mid-September.

Mr. Grumbles will be attending the upcoming ECOS meeting and will
address the permit fee rule at that meeting.  This is another
opportunity for states to share their perspective with him.

General Discussion and Questions

A state representative asked for clarification on the source of the 3-5%
that will be provided for the incentive.  Mr. Bechtel responded that the
3-5% represents funds that will be taken off of the total state Section
106 base allocation.  These incentive funds will then be made available
to states with “adequate” fee programs.  EPA is still determining
how the incentive funds would be allocated to eligible states.  Using
another source of funding (beyond STAG) and adding it to Section 106 (as
an incentive) is not an option.

Another state participant inquired about the possibility of using a
sliding scale for distributing the incentives, where states with X% of
their program supported by fees would be eligible for $X, states with Y%
of their program supported by fees would get additional dollars, etc. 
EPA indicated that this is an additional option under consideration and
they are trying to determine the best way to create an incentive for
states in which over 50% of program costs are covered by fees.  One
option under consideration is to make each state eligible for up to 10
shares.  A state would receive 1 share if their fees cover 25% of total
costs; states with fees covering 50% of total costs would receive 2
additional shares; states covering 75% of costs would receive 3
additional shares; and states with 100% would receive 4 additional
shares (for a maximum of 10 shares).  The total shares of all states
would be divided into the total incentive pool and each share would be
worth a certain amount of money.  A state’s allotment would be
calculated by multiplying the number of shares they hold by the value of
one share.  Again, this is just one approach still under consideration,
and a final option selection has not been made.

A state participant also asked if this rule would result in a change in
the allocation formula, introducing the criteria of the amount of fee
money a state uses for their NPDES program.  EPA replied affirmatively
that the portion of the allocation that deals with point sources will
likely be modified.

ASIWPCA requested clarification about whether or not the formula itself
is being changed through this process.  EPA clarified that the rule will
propose that funds be taken from the total base allocation.  The current
formula will remain intact and will be run following the removal of the
incentive funds.

ASIWPCA also asked EPA to comment on rumors that the ICCs will no longer
be receiving Section 106 funding.  Mr. Bechtel responded that he could
neither confirm nor deny the rumor, as he had not heard of any
discussions related to cutting off Section 106 funding for ICCs. 

A state representative inquired as to whether EPA is planning to
introduce similar programs that will affect Section 106 allocations. 
Mr. Bechtel is not aware of any programs currently being planned, but as
EPA manages its programs with a greater focus on results, similar
actions may be executed across a number of functions.

A state representative asked EPA if they had received additional
clarification from OMB as to their intentions for Section 106 in
general.  Is the permit fee incentive program the first step in cutting
Section 106 funding all together?  Mr. Bechtel replied that OMB has
never indicated to EPA that they intend to eliminate Section 106
funding; rather, OMB’s intent is to create new revenue streams.

ECOS requested that the meeting minutes reflect that ECOS’
participation in these calls does not reflect ECOS’ endorsement of the
results of the calls.  Mr. Bechtel noted that he appreciated all
participants’ involvement and input; EPA hopes that the decisions the
Agency makes are better informed due to this input, even though they may
not necessarily reflect all input received.

A state participant asked whether EPA would still be considering the
incentive rule if the authorizing language for the rule went away or
never existed.  Mr. Bechtel indicated that he thinks it’s likely that
EPA would still consider such a program since it was a recommendation in
the PART review and it has the support of the Assistant Administrator.
Mr. Grumbles views this as a tool for helping states to establish
adequate permit fee programs.  ASIWPCA replied that this assumption
still must be validated in the real world.

A state participant complimented EPA’s effort to put together
background information and data.  Mr. Bechtel mentioned the importance
of all the meeting participants, especially in making EPA aware of the
potentially adverse impacts of this rulemaking on states.

ASIWPCA asked about the possibility of being able to suggest another
option during the comment period for the proposed rulemaking.  Ms. Lena
Ferris mentioned that the rule will include the preferred
recommendation, as well as options that were considered but not selected
(and reasons why they were not selected).  Based on comments received on
the draft rule during the formal comment period, EPA may select another
option or a modified version of it.  If an entirely new option is
presented in a public comment, the Agency would consider it; however,
they would have to re-propose the rule again before it could be
finalized.

A state representative expressed concerns that the proposed
“incentive” is more like a penalty.  A 3-5% increase in the overall
Section 106 allocation that is allotted to states with adequate permit
free programs would be considered an incentive (as opposed to taking
3-5% off of the current base). 

EPA predicts that any increases in future Section 106 funding will not
be for general programs, but will be directed to a specific activity,
such as permitting, monitoring, CAFOs, etc.  The Agency’s move towards
“managing for results” and allocating funding to specific tasks,
such as the monitoring set-aside, is intended to demonstrate measurable
results and progress.  EPA believes that this will strengthen their
requests for future increases in Section 106 (or other) funding.

ECOS requested to be on record as opposing the set-asides, which ECOS
considers to be unilateral EPA actions that are not done in consultation
with EPA’s partners.  ECOS understands that EPA’s priorities may lie
in demonstrating results to Congress, but would prefer that EPA
negotiate these actions with its State partners.

A state representative inquired about whether the core program elements
will be identified in the Federal Register notice.  EPA responded that
it will include a list of the minimum activities that are defined under
permitting, enforcement, and compliance.  EPA is not going to put strict
restrictions on the use of permit fee revenue.  There may be some
language in the rule that prohibits states from replacing their own
appropriations (for water quality programs) with the collected fees.

A state representative asked whether EPA had conducted an economical
analysis of the different options and the costs to EPA of administering
the programs, and whether EPA compared the different options with regard
to the expected change in behavior on the part of the states and the
legislatures once they are required to raise permit fees.  Mr. Bechtel
responded that EPA had not done so.   EPA indicated that the timeframe
under which they are operating allowed only limited analyses.  The state
representative expressed concern that this rulemaking could result in
unintended consequences, such as cuts in state funding to water
programs.

A state representative mentioned the possibility of states choosing to
return NPDES programs back to EPA if this rule becomes too burdensome or
Section 106 budgets are cut (as even a 3-5% cut could result in a loss
of 1-2 FTEs).  Has consideration been given to the potential cost to EPA
of having to assume responsibility for additional NPDES permit programs?

A state representative suggested that EPA give serious consideration to
offering non-monetary incentives, especially for states that already
have an adequate fee program.  These states could potentially lose
Section 106 funding (i.e., from the overall 3-5% cut from the total),
but may receive nothing in return.  This bolsters the case for offering
more than just monetary incentives (e.g., elimination of certain
reporting requirements).  For example, the 305(b) reports are a major
burden on the states.  An attractive offer could be to offer states an
opportunity to submit their 305(b) reports every 4 years instead of
every 2 years.  This would also free up state resources for other, more
pressing priorities.

Identification of Next Steps

Mr. Bechtel expressed his appreciation to all meeting participants for
the input they have provided.  While some participants may not have
agreed on all issues discussed or proposed, EPA’s decisions will
benefit greatly from these discussions.

EPA will keep all meeting participants informed about the process, as
soon as EPA has dates to work with, so that all participants are
prepared to review and respond to the draft rule and inform other
states.  EPA believes that the input received during the comment period
for this rule will be critical to the implementation of the final rule.

At this time, there are no definite plans for another meeting.  As EPA
begins moving forward with the rule, EPA may request an ad hoc meeting
for additional input.

 PAGE   

 PAGE   5 

