WIC’s BASIC RECOMMENDATION

I. Scope of Jurisdiction

A. Scope of EPA E.O. 12803 Jurisdiction

1. State explicitly that if the wastewater treatment facility was not wholly or partially Federally funded, the proposed transaction is not subject to EPA review under E.O. 12803 or under EPA’s Construction Grants authority.

2. State that if the proposed transaction is not excluded by #1 and is an asset "lease" or "sale", within the meaning of applicable State law, it is subject to E.O. 12803 review and under EPA’s construction grants authority.

3. EPA’s position is that if the proposed transaction is a management services contract in connection with which a "concession fee" payment the provisions of #2 above are met. [WIC has stated and legally documented the basis for its disagreement with EPA. If EPA does not modify this position, at a minimum the following issues should be clarified specifically in the final EPA guidance.]

(a) If an up front payment to a municipality is made in connection with a management contract, but (i) no legal encumbrance under State law is imposed on the wastewater treatment facility, (ii) satisfactory documentation is delivered to EPA that no such encumbrance can be imposed, and (iii) no municipal debt obligation, within the meaning of State law is created by acceptance of such up front payment, the up front payment should not be deemed a "concession fee".

(b) Provide definition of the parameters of the "concession fee" concept.

(i) What is the basis for deciding how large a management contract-associated payment must be relative to management contract payments to constitute a "concession fee"?

(ii) Is a "concession fee" limited to an "up front" payment to a host community, or does it extend to periodic payments as well?

(iii) If a "concession fee" is payable over time, what discount rate is applied to it to measure its impact under other EPA tests?

(c) If an "up front" payment can be demonstrated to be paid exclusively from the capitalization of guaranteed future operational savings, will it still be characterized as a concession fee?

B. Scope of EPA’s Construction Grants "Federal Interest" Jurisdiction

1. We understand that it is EPA’s position that even if Federal grants to a wastewater treatment facility have been depreciated fully, and no amount remain payable to the Federal government under E.O. 12803, EPA nevertheless has the right to review and approve all transactions related to the facility.

WIC has questioned EPA’s interpretation of Federal interest as extending to review of transactions under circumstances where all federal grant economic interest legally has been extinguished. If EPA does not modify this position, at a minimum the following issues should be clarified specifically in the final EPA Guidance.

(a) Specify all of the specific provisions of the Construction Grants’ regulations which EPA legally is required to enforce subsequent to the full discharge of the Federal interest in such grants pursuant to E.O. 12803.

(b) With respect to each such specific provision of the Construction Grants regulations, specify:

(i) Issues in an E.O. 12803 application to be evaluated

(ii) Whether such issues are to be evaluated solely at the time of a transaction deemed to be jurisdictional or will be reviewed on an on-going basis.^/

WIC’s comments on the application of specific tests which EPA has articulated in the Guidance are discussed separately in Part II below.

(c) Specify whether the information to be provided to EPA in connection with a transaction with respect to EPA’s Construction Grants "Federal Interest" is the same:

(i) whether the transaction is a sale or lease, or a concession payment transaction.

(ii) whether or not the construction grant has been repaid in full previously.

(iii) whether or not the construction grant is repaid in full in connection with the proposed transaction.

II. Documentation of Application Compliance

In order to expedite processing of E.O. 12803 jurisdictional transactions, it is desirable that the manner in which EPA will process Applicant submissions be as clear cut as possible. The following questions relate to provisions with respect to the Application set forth in the draft Guidance:

A. Definition of Application Items

1. If a "concession fee" is paid in connection with a management contract for which competitive bids are not required under State law, is a valuation of the "transfer price" of the facility required as it would be in the case of a sale or lease?^/

(a) What would be the relationship of the proposed concession fee to the proposed asset valuation?

(b) By whom is such valuation to be performed?

(c) Should it be submitted to EPA or to OMB?

2. The Application form contains a series of criteria for future asset use, which are to be factually described.in the Application. These include requirements of showings that the Applicant municipality:

• assure that the infrastructure asset will continue to be used for its originally intended purpose,

• will remain in compliance with permits and enforcement programs (NPDES, RCRA permits and CWA regulations),

• make arrangements for permit transfer and their continued preservation,

• arrange for new construction,

• will comply with any consent decrees,

• select a private owner or lessee,

• comply with any required Federal – State coordination programs,

• secure and maintain all regulatory approvals.

NOTE: WIC submits that these items are matters which applicant municipalities and the private parties with which they are entering transactions deemed jurisdictional under E.O. 12803 must have obtained firm satisfaction prior to application submission to EPA. Expedited processing of applications without damage to the public interest could be obtained if EPA’s procedures took this fact into account. WIC recommends that EPA should consider how to verify a completed factual application, developed per EPA requirements, in order to expedite transaction applications.

(a) Will EPA accept a certificate by an Applicant (and/or its counsel) on these matters?

(b) Will EPA accept an opinion of an independent counsel, cf. bond counsel, mutually selected by the parties to opine on these matters?

(c) Will EPA accept defined time limits for Application review, subject to extension upon an EPA finding of fraud, gross factual misrepresentation or specifically identified unaddressed factual issues?

3. Financial Requirements

NOTE: WIC submits that the following clarifications of financial requirements are appropriate under applicable statutory and legislative guidance:

(a) The use of transfer price proceeds relates only to locally retained amounts after application of payments to State, local and Federal grantors in accordance with E.O. 12803. Federal information inquiries should be delimited accordingly.

(b) The nature of public participation/disclosure of such transfer proceeds use which EPA considers appropriate should be specified.

(c) The criteria for application of amounts received by municipalities in EPA jurisdictional transactions should be specifically enumerated.

(d) All of the foregoing should be done in such a form and in such detail that EPA can accept the certification of a municipality (perhaps in conjunction with an independent counsel) that its Application complies with those Federal criteria.

4. Rate Protection Requirements

EPA has suggested in its draft requirements, as augmented in its discussions with WIC, that (a) federal interest ratepayer protection should be subject to what WIC terms a "rate impact test" (comparing any upward rate change caused by a concession fee to median household income of affected ratepayers and a "rate comparison test" (comparing rate impact with and without the payments made in a jurisdictional transaction). EPA also has linked this requirement to its "public participation" requirements, i.e. EPA has indicated in the draft guidance as supplemented by its conversations with WIC, that different levels of public participation will be Required to be demonstrated depending upon its interpretation of the rate impact test and the rate comparison test. WIC takes significant issue with this approach as a misconstruction of the intent of the construction grant and E.O. 12803 provisions related to rates (particularly under circumstances where the grants already have been paid off).

WIC’s specific recommendations for any application of EPA’s proposed approach to make application processing more expeditious are as follows:

(a) In relationship to the Construction Grant E.O. 12803 provisions related to demonstration of equitable treatment of all user classes ("equitable treatment standard"), EPA should:

(i) clarify the continued application, if any, of the equitable treatment standard to jurisdictional transactions;

(ii) clarify the relationship of the statutory standard to the rate impact and comparison tests now being proposed in the Draft Guidance;

(iii) indicate whether the rate impact and comparison standards will be applied only at the time of jurisdictional transactions, or will now constitute and be monitored as on-going responsibilities of EPA on all wastewater facilities as to which EPA deems the Federal Interest to persist.

(b) With respect to the proposed "rate impact test, EPA has suggested that it will consider that if the range of rate impact is 1-2% (relative to ratepayer median income), a gray area as to affordability will have been reached, and EPA may – through unspecified procedures – impose greater public participation requirements. EPA has further suggested that it will specify what constitutes sufficient public participation.

To avoid delay in processing applications, WIC believes it is imperative that EPA provide greater clarity in the manner in which the standards that will be applied with respect to the rate impact test. Specific recommendations are as follows:

(i) Applicant municipalities' submissions of certified calculation of the rate impact test and documentation of "public participation" in the process should be deemed controlling by EPA absent fraud, gross misrepresentation, or review of specified items deemed critical from a policy standpoint. Within 15 days after receipt of the Application, if EPA either disagrees with the calculations or, for specific cause stated, believes additional public participation (of specified types) is required, it should be required to notify the municipal applicant.

(ii) The final Guidance should define specifically what activities shall constitute the elements of different levels of public participation which correspond to the levels of rate impact which EPA has established in the rate impact test.

(c) EPA’s complementary "rate comparison" test (relative to rates resulting in a transaction where there has been no A.3 concession payment) does not, WIC submits, comply with the literal terms of E.O. 12803. Even if, EPA’s assertion that concession payments are the equivalent of lease payments, E.O. 12803 nevertheless would permit a recipient municipality to apply the proceeds not to wastewater rate reduction, but to tax reduction or other infrastructure purposes.

(d) If the "rate reduction" test is to be applied in concession fee contexts by EPA, there are several respects in which the draft Guidance should provide it with greater precision, including the following:

(i) a defined test (e.g. percent increase in rates relative to median income or percent of rate differential relative to the non-concession fee case) for mandating greater public participation);

(ii) application of procedures similar to those set forth in paragraph 4(b)(i) of this memorandum.

5. Compliance with Federal Grant Use

The draft Guidelines contain general guidance as to requirements for compliance with Federal grant use, which generally may be grouped as follows:

• Public notice has, or will be given, and that public hearings have, or will be held, in accordance to applicable federal, state or local requirements,

• All personnel issues subject to Federal requirements, including labor-management and employee governance addressed in accordance with applicable Federal law,

• The private entity in the public-private partnership will comply with all other applicable Federal laws to which the host government otherwise would have been subject.

WIC believes that the scope of and procedure for processing these items should be specified, so that they do not become time consuming items. WIC recommendations are as follows:

(a) Clarification of public notice and hearing requirements should be coordinated in the Draft Guidance with those notice requirements related to the ratemaking.

(b) Procedures for Applicant compliance should be simplified in a manner to parallel those requirements. Specific recommendations with respect to each of the categories identified above are as follows:

(i) Compliance with public notice requirements should be subject to certification by the Applicant, relative to a specific checklist furnished by EPA;

(ii) Any applicable Federal labor and related issues requiring response should be itemized in the Guidance. Compliance should be subject to (A) municipal certification (in reliance on an independent counsel); or (B) EPA review and acceptance of an opinion submitted by Applicant’s counsel.

(iii) Private compliance with Federal laws should be evidenced by an opinion of private participant counsel, subject to Government review for completeness.

(c) Procedures for delegation to the States (and/or EPA Regions) of Application processing should be made explicit.

Conclusion

WIC believes that an increasing number of communities wish to fulfill their environmental obligations through public-private partnerships. EPA should not devise the Guidance or interpret it so as to have a chilling effect on the ability of the private sector to assist municipalities in meeting the growing needs requirements of the nation. WIC believes that its comments and inquiries address these needs in a manner which balances appropriately EPA statutory authority and its overall on-going mission.