EPA:

Stimulus' 'Buy American' provision sparked intra-agency fight

More than two years ago, U.S. EPA's inspector general released a report on a seemingly mundane subject: the origin of submersible pumps and centrifugal blowers in an Illinois wastewater treatment plant.

But what began as a run-of-the-mill audit became a years-long dispute over the "Buy American" provision in the American Recovery and Reinvestment Act.

IG investigators first visited the Illinois plant in 2010 and immediately noticed that some new equipment bore stamps from countries such as Malaysia, China and Taiwan. The plant -- located in Ottawa, Ill. -- was undergoing renovations courtesy of a $7.7 million state loan, including $3.8 million in stimulus funds from the Recovery Act.

That initial discovery led to an audit of all the plant's new parts. Of 57 items, IG investigators flagged four that they believed did not follow a key provision in the Recovery Act: that manufactured goods be "produced in the United States."

Since then, the IG has pushed EPA to take back stimulus funds used for non-American goods, as well as change the Office of Water's guidance on how to determine whether a product complies with the "Buy American" provision. EPA officials have refused, prompting more than a year of meetings, memos and proposals between IG Arthur Elkins Jr. and EPA officials.

The ordeal came to an end earlier this month, with acting Administrator Bob Perciasepe making a final decision to not follow the IG's recommendations. In a seven-page memo, Perciasepe told the Office of Water that it was not required to change its "Buy American" guidance -- or take back any stimulus funds.

"The EPA generally should not reverse a carefully considered, reasonable position that has been fully implemented and relied upon by many recipients and sub-recipients, like the OW guidance, unless that is clearly shown to be necessary," Perciasepe wrote. "That is not the case here; there was no failure to meet any legal requirement or congressional intent, but rather an after-the-fact disagreement about a policy choice."

Perciasepe's memo appears to bookend a broader fight between Elkins and EPA acting Water Chief Nancy Stoner over how the agency handled the "Buy American" provision when it dispersed $4 billion in stimulus funds to states for sewage-treatment projects (Greenwire, Jan. 23, 2012).

Congress inserted the provision to ensure the Recovery Act -- which pumped $800 billion into a struggling economy -- would support American jobs.

But the meaning is not clear-cut. Because most products are built in several facilities, agencies have adopted tests to certify that products undergo a "substantial transformation" in the United States. In other words, components can be built abroad, as long as American workers are responsible for major alterations.

At the Ottawa plant, the submersible pumps came from a Swedish company with no manufacturing facilities in the United States. The company claimed its products followed the "Buy American" provision because its U.S.-based sales and services staff handled design and planning.

"This information is irrelevant when determining whether goods are manufactured in the United States," IG officials wrote in their original report.

In another example, a South Korean company appeared to be shipping completed pieces of a centrifugal blower to a facility in Illinois, where it was assembled. But the IG found that simply assembling a piece of equipment did not make the product American-made.

Elkins believes part of the problem is the Office of Water's guidance to help projects determine whether a product was "American." Among the suggested considerations in the guidance: Did American workers make "complex and meaningful" changes to the product? Did that take substantial time? Did it cost a lot? Was "substantial value" added?

That does not accurately convey the need for "substantial transformation," according to Elkins. For example, it might cost a company a lot of money to design a product -- and that product could still be manufactured abroad.

But EPA's Office of General Counsel disagreed, determining that the Office of Water's guidance was consistent with the Recovery Act. Perciasepe cited that determination in his memo.

Perciasepe also pointed out an unpalatable consequence of following the IG's recommendation.

Changing the guidance, he wrote, would prompt the review of more than 3,300 stimulus-funded projects that began three years ago. And that, in turn, could lead to contract disputes, litigation and "economic hardship" to states.

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