EPA Rescinds Order, Won’t Block State Road Funds : Environment: Dispute over smog program is deferred. The agency relents because of earthquake damage.

The Clinton Administration retreated Monday from a threat to withhold hundreds of millions of dollars in federal highway aid to California because of a dispute over how to reform the state’s automobile smog control program.

In a letter to Gov. Pete Wilson, EPA Administrator Carol M. Browner said that because of the urgency of rebuilding damaged roads and restoring the California economy after the Northridge earthquake, she will cancel an administrative order that would have denied California about $800 million in federal highway construction aid starting this spring.

Tom Epstein, a political adviser to President Clinton who had sought a quick resolution of the smog program issue, said, “Obviously, we don’t want to stop highway funding from coming into Southern California.”

Federal officials said, however, that the smoggiest regions of California still do not meet federal clean air requirements and that sanctions will be imposed next year if an acceptable smog program is not implemented.

The action delays an impending clash between the Environmental Protection Agency and the state over reforming the program for checking automobile emissions.

Negotiations between state and federal officials collapsed Jan. 7 when the agency announced it had started the process of imposing sanctions, including the cutoff of transportation funds.

The decision to cancel the threat came almost immediately after the earthquake last week as officials met at the White House to determine how best to help the state recover, Administration officials in Washington said.

In her letter, Browner told Wilson that the earthquake underscored the “importance of all levels of government working together to meet the health and safety needs of our constituents.”

But at the same time, she urged Wilson to veto a bill approved by the Legislature last week that would enhance the state’s ability to check vehicles for smog-causing emissions. EPA officials have insisted that California separate Smog Check and repair facilities, a feature not included in the bill on Wilson’s desk.

“I believe that if (the bill) is set aside, that by working together, we can reach a sensible solution,” Browner told Wilson.

A spokesman described Wilson as “gratified” that Browner had backed off, but said the governor still intends to sign the bill.

Elsewhere, in Sacramento, Browner’s action won general support.

“I think it is a goodwill gesture,” said V. John White, a Sierra Club lobbyist who supports the EPA’s position. “The imposition of sanctions seemed to drive people away from the negotiating table. I think EPA is using the pretext of the earthquake to send a more conciliatory signal.”

White and others said that federal highway funds earmarked for health and safety are exempt from the EPA sanctions. Even so, he said, he believed for political reasons that the Clinton Administration had to cancel the threat of EPA administrative sanctions.

Assemblyman Richard Katz (D-Sylmar), a lead negotiator and architect of the California bill, said that “given the fact that the EPA has backed off, I think the appropriate response is to take another run at getting a solution. I think we can resolve it in a relatively short time.”

Sen. Tom Hayden (D-Santa Monica), who led an environmental fight against passage of the bill, said canceling the sanctions merely delayed the showdown for another day.

“It means they are asking for the confrontation to be delayed in light of the earthquake,” Hayden said.

He and Browner separately noted that continued failure by California to comply with federal anti-smog standards would trigger a series of penalties mandated in federal law.

She said that as of June, 1995, the law imposes new restrictions on industrial sources of air pollution that expand their facilities or move. Such restrictions are widely feared as potential inhibitors of economic recovery.

Further, if California’s smog program is still found unacceptable by the EPA in January, 1996, the law imposes automatic cuts in highway construction funds to the state, said Doug Eisinger, an EPA official in San Francisco.

At the core of the issue is EPA insistence that California’s vehicle inspection and repair system be centralized. Currently, it is operated by 9,000 garages and service stations statewide where mechanics perform both inspection and repair functions.

The EPA maintains that the system is inefficient, too costly and contains an inherent conflict of interest for mechanics. Federal officials want repairs and inspections done at separate locations, an arrangement bitterly opposed by garage operators.

Under the EPA program, inspections would be performed by a centralized network of about 200 facilities. Repairs would be done elsewhere.

Times staff writers David Lauter in Washington and Daniel M. Weintraub in Sacramento contributed to this report.