OPINION OF THE COURT
GARTH, Circuit Judge.
In this appeal we are presented with two questions. The first is whether the Environmental Protection Agency ("EPA") acted within its authority in withholding federal grant funds from the Middlesex County Utilities Authority ("MCUA") on the ground that the Borough of Milltown, whose sewage is treated by the MCUA's plant at Sayreville, New Jersey, has not adopted a system of user charges as required by the Federal Water Pollution Control Act Amendments of 1972, as amended, 33 U.S.C. §§ 1251 et seq. ("the Clean Water Act"), and its implementing regulations, 40 C.F.R. §§ 35.900 et seq. The second issue is whether — assuming that the EPA's decision to withhold funds does fall within its authority — the Clean Water Act unconstitutionally impairs a contract which Milltown has with the neighboring City of New Brunswick, a participating member of the MCUA, under which New Brunswick is responsible for disposing of Milltown's sewage
The present dispute stems from a decision by the MCUA to apply to the EPA for federal funds to assist it in the expansion and improvement of a sewage treatment facility that the MCUA operates. This plant, located in Sayreville, New Jersey, receives sewage from approximately twenty-five municipalities in three New Jersey counties, as well as from a number of industrial concerns. Currently, the MCUA is engaged in a construction project to install new lines and make other improvements which will allow the Sayreville plant to operate with less of an adverse impact on water quality.
To help defray the cost of these improvements, the MCUA applied to the EPA for federal grant funds pursuant to the Clean Water Act.
Under the user charge provisions of the Act, the EPA administrator is not to approve a grant
33 U.S.C. § 1284(b)(1) (Supp.1982) (hereinafter referred to as "section 204(b)(1)"). The EPA regulations specify what requirements a user charge system must meet in order to satisfy section 204(b)(1). In general, the user charge system proposed by a grantee such as the MCUA must, in order to meet approval, ensure that "each user ... pays its proportionate share of operation and maintenance (including replacement) costs of treatment works within the grantee's service area, based on the user's proportionate contribution to the total waste water loading from all users...." 40 C.F.R. § 35.929-1(a).
After making some payments to the MCUA pursuant to the grant agreement of August 30, 1976, the EPA determined that the MCUA was not complying fully with section 204(b)(1) of the Clean Water Act, or with the implementing regulations, as required by the terms of the grant agreement. The basis for this determination was the fact that the Borough of Milltown, whose sewage is treated by the MCUA at the Sayreville plant, has not adopted a user charge system.
City of New Brunswick v. Borough of Milltown, 519 F.Supp. 878, 881 (D.N.J.1981).
As a consequence of its determination that the MCUA was not in full compliance with the user charge requirement because Milltown, "a recipient of waste treatment services within the [MCUA's] jurisdiction," had not adopted a user charge system, the EPA began to withhold funds for the Sayreville project.
The legal challenge to the EPA's decision to withhold funds for the Sayreville project was brought into federal district court by a rather involved sequence of procedures and actions:
New Brunswick further alleged:
City of New Brunswick v. Borough of Milltown, 519 F.Supp. at 880-81 (footnote omitted).
All parties then moved for partial summary judgment on the federal issues presented by the litigation. In an order of September 9, 1981, the district court essentially ruled in favor of the EPA on the federal questions. In its accompanying opinion of August 11, 1981, the district court first held that under section 204(b)(1) Milltown is a "recipient" of waste treatment services from the MCUA. According "great deference" to the EPA's interpretation of the Clean Water Act, the district court held that "[t]he fact that Milltown itself does not directly place its own waste into the MCUA system or require that waste water be treated by the MCUA is not material"; Milltown's sewage is in fact
Such an interpretation of the statute, the district court reasoned, would fulfill what it found to be the twofold purpose of the user charge requirement of the Clean Water Act. By requiring that every recipient of waste treatment services pay its proportionate share of the treatment costs, section 204(b)(1) ensures that every facility built with federal financial assistance will be economically self-sufficient in its operations; moreover, the imposition of user charges provides an incentive to discourage excessive use of the sewage treatment system. In the present case, the district court held, the EPA's determination that adoption of a user charge system by Milltown should be a prerequisite to continued funding of the Sayreville improvements is consistent with those purposes:
519 F.Supp. at 883.
Having held that the EPA's withholding of funds falls within the scope of the statute and the regulations, the district court turned to the question whether "the [Clean Water] Act so interpreted unlawfully impairs Milltown's contract with New Brunswick or is otherwise invalid or contrary to public policy." 519 F.Supp. at 883.
Finally, having granted judgment in favor of the EPA and New Brunswick on the federal claims, the district court held that the remaining issues should be resolved by the state courts. Thus, rather than order Milltown either to adopt a user charge system or to cease sending its sewage to the MCUA's plant (as the EPA and New Brunswick had requested the court to do), the district court remanded the case to the
In considering the arguments of Milltown and the MCUA that the EPA's decision to withhold funds is unauthorized by the Clean Water Act, we are guided by the Supreme Court's repeated admonitions that "when faced with a problem of statutory construction," the courts should show "great deference to the interpretation given the statute by the officers or agency charged with its administration." Udall v. Tallman, 380 U.S. 1, 16, 85 S.Ct. 792, 801, 13 L.Ed. 616 (1965); see EPA v. National Crushed Stone Ass'n, 449 U.S. 64, 83-84, 101 S.Ct. 295, 66 L.Ed.2d 268 (1981). Thus, so long as the interpretation of the Clean Water Act propounded by the EPA "is reasonable and is consistent with the language and purpose of the legislation," Chrysler Corp. v. EPA, 631 F.2d 865, 884 (D.C.Cir.), cert. denied, 449 U.S. 1021, 101 S.Ct. 589, 66 L.Ed.2d 483 (1980), we will defer to that interpretation. See American Iron and Steel Institute v. EPA, 526 F.2d 1027, 1041 (3d Cir. 1975), modified on other grounds, 560 F.2d 589 (3d Cir. 1977), cert. denied, 435 U.S. 914, 98 S.Ct. 1467, 55 L.Ed.2d 505 (1978). In the present case, we agree with the district court that Milltown and the MCUA have failed to produce the "weighty reasons," Brewster v. Gage, 280 U.S. 327, 336, 50 S.Ct. 115, 117, 74 L.Ed. 457 (1930), that would be needed to persuade us to set aside the EPA's interpretation of the Clean Water Act.
Appellants' first contention is that the language of the Clean Water Act and the implementing regulations do not support the EPA's position that funds can be withheld from the MCUA based on Milltown's failure to adopt a user charge system. In support of this contention, appellants offer three arguments. First, Milltown argues that it cannot be deemed to be a "recipient" of the MCUA's waste treatment services within the meaning of section 204(b)(1). "Once the sewage crosses into New Brunswick," Milltown argues, "the sewage belongs to New Brunswick," not Milltown; thus it is New Brunswick, not Milltown, that "receives" services from the MCUA. See Brief of Milltown at 11-12. We think, however, that the district court was entirely correct in rejecting this argument: sewage generated in Milltown is in fact treated at the MCUA's Sayreville plant, and therefore the EPA's position is in no way inconsistent with the language of the statute in considering Milltown a "recipient," albeit an indirect one, of the MCUA's treatment services.
Second, both the MCUA and Milltown argue that even if Milltown can in this general sense be deemed a "recipient"
Like the term "recipient," the word "jurisdiction" is not defined in the statute. Nor, in our view, is there any clear legislative history indicating precisely what the phrase "within the applicant's jurisdiction" was intended to mean.
Finally, Milltown argues that the language of the EPA's own regulations clearly indicates that the "EPA itself ... did not intend to override an agreement such as that between Milltown and New Brunswick." Brief of Milltown at 24. Milltown points to 40 C.F.R. § 35.929-2(g), which provides in part that "[t]he user charge system shall take precedence over any terms or conditions of agreements or contracts between the grantee and users ... which are inconsistent with the requirements of section 204(b)(1)(A) of the [Clean Water] Act and these regulations." This regulation, Milltown argues, "was only intended to supersede inconsistent contracts to which the grantee (here MCUA) is a party, not contracts (such as that between Milltown and New Brunswick) to which the grantee is not a party." Brief of Milltown at 24. We are not presented here, though, with a case in which the basis for a determination of a failure to comply with section 204's requirements is a "contract between a grantee and a user." Thus for the very reason that Milltown's interpretation of section 35.929-2(g) appears correct, that particular regulation is simply irrelevant to the present case: the EPA is not basing its withholding of funds on any contract between the MCUA and Milltown.
In attempting to counter Milltown's argument concerning the regulations, the EPA relies on 40 C.F.R. § 35.929-2(e), which provides:
(Emphasis added.) It is possible that the underscored passage in this regulation was intended to require municipalities such as Milltown, whose sewage is treated by the grantee but who have no direct relationship with the grantee as a subscriber, to adopt user charge systems. On the other hand, it is also possible that the underscored passage simply refers to the implementation of a user charge system by the municipal subscribers to a regional waste treatment facility. Were the regulations more lucid, this section might well provide an alternative ground for our decision. Given its lack of clarity, however, our decision that Milltown is a recipient rests not on 40 C.F.R. § 35.929-2(e), but on the plain meaning of the statute, its intended goals, and the agency's interpretation of its mandate.
Appellants' second contention concerning the proper interpretation of the Clean Water Act is that even if the statutory language itself does not compel adoption of their reading of the Act, an analysis of the purposes of the Act clearly indicates that Congress' intent was such that the MCUA's eligibility for grant funds should in no way be jeopardized by the fact that Milltown has not adopted a user charge system. More specifically, the MCUA argues that the Clean Water Act, interpreted in light of its purposes, does not give the EPA the authority to withhold funds from a grantee because a relatively insignificant user with no direct relationship to the grantee fails to adopt a user charge system, Brief of MCUA at 19-39, and, alternatively, that even if the statute does give the EPA such authority, the agency's exercise of that authority constitutes an abuse of discretion on the particular facts of this case, id. at 39-43. The MCUA advances the same arguments in support of its abuse of discretion claim as it does for its claims concerning the proper interpretation of the statute, however, and we will consider the two claims together.
According to appellants, a literal or strict reading of the Clean Water Act, by which every municipality whose sewage is treated by the MCUA is considered to be a "recipient" of its services and so obligated to institute a system of user charges as a condition of the Sayreville project grant, contravenes, or at the very least does nothing to further, three important policies embodied in the Clean Water Act. The first policy is the congressional determination that because the massive job of cleaning up the nation's waters cannot be completed without generous federal financial assistance, Clean Water Act grants should not be denied on the basis of trivial matters over which the grantee has no control. The second policy is that of flexibility in adapting the grant requirements to "allow for such special and local variations in the legal and financial circumstances of a particular public grantee as those presented in the instant case." Brief of MCUA at 33. The third policy is that of ensuring that each federally-assisted waste disposal plant is efficient and economically self-sufficient in its operations. We consider the impact of each of these three policies in turn.
With respect to the first policy, the MCUA argues that in passing the Clean Water Act Congress made it clear that it believed that state and local governments could not reach the desired water quality standards without significant amounts of federal financial assistance. Section 101 of the Act, 33 U.S.C. § 1251, for example, states in part that "[i]t is the national policy
It is indisputable, of course, that the Clean Water Act evinces a clear congressional determination that the clean-up of the nation's waters is an important aim, one which requires large amounts of federal financial assistance to state and local governments. It is equally indisputable, though, that Congress placed a number of mandatory conditions on the receipt of such assistance. Indeed Title II is replete with conditions on the grant of aid to sewage construction works, conditions which, in the words of the Senate Report, are intended "to assure that such works are constructed and finally operated and maintained in a manner which will produce the best practicable application of treatment technology." S.Rep.No. 414 at 27, 1972 U.S.Code Cong. & Ad.News at 3693.
The MCUA, however, does not rely solely on the fact of its need for the funds; it also repeatedly asserts that Milltown's noncompliance is a trivial matter. In its brief before this court, the MCUA asserts that Milltown's sewage constitutes only one percent of the average daily gallonage flow at the Sayreville plant, and that the estimated cost of treating Milltown's sewage is only 4.7 percent of the total cost of treating the combined Milltown-New Brunswick sewage flow. Brief of MCUA at 12-13. Thus, the MCUA claims, even assuming that Congress did contemplate that an applicant for Clean Water Act funds would be turned down if it failed to comply with the Act's conditions in some important respect — no matter how great its need for federal assistance — Congress never intended to give the EPA the authority to withhold funds when such an applicant has demonstrated "substantial effectuation of a user charge requirement." Brief of MCUA at 34.
For similar reasons, we find unpersuasive the appellants' arguments concerning the flexibility that Congress intended the EPA to show in administering the Clean Water Act grant program. Both the MCUA and Milltown place heavy reliance on the Senate Report accompanying the Clean Water Act, which states:
S.Rep.No. 414, at 28, 1972 U.S.Code Cong. & Ad.News at 3695 (emphasis supplied).
Finally, appellants object to the district court's holding that requiring Milltown to adopt a system of user charges as a condition of the grant would serve the dual purposes of section 204(b)(1), which are to ensure that federally-assisted facilities become economically self-sufficient in their operations, and to promote water conservation by discouraging excessive use of the sewage system. 519 F.Supp. at 883, 885. According to appellants, the aim of financial self-sufficiency is fully assured even without adoption of a user charge system by Milltown; because New Brunswick pays for treatment of Milltown's sewage out of user charges imposed on businesses and residences within New Brunswick, there is no danger that the MCUA will suffer a shortfall in revenues. As the district court pointed out, however, should New Brunswick ever abrogate its contract and cease paying for the treatment of Milltown's sewage, the MCUA would indeed be faced with a revenue shortfall. 519 F.Supp. at 883.
Accordingly, we reject the appellants' arguments that the EPA's decision to withhold funds in this case contravenes the underlying policies of the Clean Water Act or constitutes an abuse of discretion.
Milltown's final contention is that if section 204(b)(1) does authorize the EPA's decision to withhold funds, that section unconstitutionally impairs the obligation of a contract.
The Clean Water Act provides for a grant of funds to the MCUA on the condition that the MCUA comply with certain requirements. Neither the statute itself nor the regulations contain any provision explicitly abrogating contracts such as that between Milltown and New Brunswick. Nor can it be said that section 204(b)(1) implicitly abrogates such contracts. In the present case, it is by no means clear that the EPA's withholding of funds from the MCUA on the basis of Milltown's failure to adopt a user charge system makes abrogation or impairment of the 1914 contract necessary or inevitable. First, the MCUA could forego funding under the Clean Water Act; nowhere in its pleadings or in its brief before this court has the MCUA alleged that completion of the Sayreville project or, for that matter, construction of the dewatering plant, would be impossible without federal funds. Rather, the MCUA has argued that a loss of federal funds will seriously burden it, will cause large and unanticipated increases in expenses to the municipalities participating in the MCUA, and so on. Second, while the MCUA has no control over Milltown, it could simply refuse to accept New Brunswick's sewage, and so qualify for federal funds (at least insofar as the EPA's objections to Milltown's failure to adopt a user charge system are concerned). Neither contingency is necessarily incompatible with New Brunswick's retaining responsibility for Milltown's sewage, as called for in the 1914 contract.
To be sure, neither course of action — foregoing federal funds or refusing to accept the New Brunswick-Milltown sewage — would likely be very palatable to the MCUA, Milltown, or New Brunswick as a financial matter, and both alternatives might make it significantly more difficult for the parties to comply with mandatory federal water quality standards. In that sense, it cannot be denied that the EPA's decision to withhold funds makes abrogation of the Milltown-New Brunswick contract a more attractive alternative than it might otherwise be. That fact alone, however, cannot constitute a sufficient basis for deeming section 204(b)(1) to impair the obligation of a contract, for "to hold that motive or temptation is equivalent to coercion [would be] to plunge the law in endless difficulties." Steward Machine Co. v. Davis, 301 U.S. 548, 589-90, 57 S.Ct. 883, 891-92, 81 L.Ed. 1279 (1937).
The reason why "temptation" cannot be deemed equivalent to "coercion" — that is, to contract impairment — is not hard to discern. As a general rule, it is clear that "Congress may fix the terms on which it shall disburse federal money to the States." Pennhurst State School & Hospital v. Halderman, 451 U.S. 1, 17, 101 S.Ct. 1531, 1540, 67 L.Ed.2d 694 (1981); see King v. Smith, 392 U.S. 309, 333 n.34, 88 S.Ct. 2128, 2141, 20 L.Ed.2d 1118 (1968). Moreover, while that power is not without limits, see 451 U.S. at 17 n.13, 101 S.Ct. at 1540, it is indisputable that the power to fix terms lies essentially with the Congress, and not with the federal courts. Yet because a great many if not all conditions on federal grants might very well have an impact on pre-existing contractual arrangements, to hold that every condition of a federal grant program that possibly enhances the likelihood that a contract will be breached is an "impairment of contract" in the constitutional sense, would be tantamount to ruling that virtually every federal funding statute is subject to the heightened judicial scrutiny that is invoked whenever the contract clause is implicated. As a result, no condition in a federal grant program could be upheld unless it was demonstrated to the satisfaction of the courts that the condition represented the only way to achieve an important state purpose. See generally Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 98 S.Ct. 2716, 57 L.Ed.2d 727 (1978); United States Trust Co. v. New
Accordingly, we decline to give the contract clause the expansive scope that Milltown urges upon us. As a matter of state law, the obligations of the 1914 contract remain untouched by the district court's decision; the user charge requirement of section 204(b)(1) and the applicable regulations do not by their terms purport to abrogate the Milltown-New Brunswick contract, nor do they inevitably require such impairment. In our view, that fact alone is a sufficient basis for rejecting Milltown's constitutional challenge to section 204(b)(1).
For the reasons expressed in this opinion, we will affirm the judgment of the district court.
Claiming that the question of whether the MCUA will in fact have to cease ocean dumping is currently being litigated in several cases pending in various federal district courts, however, the EPA asserts that, because it is not clear that the MCUA will ever have to build the dewatering plant, the question of whether the EPA may withhold funds for that project is not at issue in the present case. Brief of EPA at 4 n.2. On the other hand, though, we note that the district court, apparently referring to the dewatering project, specifically found that "[f]or the same reason [that it has withheld funds for the Sayreville project], the EPA has also refused to approve applications by the MCUA for new grants." City of New Brunswick v. Borough of Milltown, 519 F.Supp. 878, 881 (D.N.J. 1981). See also affidavit of Sol Seid, ¶ 9, Appendix at 88. We also note that the Clean Water Act provides for grants not only for actual construction, but also for planning and design, see generally Bosco v. Beck, 475 F.Supp. 1029, 1031 (D.N.J.1979), aff'd without opinion, 614 F.2d 769 (3d Cir.), cert. denied, 449 U.S. 822, 101 S.Ct. 81, 66 L.Ed.2d 24 (1980), so that refusal to approve grant funds could cause harm to the MCUA by "imped[ing] [it] in its progress towards [sic] a land-based alternative for the disposal of sewage sludge," Third Party Complaint of MCUA, Appendix at 22.
In any event, it makes little difference whether we consider the funds for the dewatering project to be technically "at issue" in the present case, for the EPA's actions with respect to the Sayreville improvements and the dewatering project raise precisely the same question: whether the EPA may withhold Clean Water Act grant funds from the MCUA because Milltown has not adopted a user charge system.
519 F.Supp. at 881 n.3. The MCUA objects to any reference to this other dispute, which is currently pending before this court in a separate appeal at No. 82-5116, on the ground that "the pleadings in this case do not raise an issue of default by any other participant in the system." Brief of MCUA at 15 n.*. We agree with the MCUA that the question of whether other municipalities whose sewage is treated by the Sayreville plant have complied with the user charge requirement is not before this court in the present case, and for that reason we do not take into account the alleged noncompliance of any recipient of the MCUA's services other than Milltown in determining whether the EPA is authorized to withhold funds for the Sayreville plant.
The MCUA's position with respect to remand is slightly less clear, but it does not appear that the MCUA contests the remand on appeal. In its "Amended Notice of Appeal," the MCUA did list the remand order as one of the issues it would contest on appeal. Appendix at 132. On the other hand, in its motion for summary judgment before the district court — the district court's disposition of which is now before this court on appeal — the MCUA limited itself to the federal issue of the EPA's authority to withhold funds based on Milltown's failure to adopt a user charge system. More important, in its opening brief and reply brief before this court, the MCUA has not made any mention of the remand, and accordingly appears to have decided not to contest the remand.
In view of the parties' positions with respect to this aspect of the district court's order, we have no occasion to address the issue of remand.
Similarly, the MCUA argues, the Clean Water Act should not be read as requiring the abrogation of a pre-existing contract between two users such as Milltown and New Brunswick, so long as the grantee has adopted a system of user charges for all other users.
The Garden State court, however, pointed to no authority in support of its reading of the Clean Water Act; nor are we aware of any. Rather, the Garden State court was influenced by its premise that if the regulation were held to be valid, the statute would violate the constitutional prohibition against the impairment of contracts. We reject that premise, see Part III, infra, and we reject the argument that the congressional policy of flexibility excuses the MCUA from effectuating full compliance with § 204(b)(1).
Appellants also rely upon Hotel Employers Ass'n v. Gorsuch, 669 F.2d 1305 (9th Cir. 1982), in support of their "flexibility" argument. Hotel Employers involved a challenge to the EPA's approval of a particular form of user charge system, a challenge which the court rejected on the ground that the EPA's interpretation of § 204(b)(1) had a "rational basis." In our view Hotel Employers stands for the proposition that the courts will defer to the EPA's exercise of the flexibility that it undoubtedly has in administering the Clean Water Act grants, and will not substitute their own judgment for the EPA's. Thus we read Hotel Employers as entirely consistent with our holding in the present case.