EPA Begins Steps to Penalize State Over Smog Plans : Pollution: Action against California comes even though state and federal officials are close to a compromise.

The Clinton Administration on Friday started the process of withholding federal highway funds and imposing other strict economic sanctions on California, Illinois and Indiana for failing to overhaul their state Smog Check programs.

Under the action proposed by the U.S. Environmental Protection Agency, the federal government on June 15 could freeze more than $1.5 billion a year in highway funds allocated for the three states unless their lawmakers adopt bills that improve their policing of automobile tailpipe emissions. California stands to lose as much as $800 million a year.

Among state officials in Sacramento, reaction was swift. Top officials in the Wilson Administration and some members of both parties in the Legislature attacked the EPA, saying the federal action was tantamount to war.

Mary Nichols, the EPA’s assistant administrator for air and radiation, told The Times that the Clinton Administration “has no choice” under the Clean Air Act than to take the action. The EPA gave California a two-month reprieve to fix its program in November, even though the Clean Air Act requires states to have more stringent car inspection programs in place by January, 1995.

Nichols stressed, however, that she is confident that such dire action will be averted in all three states.

“There is every reason to expect that we will never impose these sanctions,” Nichols said. “All we’re doing now is starting a time clock, which will result in sanctions next spring if we don’t get a bill passed. But I emphasize that I think we will get one before then. I really want to emphasize how very preliminary this action is.”

The federal action comes at a time when a team of California legislators, Gov. Pete Wilson’s aides and EPA officials say they are close to agreeing on a compromise bill that will be sent to the Legislature. The compromise is designed to clean up the worst exhaust-belching cars without putting California’s 9,000 Smog Check stations out of business.

California’s massive Smog Check program--mandated by federal law and administered by state government--requires motorists to have their vehicles tested every two years and repaired if limits on smog-causing gases are exceeded.

For years, the program has been criticized as being plagued by fraud and for failing to identify and fix the worst polluting cars. Although all sides agree that it needs fixing, the conflict between the federal government and state officials centers on how to do it.

Much of the debate focuses on whether the same service stations that administer the tests should be allowed to continue handling repairs.

Assemblyman Richard Katz (D-Sylmar), a leading negotiator, said the EPA’s move toward sanctions could anger so many state leaders that it will short-circuit the progress that has made.

“EPA is snatching defeat from the jaws of victory,” Katz said. “I don’t see why the EPA feels the need to prove it’s the biggest kid on the block. . . . Particularly for people who don’t like the compromise, it could be a convenient excuse to go to war on this thing.”

James M. Strock, Wilson’s secretary for environmental protection, called the proposed sanctions “inexplicable” and a “foolish action by the federal government.”

Strock said the Wilson Administration now will have to “take a second look” at the proposed compromise because it raises “a question of good faith and even competence” of EPA officials in the negotiations.

“We believe we are very close to an agreement; we expected it as early as Tuesday. But now, with no reason I can understand, they imposed sanctions that are not required by law but lie fully with the discretion of the (EPA) administration,” Strock said.

“At this point, one has to wonder if there is any point to continuing the negotiations.”

But Sen. Robert Presley (D-Riverside), who authored a bill revamping Smog Check and has been trying for months to get state leaders to agree, said “the EPA has been very patient and cooperative with California to this point.”

“The (sanctions) process still allows plenty of time . . . to reach agreement on an acceptable proposal,” he said.

Rep. Henry A. Waxman (D-Los Angeles), co-author of the Clean Air Act, endorsed the move toward sanctions, calling it “a wake-up call to Gov. Wilson and the California Legislature.”

Environmental groups also applauded the EPA’s action.

“It’s overdue and we’re happy to see them do it. It’s a sign that the EPA will obey the federal Clean Air Act,” said Gladys Meade, a longtime clean air advocate with the American Lung Assn. of California.

The EPA will hold a public hearing on the sanction proposal March 3 at the Los Angeles Department of Water and Power. The final action by the EPA on whether to impose the sanctions will come May 15, and the penalties could go into effect a month later, Nichols said.

California is the furthest behind of the three states in overhauling its auto inspection program. The Indiana and Illinois legislatures, Nichols said, must make minor technical and funding revisions, while California’s Legislature still must agree on a complete overhaul.

The EPA believes that California should replace the thousands of privately owned Smog Check stations with a network of centralized test-only centers overseen by the state and equipped with sophisticated equipment. Cars that fail the tests would have to be taken to independent mechanics for repairs. The EPA says separating the inspections from the repairs is the best way to minimize fraud and clean up more exhaust.

But Wilson and most legislators want to retain the 9,000 independent stations and enhance the program with random roadside inspections using a technology called remote sensing to catch the worst polluters. They say the EPA’s approach of test-only centers would inconvenience motorists and be less successful in targeting the dirtiest cars.

In the proposed compromise, 30% of California cars would undergo enhanced testing at the centralized stations, increasing to 60% in 1996 unless the state can prove the program of random roadside testing works.

Nichols said some details are still being debated but that the compromise looks good to the EPA.