financial responsibility and the oversight of state funds: an epa update
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Financial Responsibility and the Oversight of
State Funds:An EPA Update
Adam KlingerOffice of Underground Storage Tanks
U.S. Environmental Protection Agency
September 15, 2009
2
Overview Legal and Programmatic Underpinnings State Funds as Approved FR Mechanisms State Fund Experience Oversight of State Funds
Update on Regional Guidance Additional Programmatic Support
Graphical Presentation of Indicators and Discussion
Related Activities Summary
3
Legal and Programmatic Underpinnings Owners and operators (O/O’s) of petroleum
underground storage tanks must demonstrate financial responsibility (FR) for taking corrective action and for compensating third parties (9003(c)(6);(40 CFR 280.93))
Regulations provide a menu of allowable mechanisms to demonstrate FR (40 CFR 280.94) O/O’s primarily rely on state funds and private insurance
FR compliance is a component of EPAct mandated on-site inspections (Grant Guidelines for States in Implementing the Inspection Provisions of the Energy Policy Act, April 2007)
4
State Funds as Approved FR Mechanisms States with State Program Approval (SPA) – All FR Mechanisms
State financial responsibility requirements can be no less stringent than federal requirements Requirements for each mechanism allowed under State Program described in regulations
(40 CFR 281.37(c))
States without SPA – State Funds State Funds are the only mechanisms that require explicit approval from EPA Fund is submitted to EPA for formal approval 1989 Guidance (9650.11) Provides Criteria for Initial Review
Consistent with Regulations (40 CFR 280.101) Funding Source
…money “reasonably certain and available” Relying solely on yearly appropriations would not adequately assure funds as certain and
available Amount of Fund
“…reasonably assure that the projected flow of revenues into the fund is sufficient to keep pace with the anticipated rate of expenditures…”
Coverage Provided Eligibility for Use of the Fund
States without SPA – Other Mechanisms No formal approval by EPA More specific language contained in regulations for these mechanisms
5
Status of State FundsState Funds
States with Active FundsStates with Existing Funds But No Longer Accepting Claims for New Releases
States without Funds
SPA States States w/o SPA
SPA States States w/o SPA
SPA States States w/o SPA
AL, AR, CO, CT, GA, IN, KS, LA, MA, ME, MN, MO, MS, MT, NC, ND, NE, NH, NM, NV, OK, PA, RI, SC, SD, TN, UT, VA, VT
CA, ID, IL, KY, NY, OH, WY
IA, TX, AZ, FL, MI, NJ, WI
DC, DE, PR, HI, MD, WA, WV,
AK, OR, AS, CNMI, GU,VI
29 7 2 5 7 6
36 7 13
Registered Attendees
6
State Funds Provide Practically All Public Dollars for Cleanups
State*Total Public Funding
(million dollars)State Funds
(million dollars)Federal Funds
(million dollars)
IL 54.9 53 1.9 (3.4%)
OH 2.1 Not Availabe (N/A) 2.1 (N/A)
CA 211.7 208 3.7 (1.7%)
FL 168.0 168** 0 (0%)
NY 2.3 Not Available (N/A) 2.3 (N/A)
PA 69.7 68 1.7 (2.4%)
TX 31.7 29 2.7 (8.5%)
Total 540.4 526 14.4 (2.6%)
EPA and States do not track private funding for cleanups, which is a significant source of cleanup funding.
Does not include funding of state programs by state general revenues.
* These states are the top 7 states in cleanups completed for the last 3 years**FL amounts are for total cleanups – not specific to USTs
7
But, States Are Experiencing Budget Woes
StateFY08 Cleanups Budget Commentary
IL 979 (7.7%) States are experiencing significant budget deficits ($11.5 billion in IL; $40 billion in CA; $2.5 billion in FL; et al) and are or have implemented significant spending reductions ($640 million in OH; over $500 million in PA; et al).
In addition, states are availing themselves of temporary tax increases, use of federal stimulus funds, use of reserves and borrowing from future profits.
States are also implementing general hiring freezes, freezing wages, prohibiting purchases and restricting out-of-state travel.
Sources: Press Releases from State Governors and Budget Offices
OH 919 (7.2%)
CA 874 (6.8%)
FL 816 (6.4%)
NY 744 (5.8%)
PA 586 (4.9%)
TX 564 (4.4%)
Top 7 5,482 (43%)
8
… And Revenue Challenges
StatePetroleum Fee
(per gallon)
IL 1.1 ¢
OH Not applicable
CA 1.4 ¢
FL 2 ¢
NY Not applicable
PA 1.1 ¢
TX 3 ¢
States rely on gas taxes (and other fees) to finance state cleanup funds
Sources: State Fund Administrators Survey, Vermont Department of Environmental Conservation, 2008 Energy Information Administration
Gasoline Sales
10000
15000
20000
25000
30000
35000
40000
45000
Jun-
06
Aug-0
6
Oct-0
6
Dec-0
6
Feb-
07
Apr-0
7
Jun-
07
Aug-0
7
Oct-0
7
Dec-0
7
Feb-
08
Apr-0
8
Jun-
08
Aug-0
8
Oct-0
8
Dec-0
8
Feb-
09
Apr-0
9
Jun-
09
Th
ou
sa
nd
Ga
l pe
r D
ay
NY
PA
FL
IL
TX
CA
Linear (CA)
Linear (TX)
Linear (FL)
Linear (NY)
Linear (IL)
Linear (PA)
9
Decreasing state fund balances
State Fund Balances
0
100
200
300
400
500
600
700
800
2006 2007 2008
Year
Mil
lio
n D
oll
ars
TX
PA
NY
FL
CA
IL
Potentially Threaten Cleanup Progress
10
Oversight of State Funds 1993 Guidance on Monitoring State Funds
To help EPA work with State assurance funds to identify and remedy deficiencies
To foster consistency between Regions in monitoring state funds
“Financial soundness” “reasonable assurance that funds are available to pay” Environmental soundness implicit – “If funding levels or claim
processing time has a negative impact on the cleanup of releases from USTs…, then EPA is concerned about the financial soundness of the fund.”
Potentially useful measures listed Fund balance; rate of collection; rate of disbursement; collections
projected; disbursement projected; pending claims; timing between claim submittal, approval and payment; major or pending changes to the fund
11
Oversight Experience Periodic Discussions Between Regions and
States
Trend Analysis of Fund Statistics
Examination of Cleanup Progress
Active Engagement on As Needed Basis
12
Motivation for New Guidance Objectives similar to 1993 guidance
“to identify problems in approved funds…” “to describe a process which will help resolve those problems”
Signals to Enhance Oversight GAO Study – Feb. 2007
“…improve the Agency’s oversight of the solvency of state assurance funds to ensure they continue to provide reliable financial responsibility coverage.”
Consistency issues
EPAct and Fund Withdrawal Section 9004(c)(6) authorizes EPA to
Identify a financially deficient state fund; Engage a state in good faith collaborative efforts to remedy its fund’s financial deficiency,
and Withdraw approval of a state fund as an approved FR mechanism (separate from program
approval)
Diversions EPAct Section 9004(f)(2)(B) Diversions as part of Fund Soundness Review Additional actions
13
New Guidance for Ongoing Oversight
Criteria and procedures for monitoring and strengthening state funds
To institutionalize: Annual Review Focus on Federally-regulated, Fund-eligible universe (FRFE) Soundness as a function of financial and environmental
performance
To clarify applicability and encourage consistency: Full or partial funds in states with or without SPA
Note: New Guidance will supercede 1993 Guidance (9650.14)
14
What’s New More Explicit Examination of Soundness through
Financial, Environmental and Management Lenses
Tiered review and written assessment
Recommended Indicators Rather Than Choice Among Many – Greater Consistency
Update relative to last year Draft Circulated for Comment More indicators; More explicit calculations Greater infusion of accounting perspective
15
Identify actions to restore fund soundness
EPA public notice of intent to withdraw FR
approval in state media
Implement actions to address fund deficiencies
EPA notifies state of intent to withdraw
FR-approval
09/16/08a
Annual Fund soundness data
reporting & ongoing EPA monitoring
Fund is unsoundFund needs improvement
EPA withdraws FR approval of state
fund
Determiniation of fund restoration
Annual assessment of fund soundness
Monitoring & Oversight
Withdrawal of State Fund Financial Responsibility
Approval
Annual determination of fund soundness
Monitoring and assessment of state actions and results
Fund is sound
Overseeing Financial Soundness of State Assurance Funds: EPA & State Collaboration
Tier2 Soundness Review
Needs more time formore improvement
Improving State Fund Soundness
Fund is sound
Annual Tier 1 Soundness Review
Overseeing Financial Soundness of State Assurance Funds:
16
Annual Review Tiered review
Tier 1: small set of indicators to distinguish healthy funds from funds needing additional attention
Tier 2: more detailed, custom analysis
Data Needs Regions will need to collect data from states Data should support oversight and reviews of state funds Data collection should minimize burden
Written Assessment Regions should provide written assessments of each state’s
fund based on their review
17
Objectives for Tier 1 Indicators Select indicators that
Provide meaningful indication of financial and environmental performance
Are simple to calculate Have accessible data Consider historical trends Are consistent with state accounting Can effectively screen clearly sound funds from
others requiring further analysis Can facilitate detection of funds in financial
distress
18
Tier 1 Indicators Balance Sheet
Assets vs. Liabilities
Cashflow Statement Revenues vs. Expenditures
Total Liabilities
Expenditures and Liabilities Related to Federally Regulated Fund Eligible USTs (FRFEs)
Relative Proportion of Expenditures and Liabilities for FRFE’s relative to total
Inactive Sites FRFEs not being funded
Cleanup Progress and Annual Cleanups Cleanup trends
Internal and External Changes
19
Using the Indicators to Construct a Profile
Passing all Tier 1 indicators individually should provide a conclusion of soundness
Questions about some indicators may be resolved with reference to others Example: Current year expenditures exceed
revenues but fund balance strong
Indeterminate findings prompts additional information collection and discussion(Tier 2)
20
Tier 2 Indicators Explore tier 1 indicators with troubling outcomes /
trends Collect additional data, as necessary
Examine circumstances and test explanations
Examine fund management, practices and policies, as necessary and appropriate
Focus on the extent to which cleanup progress is effected
21
Drawing ConclusionsAnalysis should
Use appropriate benchmarks Avoid unfair or inappropriate comparisons Be transparent Be in writing (annual assessment)
Does the fund’s financial condition have a significant impact on cleanup progress?
Negative findings prompts corrective actions and discussion (blue column)
22
Comments on 2008 Draft Goal of Soundness and the Consideration of
Environmental Performance
Concern Regarding the Articulation of Indicators and their Ability to Provide an Effective Screen
Concern about Implementation of New Guidance and Production and Tone of Annual Written Assessment
Alignment of Data Requirements and Fund Soundness Review
Tradeoffs between Consistency and Flexibility
23
Schedule for Guidance “Field Testing” of Indicators (August – November)
Contractor calculating indicators for about 8 states Discussions with Regions and States to Follow Conclusions drawn about appropriateness and
tractability of indicators Finalization of Guidance (December - February) Regional Training (February - June) Regional Review Using New Guidance
(July – September 2010)
24
Additional Programmatic Support FY09 Data Request
Training, Tools and Support for State Fund Reviews Region specific workshops Spreadsheet and other tools Access to expertise
National Overview Document Descriptive reference of State Funds Reference for Comparisons / Benchmarks
25
Related Activities Backlog Characterization Study
Examination of open releases with and without state funds as the mechanism of FR
States w/active state funds (CA, IL, MT, NC, NE, NH, NY, PA, SC)
States w/state funds no longer accepting claims (FL, MI, NJ, TX)
States w/o state fund (WA)
Comparison of clean up progress and common attributes of sites
26
Backlog Characterization Study - DRAFTAge of Releases by State Fund Eligibility and Stage of Cleanup
State 1
State 2
27
Related Activities (cont’d) Study of Issues Associated with Insurance
Regulatory Consistency
Gaps
Causes of Failure
Oversight
Coverage and Pricing
Impact on Cleanup Progress
28
Summary Enhanced Oversight
Opportunities for early collaborative action Importance of
meaningful indicators, knowledgeable review, efficiency of effort and environmental progress
Constrained State Funds and the Availability of Appropriate “Levers” Reduced budgets Diversions
Communicating the Importance of State Funds
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