August 4, 1993
MEMORANDUM
SUBJECT: Reissuance of Guidance on Agency Review of State Fee
Schedules for Operating Permits Programs Under Title V
FROM: John S. Seitz, Director /s/
Office of Air Quality Planning and Standards (MD-10)
TO: Air Division Director, Regions I-X
On December 18, 1992, I issued a memorandum designed to
provide initial guidance on the Environmental Protection Agency's
(EPA's) approach to reviewing State fee schedules for operating
permits programs under title V of the Clean Air Act (Act).
Today's memorandum updates, clarifies, revises, and replaces the
earlier memorandum.
Section 502(b)(3) of the Act requires that each State
collect fees sufficient to cover all reasonable direct and
indirect costs required to develop and administer its title V
permits program. [As used herein, the term "State" includes
local agencies.] The final part 70 regulation contains a list of
activities discussed in the July 21, 1992 preamble to the final
rule (57 FR 32250) which must be funded by permit fees. This
memorandum and its attachment provide further guidance on how EPA
interprets that list of activities, as well as the procedure for
demonstrating that fee revenues are adequate to support the
program.
The memorandum and attachment set forth the principles which
will generally guide our review of fee submittals. The EPA
believes that these positions are consistent with the preamble
and final rule and are useful in explaining the broad language in
the promulgation, but in no way supplant the promulgation itself.
In evaluating State program submittals, EPA will make judgments
based on the particular design and attributes of the State
program, as well as the requirements of section 70.9 of part 70.
The policies set out in this memorandum and attachment are
intended solely as guidance, do not represent final Agency
action, and cannot be relied upon to create any rights
enforceable by any party.
Several substantive revisions to the earlier guidance that
are reflected in this document deserve special mention. First,
with respect to activities which relate to provisions of the Act
in addition to title V, the revisions clarify that the cost of
those activities would be permit program costs only to the extent
the activities are necessary for part 70 purposes. For example,
this qualification would apply to activities undertaken pursuant
to sections 110, 111, and 112 of the Act. In determining which
of the activities normally associated with State Implementation
Plan (SIP) development are to be funded by permit fees, for
instance, States should include those activities to the extent
they are necessary for the issuance and implementation of part 70
permits. Accordingly, if a SIP provision requires that a State
perform or review a modeling demonstration of a source's impact
on ambient air quality as part of the permit application process,
the State's costs which arise from the modeling demonstration
(which are ordinarily not permit program costs) must be covered
by permit fees.
Second, the revisions provide that case-by-case maximum
achievable control technology determinations for modified/
constructed and reconstructed major toxic sources under
section 112(g) of the Act are considered permit program costs,
even if the determination preceded the issuance of the part 70
permit. This position is consistent with the Agency's guidance
on Title V Program Approval Criteria for Section 112 Activities
(issued April 13, 1993). In that guidance, EPA explained that in
order to obtain approval of their title V permit programs, States
must take responsibility for implementing all applicable
requirements of section 112, including section 112(g), to fulfill
their broader obligation to issue title V permits which
incorporate all applicable requirements of the Act. For this
reason, these section 112 activities are appropriately viewed as
permit program costs and thus funded with permit fees.
Third, the revisions clarify in section II.L that
enforcement costs incurred prior to the filing of an
administrative or judicial complaint are considered permit
program costs, including the issuance of notices, findings, and
letters of violation, as well as development and referral to
prosecutorial agencies of enforcement cases. This approach is
based on legislative history which indicates that Congress viewed
the filing of complaints as the beginning of enforcement actions
for purposes of the statutory provision that excludes "court
costs or other costs associated with any enforcement action" from
the costs to be recovered through permit fees.
Fourth, the revisions take a different approach to
"State-only" requirements which are part of the title V permit by
concluding that part 70 does not require that permit fees cover
the costs of implementing and enforcing such conditions, since
the rule requires that States designate these requirements as not
federally enforceable.
Fifth, the attachment modifies the discussion of the extent
to which title V fees must fund the costs of permit programs
under provisions of the Act other than title V. After carefully
considering section 110(a)(2)(L) (which requires that every major
source covered by a permit program required under the Act pay a
fee to fund the permit program), as it relates to section
502(b)(3) in general, and section 502(b)(3)(A)(ii) in particular,
EPA has concluded that title V fees must cover the costs of
implementing and enforcing not only title V permits but of any
other permits required under the Act, regardless of when issued.
This result makes sense, since the title V permit will
incorporate the terms of other permits required under the Act so
that enforcing title V permits will have the effect of
implementing and enforcing those permit requirements as well.
However, the costs of reviewing and acting on applications for
permits required under Act provisions other than title V need not
be recouped by title V fees. In conclusion, the costs of
implementing and enforcing all permits required under the Act
must be considered in determining whether a State's fee revenue
is adequate to support its title V program. However, States may
opt to retain separate mechanisms and procedures for collecting
permit fees for other permitting programs under the Act, provided
the fees covering the costs of implementing and enforcing permits
are included in the determination of fee adequacy for purposes of
title V.
Although most of the changes outlined today are not expected
to affect significantly whether EPA will find fee programs based
on the earlier guidance adequate, we will assist States in
resolving any difficulties which may have resulted from reliance
on the December 18 guidance.
As a means of providing support for the Regional Offices and
States on fee approval issues, we invite early submittal of fee
analyses (separate from the entire program submittal) from
States, particularly those which propose to charge less than the
presumptive fee minimum. We will assist Regional Offices in
reviewing these submittals with respect to the requirements of
title V. Case-by-case reviews of fee programs which you believe
are ripe for review offer a timely opportunity to provide
additional guidance on this issue.
If you would like us to assist with review of a State's fee
program, please contact Kirt Cox. For further information,
you may call Kirt at (919) 541-5399 or Candace Carraway at
(919) 541-3189.
Attachment
cc: Air Branch Chief, Regions I-X
Regional Counsel, Regions I-X
M. Shapiro
J. Kurtzweg
A. Eckert
B. Jordan
R. Kellam
J. Rasnic
ATTACHMENT
GUIDANCE FOR STATE FEE PROGRAM DEVELOPMENT
I. GENERAL PRINCIPLES
States must collect, from part 70 sources, fees adequate to
fund the reasonable direct and indirect costs of the permits
program.
Only funds collected from part 70 sources may be used to
fund a State's title V permits program. Legislative
appropriations, other funding mechanisms such as vehicle
license fees, and section 105 funds cannot be used to fund
these permits program activities.
The 1990 Amendments to the Clean Air Act (Act) generally
require a broader range of permitting activities than are
currently addressed by most State and local permits
programs. Title V and part 70 contain a nonexclusive list
of types of activities which must be funded by permit fees.
Title V fees present a new opportunity to improve permits
program implementation where funding has been inadequate in
the past.
The fee revenue needed to cover the reasonable direct and
indirect costs of the permits program may not be used for
any purpose except to fund the permits program. However,
title V does not limit State discretion to collect fees
pursuant to independent State authority beyond the minimum
amount required by title V. The evaluation of State fee
program adequacy for part 70 approval purposes will be based
solely on whether the fees will be sufficient to fund all
permit program costs.
Any fee program which collects aggregate revenues less than
the $25 per ton per year (tpy) presumptive minimum will be
subject to close Environmental Protection Agency (EPA)
scrutiny.
If credible evidence is presented to EPA which raises
serious questions regarding whether the presumptive minimum
amount of fee revenue is sufficient to fund the permits
program adequately, the State must provide a detailed
demonstration as to the adequacy of its fee schedule to fund
the direct and indirect costs of the permits program.
The EPA encourages State legislatures to include flexible
fee authority in State statutes so as to allow flexibility
to manage fee adjustments if needed in light of program
experience, audits, and accounting reports. States should
be able to adapt their fee schedules in a timely way in
response to new information and new program requirements.
II. ACTIVITIES EXPECTED TO BE FUNDED BY PERMIT FEES
A. Overview.
- Permits program fees must cover all reasonable direct
and indirect costs of the title V permits program
incurred by State and/or local agencies. For example,
fees must cover the cost of permitting affected units
under section 404 of the Act, even though such sources
may be subject to special treatment with respect to
payment of permit fees.
- In making the determination as to whether an activity
is a title V permits program activity, EPA will
consider the design of the individual State's title V
program and its relationship to its comprehensive air
quality program. State design of its air program,
including its State Implementation Plan (SIP), will in
some cases determine whether a particular activity is
properly considered a permits program activity. For
example, if a SIP provision requires that a State
perform or review a modeling demonstration of a
source's impact on ambient air quality as part of the
permit application process, the State's costs which
arise from the modeling demonstration (which are
ordinarily not permit program costs) would be part of
the State's title V program costs. Because the nature
of permitting-related activities can vary from State to
State, the EPA intends to evaluate each program
individually using the definition of "permit program
costs" in the final regulation.
In general, EPA expects that title V permit fees will
fund the activities listed below. However, in
evaluating State program submittals, EPA will consider
the particular design and attributes of the State
program. It is important to note that the activities
listed below may not represent the full range of
activities to be covered by permit fees.
Implementation experience may demonstrate that
additional activities are appropriately added to this
list. Additionally, some States may have further program needs based on the particularities of their own
air quality issues and program structure.
- States may use permit fees to hire contractors to
support permitting activities.
B. Initial program submittal, including:
- Development of documentation required for program
submittal, including program description, documentation
of adequate resources to implement program, letter from
Governor, Attorney General's opinion.
- Development of implementation agreement between State
and Regional Office.
C. Part 70 program development, including:
- Staff training.
- Permits program infrastructure development, including:
* Legislative authority.
* Regulations.
* Guidance.
* Policy, procedures, and forms.
* Integration of operating permits program with
other programs [e.g., SIP, new source review
(NSR), section 112].
* Data systems (including AIRS-compatible systems
for submitting permitting information to EPA,
permit tracking system) for title V purposes.
* Local program development, State oversight of
local programs, modifications of grants of
authority to local agencies, as needed.
* Justification for program elements which are
different from but equivalent to required program
elements.
- Permits program modifications which may be triggered by
new Federal requirements/policies, new standards [e.g.,
maximum achievable control technology (MACT), SIP,
Federal implementation plan], or audit results.
D. Permits program coverage/applicability determinations,
including:
- Creating an inventory of part 70 sources.
- Development of program criteria for deferral of
nonmajor sources consistent with the discretion
provided to States in part 70.
- Application of deferral criteria to individual sources.
- Development of significance levels (for exempting
certain information from inclusion on permits
application).
- Development and implementation of federally-enforceable
restrictions on a source's potential to emit in order
to avoid it being considered a major source.
E. Permits application review, including:
- Completeness review of applications.
- Technical analysis of application content.
- Review of compliance plans, schedules, and compliance
certifications.
F. General and model permits, including:
- Development.
- Implementation.
G. Development of permit terms and conditions, including:
- Operational flexibility provisions.
- Netting/trading conditions.
- Filling gaps within applicable requirements (e.g.,
periodic monitoring and testing).
- Appropriate compliance conditions (e.g., inspection
and entry, monitoring and reporting).
- Screen/separate "State-only" requirements from the
federally-enforceable requirements.
- Development of source-specific permit limitations
[e.g., section 112(g) determinations, equivalent SIP
emissions limits pursuant to 70.6(a)(1)(iii)].
- Optional shield provisions.
H. Public/EPA participation, including:
- Notices to public, affected States and EPA for
issuance, renewal, significant modifications and (if
required by State law) for minor modifications
(including staff time and publication costs).
- Response to comments received.
- Hearings (as appropriate) for issuance, renewal,
significant modifications, and (if required by State
law) for minor modifications (including preparation,
administration, response, and documentation).
- Transmittal to EPA of necessary documentation for
review and response to EPA objection.
- 90-day challenges to permits terms in State court,
petitions for EPA objection.
I. Permit revisions, including:
- Development of criteria and procedures for the
following different types of permit revisions:
* Administrative amendments.
* Minor modifications (fast-track and group
processing).
* Significant modifications.
- Analysis and processing of proposed revisions.
J. Reopenings:
- For cause.
- Resulting from new emissions standards.
K. Activities relating to other sections of the Act which are
also needed in order to issue and implement part 70 permits,
including:
- Certain section 110 activities, such as:
* Emissions inventory compilation requirements.
* Equivalency determinations and case-by-case
reasonably available control technology
determinations if done as part of the part 70
permitting process.
- Implementation and enforcement of
preconstruction permits issued to part 70
sources pursuant to title I of the Act,
including:
* State minor NSR permits issued pursuant to a
program approved into the SIP.
* Prevention of significant deterioration/NSR
permits issued pursuant to Parts C and D of
title I of the Act.
- Implementation of Section 111 standards through part 70
permits.
- Implementation of the following section 112
requirements through part 70 permits:
* National Emission Standards for Hazardous Air
Pollutants (NESHAP) promulgated under
section 112(d) according to the timetable
specified in section 112(e).
* The NESHAP promulgated under section 112(f)
subsequent to EPA's study of the residual risks
to the public health.
* Section 112(h) design, equipment, work practice,
or operational standards.
- Development and implementation of certain section 112
requirements through part 70 permits, including:
* Section 112(g) program requirements for
constructed, reconstructed, and modified major
sources.
* Section 112(i) early reductions.
* Section 112(j) equivalent MACT determinations.
* Section 112(l) State air toxics program activities
that take place as part of the part 70 permitting
process.
* Section 112(r)(7) risk management plans if the
plan is developed as part of the permits process.
L. Compliance and enforcement-related activities to the extent
that these activities occur prior to the filing of an
administrative or judicial complaint or order. These
activities include the following to the extent they are
related to the enforcement of a permit, the obligation to
obtain a permit, or the permitting regulations:
- Development and administration of enforcement
legislation, regulations, and policy and guidance.
- Development of compliance plans and schedules of
compliance.
- Compliance and monitoring activities.
* Review of monitoring reports and compliance
certifications.
* Inspections.
* Audits.
* Stack tests conducted/reviewed by the permitting
authority.
* Requests for information either before or after a
violation is identified (e.g., requests similar to
EPA's section 114 letters).
- Enforcement-related activities.
* Preparation and issuance of notices, findings, and
letters of violation [NOV's, FOV's, LOV's].
* Development of cases and referrals up until the
filing of the complaint or order.
- Excluded are all enforcement/compliance monitoring
costs which are incurred after the filing of an
administrative or judicial complaint.
M. The portion of the Small Business Assistance Program which
provides:
- Counseling to help sources determine and meet their
obligations under part 70, including:
* Applicability.
* Options for sources to which part 70 applies.
- Outreach/publications on part 70 requirements.
- Direct part 70 permitting assistance.
N. Permit fee program administration, including:
- Fee structure development.
- Fee demonstration.
* Projection of fee revenues.
* Projection of program costs if detailed
demonstration is required.
- Fee collection and administration.
- Periodic cost accounting.
O. General air program activities to the extent they are
also necessary for the issuance and implementation of
part 70 permits.
- Emissions and ambient monitoring.
- Modeling and analysis.
- Demonstrations.
- Emissions inventories.
- Administration and technical support (e.g., managerial
costs, secretarial/clerical costs, labor indirect
costs, copying costs, contracted services, accounting
and billing).
- Overhead (e.g., heat, electricity, phone, rent, and
janitorial services).
- States will need to develop a rational method based on
sound accounting principles for segregating the above
costs of the permits program from other costs of the
air program. The cost figures and methodology will be
reviewed by EPA on a case-by-case basis.
III. FLEXIBILITY IN FEE STRUCTURE DESIGN
A. A State may design its fee structure as it deems
appropriate, provided the fee structure raises sufficient
revenue to cover all reasonable direct and indirect permits
program costs.
B. Provided adequate aggregate revenue is raised, States may:
- Base fees on actual emissions or allowable emissions.
- Differentiate fees based on source categories or type
of pollutant.
- Exempt some sources from fee requirements.
- Determine fees on some basis other than emissions.
- Charge annual fees or fees covering some other period
of time.
IV. INITIAL PROGRAM APPROVABILITY CRITERIA
A. Elements of State program submittals which relate to permit
fees.
- Demonstration that fee revenues in the aggregate will
adequately fund the permits program.
- Initial accounting to demonstrate that permit fee
revenues required to support the reasonable direct and
indirect permits program costs are in fact used to fund
permits program costs.
- Statement that the program is adequately funded by
permit fees (which is supported by cost estimates for
the first 4 years of the permits program).
B. Methods by which a State may demonstrate that its fee
schedule is sufficient to fund its title V permits program:
- Demonstration that its fee revenue in the aggregate
will meet or exceed the $25/tpy (with CPI adjustment)
presumptive minimum amount.
- Detailed fee demonstration.
* Required if fees in the aggregate are less than
the presumptive minimum or if credible evidence is
presented raising serious questions during public
comment on whether fee schedule is sufficient or
information casting doubt on fee adequacy
otherwise comes to EPA's attention.
C. Computation of $25/tpy presumptive minimum.
- The emissions inventory against which the $25/tpy is
applied is calculated as follows:
* Calculate emissions inventory using actual
emissions (and estimates of actual emissions).
* From the total emissions of part 70 sources,
exclude emissions of carbon monoxide (CO) and
other pollutants consistent with the definition of
"regulated pollutant (for presumptive fee
purposes)."
* States may:
Exclude emissions which exceed 4,000 tpy per
pollutant per source.
Exclude emissions which are already included
in the calculation (i.e., double-counting is
not required).
Exclude insignificant quantities of emissions
not required in a permit application.
* States have two options with respect to emissions
from affected units under section 404 of the Act
during 1995 through 1999.
If a State excludes emissions from affected
units under section 404 from its inventory,
fees from those units may not be used to show
that the State's fee revenue meets or exceeds
the $25/tpy presumptive minimum amount (see
paragraph IV.E below).
If a State includes emissions from affected
units under section 404 in its inventory, it
may include non-emissions-based fees from
those units in showing that its fee revenue
meets or exceeds the $25/tpy presumptive
minimum amount (see paragraph IV.E below.)
- Computation of the presumptive minimum amount is a
surrogate for predicting aggregate actual program
costs. Once this aggregate cost has been determined,
the method used for computing it does not restrict a
State's discretion in designing its particular fee
structure. States may impose fees in a manner
different from the criteria for calculating the
presumptive amount (e.g., charging fees for CO
emissions and for emissions which exceed 4,000 tpy per
pollutant per source).
D. Establishing that fee revenue meets or exceeds the
presumptive minimum.
- Fee revenue in the aggregate must be equivalent to
$25/tpy (as adjusted by CPI) as applied to the
qualifying emissions inventory.
- States have flexibility in fee schedule design as
outlined in paragraph III above and are not required to
adopt any particular fee schedule.
E. Fees collected from affected units under section 404.
- States may not use emissions-based fees from "Phase I"
affected units under section 404 for any purpose
related to the approval of their operating permits
programs for the period from 1995 through 1999. The
EPA interprets the prohibition contained in section
408(c)(4) of the Act as preventing EPA from recognizing
the collection of such fees in determining whether a
State has met its obligation for adequate program
funding. Furthermore, such fees cannot be used to
support the direct or indirect costs of the permits
program. However, States may, on their own initiative,
impose title V emissions-based fees on affected units
under section 404 and use such revenues to fund
activities beyond those required pursuant to title V.
* All units initially classified as "Phase I" units
are listed in Table I of 40 CFR part 73. In
addition, units designated as active substitution
units under section 404(b) are considered
"Phase I" affected units under section 404.
- States may collect fees which are not emissions based
(e.g., application or processing fees) from such units.
- Role of nonemissions-based fees in determining adequacy
of aggregate fee revenue.
* Such fees may be used as part of a detailed fee
demonstration (which does not rely on the $25/tpy
presumption).
* Such fees may not be used to establish that
aggregate fees meet or exceed the presumptive
minimum amount unless the State exercises its
discretion to include emissions from affected
units under section 404 in the emissions inventory
against which the $25/tpy is applied.
F. Fee program accountability.
- Initial accounting (required as part of program
submittal) comprised of a description of the mechanisms
and procedures for ensuring that fees needed to support
the reasonable direct and indirect costs of the program
are utilized solely for permits program costs.
- Periodic accounting every 2-3 years to demonstrate that
the reasonable direct and indirect costs of the program
were covered by fee revenues.
- Earlier accounting or more frequent accountings if EPA
determines through its oversight activities that a
program's inadequate implementation may be the result
of inadequate funding.
G. Governor's statement assuring adequate personnel and funding
for permits program.
- Submitted as part of program submittal.
- A statement supported by annual estimates of permits
program costs for the first 4 years after program
approval and a description of how the State plans to
cover those costs.
* Detailed description of estimated annual costs is
not required if the State has relied on the
presumptive minimum amount in demonstrating the
adequacy of its fee program.
* Detailed description of estimated costs for a
4-year period showing how program activities and
resource needs will change during the transition
period is required if State proposes to collect
fee revenue which is less than the presumptive
minimum amount.
- Projection of annual fee revenue for a 4-year period
with explanation of how State will handle any temporary
shortfall (if projected revenue for any of the 4 years
is less than estimated costs).
V. FUTURE ADJUSTMENTS TO FEE SCHEDULE
A. Continuing requirement of fee revenue adequacy.
- Obligates the States to update and adjust their fee
schedules periodically if they are not sufficient to
fund the reasonable direct and indirect costs of the
permits program.
B. Changes in fee structure over time are inevitable and may be
required by the following events:
- Results of periodic audits/accountings.
- Revised number of part 70 sources (discovery of new
sources, new EPA standards, expiration of the deferral
of nonmajor sources).
- Changes in the number of permit revisions.
- Changes in the number of affected units under
section 404 (e.g., substitution units).
- CPI-type adjustments.
- Different activities during post-transition period.
NOTICE
The policies set out in this guidance document are
intended solely as guidance and do not represent final
Agency action and are not ripe for judicial review.
They are not intended, nor can they be relied upon, to
create any rights enforceable by any party in
litigation with the United States. The EPA officials
may decide to follow the guidance provided in this
guidance document, or to act at variance with the
guidance, based on an analysis of specific
circumstances. The EPA also may change this guidance
at any time without public notice.
Please e-mail any comments or questions to the Clean Air Act Information
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