Environmental Protection: Status of EPA's Initiatives to Create a New
Partnership With States (Testimony, 02/29/96, GAO/T-RCED-96-87).

GAO discussed the Environmental Protection Agency's (EPA) initiatives in
response to the National Academy of Public Administration's
recommendations to change the nation's approach to environmental
protection, focusing on EPA attempts to improve its relationship with
states. GAO noted that: (1) EPA plans to create a National Environmental
Performance Partnership System, which would fundamentally change the
EPA-state relationship by setting new goals for environmental protection
and giving states broad flexibility to meet them; (2) although this
system should allow states more input in decisionmaking, provide for
joint planning, and reduce EPA oversight of states that perform well, it
is too soon to assess the effectiveness of these partnership agreements;
(3) states' attempts to integrate their regulatory activities across
programs show potential for reducing pollution and increasing regulatory
efficiency; and (4) EPA believes that its proposed consolidated grants
should alleviate problems caused by inflexible federal fund allocations
and duplicative reporting requirements.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-RCED-96-87
     TITLE:  Environmental Protection: Status of EPA's Initiatives to 
             Create a New Partnership With States
      DATE:  02/29/96
   SUBJECT:  Federal/state relations
             Environmental policies
             State-administered programs
             Grants to states
             Environmental monitoring
             Cost control
             Mission budgeting
             Block grants
IDENTIFIER:  NPDES
             EPA National Pollutant Discharge Elimination System
             Performance Partnership Grant
             EPA National Environmental Performance Partnership System
             Massachusetts
             New Jersey
             New York
             
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Cover
================================================================ COVER


Before the Subcommittee on VA, HUD, and Independent
Agencies, Committee on Appropriations
U.S.  Senate

Hearing Held at
10:00 a.m.  EST
February 29, 1996
Statement Submitted
February 29, 1996

ENVIRONMENTAL PROTECTION:  -
STATUS OF EPA'S INITIATIVES TO
CREATE A NEW PARTNERSHIP WITH
STATES

Statement for the Record by
Peter F.  Guerrero, Director,
Environmental Protection Issues,
Resources, Community, and Economic Development Division

GAO/T-RCED-96-87

GAO/RCED-96-87T


(160342)


Abbreviations
=============================================================== ABBREV

  EPA - x
  NAPA - x

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

We appreciate the opportunity to discuss several initiatives of the
Environmental Protection Agency (EPA) as the Subcommittee reviews the
agency's implementation of the National Academy of Public
Administration's (NAPA) April 1995 recommendations to change the
nation's approach to environmental protection.  As you know, we
testified last May before this Subcommittee on two major issues that
NAPA discussed in its report to the Congress:  EPA's ability to
target its resources to the nation's highest environmental priorities
and its working relationship with the states.\1

Today, I would like to discuss EPA's actions to improve the EPA-state
relationship.  In addition, I would like to highlight the findings of
a report\2 that we issued last month on three states' efforts to
achieve efficiencies in environmental programs by integrating their
regulatory activities across programs. 

In summary: 

  EPA has improved its relations with the states and continues to
     take actions to address this problem.  These actions include
     plans to create a National Environmental Performance Partnership
     System that allows states more input into program decisions and
     reduces EPA's oversight of states that perform well.  In
     addition, EPA has proposed legislative authority to establish
     "Performance Partnership" grants that would permit the states to
     consolidate multiple grants from EPA into one, potentially
     giving them more flexibility in using the funds.  Both of these
     efforts will help address recommendations we made in our 1995
     report\3 for improving the use of available program funds and
     EPA's oversight of state environmental programs.  However, it is
     too soon to determine the effectiveness of these efforts because
     the consolidated grants have not yet been authorized, and states
     have been slow to accept the National Environmental Performance
     Partnership System until they know more about how it will work. 

  Our report on the efforts of Massachusetts, New Jersey, and New
     York to integrate their regulatory activities across programs
     (integrated environmental management) shows potential for
     reducing pollution and increasing regulatory efficiency. 
     Officials of each of the states and representatives of
     industries located in these states generally reported positive
     results from their use of integrated management approaches. 

However, the integrated approaches also brought into focus certain
problems with the current federal-state relationship, including the
lack of flexibility in both the way federal funds are allocated to
programs and EPA's requirements for reporting on program activities. 
The states have been required to engage in extensive discussions and
negotiations to obtain funds for these activities, and duplicative
reports have been required on the results achieved in order to
satisfy the requirements of individual environmental statutes.  EPA
officials believe that the agency's proposed consolidated grants
would provide states with easier access to funding for these types of
activities and promote the integrated reporting of their activities. 


--------------------
\1 Environmental Protection:  Current Environmental Challenges
Require New Approaches (GAO/T-RCED-95-190, May 17, 1995). 

\2 Environmental Management:  An Integrated Approach Could Reduce
Pollution and Increase Regulatory Efficiency (GAO/RCED-96-41, Jan. 
31, 1996). 

\3 EPA and the States:  Environmental Challenges Require a Better
Working Relationship (GAO/RCED-95-64, Apr.  3, 1995). 


   BACKGROUND
---------------------------------------------------------- Chapter 0:1

Over the years, the Congress has enacted over a dozen environmental
statutes to protect human health and the nation's air, land, and
water from pollutants.  EPA is charged with implementing these
statutes and their associated regulations.  EPA, in turn, has
delegated a growing number of its responsibilities to the states. 
Since the 1970s, states have expressed concerns about the burden of
EPA's oversight and reporting requirements and the lack of
flexibility in federal requirements to deal with local problems. 
These concerns have been exacerbated as the states have been given
greater responsibility without a commensurate increase in federal
assistance. 

The statutes, regulations, and requirements that EPA places on the
states are generally medium-specific.  That is, a different set of
statutory, regulatory, and EPA requirements is generally established
to protect the air, water, and land, often without adequate
consideration of the impact of one set of requirements on another. 
The integrated environmental management concept allows the states the
flexibility to manage their activities across programs or media to
establish priorities and achieve efficiencies. 

Our 1995 report called for EPA to address the states' need for
flexibility by working with individual states to, among other things,
establish (1) how limited resources can be used most effectively and
efficiently and (2) the level of oversight that takes into account
the states' ability to fulfill their environmental obligations.  In
addition, we recommended that EPA's offices consult the states as
early as possible before important policy decisions are made and
share information on issues of interest and concern. 

NAPA's principal recommendations for enhancing the EPA-state
partnership also focused on increased flexibility for states.\4
Specifically, NAPA recommended that EPA, among other things, revise
its approach to oversight, rewarding high-performing states with
grant flexibility, reduced oversight, and greater autonomy.  NAPA
also recommended that the Congress authorize EPA to consolidate
program grants into an integrated environmental grant for those
states whose performance warrants it.  The grant's purpose would be
to make the greatest possible reductions in risks to human health and
the environment. 

On May 17, 1995, EPA announced plans to create a National
Environmental Performance Partnership System.  This system is to
fundamentally change the EPA-state relationship by setting new goals
for environmental protection and giving the states broad flexibility
to meet them.  More specifically, the new system places greater
emphasis on the use of environmental goals and indicators, calls for
environmental performance agreements between EPA and individual
states, provides opportunities for less oversight of state programs
that exhibit high performance in certain areas, and establishes a
greater reliance on environmental and programmatic self-assessments
by the states.  The plans were developed by a joint EPA-state task
force. 


--------------------
\4 Setting Priorities, Getting Results:  A New Direction for EPA
(National Academy of Public Administration, Apr.  1995). 


   EPA HAS IMPROVED ITS RELATIONS
   WITH THE STATES BUT BARRIERS
   REMAIN
---------------------------------------------------------- Chapter 0:2

As we noted in our April 1995 report, EPA requires a good working
relationship with the states because it relies upon them to manage
most federal environmental programs.  We believe that the
historically poor EPA-state relationship has improved, but it
continues to be strained, and program implementation suffers as a
result.  While state and federal program managers agree
overwhelmingly that meeting the costs of environmental programs is
their most important challenge, an improved EPA-state relationship
could help by making program management more efficient and
cost-effective.  In addition, the states have criticized EPA's
oversight as micromanagement of state programs.  EPA has taken
positive, though tentative, steps toward improving its relationship
with the states, in particular trying to provide the states with the
flexibility to achieve cost efficiencies and to address the states'
priorities.  However, one of the root causes of the agency's past
problems--a prescriptive, media-based legislative framework--remains
firmly in place. 


      MEETING THE INCREASING COSTS
      OF ENVIRONMENTAL PROGRAMS
-------------------------------------------------------- Chapter 0:2.1

The costs of implementing federal environmental requirements are
significantly impacting the budgets of many state governments.  For
example, EPA estimated a nationwide $154 million shortfall in the
National Pollutant Discharge Elimination System (NPDES) for fiscal
year 1995.\5 The financial gap between environmental programs' needs
and available resources has become the central issue in the states'
ability to meet the programs' requirements and in the states'
relationship with EPA.  This has become the central issue because
prescriptive statutory, regulatory, and internal EPA requirements
often exacerbate the resource problem by limiting the states'
flexibility to pursue cost-effective environmental strategies.  To
help the states make the best use of available program funds, in our
1995 report we recommended that EPA's program offices work with the
states--within the limitations of existing environmental law--to
identify how each state's resources can be most efficiently and
effectively allocated within each program to address the state's
highest-priority environmental problems.  Such an approach could be
enhanced by integrating the statutory framework within which the
states and EPA operate to allow the flexibility to set priorities
across individual programs. 

In response to this problem, a major component of EPA's National
Environmental Performance Partnership System is a joint planning and
priority-setting dialogue with the states that is intended to replace
the current annual work plan process.  This dialogue, known as
Environmental Performance Partnership Agreements, is to be based on
the analysis and strategic direction set by EPA's national and
regional program managers, as well as by the states.  Among other
things, it includes joint EPA-state planning and priority setting,
which should increase the states' input, and increased use of
environmental goals and indicators, which could help provide some
flexibility to program management.  EPA plans for all states to have
these agreements by fiscal year 1997.  In theory, the use of these
agreements to increase state input and flexibility could improve
EPA's relations with its state partners and reduce the costs of
implementing federal environmental programs. 

It is difficult to assess the effectiveness of the Performance
Agreements thus far because implementation began only recently.  As
of February 1996, 5 agreements have been completed; 12 others are
under discussion.  One problem that EPA and the states likely face
with the agreements is that current law imposes requirements on EPA
that, at times, are inconsistent with the states' priorities.  In our
May 1995 testimony, we stated that providing EPA with greater
flexibility to integrate environmental requirements represents a key
approach to reconciling state and federal environmental concerns. 


--------------------
\5 Under the Clean Water Act, the NPDES program limits the discharge
of pollutants into U.S.  waters. 


      IMPROVING EPA'S OVERSIGHT OF
      OF STATE PROGRAMS
-------------------------------------------------------- Chapter 0:2.2

As we pointed out in our April 1995 report, many state officials
believe that EPA dominates the federal-state relationship, frequently
imposing federal mandates over the states' priorities, routinely
second-guessing the states' decisions, dictating the programs'
activities, and failing to involve the states in major policy
decisions.  As the states' resources have grown ever tighter,
disagreements over the various programs' priorities have become more
and more frequent.  State program managers maintain that EPA's
inflexible approach is a major impediment to managing environmental
programs efficiently.  EPA officials maintain that legislative
mandates and timetables frequently leave them with little or no
latitude to explore what might be more cost-effective alternatives
with the states.  To improve EPA's oversight of state programs, our
report recommends that EPA's regional offices negotiate with each
state a level of oversight that takes into account the ability of the
state to fulfill its environmental program obligations (e.g., its
track record in meeting key requirements or its staffing and
funding).  As we recommended in our April 1995 report, as a general
rule, EPA should focus on achieving improvements in environmental
quality--as measured by reliable environmental indicators--without
prescribing in detail how the states are to achieve these results. 

EPA's National Environmental Performance Partnership System
initiative embodies these recommendations by instituting differential
levels of oversight based on the states' conditions and performance. 
EPA's oversight under the new system is supposed to focus on
programwide, limited, after-the-fact reviews, rather than on
case-by-case intervention.  EPA plans for all states to participate
in the new system by having Performance Agreements in place by fiscal
year 1997.  Although 17 states have indicated that they intend to
negotiate these agreements with EPA this year, several states have
opted not to participate because they are skeptical about EPA's
ability to implement such a plan as intended. 

While the Performance Agreements and other aspects of the National
Environmental Performance Partnership System have the potential to
create a more effective EPA and state working relationship, EPA has
been trying for years, with only limited success, to make these types
of improvements.  And much work remains to reach agreement with the
states on environmental goals and measures and how the states'
programs will be assessed and problems corrected.  A larger concern
is that during implementation of the new system or over
time--especially in negotiating performance agreements with
individual states--EPA program and regional officials will add back
the types of controls and other requirements that the system is
designed to eliminate. 


   STATES' LACK OF FLEXIBILITY
   LIMITS EFFORTS TO INTEGRATE
   REGULATORY ACTIVITIES
---------------------------------------------------------- Chapter 0:3

One of NAPA's principal observations is that progress in protecting
the environment depends on devolving responsibility to the states for
administering environmental programs.  NAPA concluded that EPA, in
consultation with the Congress, should accomplish this goal by moving
toward integrating its responsibilities under various statutes to
provide the maximum flexibility needed by the states to meet their
environmental priorities.  As mentioned earlier, the states have long
asserted that EPA places inflexible, overly prescriptive
environmental requirements on them to control the amount of pollution
released to the air, water, and land. 

EPA and the states have recently experimented, within the limits of
environmental laws, with integrated environmental management, a
concept under which a state focuses on a whole facility and all of
its sources of pollution, rather than on a medium-specific source of
pollution.  For example, rather than performing multiple inspections
for various environmental media, a state can incorporate inspections
for all media into a single, facilitywide inspection that focuses on
the production processes.  The proponents of integrated management
believe that the approach saves money by consolidating activities and
reduces pollution by focusing on prevention rather than on various
control methods, such as installing devices to treat waste after it
has been produced. 

To determine the results being achieved under integrated management
approaches, we recently completed a review of initiatives taken by
Massachusetts, New York, and New Jersey to integrate their
environmental inspection, permit, and enforcement regulatory
activities.  In summary, we found that these efforts, while generally
successful, were hampered by EPA funding and reporting requirements
linked to individual federal environmental statutes. 

In 1993, Massachusetts implemented a facilitywide inspection and
enforcement approach; in 1992, New York adopted a facility management
strategy under which a team directed by a state-employed manager is
assigned to targeted plants to coordinate all environmental programs;
and in 1991, New Jersey initiated a pilot study of using a single,
integrated permit for releases of pollutants from industrial
facilities, rather than separate permits for each medium. 
Massachusetts and New York believe that their integrated approaches
have proven to be successful and are implementing them statewide. 
Because permits have only recently been issued as part of New
Jersey's integrated approach, officials in that state believe that it
is too early to evaluate the results of the pilot study.  Industry
officials in the three states told us that they generally believe
that integrated approaches are beneficial to the environment, achieve
regulatory efficiencies, and reduce costs.  For example, a New Jersey
pharmaceutical manufacturer told us that its 5-year permit combines
70 air and water permits into a single permit, eliminating the need
for the company to frequently renew each of the many permits. 

Although the states have had generally favorable experiences in their
multimedia approaches, one sticking point has been coordinating the
funding and reporting of these activities with EPA.  Although there
is some flexibility in EPA's grant system to fund multimedia
activities from EPA's media-specific grant program, doing so has been
difficult and has required the states to engage in extensive
discussions and negotiations to obtain funds for these activities. 
For example, obtaining grant funds for a Massachusetts demonstration
project required not only EPA's approval but congressional
authorization as well to shift funds from other activities. 

Furthermore, states can experience difficulty in reporting multimedia
activities to EPA, as required under various environmental statutes. 
For example, while Massachusetts conducts facilitywide inspections
and prepares comprehensive reports detailing the results, EPA
requires the state to report the results to multiple medium-specific
reporting systems, each of which has different formats, definitions,
and reporting cycles.  According to a Massachusetts environmental
official, preparing these duplicative reports wastes resources and
demoralizes staff. 

The new Performance Partnership grant program proposed in EPA's
fiscal year 1996 budget request could resolve the funding and
reporting issues.  Such grants are a step in the direction of NAPA's
recommendation that the Congress should authorize EPA to consolidate
categorical grants into an integrated environmental grant for any
state whose performance warrants it.  EPA believes that its
consolidated grants would provide the states with easier access to
multimedia funding and promote the reporting of their activities to
integrate the management of facilities.  For example, the grants
would allow the states to allocate funds to reflect local priorities,
while continuing to pursue national policy objectives and fulfilling
federal statutory requirements.  They would also include new
performance measures to simplify reporting requirements, while
ensuring continued environmental protection. 


   OBSERVATIONS
---------------------------------------------------------- Chapter 0:4

As long as environmental laws are media-specific and prescriptive and
EPA personnel are held accountable for meeting the requirements of
the laws, it will be difficult for the agency to fundamentally change
its relationships with the states to reduce day-to-day control over
program activities.  This situation was manifested in the funding and
reporting problems that resulted from the recent efforts of
Massachusetts, New York, and New Jersey to integrate their
environmental management activities.  However, within the flexibility
provided by existing environmental statutes, initiatives such as
EPA's National Environmental Performance Partnership System and its
proposed Performance Partnership grants have the potential to
ameliorate problems for those states interested in obtaining greater
flexibility in carrying out their environmental responsibilities. 


*** End of document. ***