U.S. EPA today launched a dialogue with mayors and local communities that are struggling to pay for expensive water system upgrades during tough economic times.

In a memo, previewed to mayors yesterday in a closed-door session of the U.S. Conference of Mayors winter meeting, EPA agreed to continue talking with leaders about how to calculate what a community can afford in upgrades.

The environmental regulator has been cracking down on communities with old sewer systems that combine stormwater and sewage overflow during heavy storms, flushing filth from streets, lawns and parking lots into waterways. More than 770 cities have such systems.

But the upgrades EPA requires can be costly.

For example, Atlanta's project grew to $4 billion. And after the city raised sewer rates as high as it could, it began borrowing. In fact, Atlanta borrowed so much that ratings agencies were about to downgrade the city to a point that it couldn't borrow any more when EPA agreed to a time extension for the upgrades.

EPA studies a community's finances when it considers how quickly it can reasonably require a community to implement the upgrades. But mayors and water agencies for years have argued that EPA's formula for determining affordability, which is based on 1997 guidance, is flawed.

The formula essentially requires communities to spend 2 percent of median household income, per household, on controls for combined water overflows, said Chris Hornback, senior director for regulatory affairs at the National Association of Clean Water Agencies.

"It is a very blunt instrument -- it ignores pockets of poverty, it ignores declining employment, it doesn't account for other financial obligations," he said. "It doesn't reflect the real economic situation of a community."

Mayors want EPA to look at other benchmark indicators such as increasing arrearages, late payments, disconnection notices, service terminations and uncollectable accounts. They also want EPA to consider communities' other obligations, such as those under the Safe Drinking Water Act, when setting compliance schedules.

EPA took a major step on the final point in June when it released a framework for how to structure plans for tackling multiple Clean Water Act obligations at once (Greenwire, June 13, 2012).

But that document focuses on how to prioritize obligations, not on what can be afforded.

In an "affordability framework" released with the new memo, EPA acknowledges communities' concerns.

"It is essential that long-term approaches to meeting [Clean Water Act] objectives are sustainable and within a community's financial capability," it states. "EPA is developing an approach to provide clarification of the financial capability analysis and that ensures consistent implementation among EPA regions."

Hornback said he is "cautiously optimistic" since the EPA memo includes the issues his group and the Mayors Conference's Water Council have focused on.

With a proposal for a new stormwater rule due in June, likely requiring additional investments at the local level, Hornback said the issue of affordability will continue to rise in importance.