the regulated community, but to the general public. We have found, for example, that in the case of many Superfund cleanup decisions, local communities had no idea what assumptions, particularly exposure assumptions, were incorporated into EPA's analysis.

Finally, we hope the Congress will take to heart NAPA's recognition of the limits of risk assessment and cost-benefit analysis tools. These tools help decision-makers make decisions, but they do not themselves provide answers. Once again, the notion that use of these tools will readily dictate actions is a myth. EDF supports using risk assessment and cost-benefit analysis, but we urge the Congress to heed NAPA's warning that these tools are not a "cure-all solution."

CONCLUSION

Once again, we commend NAPA for its analysis and recommendations to advance environmental protection goals at EPA. However, we regret that the report failed to provide sufficient attention to significant trends that could seriously hamper the agency's performance in the future: alienation of the general public, failure to develop innovative solutions for complex problems, and severe reductions in governmental resources. In our view, EPA and the Congress must aggressively seek ways to leverage all of its resources to squeeze out as much environmental protection as possible. That means convincing and empowering the public to help with education and understandable information. It means developing the tools and technologies to allow market-mechanisms and flexible, performance-based systems to work dependably. And, it means requiring EPA to open its books to its stakeholders to reveal the very real limits on its ability to continue environmental business as usual.

PANEL IV

STATEMENT OF PETER F. GUERRERO, DIRECTOR, ENVIRONMENTAL PROTECTION ISSUES, RESOURCES, COMMUNITY, AND ECONOMIC DEVELOPMENT DIVISION, GENERAL ACCOUNTING OFFICE

Senator BOND. Finally, our final panelist is Mr. Peter Guerrero of the General Accounting Office.

Welcome, Mr. Guerrero. We are delighted to have you with us. Mr. GUERRERO. Thank you, Mr. Chairman, and thank you for providing this important forum to discuss these issues today.

It is now almost 25 years since by executive order EPA was created. Over these 25 years, the Nation has seen substantial improvement in the quality of its environment, thanks to the efforts of the Congress, which had the wisdom to enact a framework of laws protecting the environment, and to the EPA, which has labored hard to implement those laws.

Increasingly, however, as you have heard this morning, questions are being raised about a fundamental issue. Is the current system of environmental protection, including the EPA itself, well suited to the challenges of the future?

The recently issued NAPA report raises important questions in this regard, and so does our recent report on EPA-State relations. Today, while opinion polls show consistently high public expectations for environmental protection, State and local governments, business and the general public are questioning the approaches being used to protect the environment.

Beginning with our general management review in 1988, the GAO has strongly supported a more cost-effective, flexible way to protect the environment.

While EPA has made progress on a number of fronts in response to specific environmental problems, our work has shown that new approaches are clearly needed to address deeply entrenched problems and the escalating costs of solving them.

These approaches include setting program and budget priorities on the basis of risk, measuring the environmental outcomes of EPA programs, using pollution prevention, market incentives and other nonregulatory methods whenever possible, and providing greater flexibility to State and local communities to do what makes the most sense given their particular set of environmental circumstances.

The recent NAPA report comprehensively and accurately analyzes EPA's role and provides a good foundation for moving toward new approaches to environmental protection. My prepared statement focuses on two issues discussed in the NAPA report.

The first is EPA's ability to target resources to address those highest environmental priorities and the second is the issue of EPA-State relations.

EPA has not been able to target its resources as efficiently as possible, because its environmental programs are not well integrated.

This lack of integration stems from the fact that a dozen or so environmental statutes that form the backbone of EPA's programs are not themselves well integrated.

In addition, the agency lacks coordinated systems for planning, budgeting and evaluating that would allow it to allocate its resources to areas resulting in the greatest reduction of risk to human health and the environment.

The current and past three administrators have recognized this problem and have taken preliminary steps to improve EPA's strategic planning capabilities.

I would like to now turn to the important issue of EPA's working relationship with the States. As a practical matter, EPA cannot operate environmental programs alone. It needs State assistance because States have been delegated the responsibility to implement most Federal environmental laws.

However, the relationship between EPA and State environmental agencies has long been strained. For States, the overarching problem is the growing cost of administering environmental programs, and the difficulties caused by these resources shortages are sometimes heightened by poor Federal-State relations.

Our work shows that several major obstacles hinder the development of better EPA-State cooperation. They involve the nature and extent of Federal oversight, EPA's failure to adequately involve States in decisionmaking and a lack of technical assistance.

When GAO contacted State officials, they complained about Federal mandates inconsistent with State priorities, which resulted in the inefficient use of State resources. As resources have grown tighter, these philosophical disagreements over program priorities have become more frequent.

Likewise, over 80 percent of the State officials we contacted told us that EPA needed to do a better job of routinely consulting the States on key issues, such as new regulations for policies affecting them directly.

And some 63 percent of State managers found EPA's controls excessive, resulting in what they characterize as EPA's micro-management of their programs.

Mr. Chairman, the NAPA report correctly notes that both States and localities have developed substantially greater capacity to address their environmental problems over the last two decades.

In 1988, we recommended that EPA adopt a flexible oversight approach, which would mean less involvement with high capacity States and more involvement with those lacking capacity.

NAPA also supports what it calls a differential oversight, whereby the States with the best programs, the most responsible businesses, the most satisfied citizens and best environmental results would receive greater autonomy and discretion to run their own programs. EPA is taking two concrete steps in this direction.

First, it will replace existing categorical grants with performance partnerships that will provide States with greater flexibility in directing Federal funds where they are most needed.

Second, EPA and the States have drafted a joint commitment to reform State oversight by tailoring EPA's oversight to match States' capability and by focusing both EPA and the State efforts on activities of greatest environmental value.

These two steps are moving EPA and the States toward a more productive working relationship.

In conclusion, the environmental challenge facing the Nation today requires that we rethink our current approach to environmental protection.

PREPARED STATEMENT

Central to the success of this endeavor will be more effective targeting of resources to the most pressing problems and improved capacity to measure what we have accomplished, more flexible regulatory approaches to achieving environmental goals, and an improved Federal-State partnership.

This concludes my statement. Thank you.

Senator BOND. Thank you very much, Mr. Guerrero. [The statement follows:]

PREPARED STATEMENT OF PETER F. GUERRERO

Mr. Chairman and Members of the Subcommittee: We appreciate the opportunity to testify before this Subcommittee as it reviews the management and direction of the Environmental Protection Agency (EPA). My testimony today is based on studies of environmental issues that we have issued over the past several years, including a recent report on EPA's relationship with the states. In my remarks, I will point out connections between our findings and those of the National Academy of Public Administration's (NAPA) recent review of EPA. As you know, we have examined many of the issues that NAPA addressed.

We believe that the NAPA report comprehensively and accurately analyzes EPA's central role in protecting the nation's environment and provides a good foundation for charting the future course of environmental management. Today, I would like to focus on two major issues discussed in the NAPA report: (1) EPA's ability to target its resources to the nation's highest environmental priorities and (2) EPA's relationship with the states.

In summary, our work has found the following:

-EPA has not been able to target its resources as efficiently as possible to the nation's highest environmental priorities because it does not have an overarching legislative mission and its environmental responsibilities have not been integrated. Furthermore, the agency has not established coordinated systems for planning, budgeting, and evaluating that would help it allocate its resources to reduce the greatest risks to human health and the environment. —EPA requires a good working relationship with the states because it relies upon them to manage most federal environmental programs. However, the relation

ship between the federal and state environmental agencies has been strained by differences over priorities for spending limited resources. In addition, states have criticized EPA for imposing federal mandates at the expense of state priorities, failing to involve states in decision-making, and making too little technical assistance available to the states.

Before discussing these issues in more detail, I would like briefly to review the fiscal and legislative context in which EPA operates and summarize the findings of the NAPA review.

BACKGROUND

Like other federal agencies, EPA is charged with implementing federal mandates in an era of constrained resources. At both the federal and the state levels, the available resources are not sufficient to carry out all of the requirements. Hence, both the federal and the state environmental agencies have to choose among responsibilities and identify their highest priorities for funding.

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 identified pollutants. EPA is charged with implementing these statutes and their associated regulations. EPA, in turn, delegates many of its responsibilities to authorized states but retains its authority to oversee the states' implementation of federal environmental requirements.

As specified in the Conference Report to EPA's fiscal year 1994 appropriations, EPA requested that NAPA review the agency's allocation of resources and determine whether it is addressing the nation's most pressing environmental problems. EPA also asked NAPA to examine the impact of the agency's organizational structure on meeting environmental priorities, the role of risk assessment in regulatory decisionmaking and priority-setting, and the agency's relationship with states and communities.

NAPA's 1995 report concluded that the United States has made significant progress in reducing pollution from the biggest and most obvious sources, but that the rate of progress will slacken considerably unless profound changes are made in the legal foundation and management structure of EPA. The report recommended greater flexibility for EPA in carrying out its statutory mission and, in turn, more responsibility and decision making authority for states and localities. NAPA further recommended that EPA support legislation to provide flexibility and accountability to the private sector and local governments in exchange for better-than-required performance.

NAPA also called for EPA to put its own house in order by redesigning and improving its management operations to support its new direction. It said that EPA should refine and expand its use of risk and cost-benefit analysis and begin work on a reorganization plan that would break down the internal walls between the agency's media program offices for air, water, waste, and toxic substances.

MANAGING SCARCE RESOURCES TO ACHIEVE THE GREATEST RESULTS

Although progress has been made, the United States is still faced with numerous and diverse environmental problems. The magnitude of the task is reflected in over a dozen environmental statutes containing a wide range of responsibilities and requirements for EPA. Although these requirements would be daunting for the agency at any time, the current federal budget outlook makes it critically important that EPA's limited resources be directed at the environmental problems that pose the greatest risk to human health or the environment. Prioritizing environmental efforts is also important because of the cumulative financial impact of these requirements on industry and local governments, which are largely responsible for taking action. Setting priorities and allocating resources on the basis of risks have been difficult for EPA. A major reason has been that the agency, which was created under an executive reorganization plan, has no formal, overarching legislative mission. Over the years, as environmental threats were identified, the Congress has responded with individual laws. These laws were not coordinated or integrated to provide EPA with an overall system for prioritizing problems so that the most serious are addressed first. Instead, these separate pieces of legislation tended to assign pollution control responsibilities according to environmental medium (such as air or water) or category of pollutant. In addition, the laws often prescribed in detail the implementing requirements and mandated time frames for their completion.

One of NAPA's most important recommendations is that work begin to integrate environmental statutes. Along these lines, in prior testimony we have supported exploring ways of giving EPA greater flexibility to integrate its environmental statutes

so as to address the most pressing environmental problems. While difficult within the current statutory framework, we pointed out in a 1991 report that EPA needs to take maximum advantage of flexibility, to the extent provided under existing laws, to set priorities and allocate resources on the basis of risks.2 In that report, we also pointed out that EPA could more fully use its existing flexibility if it developed methods for (1) demonstrating convincingly that it can determine relative risks among different environmental problems, and (2) obtaining more meaningful indicators of its environmental protection efforts by measuring actual changes in environmental conditions, rather than levels of regulatory activities.

EPA has been working to put effective planning and budgeting systems in place. But progress has been slow. In our 1988 general management review of EPA, we identified changes needed in these systems.3 For example, we found that the agency's annual priority lists, which should identify the most significant issues to be addressed during the future budget year, were too open-ended-allowing program offices to include too many potential activities as agency priorities. Our report also pointed out that EPA had simited success in its efforts to develop measures of environmental quality that could serve to gauge the extent to which EPA's programs contribute to environmental improvement. In our 1991 report, we concluded that EPA had made some strides in these areas but much work remained.

According to NAPA, EPA still needs to focus on environmental results and still needs to develop strong central management systems, including those for setting priorities, allocating resources, and assessing results. For example, NAPA concludes that EPA's five-year strategic plan, which covers the period from 1995 through 1999, improves on past efforts but neither establishes explicit priorities nor supports agency decision-making, concerns similar to those that we previously raised.

Another EPA initiative is the National Environmental Goals Project. Under this effort, EPA is developing long-range goals addressing the quality of the environment that the United States is trying to achieve. The agency is also developing benchmarks for each goal for the year 2005 that are designed to be measurable aspects of environmental quality and realistic for the nation to achieve. EPA plans to hold public meetings on its proposal and prepare a final report this fall. NAPA recommends that EPA complete the project and incorporate the goals and benchmarks into the agency's next strategic plan. We believe that such goals are important to the agency's efforts to establish priorities and that the benchmarks can serve as useful indicators of agency programs' performance in achieving environmental results. A BETTER EPA/STATE RELATIONSHIP COULD IMPROVE ENVIRONMENTAL PERFORMANCE The Congress designed most federal environmental programs so they could be administered at the state and local levels. As a practical matter, EPA cannot operate environmental programs without state assistance. GAO, NAPA, and EPA agree that a good working relationship between EPA and the states is vital to efficient program management and cost-effective environmental protection.

In April 1995, we issued a report on EPA and state working relationships, based on our discussions with EPA officials and our interviews with and questionnaire responses received from state officials located in 16 states within three EPA regions. On the basis of this work, we reported that the EPA/state relationship continues to be strained and program implementation suffers as a result. While state and EPA program managers we interviewed agreed overwhelmingly that meeting the costs of an effective environmental program is their most important challenge, they noted that an improved EPA-state relationship could help make program management more efficient and cost-effective.

PROGRAM COSTS HAVE STRAINED FEDERAL-STATE RELATIONS

The costs of implementing the growing number of federal environmental requirements are overwhelming the budgets of many state governments. For example, EPA estimated that states needed $304 million during fiscal year 1993 to meet the requirements of EPA's drinking water program, yet only $142 million was available from state and federal sources, leaving a shortfall of approximately $162 million. Similarly, a $154 million shortage was estimated in the National Pollutant Dis

1 Creation of a Department of Environmental Protection (GAO/T-RCED-93-39, May 6, 1993). 2 Environmental Protection: Meeting Public Expectations With Limited Resources (GÃO/RCED19-97, Jun. 18, 1991).

3 Environmental Protection Agency: Protecting Human Health and the Environment Through Improved Management (GAO/RČED-88–101, Aug. 16, 1988).

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