EPA Readies Revised Draft of Financial Capability Guidance for Another Round of Comments

Dec 8, 2021

During a December 2 meeting with stakeholders, including NACWA, EPA provided additional details on further revisions it has made to its draft Financial Capability Assessment (FCA) document, which would update the Agency’s now nearly 25-year-old guidance. EPA plans to release the revised document for another round of comments by the end of 2021 or in early 2022.

NACWA has been tracking EPA’s efforts to review and revise the document since January 2021 when the incoming Biden Administration halted the release of the Trump Administration’s updated guidance, which had been drafted in close coordination with the water sector and already subjected to extensive public comment. Based on ‘additional comments’ – all received after January – the Agency has made significant changes to the January 2021 draft, including to a key metric that underlies the entire assessment methodology.

The revised draft retains consideration of impacts on the lowest wage earners and prevalence of poverty in a community – key elements that all stakeholders and Congress believe must be part of any new methodology – but has moved away entirely from looking at cost impacts on individual households.

Rather than look at costs as a percentage of income (whether that is lowest quintile income, as proposed in January 2021, or median household income, as used in the 1997 guidance), the new approach will instead assess a community’s lowest quintile income and how it compares to the national average. NACWA and its water sector partners will be doing a comprehensive evaluation of this new metric when details are released.

Equally significant are policy changes EPA is proposing to make. The first change would impose a cap of 20 years for scheduling of projects where a ‘high’ burden is identified, with an allowance of up to a maximum of 25 years after consideration of additional information. Many current schedules exceed 20 years, and several exceed 25 years.

Further, where the new methodology shows the potential for an impact on a community, utilities will be required to conduct a Financial Alternatives Analysis as a part of the assessment to outline the efforts they are making to mitigate those impacts. EPA’s revised draft will include a 12-page appendix with details on what this assessment should include.

NACWA is preparing to review the revised document and provide comments as soon as it is released. Members with questions can contact Chris Hornback, NACWA’s Deputy CEO. 

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