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Feb 23 -- The U.S. Environmental Protection Agency (EPA) has issued its Proposed 2022 Clean Water Act (CWA) Financial Capability Assessment (FCA) Guidance for public comment by April 25, 2022. The proposed guidance outlines strategies for communities to support affordable utility rates while planning investments in water infrastructure that are essential for CWA implementation.

When municipal discharges cause violations of the Clean Water Act (CWA), EPA sets a schedule for the municipality to address them as soon as possible. When developing schedules to implement the control measures, EPA considers factors such as public health, environmental protection, and a community's financial capability. The Proposed 2022 Financial Capability Assessment (FCA) Guidance describes the financial information and formulas the Agency intends to use to assess the financial resources a community has available to implement control measures. The Proposed 2022 FCA directly incorporates relevant portions of the 1997 Combined Sewer Overflows—Guidance for Financial Capability Assessment and Schedule Development (1997 FCA Guidance) and EPA's 2014 Financial Capability Assessment Framework for Municipal Clean Water Act Requirements (2014 FCA Framework) as Appendices.
Once finalized, EPA intends for the Proposed 2022 FCA to replace the 1997 FCA Guidance to evaluate a community's capability to fund CWA control measures in both the permitting and enforcement context. Additionally, EPA intends Section IV.g of the 2022 FCA to assist states and authorized tribes in the consideration of economic impacts to public entities for supporting revisions to designated uses, water quality standard (WQS) variances, and antidegradation reviews for high quality waters. The Proposed 2022 FCA reflects EPA's consideration of public comments received in response to its September 18, 2020 Federal Register publication. The contents of this guidance document do not have the force and effect of law and are not meant to bind the public in any way. This document is intended only to provide clarity to the public regarding existing requirements under the law or agency policies.
The Proposed 2022 FCA advances the ability of communities to more thoroughly demonstrate the financial impacts they face and increases the transparency of EPA's considerations as it endeavors to consistently apply FCA methodologies across the country. The Proposed 2022 FCA allows communities to submit more consistent and comprehensive information relevant to the entire community's capability to fund CWA control measures and programs. Specifically, the Proposed 2022 FCA includes templates and calculations that communities can use to submit information regarding lowest quintile income (LQI), drinking water costs, financial models or studies, and other relevant information. The templates and calculations include references to publicly available data sources that can be used in compiling this information.
The Proposed 2022 FCA sets forth two alternative approaches for assessing a community's financial capability to carry out CWA control measures. The first alternative is the existing 1997 FCA methodology with expanded consideration of lowest quintile income and poverty in the service area. The second alternative is the development of a dynamic financial and rate model that looks at the impacts of rate increases over time on utility customers. Additionally, EPA recommends the application of the methodologies from Alternative 1 of the Proposed 2022 FCA to the consideration of economic impacts to public entities when making decisions on WQS variances and antidegradation reviews. In appropriate cases, these methodologies also inform decisions about revisions to designated uses, subject to additional analyses.

EPA is proposing to base its FCA metrics on data that is available in the American Community Survey (ACS). The ACS is conducted every year by the U.S. Census Bureau to provide up-to-date information about the social and economic conditions of communities. The annual updates include key socio-demographic information at an appropriate geographic scale with historic continuity. The ACS can produce data showing the quintiles of household income (each quintile defines the household income range for 20% of a community's households).

The 2022 Proposed FCA strengthens both CWA protections and water service affordability protections. For the first time, EPA may ask municipalities negotiating compliance schedules and certain WQS revisions to affirmatively demonstrate actions to reduce or mitigate the financial impact of water service costs on the lowest quintile households and to achieve compliance as expeditiously as possible.
The three major changes from the Proposed 2020 FCA are:

1. Consideration of Lowest Quintile Households and Poverty Indicators
2. Addition of Financial Alternatives Analysis
3. Modification of Scheduling Benchmarks

EPA requests public comment on the Proposed 2022 FCA. Specifically, EPA is requesting comment on the following:

1. Should the Final 2022 FCA incorporate a single new metric—LQPI—that considers lowest quintile income and poverty elements together? Or should the Final 2022 FCA incorporate two new metrics (a lowest quintile income indicator and a poverty indicator) to be calculated separately and combined in a matrix?

2. EPA is seeking additional examples or case studies of funding and financing considerations to add to Appendix C.

3. EPA is seeking feedback on the current proposed scheduling benchmarks of 20 years for “high” Expanded FCA Matrix impacts, or 25 years for unusually high impacts. If commentors propose different benchmarks, EPA is requesting examples to support the basis for such benchmarks.
FR notice inviting comment: https://www.federalregister.gov/d/2022-03738
For more information about the Proposed 2022 FCA, visit:

EPA press release (2/16): https://www.epa.gov/newsreleases/epa-proposes-guidance-support-water-affordability-and-clean-water-act-implementation

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