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The Honorable J.E. "Buster" Brown Chairman Texas Senate Committee on Natural Resources P.O. Box 12068 Capitol Station Austin, TX 78711 Dear Senator Brown: Thank you for your letter dated
July 11, 2002, transmitting a copy of the letter you sent to leaders in the State of Texas urging all parties to address Senate BillS (SB 5) funding issues and asking about the impact
of lack of funding of SBS. You have confronted "head on" the most significant clean air challenge facing us today and continued to demonstrate your leadership in helping resolve important
issues facing Texas communities. When SB 5, the Texas Emissions Reduction Plan (TERP), was signed into law by Texas Governor Rick Perry on June 15, 2001, the bill established a statewide
fund designed to create several economic incentive programs to reduce emissions that would lead to compliance with health based standards under the Federal Clean Air Act. The bill also
required the elimination of regulations from the Houston/Galveston and Dallas/Fort Worth area State Implementation Plans (SIPs) for accelerated purchase of Tier II and Tier III engines
and a morning construction ban. The deletion of these measures eliminated the reduction of approximately 19 tons per day of nitrogen oxides (NOx) in the Houston/Galveston area and approximately
16 tons per day ofNOx in the Dallas/Fort Worth area that was needed to reach attairnnent. The passage of SB 5, with projected funding of $133 million annually, offered an historic opportunity
to replace the accelerated purchase of Tier II and Tier III engines and the construction ban with several innovative economic incentive programs primarily aimed at diesel engines. The
subsequent failure to fully fund SB 5, as a result of a lawsuit that declared the majority of funding unconstitutional, cripples this opportunity. As you are well aware, before the court's
ruling regarding SB5 funding, I approved the Houston/Galveston SIP based in part on incentives for emission reductions contained in SB 5 to address some of the shortfall ofNOx. The TERP
was also submitted as part of the Dallas/Fort Worth SIP; however. the full funding ofSB5 failed before I fmalized approval of the Dallas/Fort Worth SIP. Without a fully functional TERP,
or other emission reduction measures, both the Dallas/Fort Worth and Houston/Galveston area SIPs will not meet federal air quality standards. Senator, we share a common goal to create
a clean air strategy that brings clean air to the citizens of Texas, not on paper, but in communities across the State. We must provide realistic solutions that provide cleaner air to
every Texan. Representatives from both the Texas Natural Resource Conservation Commission and the EPA consulted with your committee concerning the level of funding SBS needed to obtain
our mutual goals. As a result, I believe that I have no choice but to notify the State of Texas that unless SB 5 funding is restored or other equivalent pollution reduction measures
are enacted, the Dallas/Fort Worth area SIP will not be approved and the Houston/Galveston SIP's approval will be jeopardized. I have enclosed two Federal Register notices that I have
on this day submitted to the Federal Register proposing to take one of two 
2 alternative actions regarding the Dallas/Fort Worth area SIP and noticing a failure of implementation of the Houston/Galveston SIP. These Federal Register notices provide the Texas
Legislature with a choice of ways to address air pollution. I look forward to working with the leadership in the State as it examines ways to either restore the original funding established
for the TERP during the next Texas Legislative session or to identify other emission reduction strategies that provide comparable emission reductions. I am well aware that this is a
difficult task since the construction ban and accelerated purchase provisions were withdrawn by the legislature because of the controversy that was attached to them. However the shortfall
is addressed, you have the commitment of EPA Region 6 to work constructively with Texas for clean air. Thank you for your continued leadership in addressing air quality challenges facing
the State of Texas. I look forward to continuing to work with you and the Texas leadership to meet the challenges raised by this serious issue. Enclosures cc: Honorable Rick Perry Governor
of Texas Honorable Bill Ratliff Lieutenant Governor of Texas Sincerely yours, Gregg A Cooke Regional Administrator Honorable James E. "Pete" Laney, Speaker of the House Texas House of
Representatives Mr. Robert E. Huston, Chairman Texas Natural Resource Conservation Commission 
United States Environmental Protection Agency www.epa.goviearth1 r6i Region 6 External Affairs (6XA) 1445 Ross Avenue Dallas, Texas 75202-2733 Public Information: (800)887 -6063 _-('r-I
"" 􀁾􀀠􀁾􀀠).. • Arkansas ,.... ()_:_ C\ 0 􀁬􀁯􀁵􀁩􀁳􀁩􀁾􀁮􀁡􀀠 117 "New Mex1co Oklahoma Texas Environmental News Fer more i:lfo:-m3tion ccntact the Office of Exle!na! Affairs a: 􀀨􀀲􀀮􀁾􀀴􀁽􀀠665-22
00 July 25, 2002 Clean Air Plans for Houston/Galveston and Dallas/Fort Worth Areas Threatened Today, U.S. Environmental Protection Agency (EPA) Regional Administrator Gregg Cooke announced
a proposal to act on the state of Texas' request to revise the Dallas/Fort Worth clean air state implementation plan (SIP) by substituting emission reductions from the Texas Emission
Reduction Program (TERP) for construction ban and accelerated purchase provisions, noting TERP's lack of funding. Cooke said he would propose approval of the Dallas/Fort Worth clean
air plan revision if the Texas state legislature appropriates sufficient funding under the TERP or adds other comparable emission reduction programs to the plan. TERP 's lack of funding,
an estimated $100 million shortfall, also impacts the Houston/Galveston area. The EPA is proposing to fmd that the approved severe area clean air plan for the Houston/Galveston area
is not being implemented according to its terms. Specifically, the state of Texas is not implementing the TERP at a sufficient level, currently only about $30 million of the anticipated
$133 million state-wide, to achieve the pollution emission reductions needed to bring about clean air. The TERP would have generated pollution emission reductions required by the Clean
Air Act. In the Dallas/Fort Worth area, the fully-funded $133 million TERP would eliminate 16 tons per day of ozone-forming pollution. In the Houston/Galveston area, the fully-funded
$133 million TERP would eliminate 19 tons of ozone-forming pollution. ### 
ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 52 [TX-140-1-7540; FRLProposed Approval, or in the Alternative, Disapproval of State Implementation Plan; Texas; Dallas/Fort Worth Ozone Nonattainrnent
Area. AGENCY: Environmental Protection Agency (EPA). ACTION: Proposed rule. SUMMARY: EPA proposes to take one of two alternative actions regarding the Dallas/Fort Worth (DFW) State Implementation
Plan (SIP). First, the EPA proposes to approve the Texas Emission Reduction Program (TERP) submission if the State provides a funding mechanism that will ensure funding at or above the
level contemplated in the State's SIP submission. Second, in the alterative, EPA proposes to disapprove the SIP submission of the TERP because the state does not have adequate funding
as required by the Clean Air Act. Because the TERP is necessary to achieve emission reductions relied on in the attainment demonstration for the DFW area, EPA also proposes to disapprove
the DFW attainment demonstration SIP if funding at or above the level contemplated in the attainment demonstration 􀁾􀁳􀀠 not reinstated or other equivalent emission reduction measures
are enacted. If EPA makes final these proposed disapprovals, Texas will have to correct the identified deficiencies within 18 months or the first set of sanctions will begin pursuant
to sections 179(a)and(b)of the Clean 
2 Ai• Act (Act)and confo•mity will lapse. DATES: W•itten comments must be received on o• before [Insert date 30 days from date of publication in the Federal Register]. ADDRESSES: Written
comments should be addressed to Mr. Thomas H. Diggs, Chief, Air Planning Section (6PD-L), at the EPA Region 6 Office listed below. Copies of documents relevant to this action are available
for public inspection during normal business hours at the following locations. Anyone wanting to examine these documents should make an appointment with the approp•iate office at least
two working days in advance. Environmental Protection Agency, Region 6, Air Planning Section (6PD-L), 1445 Ross Avenue, Dallas, Texas 75202-2733. Texas Natural Resource Conservation
Commission, Office of Air Quality, 12124 Park 35 Ci•cle, Austin, Texas 78753. FOR FURTHER INFORMATION CONTACT: Herbert R. Sherrow, Jr., Air Planning Section (6PD-L), EPA Region 6, 1445
Ross Avenue, Dallas, Texas 75202-2733, telephone (2141665-7237. e-mail: sherrow.he•b@epa.gov. SUPPLEMENTARY INFORMATION: Throughout this document 11 We," "us," and 11 0Ur" refers to
EPA. Wh<>.t is the b<>.ckground for this <>.ation? The DFW attainment demonstration SIP was submitted on April 25, 2000. On April 30, 2000, the Governor of Texas submitted to us two
SIP rule revisions. The rules established non-•oad 
3 const•uction equipment operating limitations and accelerated purchase and operation of non-road compression-ignition fleet equipment in the DFW area. The accelerated purchase rule
required those in the DFW ozone nonattainment area who own or operate non-road equipment powered by compression-ignition engines 50 hp and up to meet certain requirements regarding Tier
2 and Tier 3 emission standards. For more information on the Tier 2 and Tier 3 emission standards, see q 0 CFR 8 9.112, "Oxides of nitrogen, carbon monoxide, hydrocarbon, and particulate
matter exhaust emission standards." The rule phased-in Tier 2,3 engines on a schedule earlier than the federal schedule, depending on horsepower. The rule would have the effect of accelerating
the turnover rate of compression-ignition engine, non-road equipment. Generally, the rule affected diesel equipment 50 hp and larger used in construction, general industrial, lawn and
garden, utility, and material handling applications. The purpose of the construction ban rule was to establish a restriction on the use of construction equipment (non-road, heavyduty
diesel equipment rated at 50 hp and greater) as an a1r pollution control strategy until after 10 o'clock a.m. As a result, production of ozone precursors would be stalled until later
in the day when optimum ozone formation conditions no longer existed, ultimately reducing the peak level of ozone. The 
4 restrictions were to apply from June 1 through October 31. The rule allowed operators to submit an alternate emissions reduction plan by May 31, 2002. The alternate plan would allow
operation during the restricted hours, provided the plan achieved reductions of NOx that would result in ozone benefits equivalent to the underlying regulation. The DFW attainment demonstration
showed that em1ss1on reductions of 16 tons per day from these two rules were necessary for the area to reach attainment. Thus, the DFW attainment demonstration relied on these two rules.
Please refer to our proposed approval of the rules for more information (66 FR 16q32, March 26, 2001). In May, 2001, the 77'h Legislature of the State of Texas passed Senate Bill 5 (SB
5)entitled "The Texas Emission Reduction Program" (TERP). Section 18 of SB 5 required the Texas Natural Resource Conservation Commission to submit a SIP revision to us deleting the requirements
of the two rules requ1r1ng a ban on construction activities during the morning morning hours and accelerated purchase of Tier 2,3 diesel engines for the DFW ozone nonattainment area
from the SIP no later than October 1, 2001. Repeal of the rules was adopted on August 22, 2001, and submitted to us as a SIP revision on September 7, 2001. The rule repeals were submitted
concurrently with the SIP revision as part of the implementation of SB 5. The rules were contained 1n Chapter 11q 
5 relating to Control of Air Pollution from Motor Vehicles. The TERP legislation included a grant program designed to accelerate the early introduction and use of lower emitting diesel
technologies in the nonattainment and near nonattainment areas of Texas; a grant program to fund improved energy efficiency in public buildings; purchase and lease incentives to encourage
the introduction of clean light duty cars into the Texas fleet; and funding for research into new air pollution reducing technologies. The bill provided funding mechanisms for the program
and the State anticipated that about 5133 million in new fees would be collected to fund the emission controls contemplated. Unfortunately, the major funding source, a tax on out-of-state
vehicle registrations was found to be 1n violation of the commerce clause of the Fourteenth Amendment of United States Constitution and Article I. §3 of the Texas Constitution. See H.M.
Dodd Motor Co. Inc. and Autoplex Automotive, LP. v. Texas Department of Public Safety, et al., Cause No GNID2585(200th Judicial District Court, Travis County, February 21, 2002). Without
sufficient funding the State will not be able to achieve all of the emission reductions projected for the TERP in the State Implementation Plan. Wll<>.t is the effect of the withdr<>.wn
rules on the DFW Att<>.inment Demonstr<>.tion SLP7 These rules supported the DFW Attainment Demonstration SIP. 
6 The emission reductions from the rules are necessary for the SIP to show attainment of the National Ambient Air Quality Standard. We cannot take final action to approve the attainment
demonstration SIP 􀁳􀁾􀁮􀁣􀁥􀀠one of the measures relied upon for purposes of attainment is not adequately funded. How does SB 5 repL>.ce the wi thdrotwn rules? SS 5 contains a Diesel
Emissions Reduction Incentive Program to achieve 􀁥􀁭􀁾􀁳􀁳􀁾􀁯􀁮􀀠 reductions. Under this program, grant funds are provided to offset the incremental costs of projects that reduce NOx
emissions from heavy-duty diesel trucks and construction equipment 􀁾􀁮􀀠 nonattainment areas. This program 􀁾􀁳􀀠 expected to achieve 16 tons per day of reductions for the DFW area,
out of an expected range of 40-50 tons per day. These reductions will be an alternative, but equivalent, mechanism to replace the emission reductions that would have been achieved by
the two withdrawn rules. Why otre we proposing otpprovotl of the TERP otnd disotpprovotl ots otn ot.l l ternot ti ve? If the State secures funding at or above the level specified 􀁾􀁮􀀠
the submitted SIP, we will approve the TERP submittal. If instead, the State submits alternative measures to achieve the emission reductions attributed to the TERP, we would take further
rulemaking on the alternative measures before approving an attainment demonstration that relied on those measures. 
7 Section llO(al (21 (EI of the Act requlres a SIP to have adequate funding to be approvable. A State court determined that a significant portion of the funding mechanism for the TERP
violates the Constitution, thus, the State cannot collect a significant portion of the money that was intended to fund the incentives. Thus, the full amount of reductions needed for
the DFW area to attain the standard, ln accordance with the submitted attainment demonstration SIP, will not be achieved unless, 11 the State develops additional sources of funding for
the TERP or, 21 the State adopts replacement measures that achieve equivalent reductions. Thus, in the absence of adequate funding for the TERP or an alternate program, we would need
to disapprove the TERP and the associated DFW attainment demonstration. Wb.y ;;u-e we proposing dis;;,.pprov;;,.l of the Att;;,.inment Demonstr;;,.tion SIP? If the State is unable to
fund the TERP consistent with the level in the submitted SIP: or, if alternatively, to adopt and submit substitute measures to achieve any emission reductions that cannot be achieved
due to a lack of funding, we will have to disapprove the attainment demonstration SIP. The TERP submission is an underlying portion of the attainment demonstration. Without implementation
of the TERP or of alternative controls to reduce an equivalent amount of emissions, attainment cannot be achieved under the current attainment demonstration SIP. 
8 What are the consequences of disapproval of the TERP submission and 􀁤􀁩􀁳􀁾􀁰􀁰􀁲􀁯􀁶􀁡􀁬􀀠of the attainment demonstration SIP? If the attainment demonstration SIP is disapproved,
then sanctions under section 179 of the Clean Air Act will apply. Under the authority of section 179{a) of the Act and 40 CFR 52.31, if we disapprove a SIP element or a SIP, then the
deficiency identified must be corrected within 18 months or sanctions will begin to apply. There are two types of sanctions: Highway Sanctions {section 179{b) {1)) and Offset Sanctions
{section 179 {b) {2)). In accordance with our regulations implementing the sanction provisions of the Act, if the State has not corrected the deficiencies 1n the TERP program within
18 months of the effective date of the final disapproval, the 2 to 1 offset sanction of section 179{b) will apply in the DFW nonattainment area. The current offset ratio 1n the DFW area
1s 1.2 to 1. This sanction requires a company that is constructing a new facility or modifying an existing facility over a certain s1ze to reduce emissions in the area by two tons for
every one ton the new/modified facility will emit. If the State has still not corrected the deficiencies within six months after the offset sanction is imposed, then the highway sanction
will apply in the nonattainment area. This sanction prohibits the U.S. Department of Transportation from approving or 
9 funding all but a few specific types of transportation projects. The order of sanctions; offsets sanctions first, then highway sanctions, is documented in our regulations at 40 CFR
52.31. If sanctions have been imposed, they will be lifted when we determine, after the opportunity for public comment, that the deficiencies have been corrected. The imposition of sanctions
may be stayed or deferred based on a proposed determination that the State will correct the implementation deficiencies (40 CFR 52. 31 ( d I ( 4 I I . Also, under the authority of section
93.120 of the Conformity Rule (62 FR 43813, August 15, 1997), if we finalize the disapproval of the attainment demonstration SIP, a conformity freeze will be in place as of the effective
date of the disapproval without a protective finding of the budget. This means that no transportation plan, Transportation Improvement Plan (TIP), or project not in the first three years
of the currently conforming plan and TIP may be found to conform until another attainment demonstration SIP is submitted and the motor vehicle emissions budget 􀁾􀁳􀀠 found adequate.
In addition, if the highway funding sanction 􀁾􀁳􀀠 implemented, the conformity status of the plan and TIP will lapse on the date of implementation. No project level approvals or conformity
determinations can be made and no new transportation plan or TIP may be found to conform until another attainment demonstration SIP is submitted and the motor 
10 vehicle em•ss•ons budget is found adequate. How can Texas correct this deficiency? The State has an opportunity in the 2003 􀀷􀀸􀁾􀀠Legislative Session to develop funding mechanisms
that would provide sufficient funds for the TERP measures included in the currently approved SIP, which again account for approximately 16 tons per day of emission reductions. Alternatively,
the State can revise the State Implementation Plan by either adopting new measures to replace the TERP in its entirety, or by adopting new measures sufficient to account for any loss
in emission reductions associated with that portion of the TERP that is unfunded. Finding additional measures for the DFW area will be difficult because of the stringency of the existing
plan. Such measures could include implementing fuels measures, or implementing stricter transportation controls, such as "no d.ri ve" days w Administrative Requirements Executive Order
12866 The Office of Management and Budget {OMBJ has exempted this regulatory action from Executive Order 12866, entitled "Regulatory Planning and Review." Executive Order 13045 Protection
of Children from Environmental Health Risks and Safety Risks {62 FR 19885, April 23, 1997), applies to any rule 
11 that: Ill 1s determined to be "economically significant" as defined under Executive Order 12866, and (2) concerns an environmental health or safety risk that EPA has reason to believe
may have a disproportionate effect on children. If the regulatory action meets both criteria, the Agency must evaluate the environmental health or safety effects of the planned rule
on children, and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by the Agency. This rule is not subject
to Executive Order 13045 because it does not mitigate environmental health or safety risks. Executive Order 13132 Federalism (64 FR 43255, August 10, 1999) revokes and replaces Executive
Orders 12612 (Federalism) and 12875 (Enhancing the Intergovernmental Partnership). Executive Order 13132 requires EPA to develop an accountable process to ensure "meaningful and timely
input by State and local officials 1n the development of regulatory policies that have federalism implications." "Policies that have federalism implications" 1.s defined in the Executive
Order to include regulations that have "substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power
and responsibilities among the various levels of government.'' Under Executive Order 13132, EPA may not 
12 􀁾􀁳􀁳􀁵􀁥􀀠 a regulation that has federalism implications, that imposes substantial direct compliance costs, and that is not required by statute, unless the Federal government provides
the funds necessary to pay the direct compliance costs incurred by State and local governments, or EPA consults with State and local officials early 􀁾􀁮􀀠 the process of developing
the proposed regulation. EPA also may not 􀁾􀁳􀁳􀁵􀁥􀀠 a regulation that has federalism implications and that preempts State law unless the Agency consults with State and local officials
early in the process of developing the proposed regulation. This rule will not have substantial direct effects on the States, on the relationship between the national government and
the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132, because it merely ensures that a state
rule properly implements a federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. Thus, the requirements
of section 6 of the Executive Order do not apply to this rule. Executive Order 13175 This rule does not have tribal implications. It will not have substantial direct effects on tribal
governments, on the 
13 relationship between the Federal government and Indian tribes, or on the distribution of power and responsibilities between the Federal government and Indian tribes, as specified
in Executive Order 13175, entitled "Consultation and Coordination with Indian Tribal Governments" (65 FR 67249, November 6, 2000). Executive Order 13175 does not apply to this rule.
Executive Order 13211 Thus, This rule is not subject to Executive Order 13211, "Actions Concerning Regulations That significantly Affect Energy Supply, Distribution, or Use" (66 FR 28355,
May 22, 2001) because it is not a significant regulatory action under Executive Order 12866. Regulatory Flexibility The Regulatory Flexibility Act (RFA) generally requires an agency
to conduct a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements unless the agency certifies that the rule will not have a significant economic
impact on a substantial number of small entities. entities include small businesses, small not-for-for-profit enterprises, and small governmental jurisdictions. Small This rule will
not have a significant impact on a substantial number of small entities because SIP actions under section 110 and subchapter I, part D of the Clean Air Act do not create any new requirements
but simply act on requirements that the State 1s already 1mpos1ng. Therefore, because Federal SIP actions do not 
14 create any new requirements, I certify that this action will not have a significant economic impact on a substantial number of small entities. Moreover, due to the nature of the Federal-State
relationship under the Clean Air Act, preparation of flexibility analysis would constitute Federal inquiry into the economic reasonableness of state action. The Clean Air Act forbids
EPA to base its actions concerning SIPs on such grounds. Union Electric Co., v. U.S. EPA, 427 U.S. 246, 255-66 (1976); 42 U.S.C. 7410(a) (2). Unfunded Mandates Under sections 202 of
the Unfunded Mandates Reform Act of 1995 ("Unfunded Mandates Act"), signed into law on March 22, 1995, EPA must prepare a budgetary impact statement to accompany any proposed or final
rule that includes a Federal mandate that may result in estimated costs to State, local, or tribal governments in the aggregate; or to the private sector, of SlOO million or more. Under
section 205, EPA must select the most cost-effective and least burdensome alternative that achieves the objectives of the rule and is consistent with statutory requirements. Section
203 􀁲􀁥􀁱􀁵􀁾􀁲􀁥􀁳􀀠 EPA to establish a plan for informing and advising any small governments that may be significantly or uniquely impacted by the rule. EPA has determined that the
action proposed does not include a Federal mandate that may result in estimated costs of SlOO 
15 million or more to either State, local, or tribal governments 􀁾􀁮􀀠 the aggregate, or to the private sector. This rederal action proposes to take action on a State rule submitted
to comply with a statutory requirement. It does not establish any federal mandate with which the State must comply. ror the same reasons, EPA has determined that this rule contains no
regulatory requirements that might significantly affect small governments. National Technology Transfer and Advancement Act Section 12 of the National Technology Transfer and Advancement
Act {NTTAA) of 1995 requires rederal agencies to evaluate existing technical standards when developing a new regulation. To comply with NTTAA, EPA must consider and use "voluntary consensus
standards'' {VCS) if available and applicable when developing programs and policies unless doing so would be inconsistent with applicable law or otherwise impractical. The EPA believes
that VCS are inapplicable to this action. Today's action does not require the public to perform activities conducive to the use of VCS. List of Subjects in 40 erR part 52 Environmental
Protection, Air Pollution Control, Hydrocarbons, Intergovernmental Relations, Motor Vehicle Pollution, Nitrogen Oxides, Ozone, Reporting and Record Keeping 
16 Autho•ity: 42 u.s.c. 7401 et seq. Dated: July 25, 2002 Gregg A. Cooke, Regional Administrator, Region 6.