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EPW FACT OF THE DAY: Bloomberg Article Highlights Inhofe’s Concerns with New EPA Proposal
March 14, 2007

Posted by Matthew_Dempsey@epw.senate.gov (10:55am ET)
Bloomberg reporter Cindy Skrzycki writes in her article yesterday, Cash-Poor EPA Passes Buck in Water Fee Fight (March 13, 2007), about the Environmental Protection Agency's (EPA) new proposal to make permit holders pay for more of the cost of managing pollutants discharged into the nation's waterways. Skryzycki includes the concerns of interested parties, including those of several US Senators. She cites two letters in her article sent by Senator Inhofe and other Senators:

December 20, 2006 letter to the Office on Management and Budget Director Rob Portman

March 5, 2007 letter to EPA Administrator Stephen Johnson

FACT: EPA’s new proposal would fundamentally alter the way that Section 106 grants flow to the states and penalize those that fail to fund at least 75% of their National Pollutant Discharge Elimination System (NPDES) permit programs through user fees. 

Funding under the Section 106 is used by states to pay for the costs of administering their Clean Water Act programs.   States determine how to use the funds and how to pay for their share of the administrative costs.   Most states charge a fee on permit holders to cover some of the costs of administering the permit.  However, the cost of the fee is entirely determined by the state and in most cases with input from, if not action by, state legislators, themselves sensitive to raising taxes on stakeholders.
 
EPA has proposed a rule to take all 106 funds in excess of FY06's appropriations level ($169 million) and hold it as an incentive for states that raise fees enough to pay for between 75% and 100% of their NPDES programs.  The Administration modeled their proposal after the Clean Air Act in which Congress directed that fees shall be raised to cover the cost of administering Clean Air Act permits. 
 
Senator Inhofe believes this is a decision to be left to the States unless Congress determines, as it did in the Clean Air Act, that fees must be levied. EPA does not have the authority to unilaterally decide it is federal policy that states should tax municipal governments.
 
EPA is correct that there are significant demands for section 106 funding.  They should be commended for attempting to relieve some of the pressure on the account.  Senator Inhofe believes Congress needs to thoroughly examine the funding for this and other clean water programs and determine if there are ways to relieve the administrative burden on states and permittees or create alternative incentives and funding options.
 
Bloomberg
 
Cash-Poor EPA Passes Buck in Water Fee Fight
By Cindy Skrzycki
Tuesday, March 13, 2007; D01

It's hard to find anyone who likes the Environmental Protection Agency' s new proposal to make permit holders pay for more of the cost of managing pollutants discharged into the nation's waterways.

The EPA's goal was to find a stable new funding source for the poetically named National Pollutant Discharge Elimination System, which governs how states grant permits for about 600,000 facilities across the country.

The idea was to set aside a $5 million pot of federal money to share among states that increase the portion of their funding that comes from user fees to at least 75 percent. Only a few states meet that standard.

Farmers, utilities and other business interests, many state water-quality officials and some members of Congress -- including Sen. Hillary Rodham Clinton (D-N.Y.) -- have expressed opposition. In a March 2 comment, Michael Baise, representing the Indiana Farm Bureau's 78,000 members, called an increase in permit fees a tax.

The dispute is one example of the infighting that can take place when a federal agency, strapped by budget constraints, tries to pass the buck, literally, to someone else.

"This rulemaking has been an end-run without meaningful consultation, and it would jack up permit fees without improving program performance," said Paul Noe, a former top aide at the Office of Management and Budget's regulatory review office who now heads a coalition of opponents.

Noe's group, the Coalition Against Permitting Unfunded Mandates, includes state and municipal utilities, water-treatment authorities, state regulators, and agriculture and other trade groups.

The discharge permit program was created under the Clean Water Act as a federal-state partnership. The EPA sent states $169 million for it in fiscal 2006. The states pick up the other two-thirds of the cost through a mix of their revenue and user fees.

The EPA explained in its Jan. 4 proposal that the rulemaking was designed to "shift part of the financial burden to those who benefit" from the permits.

Benjamin H. Grumbles, the EPA's assistant administrator for water, said the rule is meant to encourage the states, "not take anything away" from them. He called user fees "an attractive market-based approach."

State officials complained about the idea in discussions last year, according to a summary of meetings on the agency Web site. Last July, a Hawaii official described how utilities and municipalities, the state's "largest dischargers," lobbied against higher fees, and expressed concern that state legislators would cut the program budget by any amount generated by fees.

The agency is also getting flak over whether it has the authority to make the change and over the process it used. By calling the proposal an amendment to an existing grant program, the EPA said it didn't need to ask Congress to change the law. And it said the change wasn't significant enough to require the usual reviews and analyses that can add layers of scrutiny to rulemaking.

The comment period on the proposal closed March 5. Of the 50 comments received by the agency, none were positive, and some asked the EPA to withdraw the proposal.

"Is there anyone other than EPA supporting this?" said Michael Formica, environmental policy counsel for the National Pork Producers Council, a trade group in the District. Some members of his group apply for permits to cover manure lagoons even though the industry maintains it is "discharge-free."

Some state officials and permit holders said they interpret the proposal as the Bush administration's first step toward withdrawing federal financial support for the program and substituting user fees.

They cite the latest OMB budget documents, which say the EPA will complete the rule this year to provide "financial incentives to States to implement fee programs" for the discharge program. To Linda Eichmiller, executive director of the Association of State and Interstate Water Pollution Control Administrators, a Washington-based group of regulators, "This isn't about incentives but forcing states to adopt fee programs."

Clinton and Sen. James M. Inhofe (R-Okla.) warned the administration in a Dec. 20 letter that the "decision to create a mandatory funding source is one to be made by Congress, not the EPA." Both are members of the Senate committee overseeing the EPA.

Seven other senators joined them last week in a letter to EPA chastising the agency for overstepping its authority.

"EPA would not only be working to micromanage this successfully state-run program, it would also in effect be forcing states to raise costs for millions of consumers by limiting the amount of funding going to a majority of states," Sen. Ron Wyden (D-Ore.) said in a statement.

Business doesn't always oppose user fees -- as long as it gets something back, such as faster processing of permits or expedited drug reviews.

"It's hard for industry to favor user-fee increases if they don't receive any service improvement in return," said Rosario Palmieri, director of energy and resources policy for the National Association of Manufacturers, a trade group in the District.

The effect of new user fees may depend on the size of the business. KeySpan, a natural gas distributor and electricity generator based in Brooklyn, N.Y., already pays $300,000 in permitting fees for six of its plants, according to Steven Dalton, manager of environmental compliance.

For a company with $7.2 billion in revenue, an increase wouldn't be a substantive issue, he said, though the company thinks the fee already is "fairly robust."

On the other hand, Stewart Stone, a quarrying operation in Cushing, Okla., that employs 20 people, pays $1,653 annually for a stormwater permit and has had to apply for an increasing number of state and federal permits over the years.

"The regulations are getting so absurd and costly," said Lee Barrows, Stewart's chief financial officer. "They are going to put the small guy out of business."

Barrows said she doesn't favor any kind of fee increase, especially since the company just had to curtail its operations.

The EPA's Grumbles said the agency would not withdraw the rule, despite the clamor of opposition. It will open another comment period instead.

"We got some very good comments," he said. "We truly welcome more discussion."

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