United States
Environmental Protection
Agency
Office of
The Comptroller
Washington, DC 20460
January 1989
Annual
Report for
Fiscal Year 1987

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Contents

Message from the Administrator               3
Managing Our Resources                     9
Program Operations and Resources            14
 Operating Programs                       15
     Air                                  16
     Water Quality                         17
     Drinking Water                        18
     Hazardous Wastes                      19
     Pesticides                             20
     Toxic Substances                       21
     Radiation                             22
     Superfund                            23
     Leaking Underground                  24
      Storage Tanks
     Energy                               25
     Interdisciplinary                       26
     Management and Support               27
  Construction Grants                       28
  Special Analysis                          29
     State and Local Grants                  30
     Enforcement                          31
     Research and Development              32
Financial Statements                        33

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A furni in Cnrroll County, Man/land.
                                                                                              Tim McCnhc
                                                                            LISDA Soil Coiifcn'iitwn Service

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                                Message From the Administrator
Over the last two decades
Americans spent billions of dol-
lars tor cleaner air, water, and
land.  What have we gotten for
these expenditures?  Our
accomplishments are impres-
sive. There is no question that
the air in most of our cities
today is far cleaner and healthi-
er than it was in the 1960s.
Thousands of miles of rivers
and streams, and thousands of
acres of lakes, have been
restored and protected for fish-
ing and swimming.  In addi-
tion, we have taken extraordi-
nary steps to improve the man-
agement of hazardous wastes,
toxic chemicals, and  pesticides.
Consider a few examples:

Lead levels in urban air are
down 87 percent from 1977.
Sulfur dioxide levels have been
reduced 37 percent and particu-
lates are lower by 23 percent.
Even the more intractable
pollutants like ozone and car-
bon monoxide have been
reduced by 13 percent and 32
percent, respectively.
We have dramatically improved
municipal sewage treatment.
Today, more than 127 million
Americans are served by ade-
quate public sewage treatment
systems, a significant increase
from the 85 million people
served in 1972.

Comprehensive hazardous
waste management regulations
are in place. Many untreated
wastes are being banned from
land disposal  and thousands of
potentially hazardous sites
around the country have been
identified and are being evalu-
ated to determine whether fed-
eral actions are necessary.  We
have begun over 1000 short
term actions to address immedi-
ate threats, and we have initiat-
ed response activities at more
than 700 sites  on the National
Priorities List.

Before 1980, we neglected some
of our most productive and
valuable ecosystems -- the
Atlantic, Pacific and Gulf
coastal waters. During the past
eight years, EPA has been work-
ing with Maryland, Virginia,
Pennsylvania and the District of
Columbia to begin the restora-
tion of the Chesapeake Bay.
Now we are applying the expe-
rience we gained from this pro-
ject to other estuaries, including
Puget Sound, Albemarle-
Pamlico Sound, Buzzards Bay,
Narragansett Bay, Long Island
Sound and  San Francisco Bay -
and we will be adding more
coastal waters to our National
Estuaries Program this year.

Prior to 1972, severely degrad-
ed conditions were evident in
the Great Lakes.  Cooperative
efforts between the U.S. and
Canada have resulted in a
major recovery in the Lakes'
condition through construction
of new sewage treatment facili-
ties, phosphate bans in some
areas and strict industrial
wastewater controls.
                                    is M/s pn$c In/ Steven C. Delaney

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The use of many pesticides has
been cancelled, suspended or
restricted. Some pesticides
have been replaced with substi-
tutes that are less persistent in
the environment. The resur-
gence of bald eagle, osprey,
peregrin falcon and brown peli-
can is the result of EPA's ban on
DDT.  We are also seeing
marked declines of DDT, dield-
rin and aldrin in the tissues of
fish and wildlife. Currently we
are re- evaluating the  risks of
tens of thousands of pesticide
products whose uses were
approved prior to the 1972
amendments to the nation's
pesticide law.

These accomplishments are
impressive when seen in the
context of the economic expan-
sion and population growth
that occurred during the same
period.  There are 25 percent
more people in the United
States now than 20 years ago;
our gross national product has
increased 500 percent. There
are more cars on the road  trav-
eling more miles, and more
manufacturing facilities pro-
ducing a greater number of
products. These statistics indi-
cate that economic growth and
environmental health are not
mutually exclusive; indeed,
there is an important  linkage
between them. Environmental
protection itself has proven to
be a wise investment and a
growth industry.

The Challenges Ahead
But the job is far from finished.
More than 60 cities still do not
meet federal air quality stan-
dards for ozone. Hundreds of
communities are not in compli-
ance with requirements for bet-
ter treatment of municipal
sewage. Our wetlands are dis-
appearing at an alarming rate.
Our oceans, estuaries, and near-
coastal waters are victims of
intensive coastal and upstream
development and runoff from
farms and cities. Many urban
areas face a mounting crisis
over municipal garbage
disposal.

Clearly, much work remains to
be done.  While we continue to
pursue our existing air, water,
waste, and toxics programs,  we
also recognize that new chal-
lenges await us.  Because many
of the solutions  of the past
decades merely transferred pol-
lutants from  the water to the air
or from the air to the land, we
must adopt a more integrated or
"systems" approach to environ-
mental protection. We can no
longer think  simply of clean air
or clean water; we must work
for a clean environment.

We need  to work harder to pre-
vent environmental problems
by reducing  the amount of
wastes from  our homes and
from industry.  We need to recy-
cle more  waste. Future waste
management should prevent
disposal problems by reducing
the amount of waste as a first
step.

We also must reassess our
notion of "environmental safe-
ty."  We now know that many of
the things we do and chemicals
we need to sustain our modern
life style pose some risk to peo-
ple and to our ecosystem. We
have to develop better ways to
assess these risks and make the
choices which balance the bene-
fits with the risks. This may be
one of our toughest missions in
the next decade.

Increased public understanding
of environmental problems,
risks, and solutions will be even
more critical to our success than
in the past.  The problems we
deal with today are not primari-
ly the large smokestack con-
cerns of the 1970's.  As these
major sources of pollution are
being controlled, Americans
will have to recognize that our
individual actions in our
homes, the products we buy
and how we choose to relax all
ian affect the quality of our
environment. We will have to

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face choices in our daily lives to
balance the risks of these
actions with the benefits. EPA
will have to play a large role in
educating and involving the
public in its decisions.

The responsibility for imple-
menting our nation's environ-
mental laws also is changing.
Unlike the majority of issues in
the 1970s, centralized pollution
control efforts will not effective-
ly address all of the major prob-
lems.  State, local and Indian
tribal  governments are now
playing an ever more signifi-
cant role in environmental pro-
tection.  We need to discover
how EPA can best assist and
encourage an even stronger
future role for these players.

Finally, we now recognize
through problems such as acid
rain, global warming, and pol-
lution of our oceans that the
quality of the environment in
America is also dependent on
how the rest of the world treats
our planet - just as our actions
affect  other nations.  One of our
Sandpiper migration in Cape Hnttenis, N.C.

biggest challenges will be to
assist and educate other nations
and actively negotiate multina-
tional agreements to protect the
global environment.

EPA's Future Agenda
Our agenda should include sev-
eral key components. It should
take into account the problem of
cross-media transfer of pollu-
tion. It should, to the extent pos-
sible, reflect priorities that are
set on the basis of risk.  It
should encourage full involve-
              SfrrTO C. Dclnnci/

ment of the public in making
tough choices in the future.  It
should promote an effective
role for federal, state, local, and
American Indian tribal govern-
ments. It should recognize the
global nature of some issues.
Finally, and perhaps most criti-
cally, it should strive to prevent
pollution by reducing the
amount of waste we produce,
by recycling what we can, and
by making other sound man-
agement approaches to avoid
more costly cleanups in future
years.

A Systems Approach
The environment is an integrat-
ed system. There is no such
place as "away" where we can
grow things. For example,
when we remove pollutants
from the air, we often inadver-
tently transfer them to the
water or to the land. If we sim-
ply transfer the pollution, it
likely will come to  rest at the
point of least regulation. The
point of least regulation, how-

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      Hazardous waste site clean-up
      operation
Tliousands <>/ Aiiiericiiii* daily iW/cv
hd't'ni^' c/»/s lor
recycling.

KCI/I/O/I/S Aluminum Ren/cling
Company
ever, may not be Hie point of
least risk.

To meet the challenges of the
1990s and the next century, a
more systematic approach to
protecting the environment
must be taken, one involving a
coordinated strategy by  EPA
and other government pro-
grams for achieving the  maxi-
mum affordable reduction of
the most significant risks.

Reducing Risk
We cannot eliminate all toxic
chemicals from the environ-
ment. Given the tens of  thou-
sands of clu'inicals used  today,
basic decisions must be made as
to which ones should be con-
trolled, to what levels, and at
what cost. This requires an
assessment of the risks to
human health, welfare, and the
environment that are posed by
different pollutants in different
locations. It requires decisions
on how to reduce the most sig-
nificant risks, taking into con-
sideration the benefits and the
costs, as well as other public
concerns.  It requires the estab-
lishment of priorities through
risk-based decisionmaking.
EPA's challenge is to imptove
the way risk-based decisions
are made in  the future. To do
this, we will need better risk
information  and better science.

Public Education and
Involvement
EPA must share with the public
its knowledge of the scope and
severity of the environmental
challenges before us. With
improved information and an
understanding of the reality of
risk in an industrial society, the
public can do a better job help-
ing us establish our national
environmental directions. EPA
must also  help people to under-
stand that they are part of the
pollution problem and its solu-
tion. The attention of the last
fifteen years has been on con-
trolling large sources of pollu-

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tion such as smokestack indus-
tries and municipal sewage dis-
posal facilities. As we strive for
further environmental improve-
ments in the 1990's, the focus of
the nation's pollution control
efforts must also include small
sources that are widespread
throughout the country.  For
example, we need to pay
greater attention to how  each of
us can recycle more of our
household waste, properly use
and dispose of lawn chemicals,
drive and maintain our cars to
reduce air pollution. We cannot
pass to someone else the
responsibility for controlling
pollution. Each of us must rec-
ognize the part that we play in
environmental protection and
become "part of the solution."
Further progress, therefore, will
require life style changes by the
American people. All of us —
individual homeowners, farm-
ers, shopkeepers, automobile
drivers ~ will have to make
tough choices between conve-
nience, the costs of goods and
services, and a cleaner environ-
ment. EPA's job should grow
from primarily "the enforcer" to
include greater emphasis on
helping citizens make informed
choices in their daily lives.

State/EPA Partnership
EPA and the states need to con-
tinue to strive toward a proper
balance in our working relation-
ship. The challenges that face
us now are not as amenable to
centralized "command and con-
trol" approaches as past prob-
lems.  EPA must further  recog-
nize the increasing capabilities
and responsibilities of states --
including Indian tribal govern-
ments and local governments —
in protecting the environment.
EPA must provide better techni-
cal support to state govern-
ments as they assume more
responsibility for environmental
program funding and manage-
ment. This means more training
and technical assistance to help
states assess and address risks.
It means improving data man-
agement so that states and EPA
have access to each other's
information, and creating other
ways for all of us to share our
expertise. A true partnership
also requires EPA to be more
sensitive to the separate needs
of the states. Risks are not dis-
tributed uniformly nationwide;
EPA must look for new ways to
address priorities that differ
around the country and recog-
nize the growing role of state,
local and Indian tribal govern-
ments in shaping their own
environmental agendas.
Although state and federal roles
are changing, EPA will continue
to carry out its statutory respon-
sibility for setting standards and
ensuring compliance  with them.
Our challenge is to get this job
done while also giving states
enough flexibility to solve
important local problems that
are not national priorities.

Environmental Outlook:
Global
In the largest sense, the earth is
a single, integrated ecosystem
shared by all the people living
on it.  As the world's popula-
tion and economy continue to
grow, that ecosystem is being
strained in a number of ways.
Chlorofluorocarbons are threat-
ening the stratospheric ozone
layer; global emissions of car-
bon dioxide are contributing to
a gradual warming of the
earth's atmosphere; species of
flora and fauna are being lost
worldwide at an accelerating
rate. These kinds of changes to
the global environment are of
especially serious concern
because they have the potential
to affect the quality of life of lit-
erally everyone on earth.
Moreover, in a number of places
natural resources shared by
neighboring nations are being
degraded.  For example, acid
rain is harming aquatic ecosys-
tems in the northeastern United
States, southeastern Canada,
and Europe. Shared water bod-
ies like the Mediterranean Sea
and the Gulf of Mexico are
being polluted by the combined
economic activities of the differ-
ent countries that border them.
But whether these emerging
environmental problems are
global or regional, our response
to them will entail international
cooperation.  Because pollution
does not stop at international
political boundaries, we are
going to have to find new ways
of cooperating with the commu-
nity of nations to find shared
solutions to shared problems.
International cooperation in this

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area will be complicated by the
nivd to factor in the special eco-
nomic circumstances of devel-
oping nations. Poorer countries
often find it difficult to sustain
their natural resource base in
the face of immediate demands
for food, fuel, and jobs. They
have fewer resources to invest
in waste disposal and pollution
control. But as was proved by
the recently signed Montreal
Protocol to protect the strato-
sphere, nations are capable of
resolving their economic and
political differences in the inter-
est of protecting a shared envi-
ronment. We will have ample
opportunity to put that lesson
to work in the years ahead.

Preventing Future
Environmental Problems
Environmental protection will
be a never-ending battle against
contaminated "hot spots" unless
we take steps now to prevent
them from developing.  We are
placing more emphasis on pol-
lution prevention in all EPA
programs. We need to do more
of it, and so do state and local
agencies as well as the private
sector. We as a nation can do
many things to prevent environ-
mental problems from develop-
ing in the first place.  We should
reduce the amount of waste
from our homes and industries
before that waste becomes a dis-
posal problem. Municipal recy-
cling and industrial waste
reduction ease the economic
and environmental burden of
waste disposal. Source reduc-
tion and recycling should
become the centerpiece of a pro-
gressive national waste manage-
ment strategy. We will continue
to restrict the use of toxic chemi-
cals in places where they might
enter drinking water supplies  or
endanger fish and wildlife.  We
will continue to ban the dispos-
al of untreated wastes on the
land, where it threatens human
health or the environment. We
will continue to identify sensi-
tive wetlands and restrict harm-
ful development before
irreparable damage is done. We
will continue to promote better
farming practices that will pre-
vent agricultural chemicals
from contaminating ground and
surface waters.  In short, we
will do a better job of planning
to prevent future problems.  By
so doing, we avoid costly
cleanup later and we avoid the
loss of irreplaceable resources.
If we take precautions today, we
will be making an important
investment in a safer and clean-
er environment tomorrow.
We have begun to do long-
range planning at EPA. We are
trying to determine what envi-
ronmental results we want to
see in the not-too-distant future,
and the best strategies we can
employ to achieve them. To do
this well requires tremendous
vision in establishing goals, tak-
ing into consideration the tough
choices we and the American
public need to make between
environmental and other social
goals.  It requires creativity and
hard-nosed realism in design-
ing systematic, coordinated pro-
gram strategies, and it requires
dedication to follow through.
This is EPA's ultimate
challenge.
                                                                                  Lee M. Thomas
                                 Jessie Cohen, Smithsonian Institution

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                                 Managing Our Resources
EPA, as the Federal agency with
primary responsibility for envi-
ronmental priorities, directly
manages substantial resources.
In 1987, EPA managed a budget
of more than $5 billion and
employed  nearly 14,000 people
at three do/en facilities for envi-
ronmental protection programs
arid research throughout the
United States. These EPA
resource commitments result in
additional resource require-
ments many times greater for
state and local governments
and for the private sector.

The public trust invested in us
for managing these resources
conscientiously and efficiently
is a responsibility that has been
the focus of a major program
for improvement throughout
this Administration and most
particularly here at EPA.
Toward this end we have made
great progress in the past eight
years in improving administra-
tive management and program
delivery at EPA. By adhering to
both our own commitment to
quality improvement and to the
agenda of  Reform '88, we have
placed EPA in an advantageous
position to face the manage-
ment challenges of  the 1990's.
Highlights of our accomplish-
ments as well as ongoing initia-
tives are outlined below.

Contract Management
EPA  has established an out-
standing record in competitive
contracting. The Agency
accomplished this by revising
its contracting strategy to
improve the quality of competi-
tion. For example, in the
Supertund Remedial Program,
the few big contracts that sup-
ported the entire program are
being replaced with a large
number of regional contracts.
These procurements have-
resulted in better competition
and in many new prime con-
tractors supporting that pro-
gram.

In order to ensure the highest
quality of contract management,
we developed the Contract
Management Improvement
Program. This program to
improve the procurement oper-
ation and the program offices'
management of contracts
includes both Contracting
Officer and Project Officer
Training as well as several types
of reviews conducted through-
out the process. Post- award
financial reviews of contractors
during the life of the contract
allow problems to be addressed
                  1'iui Bradshaw
and corrected.  Many of these
reviews have uncovered prob-
lems of improper charging and
have resulted in money being
returned to the federal govern-
ment.

Administrative Support
Another successful manage-
ment initiative is the
Cooperative Administrative
Support Unit (CASU), an orga-
ni/ation of agencies in multi-
tenant federal buildings which
run joint mail, printing, library,
and other administrative ser-
vices. Several years ago, the
President's Council on
Management Improvement
spearheaded the development
of the CASU program. EPA has
strongly supported this effort
and several of our regional
facilities are active participants.
We are the lead agency for the
Region 1 CASU, which is in the
developmental stage. It is a
novel CASU in that it is the first
to service two separate federal
buildings.

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 Integrating Financial
 Management Systems
 To enhance the Agency's capa-
 bility to effectively use and dis-
 seminate financial information
 to our internal and external
 clients, EPA has been pursuing
 on aggressive program of finan-
 cial system improvements. The
 cornerstone of this program is
 the replacement of our current
 accounting and budgeting sys-
 tems with a new Integrated
 Financial Management System
 (1FMS) in accordance with the
 guidelines of OMB Circular A-
 127. After conducting extensive
 analyses, we concluded that
 purchasing off-the-shelf soft-
 ware was  the most cost-effec-
 tive approach. We made the
 award to procure the necessary
 software in FY1987.

 During FY 1988, we completed
 key activities to prepare the
 Agency for the implementation
 of the new system in FY 1989.
 We installed and tested the soft-
 ware on the EPA computer,
 defined and developed soft-
 ware adaptations and interface
 programming, conducted sys-
 tem testing at several pilot sites,
 and trained financial staff.

 Superfund Cost Recovery
 Another very important ongo-
 ing initiative is the enhance-
 ment of the Superfund Cost
 Recovery Program. EPA is
 required to recover from
 responsible parties costs
 incurred in cleaning up haz-
ardous waste sites.  Our indirect
cost methodology will be
revised to increase the potential
recovery of costs, and the
Agency will complete the
design and implementation of
contractor site-specific account-
ing procedures to ensure that all
appropriate contracts are allo-
cated to Superfund sites. EPA is
also developing a computerized
system for the storage and
retrieval of Superfund  financial
records and for the preparation
of cost recovery documentation
packages.  This system will offer
automated retrieval of
Superfund financial records and
automate the  preparation of cost
recovery documentation pack-
ages used  for  cost  recovery
cases. This system will provide
more timely and responsive
support for our cost recovery
efforts and  will be less  labor-
intensive.

Marketing Our Si/stems
EPA is actively marketing its
payroll/personnel system in
order to identify and assist
other agencies in need of these
services. Reform '88 mandates
that the total number of pay-
roll/personnel systems
throughout government be
reduced to twelve.  We have
completed the software
enhancement necessary for ser-
vicing other agencies, and we
are demonstrating that our sys-
tem deserves to be one of those
selected.

Other Financial Manage-
ment Improvements
In addition to the continuing
advances addressed above, the
Agency has completed many
improvements in financial man-
agement. We have implemented
effective cash management
practices, moved aggressively
on innovative alternatives to
improve the travel management
process, and installed the stan-
dard general ledger one year
ahead of schedule.  Also, we
have instituted and strength-
                                 A National Research Council Associate /wtvsst's research data at an
                                 Environmental Research Lab.
                                               10

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                                  ened several management con-
                                  trols against fraud and waste.

                                  Internal Controls
                                  EPA recognizes the need for a
                                  strong internal control program.
                                  On an annual basis we perform
                                  an evaluation of the system of
                                  internal accounting and admin-
                                  istrative control which ensures
                                  compliance with the Federal
                                  Managers' Financial Integrity
                                  Act  of 1982. In fiscal year 1987,
                                  EPA managers conducted over
                                  1,300 internal control evalua-
                                  tions. The results of our evalua-
                                  tions indicate that the system of
                                  internal accounting and admin-
                                  istrative controls during the fis-
                                  cal year ended September 30,
                                  1987, complies with the require-
                                  ment to provide reasonable
                                  assurance with the objectives of
                                  internal control.

                                  Human Resources
                                  Management
                                  Top  management at EPA is par-
                                  ticularly proud of our achieve-
                                  ments in the human resources
area.  By creating the Office of
Human Resources Manage-
ment, the Agency stated its
commitment to its most valu-
able resource - its employees.
Some accomplishments are:

The implementation of the
Federal Employees Retirement
System (FERS) involved cross-
cutting responsibility among
several organizations at EPA.
The process is now institution-
alized due to excellent coordi-
nation among the responsible
parties.

We have strengthened the
Agency's ability to attract and
retain qualified personnel
through a series of innovative
programs including:  imple-
menting a comprehensive
recruitment program to attract
scientifically and technically
skilled personnel, creating  a
National Recruitment Center to
carry out national program
activities and oversight, estab-
lishing a mid-career level
program to support and train
So/7 (above) and water (right) snin-
pling activities are routinely conduct-
ed by EPA for research ami compli-
ance monitoring analyses.
                                                I!

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 employees, and initiating a
 highly successful intern
 program.

 To maximize the Agency's suc-
 cessful cost-saving concept of
 using EPA experts to train fel-
 low employees through our
 "EPA Institute," we are expand-
 ing the EPA Institute to all of
 the EPA  regional offices and
 major laboratory locations.

 ADP Sijstems
 In the ADP area, we have made
 substantial progress in modern-
 izing our systems to provide
 Agency mangers with better
 and more timely regulatory
 information. We are conducting
 major Information Resources
 Management evaluations on  an
 ongoing  basis, and will com-
 plete the modernization of
 regional  office computers
 during FY 1990.

 Productivity
 EPA vigorously supports the
 Government-wide Productivity
 Improvement Program. Specific
goals of this program are to
improve the quality and timeli-
ness of service to the public and
to achieve annual increases in
productivity in key Agency
functions. EPA has steadily
increased Agency participation
in the Program, and within the
next two years will have includ-
ed all applicable functions in
our annual Productivity
Improvement Plan.

In addition to complying with
OMB directives on productivity,
EPA created a Productivity
Improvement Investment Fund
two years ago to serve as a cata-
lyst for improved productivity
at EPA.  The Fund, open to all
EPA employees, provides
resources for implementing
employees' innovative quality
and productivity improvement
initiatives.  Capital for the Fund
is obtained from EPA's appro-
priated funds and from reim-
bursements by offices which
received money for productivi-
ty projects in the preceding
year.

User Fees
The Agency Task Force on Fees
was created in 1986 to examine
establishing user fees for EPA's
Power filnnt in the Mid-Atlantic Coastal /one
                    National Oceanic and Atmospheric Administration
                                               12

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environmental programs.  As a
result, fees for two programs
have been published in the
Federal Register and several
others are currently being eval-
uated.  We are also working
toward the establishment of a
special fund through which the
receipts from Agency user fees
are available for appropriation
to the program for which the
fee was collected.

Public -Private
Partnerships
The most serious challenge to
our goal of achieving and
retaining a high standard of
environmental quality is the
threat of an environmental
financing shortfall. Two con-
current trends have emerged in
this country, an increase in the
amount and scope of environ-
mental legislation coupled with
serious federal budget con-
straints and growing demands
on state resources.

In response to this issue, the
Administrator has formed an
Agency-wide Steering Commit-
tee and Task Force on Public-
Private Partnerships to explore
the use of alternative financing
techniques with a focus on
increasing private sector partici-
pation through public-private
partnerships. The Agency will
determine which financing tech-
niques are viable, define the
problems and issues associated
with public-private partner-
ships and other financing
schemes, and share information
with state and local government
officials responsible for imple-
menting environmental
legislation.

Our long term strategy involves
an aggressive community out-
reach program designed to
assist state and local govern-
ments in the areas of drinking
water, wastewater treatment,
and solid waste disposal. We
will sponsor regional confer-
ences and demonstration pro-
jects to show how local govern-
ments can successfully finance
environmental projects through
public-private partnerships or
other financing schemes.

Conclusion
Examples presented above
show how EPA has moved
aggressively in recent years to
better manage the resources
entrusted to us by the American
people. We intend in the future
to continue this push of innova-
tive and better management of
our resources in all areas.

Success will depend on our
most important resource - our
people. The motto of those of
us at EPA directly involved in
resource management is "Our
strength is in our people," and it
has never been truer that it is
today.  EPA's work force con-
sists of a high percentage of sci-
entists, lawyers, computer spe-
cialists, and others with many
years of education and training.
We are firmly committed to
developing, motivating and
retaining this high quality work
force which is needed to accom-
plish our critical mission. Since
our Agency is maturing we will
actively recruit to replace those
who leave and, in some inst-
tances, to support expanding
programs.  We invite any who
might be interested in a chal-
lenging and rewarding career to
join us in our efforts to protect
the environment.
                                                                               Charles L. Grizzle
                                                                         Assistant Administrator
                                                                          for Administration and
                                                                          Resources Management
                                               13

-------
 Program Operations  and Resources
 In  1987 the resources used by
 the EPA increased substantially
 to support the requirements of
 our broad range of statutory
 environmental protection pro-
 grams. The total resources
 appropriated by Congress tor
 all programs managed by the
 EPA increased from $3.5 to 5.0
 billion. The majority of this
 increase (over 90 percent)
 occurred in the Superfund and
 the Construction Grants pro-
 grams. Superfund program
 resources were increased in
 1987 by a factor of 3 to total
 slightly over a billion dollars, its
 highest funded level to date.
 The Construction Grants pro-
 gram was increased to $2.4 bil-
 lion, a funding level consistent
 with the resources made avail-
 able to the  program for the
 years 1982  through 1985.
 During the year, there was a
 more modest increase in the
 number of  people working at
 the EPA. In 1987, the EPA
 employed approximately 13,700
 people, representing an increase1
 of about 200 persons from  1986.
 Forty percent of this increase is
 accounted for by the Superfund
 program.

 The following sections  present
 descriptions of our Operating
 Programs and Construction
 Grants. Individual sections pre-
 sent a sketch of each program
 which includes a description of
 the program's statutory basis,
 key elements, operating high-
 lights for 1987 and resource
 trend analysis. The dollar
amounts associated with the
charts provided are based on
the Agency's operating plan at
year-end and are not intended
to reflect the audited financial
records of the Agency.
Essentially, the operating plan is
the Agency's allocation of funds
for program areas and may
include carryover funds of pre-
vious years and planned expen-
ditures of that year.  The
Special Analysis section, which
follows, takes a separate look at
certain high priority activities of
the operating programs of the
Agency.

All years referred to this report
are, unless otherwise noted, fis-
cal years which begin October
1st of the preceding calendar
          Sewage treatment operations

year.  Highlights included in
each program description are
not intended to be comprehen-
sive; rather, they emphasize
one-time 1987 accomplishments
more than on-going activities.
I lowever, it should be noted
that the majority of program
resources and effort are expend-
ed for on-going activities.
CONSTRUCTION
   GRANTS
   [47.6%
OPERATING
PROGRAMS
  (52.4%)
         1987 share of annual
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Operating  Programs
EPA's 12 operating programs
have 1987 appropriated
resourcL's of $2.6 billion. The
Superfund program is the
largest operating program by
far with 1987 resources of $1.1
billion, or approximately 40
percent of the total operating
program appropriated
resources.

However, our most important
environmental protection
resource is not dollars, but
rather the employees who man
age our operating programs.
Fulfilling EPA's mission of pro-
tecting human health and the
environment from the effects of
pollution requires a dedicated
and highly qualified workforce.
In 1987, EPA employed the
equivalent of 13,662 full time
people - a large percentage of
whom have received extensive
education and  training. They
include scientists, lawyers, com-
puter specialists, accountants,
statisticians, and many others.
EPA's workforce, which is mod-
estly expanding to staff new
and growing programs, such as
Superfund, increased 1.5 per-
cent in 1987, and is projected to
increase approximately 4 per-
cent in fiscal years 1988 and
1989.
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                                               15

-------
Air
Federal legislation to control air
pollution first appeared in 1955.
Over the next 15 years, this leg-
islation gathered strength and
resulted in the Clean Air Act of
1970, with amendments, which
defines the pollution control
program we have in place
today.

The Clear Air Act's objective is
to protect public health and
welfare from harmful effects of
air pollution. EPA's role in
implementing the Act is to set
National Ambient Air Quality
Standards which specify the
maximum acceptable outdoor
levels for "criteria pollutants"
such as carbon monoxide, lead,
and ozone, and to assure that
state governments, using EPA-
approved plans, attain these
standards.  The Clean Air Act
also requires that EPA establish
federal standards for motor
vehicles, New Source
Performance Standards for sta-
tionary sources, and National
Emission Standards for
Hazardous Air Pollutants.
Hazardous pollutants con-
trolled to date include asbestos,
beryllium, mercury, vinyl chlo-
ride, benzene, and arsenic.

Finally, goals to preserve the
pristine air and clear vistas in
many national parks and
wilderness areas are implement-
ed through "Prevention of
Significant Deterioration" pro-
grams, which are included in
state plans.

Air (1987 Highlights)

Promulgated National
Ambient Air Standards
(NAAQSs) for particulate mat-
ter 10 micrometers in diameter
or smaller (PMio) which change
the focus for controlling air-
borne particles from larger total
particles to smaller, inhalable
particles that are more damag-
ing to human health.

Promulgated New Source
Performance Standards for
volatile organic compound stor-
age, rubber tire manufacturing,
and industrial boilers.


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ANNUAL OPERATING PLAN (FY)








 Proposed a major national
 policy to address meeting the
NAAQSs for ozone, violations
of which affect over 100 million
people and causes billions in
crop and forest losses annually.
Proposed regulations to reduce
hydrocarbon emissions from
refueling of automobiles and to
control volatility of vehicle
fuels.

Issued notices of violations with
proposed penalties of over $50
million to gasoline refiners and
distributors, and administrative
orders to 112 major stationary
sources of air pollution.
                                                16

-------
Water Quality
EPA's current program of water
pollution control is based on the
Clean Water Act of 1972 (CWA).
The CWA's goal is to "restore
and maintain the chemical,
physical and biological integrity
of the nations' waters." Under
this mandate, EPA has devel-
oped regulations and programs
to reduce pollutants entering
surface waters, including lakes,
rivers, estuaries, oceans and
wetlands.

In 1987, Congress passed the
Water Quality Act of 1987 that
reauthorized and strengthened
the Clean Water Act. The
amendments ensure continued
support for municipal sewage
treatment plants, initiate a new
state-federal program to control
nonpoint source pollution, and
accelerate the imposition of
tighter controls  on toxic pollu-
tants.

To protect the marine environ-
ment from the harmful effects
of ocean dumping, Congress
enacted the Marine Protection,
Research and Sanctuaries Act in
1972 which established a permit
program to ensure that ocean
dumping does not cause degra-
dation of the marine environ-
ment.

Water Quality (1987
Highlights)

Issued policy, procedures and
guidance to ensure effective
implementation of EPA's
Section 404 responsibilities
including: efforts to develop a
mitigation policy, issuance of
rules and guidance under the
new administrative penalty
authority, joint guidance with
the Corps of Engineers on inter-
pretation of exemptions, and
handling of major permit cases.
Issued the final amendment to
the phosphate fertilizer regula-
tions and issued a report on
dioxins in the pulp and paper
industry.

Established new program pro-
cedures and requirements for
the Agency's ongoing estuary
program which was formally
authorized under Section 320 of
the amended Clean Water Act.
A priority focus was to ensure
that six ongoing estuary pro-
jects were brought into compli-
ance with the new legislation
while progress on these projects
continued under existing work
plans.

During 1987, implementating
the National Municipal Policy
(NMP) was the highest priority.
Placed all but 23 of major
municipalities  needing con-
struction to comply with the
CWA and approximately 80
percent of the minor municipal
facilities needing schedules on
enforceable construction sched-
ules. Approximately 100 major
NMP facilities came into com-
pliance in 1987, and about one-
third of the NMP universe is
now in compliance.

Issued a total of 434 major per-
mits, of which 276 were indus-
trial and 158 were municipal.

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                                               17

-------
Drinking Water
The Safe Drinking Water Act
(SDWA) of 1974 created major
legislative authority for protect-
ing drinking water resources.
This Act, which was amended
in 1986, requires the establish-
ment of additional drinking
water standards and protection
of underground sources of
drinking water from under-
ground disposal of fluids.

The 1986 amendments to the
SDWA also established two
new major groundwater protec-
tion programs: the Wellhead
Protection Program to protect
areas around public drinking
water wells, and the sole-source
aquifer demonstration program
to protect unique underground
water supplies.
Drinking Water (1987
Highlights)

Promulgated nine National
Primary Drinking Water
Regulations (for fluoride and
eight volatile organic contami-
nants) together with require-
ments for public water systems
monitoring of unregulated
chemical contaminants. Also
promulgated were mandated
revisions to systems' public
notice requirements designed to
simultaneously streamline and
strengthen the content, manner
and timeliness of notice. These
included new requirements to
notify the public that may be
affected by lead contamination
of drinking water systems.
• Issued guidelines on the delin-
  eation of Wellhead Protection
  Areas in accordance with the
  statutory deadline. The guide-
  lines have been acknowledged
  as a significant accomplishment
  in this new and emerging envi-
  ronmental concern. In addition,
  EPA issued guidance on the
  overall development of a
  Wellhead Protection Program.

  These two documents provided
  the framework for a national
  program to train state, local and
  tribal officials in the Wellhead
  Protection Program during the
  summer of 1987.

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ANNUAL OPERATING PLAN (FYI









                                               18

-------
Hazardous Wastes
The Resource Recovery and
Conservation Act (RCRA) of
1976 authorized EPA to regulate
waste management and dispos-
al practices for both hazardous
waste and non-hazardous solid
waste.

EPA's major priority under the
Act is to develop "cradle-to-
grave" regulations governing
the generation, storage, trans-
port, treatment and disposal of
hazardous wastes. Hazardous
wastes regulated under RCRA
include toxic substances, caus-
tics, pesticides, and other
flammable, corrosive, or explo-
sive materials.

Under RCRA, EPA is responsi-
ble for identifying general and
specific categories of hazardous
wastes, developing standards,
and enforcing compliance with
those standards.  According to
EPA requirements, hazardous
waste generators must identify
the wastes they produce and
report the means of treatment,
storage or disposal.  Transport
of waste must be monitored
through a uniform manifest sys-
tem which records the origin,
route and destination of waste
shipments.  Treatment, storage,
and disposal facilities must
have permits to operate and
must be designed to protect the
environment. Owners or opera-
tors of such facilities must
demonstrate financial responsi-
bility for damage occurring dur-
ing active operations, and must
set aside funds for monitoring
and maintaining sites that are
closed. EPA enforcement activi-
ties require RCRA-regulated
facilities to take actions to cor-
rect problems if they are not in
compliance with Agency
standards.

Another major goal under
RCRA is to encourage states to
develop comprehensive pro-
grams for non-hazardous solid
waste management. EPA sup-
ports state efforts by funding
waste research and develop-
ment projects and guiding the
development of waste manage-
ment plans. EPA also establish-
es criteria for classifying land
disposal facilities according to
their environmental acceptabili-
ty and publishes a national
inventory of unacceptable
facilities.

Hazardous Waste (1987
Highlights)

Exceeded the national target for
permitting land disposal facili-
ties. The outlook for achieving
the November 1988 deadline is
good.

Exceeded the national target for
approving closure plans for
land disposal facilities.

Met most inspection targets,
but a slight shortfall was experi-
enced in the inspection of land
disposal facilities.

Regions made significant
progress in addressing
Significant Non-Compilers.

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                                               19

-------
Pesticides
Through its Office of Pesticide
Programs, EPA administers two
Congressionally mandated
statutes to control the more
than 45,000 pesticide products
registered for use in the United
States: the Federal Insecticide,
Fungicide, and Rodenticide Act
(FIFRA) and the Federal Food,
Drug, and Cosmetic Act
(FFDCA).

FIFRA was originally enacted in
1947 but was significantly
amended in 1972 when the
emphasis in pesticide regula-
tion changed from ensuring
pesticide efficacy to protecting
the public health and environ-
ment. Under FIFRA, EPA is
responsible for registering new
pesticides to ensure that when
properly used they will not pre-
sent "unreasonable" risks to
human health or the environ-
ment (based on an assessment
of economic, social and envi-
ronmental costs and benefits).
Through reregistration require-
ments, EPA examines pesticides
registered prior to the current
regulations to assure that these
chemicals also pose no "unrea-
sonable risks." Additionally,
EPA has the authority to per-
form special reviews of regis-
tered pesticides or to classify
pesticides for restricted use.

FIFRA also includes provisions
for: monitoring the distribution
and use of pesticides; issuing
civil or criminal penalties for
violations; establishing coopera-
tive agreements with the states;
and certifying training pro-
grams for users of restricted
chemicals.  Primary enforce-
ment of pesticide violations is
performed by the states, subject
to oversight by EPA.

Under the FFDCA, EPA sets tol-
erances or maximum legal lim-
its for pesticide residues on food
commodities  and feed grains to
prevent consumer exposure to
unsafe pesticide levels. The
Agency establishes tolerance
levels that residue chemistry
and toxicological studies indi-
cate pose no unreasonable risk
to consumers. The Department
of Agriculture and the Food and
Drug Administration are
responsible for enforcing adher-
ence to these tolerance levels for

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Toxic Substances
Toxic substances are manufac-
tured chemicals and naturally-
occurring heavy metals and
other materials which can cause
death, disease, genetic damage
or severe environmental harm.
Congress enacted the Toxic
Substances Control Act (TSCA)
in 1976 to identify and control
substances that pose an "unrea-
sonable risk" to human health
or the environment during their
manufacture, processing, com-
mercial use, or disposal.

TSCA requires the EPA to main-
tain an inventory of all chemi-
cals used for commercial pur-
poses in the U.S. Under the
Premanufacture Notification
process, EPA has the authority
to screen new chemicals. If
unreasonable risk is suspected,
EPA can require manufacturers
to test substances for toxicity,
cancer- causing potential, repro-
ductive effects, or other
characteristics. This testing and
test data must conform with the
Good Laboratory Practices stan-
dards for lab administration
and management, and test con-
trol and documentation. Chemi-
cals deemed to be harmful are
regulated in a variety of ways,
from imposing labeling require-
ments to outright bans on man-
ufacture or use.

EPA monitors and evaluates the
environmental and health
effects of existing chemicals by
analyzing  mandated chemical
industry reports and documen-
tation concerning the manufac-
ture, use processing, and dis-
posal of chemical substances,
and information.

Toxic substances which require
special attention because of
widespread use or high toxicity
include chemicals such as poly-
chlorinated biphenyls (PCBs),
dioxins, and asbestos.  The
TSCA banned further produc-
tion of PCBs, while EPA estab-
lished inspection and notifica-
tion requirements for schools
containing asbestos as a fire
retardant.  Also, EPA keeps a
close watch on biotechnology
which employs biological
processes in the production of
potentially risky chemicals or
living organisms for commercial
use.
  Toxic Substances (1987
  Highlights)

• Received a high of 2,298 new
  chemical notices and took con-
  trol action on 201 chemicals.
  Completed the Agency's first
  seven reviews of TSCA biotech-
  nology Premanufacture Notices.

 • Issued funds under the
  Asbestos in Schools Loans and
  Grants Program for 729
  asbestos abatement projects in
  422 schools to eliminate approx-
  imately 3 million exposure
  hours to students and employ-
  ees each week.

 • Began implementing Section
  313 of Title III of the Superfund
  Amendments and
  Reauthorization Act by promul-
  gating the proposed emissions
  reporting rule, developing tech-
  nical guidance on estimating
  toxic releases, reviewing four
  petitions for adding or deleting
  chemicals from the list of chem-
  icals subject to reporting, and
  contacting the interested public
  about the program.

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                                              21

-------
Radiation
The EPA, with a number of
other federal agencies, is autho-
rized to protect the public from
unnecessary exposure to ioniz-
ing radiation. Authorizing leg-
islation includes the: Atomic
Energy Act of 1954; Public
Health Service Act of 1962; Safe
Drinking Water Act of 1974;
Clean Air Act Amendments of
1977; Uranium Mill Tailings
Radiation Control Act of 1978;
Marine Protection, Research,
and Sanctuaries Act of 1972;
Clean Water Act of 1972;
Nuclear Waste Policy of 1982;
and Comprehensive
Environmental Response,
Compensation, and Liability
Act(CERCLA)ofl980.

EPA's major responsibilities are
to set radioactive emissions
standards and exposure limits,
assess new technology, and
monitor radiation in the envi-
ronment in four primary areas:
radiation from nuclear acci-
dents, radon emissions, land
disposal of radioactive waste,
and radiation in ground water
and drinking water.
The Agency fulfills these
responsibilities by setting emis-
sions standards for nuclear
power plants, for mill tailings at
uranium processing sites and
mills, and for radionuclides in
drinking water and in the air.
EPA prescribes work practices
to reduce emissions of radon
from underground uranium
mines, develops radioactive
waste disposal standards, issues
guidance to limit occupational
exposure (including measures
to protect the unborn), and
unnecessary exposure of
patients to medical x-rays.  The
Agency's national indoor radon
program assists states in identi-
fying areas with high indoor
radon levels, researches,
demonstrates and evaluates
techniques to reduce radon lev-
els, and establishes standard
methods for measuring radon
levels.

Finally, EPA samples and moni-
tors surface and drinking water,
air, precipitation, and milk to
identify trends in radiation lev-
els, set standards, and assess
actions needed to protect the
public. In the event of a nuclear
facility emergency, EPA can
provide field-monitoring ser-
vices, such as these, to other
government organizations, as it
did after the Three Mile Island
accident and the 1987
Chernobyl accident in the
Soviet Union.

Radiation (1987 Highlights)

Initiated important elements of
the action program for radon,
an environmental pollutant that
may cause up to 20,000 cancer
deaths per year. EPA devel-
oped the design for statewide
surveys of high-risk areas and
established the House
Evaluation Program to assist
states in evaluating the causes
and remedies for elevated levels
of indoor radon.

Published guidance, signed by
the President, for occupational
exposure to radiation.

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                                               22

-------
Superfund
In 1980, Congress passed the
Comprehensive Environmental
Response, Compensation, and
Liability Act (CERCLA or
"Superfund") that established a
$1.6 billion trust fund and gave
EPA authority to respond to
hazardous substance situations
or sites which threaten human
health and the environment.
The Superfund Amendments
and Reauthorization Act
(SARA) of 1986 increased the
trust fund to $8.5 billion and
gave the program new
responsibilities and authorities.

Superfund authorizes EPA to
take both immediate and long
term actions to stop or substan-
tially reduce hazardous materi-
al releases or threats of such
releases. Situations requiring
EPA to take immediate action,
also known as removal actions,
typically result from accidents,
fires, or improper disposal
involving hazardous materials.
These situations require short
term responses (or removal
actions) to stabilize or cleanup
immediate problems.
For hazardous waste sites that
do not require immediate
removal actions, EPA or state
officials conduct a preliminary
assessment based on site docu-
ments, and a site investigation if
a potential problem exists. The
sites throughout the nation with
the highest risk are placed on
the National Priorities List
(NPL). Only sites on the NPL
are eligible for Superfund reme-
dial actions. During remedial
actions, alternative cleanup
actions are evaluated by EPA,
responsible parties, and the
public. Site cleanup is per-
formed under the supervision
of EPA and the Army Corps of
Engineers.

EPA encourages parties respon-
sible for hazardous waste sites
to cleanup the sites voluntarily.
However, if EPA must perform
the cleanup, responsible parties
may be liable  for up to three
times the costs of federal reme-
dial work. If responsible parties
are unknown, EPA and the
states  will do  the work.
The Superfund effort at EPA is
substantial. Currently, the
Agency has an inventory of
over 30,000 sites which may
pose a threat to human health
or the environment.  Over 1,100
of these are currently on the
NPL.

Superfund (1987 Highlights)

Met or exceeded most annual
targets and showed good over-
all performance. Records of
Decisions and Remedial Action
starts were the exception.

Met targets for Remedial Action
completions and Initiation of
the Deletion process by all
regions.

Exceeded the target for cost
recovery referrals. Achieved 40
cost recovery settlements in
1987 which account for over
half of cost recovery settlements
to date.
TOTAL DOLLARS (BILLIONS)
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                                               23

-------
 Leaking Underground Storage Tanks
Since the 1950's, storage tanks
for volatile liquids such as
petroleum products have been
buried underground to reduce
the risk of fire and explosion.
However, recent experience has
shown leaking underground
storage tanks to be a major
source of ground water contam-
ination and a great risk to
human health and the environ-
ment.  EPA estimates that there
are 3 to 5 million tanks in the
United States containing
petroleum products or other
hazardous substances.
Thousands are thought to be
leaking now  and many more
will begin to leak in the next 5
to 10 years.

In 1984, Congress amended the
1976 Resource Recovery and
Conservation Act (RCRA) to
require EPA to implement a
comprehensive regulatory pro-
gram for underground storage
tanks. In 1988, the Agency
issued regulations addressing
leak detection, corrective action
requirements, standards for
new tanks, and other proper
tank management practices.
These regulations also include
requirements for tank owners or
operators to show that they
have insurance or other finan-
cial resources to pay for damage
caused by leaking underground
tanks.

To provide funds for cleanup of
leaking tanks, Congress amend-
ed RCRA in 1986 and estab-
lished a trust fund to be used
for emergency cleanup of
petroleum leaks from under-
ground tanks and to help
finance state cleanup activities.
This trust fund is financed by a
tax on motor fuels that is
expected to raise approximately
$500 million over 5 years. As
with Superfund hazardous
waste sites,  EPA encourages
parties responsible for leaking
underground tanks to clean up
the problems voluntarily.
However, if EPA must perform
the cleanup, responsible parties
may be liable for the cost of fed-
eral cleanup work.
Leaking Underground Storage
Tanks (1987 Highlights)

Assisted the states in preparing
to implement the Underground
Storage Tank program.

Signed Leaking Underground
Storage Tanks Trust Fund
Cooperative Agreements with
43 states.

52 states report that they have
operational notification data
management systems.

41 states are implementing an
Underground Storage Tank pro-
gram.
TOTAL DOLLARS (THOUSANDS)
3 -» NJ to 4k OX
80
UNDERGROUND STORAGE TANKS
'
'

/'
/
1
' /•
81 82 83 84 85 86 87 88 89
ANNUAL OPERATING PLAN (FY)

                                             24

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Energy
This multi-media energy
research and development pro-
gram provides the scientific
information necessary to evalu-
ate environmental impacts
from, and potential controls on
the energy sector. This research
program currently focuses on
two issues: (1) reducing scien-
tific uncertainties surrounding
the phenomenon of acid deposi-
tion; and (2) developing and
evaluating Limestone Injection
Multistage Burner (LIMB) con-
trol technologies.

The acid deposition research
program represents the
Agency's part of the National
Acid Precipitation Assessment
Program (NAPAP). The pur-
pose of this research is to
increase understanding of the
causes, effects, and potential
mitigation measures for acid
deposition. With more reliable
information available to policy-
makers, more effective and cost-
effective mitigation decisions
should be developed.
The LIMB control technology
program is designed to develop,
demonstrate, and evaluate
effective and inexpensive emis-
sion control systems that will
reduce air emissions of sulfur
oxides and nitrogen oxides.
This research will provide data
on performance, reliability, and
cost-efficiency which will accel-
erate commercial viability of
retrofit technologies for coal-
fired boilers.

The following objectives define
the Agency's energy research
and development activities:
estimating emissions from man-
made sources, understanding
atmospheric processes, estab-
lishing deposition monitoring
data bases, understanding and
quantifying aquatic effects,
understanding and quantifying
terrestrial  effects, understand-
ing and quantifying materials
and cultural resource effects,
evaluating control technologies,
and developing and evaluating
LIMB control technology.
Energy (1987 Highlights)

The acid deposition research
program installed a monitoring
network for field evaluation of
the Regional Acid Deposition
Model and expanded the dry
deposition monitoring network
to include 50 sites.

Produced reports on the
Western Lake Survey, Mountain
Cloud Chemistry Project, and
on site-specific cost estimates of
sulfur dioxide and nitrogen
oxide controls from 12 coal-
fired power plants.

Stated the commercial-scale
demonstration of the wall-fired
technology, and issued a report
on commercialization require-
ments for LIMB.

Concluded research assessing
the impacts of oil and gas
development on coastal tundra
wetlands.
TOTAL DOLLARS (MILLIONS)
o 8 S § § 1 I
ENERGY
/
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ANNUAL OPERATING PLAN (FY»

                                               25

-------
 Interdisciplinary
EPA's Interdisciplinary Program
is composed of several activities
that cut across programs and
are not media specific.
However, these activities
address environmental con-
cerns that simultaneously affect
several media and therefore
require an interdisciplinary
approach. The Interdisciplinary
Program includes the
Intermedia Research Program,
the Federal Agencies
Compliance Program, the
National Environmental Policy
Act (NEPA) Compliance
Program, and the legal aspects
of the Agency's enforcement
efforts.

The Intermedia Research
Program consists of five major
activities: scientific assess-
ments, technical information
and liaison (including regulato-
ry support and technology
transfer), exploratory research,
quality assurance management,
and an integrated program to
reduce uncertainties in risk
assessment.

The Environmental Review and
Coordination Program accom-
plishes statutory objectives
under the authority of the
National Environmental Policy
Act (NEPA); Section 309 of the
Clean Air Act; and Executive
Order 12088 - Federal
Compliance with Pollution
Control Standards; and includes
four program activities as well
as support for regional interdis-
ciplinary projects and EPA tech-
nology transfer activities.

Enforcement Policy and
Operations provides consistent
direction to EPA enforcement
for all non-Superfund media to
assure the most effective possi-
ble stewardship of EPA's
enforcement responsibilities as
they contribute to the protection
of environmental quality.

The National Enforcement
Investigations Center (NEIC)
provides specialized technical
expertise in support of EPA
enforcement case preparation
activities, and serves as a point
of coordination and support for
complex investigations which
may have a national impact on
environmental enforcement.
TOTAL DOLLARS (MILLIONSI
8 g g g
INTERDISCIPLINARY
	
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ANNUAL OPERATING PLAN (FY)
Interdisciplinary Programs
(1987 Highlights)

Published five risk assessment
guidelines, prepared training
materials and held guideline
training sessions.

Processed over 1,300 docu-
ments to the National Technical
Information Service, produced
and distributed approximately
400 project summaries, and
answered over 30,000 requests
for publications.

The Exploratory Research pro-
gram reviewed 375 grant pro-
posals, awarded 40 new grants,
and continued support for 97
grants.

The NEPA Compliance pro-
gram increased oversight of
state programs which perform
much of the basic environmen-
tal analysis.

Continued efforts to provide
technical advice and assistance
to federal agencies to ensure
that their facilities comply with
pollution control requirements
in a cost effective manner.
                                               26

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Management and Support
Management and Support pro-
vides executive direction and
policy oversight for all Agency
programs, as well as those
administrative and support ser-
vices that are not assigned to a
specific program. The program
provides quality legal services,
promotes technically and eco-
nomically defensible regulatory
and policy alternatives,
enhances the public's percep-
tion and understanding of
Agency goals, manages for
environmental results, and pur-
sues a focused human resources
management effort to build a
skilled career environmental
workforce.

Management and Support is
comprised of Program Manage-
ment, Agency Management,
Regional Management, and
Support Costs.

Program Management includes
policy development and over-
sight, and associated manage-
ment activities for the Agency's
environmental program offices
of: Air and Radiation, Water,
Enforcement and Compliance,
Monitoring, External Affairs,
Pesticides and Toxic Substances,
General Counsel, Research and
Development, and Solid Waste
and Emergency Response.

Agency Management includes
Agency wide management func-
tions and policy activities, and
consists of: executive offices
policy direction; planning for
and evaluation of Agency activ-
ities; legal services for litigation
in which the Agency is a defen-
dant; external affairs; investiga-
tions and audits of Agency
activities; and centralized
administration and resources
management services.

Regional Management includes
centralized management and
administrative functions for
each EPA regional office.

Support costs include the costs
of general Agency support ser-
vices including: facility rental
costs, telephone, mail, printing
and copying, utilities, security,
library services, maintenance,
400
5> 350
§ 300
S 250
2 200
=i 150
O
0 100
1 -
H 0
8
MANAGEMENT AND SUPPORT
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0 81 82 83 84 85 86 87 88 89
ANNUAL OPERATING PLAN (FY)


health and safety, and central-
ized data processing.

Management and Support
(1987 Highlights)

Published numerous EPA
Journals, leaflets, fact sheets,
and other public information
materials on environmental
activities and issues, including
risk assessment, radon, haz-
ardous waste, and ground
water.

Increased enforcement and
compliance efforts under both
environmental and civil rights
regulations for the Administra-
tive Law Judges and the
Judicial Officers.

Began development of the
Integrated Financial
Management System to inte-
grate and improve the Agency's
financial systems.

Established the EPA Institute in
which EPA employees share
their expertise by teaching
courses. The 20 courses offered
were attended by approxi-
mately 2,000 employees.

Finished design and began con-
struction of the Radiation
Laboratory in Montgomery, AL
and the full containment facility
in Cincinnati, OH.
                                              27

-------
 Construction Grants
The Construction Grants pro-
gram is described independent-
ly from EPA's operating pro-
grams because: it is a grants
rather than an operating pro-
gram, obligations substantially
lag behind appropriations, and
its funding dwarfs that of the
operating programs both cur-
rently and historically.

The Construction Grants pro-
gram provides funds to states
and municipal agencies to assist
in financing the construction of
cost-effective and environmen-
tally sound municipal wastewa-
ter treatment facilities, and to
assist states in carrying out their
program and project manage-
ment responsibilities.

Since 1972, the Construction
Grants program has completed
about 7,000 construction pro-
jects and has provided $48 bil-
lion of the more than $65 billion
invested in grant-assisted
wastewater treatment works.
There are currently about 15,000
treatment plants in the nation
serving over 172 million people.
This program has been autho-
rized since 1972 through Title II
of the Clean Water Act.

Legislative amendments in 1977
and 1981 made a number of sig-
nificant changes to the program
which increased state responsi-
bilities for direct grants manage-
ment and reduced the federal
role in financing project grants.

The Water Quality Act of 1987
set the stage for further, signifi-
cant program changes. The tra-
ditional program of grants to
communities for facilities con-
struction is being replaced by
grants to states to capitalize
revolving loan funds (SRFs).
This program ushers in expand-
ed state responsibilities and
autonomy in a program that is
already delegated extensively.
Although construction grants
funding will end after 1990,
grants management activities
will continue at significant lev-
els through the 1990's. In 1989,
almost 5,000 projects will
remain active. EPA will help
assure that projects utilize
appropriate and affordable
designs, are constructed in the
most cost-effective manner, and
are managed and operated to
comply with program and dis-
charge requirements.
Construction Grants (1987
Highlights)

Obligated construction grants
of $2 billion and supported 514
awards for secondary and ter-
tiary treatment.

Federal outlays totaled $2.9 bil-
lion and states obligated $112
million for water quality and
nonpoint source planning.

Obligated $.6 million for the
National Estuary Program.
TOTAL DOLLARS (BILLIONS)
5 -* ro to 4*

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81 82 83 84 85 86 87 88 89
ANNUAL OPERATING PLAN (FYI

                                               28

-------
Special Analysis
9
In recent years, and this year in
particular, Agency priorities
increasingly highlight three spe-
cific Agency activities.  These
include:  providing state and
local grants; ensuring enforce-
ment of environmental laws
and regulations; and conduct-
ing needed research and devel-
opment.

Each of these activities is con-
ducted as a component of pro-
grams discussed earlier, and the
resources related to each of
these activities are included in
the resource estimates for each
operating program. In total,
however, these three high-prior-
ity activities utilized 28 percent
of EPA's FY 1987 operating pro-
gram resources.

This section examines each of
these activities by describing
their current scope and focus in
a format similar to that used for
operating programs.
                                      Environmental sample analysis


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800
700
600
500
400
UK)
200
100
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SPECIAL ANALYSIS
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81 82 83 84 85 86 87 88 89
ANNUAL OPERATING PLAN (FY)
                                                29

-------
State  and Local Grants
EPA clearly recognizes that
meeting our statutory environ-
mental goals without continued
support to the states is impossi-
ble. Recognizing the important
role grant programs play in
maintaining and improving
environmental quality in the
states, EPA in 1987 continued to
maintain a strong financial
commitment for these essential
programs while, however,
addressing necessary fiscal con-
straints throughout the federal
government.
Funding for state and local
environmental programs
increased from $282 million to
$302 million in 1987, or approxi-
mately 7 percent. The increase
for ongoing programs totaled
more than 11 percent since sev-
eral of these programs were dis-
continued in 1987.

State and Local Grants (1987
Highlights)

Maintained, and where appro-
priate, strengthened and
improved the state-federal rela-
tionships that have developed
over the years.

Ceased funding the National
Rural Water Association, the
Clean Lakes Program, and the
Hazardous Waste Program
which received $11.5 million in
1986. These programs were
judged to be able to carry out
their purposes with alternative
resources.
Increased funding significantly
for the Hazardous Waste and
Underground Storage Tank pro-
grams to enable states to accom-
plish inspections, corrective
action measures and enforce-
ment for both RCRA facilities
and underground storage tanks.
TOTAL DOLLARS (MILLIONS)
350
300
250
200
ISO
100
50
0
STATE AND LOCAL GRANTS

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80 81 82 83 84 85 86 87 88 89
ANNUAL OPERATING PLAN (FY)

                                             30

-------
Enforcement
When regulated entities fail to
comply voluntarily with EPA
requirements, the Agency, in
partnership with state agencies,
can take a number of enforce-
ment actions. Alternatives
include: compliance promotion;
administrative money penalties;
negotiated compliance sched-
ules; and ultimately, judicial
enforcement involving criminal
proceedings in federal court.

Judicial enforcement of environ-
mental laws and regulations
provides EPA a very important
option because the possibility of
financial and criminal penalties
acts to deter potential violators.
Seeking penalties at least as
large as the gain a company
may realize by violating the
law, and seeking criminal con-
victions and prison sentences
counters incentives for non-
compliance.
EPA's National Enforcement
Investigations Center in Denver
combines laboratory, investiga-
tion, and engineering skills to
develop evidence and help EPA
win in court. The Agency's
criminal investigation unit has
successfully cracked down on
illegal discharges into water-
ways, "midnight dumping" of
toxic substances, and deliberate
destruction or falsification of
test results or environmental
reports.

Enforcing environmental laws
and regulations often calls for
close cooperation among EPA,
the U.S. Justice Department,
and myriad state and local
agencies.  All play important
roles in achieving significant
improvements in environmental
quality.
Enforcement (1987 Highlights)

Referred 304 civil cases to the
Justice Department of which
141 were direct referral from the
regions, 122 were CAA, 85
were NPDES, 7 were SDVtfA, 23
were RCRA, 54 were CERCLA,
9 were TSCA, and 4 were
FIFRA.

Filed 285 cases with the Justice
Department. As of September
30,1987, the Enforcement
Docket System reported that
there were 820 civil judicial
cases active, of which 530 were
court pending.

Issued 3,194 administrative
orders - the largest increase
occurring under TSCA with
1,015.

The criminal enforcement pro-
gram has referred 82 cases to
the Justice Department for crim-
inal prosecution - 41 in 1986
and 41 in 1987.  Fifty-eight
defendants in these cases were
convicted or found guilty.
MILLIONS)
§ 8
TOTAL DOLLARS
S B
ENFORCEMENT
	

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SO 81 82 83 84 85 86 87 88 89
ANNUAL OPERATING PLAN (FY)
                                               31

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Research  and Development
To maintain the public trust in
EPA decisions, Agency man-
agers must objectively work
with and interpret the best
available scientific data. This
effort is accomplished through
Agency research, grants, coop-
erative agreements, and con-
tracts established with govern-
ment entities, universities and
private institutions.  EPA's
Office of Research and
Development provides data in
six areas:

Environmental engineering and
technology research which
assesses pollution from indus-
trial and municipal sources and
analyzes alternative control
techniques.

Environmental processes and
effects research which seeks
data to predict and manage the
movement and effect of pollu-
tion as it spreads through the
environment and ecosystem.

Monitoring systems and quality
assurance research which devel-
ops standardized methods to
measure and monitor
pollutants.

Health effects research which
provides data needed to esti-
mate human mortality and ill-
ness caused by pollutants.

Health and environmental
assessment research which pro-
vides an integrated, scientific
basis for evaluating environ-
mental risks and effects stem-
ming from exposure to various
substances.

Exploratory research which
assesses potential environmen-
tal trends and funds research to
meet needs for basic scientific
knowledge.

EPA relies on an independent
Science Advisory Board, com-
prised of non-EPA scientists, to
advise  the Agency and review
the quality of its scientific work.
TOTAL DOLLARS ((MILLIONS)
350
300
250
200
150
100
50
RESEARCH AND DEVELOPMENT
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80 81 82 83 84 65 86 87 88 89
ANNUAL OPERATING PLAN (FY)
Research and Development
(1987 Highlights)

Provided considerable research
data for development of risk
assessments and risk reduction.

Produced 576 journal articles,
450 symposium papers, 417
published reports, 949 internal
reports, and 1,632
miscellaneous articles.

Updated the radon mitigation
technical manual, of which over
20,000 copies have been printed
for distribution to the states and
others.

Through cooperative funding
by EPA and NASA, published
significant findings on global
warming, which will undoubt-
edly affect  environmental deci-
sions for years to come.

Developed the Chernoff-
Kavlock test for reproductive
toxicity, which provided the
Office of Pesticides Programs
and the Office of Toxic Subst-
ances with validated testing
alternatives to the current
expensive and time-consuming
three generation procedure.

Originated further study on a
unique gene system which self-
destructs upon complete uti-
lization of certain toxic chemi-
cals and may lead to a safe,
inexpensive alternative for
eliminating toxic chemicals in
the environment.
                                               32

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Financial Statements
        33

-------
 Message From the Comptroller
 We at EPA are pleased to be among the first federal agencies to pre-
 pare audited consolidated financial statements based on generally
 accepted accounting principles for federal agencies, and to present
 them in this, our first annual report. Given the complexity and size
 of our accounts, including a multi-billion dollar construction grants
 program and the Superfund trust fund, we feel we have made a sig-
 nificant contribution to the goal of each federal agency providing
 reliable financial information to both the federal government com-
 munity and the general public.

 EPA's fiscal year 1987 consolidated financial statements were pre-
 pared in accordance with generally accepted accounting principles
 for federal agencies. The statements are presented in a consistent
 manner using the accrual basis of accounting. Established account-
 ing procedures are designed to provide accurate records and
 accounts which fairly reflect the transactions of EPA.

 We designed this report to present, in addition to the consolidated
 financial statements, an overview of our accomplishments, goals,
 programs and resources. The Administrator's message describes
 EPA's accomplishments, challenges and future agenda. The next sec-
 tion discusses how we are managing our resources to meet these
 challenges. The final section before the statements provides a brief
 description of EPA's programs and the resources available to these
 programs. We feel the information in this report will be of interest to
 a wide range of readers who wish to know about EPA's activities and
 the resources used to support those activities.

 Preparation of the audited consolidated financial statements for this
 report required a substantial effort and commitment of resources
 from EPA and from the General Accounting Office (GAO). We
 believe that the principal value of this effort lies in introducing
 discipline into our accounting systems which assure that the results
 of EPA's financial activities are presented fairly and consistent with
 applicable guidelines and regulations. This is particularly useful to
us at this time since we are converting to a new integrated financial
management system. Consequently, we are planning to prepare
audited consolidated financial statements on an annual basis.
              34

-------
GAO
United States
General Accounting Office
Washington, D.C. 20548
                Comptroller General
                of the United States
      B-216351

      To the Administrator
      Environmental Protection Agency

      We have examined the consolidated statement of financial position of the Environmental
      Protection Agency (EPA) as of September 30,1987, and the related consolidated statements of rev-
      enues and expenses and of changes in financial position and reconciliation to budget for the fiscal
      year then ended. Our examination was made in accordance with generally accepted government
      auditing standards and, accordingly, included such tests of the accounting records and such other
      auditing procedures as we considered necessary in the circumstances, except as indicated in the
      following two paragraphs. In addition to this opinion, we are also reporting to you on our study
      and evaluation of EPA's internal accounting controls and on its compliance with laws and regula-
      tions.

      Fiscal year 1987 represents the first year that EPA has prepared consolidated financial statements
      in accordance with generally accepted accounting principles for federal agencies. Because our
      examination did not commence until July 1987, it was not practical to perform various auditing
      procedures with respect to determining whether, as  of the beginning of fiscal year 1987, assets, lia-
      bilities, equity, revenues, and expenses were recorded in the proper accounting period.
      Accordingly, we do not express an opinion on the accompanying consolidated statements of rev-
      enues and expenses and of changes in financial position and reconciliation to budget or on the
      consistency of application of accounting principles with the preceding year.

      Conditions exist with respect to EPA's property accounts which represented departures from gen-
      erally accepted accounting principles and internal control standards for federal agencies.  These
      conditions include the manner in which EPA accounts for and supports property asset balances
      and weaknesses in the internal control system it utilizes to control and safeguard property assets.
      For example, EPA's property records do not provide the cost and depreciation data needed to
      account for property assets. In addition, EPA's property asset balances were not supported by ade-
      quate documentation or subject to periodic reconciliations. Because of these conditions, it was not
      practical to perform, nor did we perform, auditing procedures necessary to satisfy ourselves as to
      the aggregate net book value of land, buildings, and equipment reported on the consolidated
      statement of financial position as of September 30,1987.

      The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as
      amended by the Superfund Amendments and Reauthorization Act of 1986, created a trust fund to
      help EPA respond to hazardous substances that threaten human health and the environment. The
      principal financing sources for the trust fund are taxes on petroleum and chemicals, an environ-
      mental tax on corporations, costs recovered from responsible parties, fines and penalties, and
      earned interest. The Congress provides, in annual appropriations, the amounts EPA may expend
                                                  35

-------
from the trust fund. EPA accounts for and reports on only those funds the Congress has appro-
priated. As part of its Superfund program activities, EPA has inventoried over 30,000 sites which
may pose a threat to human health or to the environment. Over 1,100 of these sites are currently
on a priority list, making them eligible for Superfund remedial actions. The ultimate cost to
address all potential sites requiring remedial action is unknown and, as a result, it is unclear
whether the $8.5 billion currently authorized for the 5-year period beginning with fiscal year 1987
will be adequate.

In our opinion, except for the effects of adjustments, if any,  on the consolidated statement of
financial position as might have been necessary had we been able to satisfy ourselves as to the
aggregate net book value of land, buildings, and equipment, as discussed in paragraph three, the
accompanying consolidated statement of financial position presents fairly the financial position
of the Environmental Protection Agency as of September 30,1987, in accordance with generally*
accepted accounting principles for federal agencies.

Our examination was made for the purpose of forming an opinion on the consolidated state-
ments taken as a whole.  The supplemental schedules of financial position by fund activity, of
revenues and expenses by fund activity, and of changes in financial position and reconciliation to
budget by fund activity are presented for the purposes of additional analyses and are not a
required part of the basic financial statements. The supplemental schedule of financial position
by fund activity has been subjected to the same auditing procedures applied in the examination
of the consolidated statement of financial position.  In our opinion, except for the effects of the
matters discussed in paragraph three above, the supplemental schedule of financial position by
fund activity  is fairly stated in all material respects in relation to the consolidated statement of
financial position taken as a whole. For the reasons expressed in the second paragraph, we do
not express an opinion on the supplemental schedules of revenues and expenses by fund activity
and of changes in financial position and reconciliation to budget by fund activity.
Charles A. Bowsher
Comptroller General
of the United States

Julyl, 1988
                                           36

-------
Consolidated Statement of Financial Position
As of September 30,1987 (Dollars in thousands)



                               Assets

                               Funds with U.S. Treasury (note 1)
                               Advances, accounts and loans
                                receivable, net (notes 1,3)
                               Land, buildings, and equipment,
                                net of accumulated depreciation
                                (notes 1,4)
                               Future financing sources

                               Total Assets

                               Liabilities and Equity

                               Liabilities

                               Accounts payable and accruals:
                                To the public
                                To other federal agencies
                               Advances (note 1):
                                From other federal agencies
                                From the public
                               Accrued payroll and leave

                                  Total Liabilities

                               Commitments and contingencies (note 6)

                               Equity of the U.S. Government

                               Unexpended appropriations:
                                Unobligated balances
                                Unliquidated obligations (note 1):
                                 Grants and other assistance
                                 Contracts and other
                               Invested capital
                               Cumulative results of operations

                                  Total Equity

                               Total Liabilities and Equity
$ 10,282,078

     93,633
    129,775
     38,171

  10,543,657
    258,834
    103,662

      14,269
      11,925
      67,782
   1,913,682

   7,179,701
     915,158
     181,073
    (102,429)

  10,087,185

$ 10,543,657
                               The accompanying notes are an integral part of these statements.
                                             37

-------
Consolidated Statement of Revenues and Expenses
For the Fiscal Year Ended September 30,1987 (Dollars in thousands)



                             Expenses

                             Grants and other assistance (note 7)                 $ 3,353,538
                             Contractual services                                 796,675
                             Personnel compensation and
                              fringe benefits                                     584,541
                             Rent, utilities, and
                              telephone (note 1)                                   98,944
                             Travel, printing, supplies, and
                              other expenses                                    104,647
                             Depreciation (note 1)                                 18,838

                                Total Expenses                                 4,957,183

                             Revenues (note 1)

                             Appropriations expended                           4,923,262
                             Transfers and reimbursements                          32,410
                             Fines, penalties, and other revenues                      2,711

                                Total Revenues                                 4,958383

                             Excess of Revenues Over Expenses                 $    1,200
                                                                                 s

                             The accompanying notes are an integral part of these statements.
                                         38

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Consolidated Statement of Changes in Financial Position and
Reconciliation to Budget
For the Fiscal Year Ended September 30,1987 (Dollars in thousands)
                             Resources Used:

                             Operating uses:
                             Operating expenses
                             Items providing funds:
                              Depreciation (notes 1,4)
                              Loss on property
                              Decrease in advances, accounts, and
                                loans receivable, net
                              Increase in accounts payable and accruals
                              Revenue accounted for as offsetting receipts

                                Funds used by operations

                             Nonoperating uses:
                             Acquisitions of equipment (note 1)
                             Funds transactions excluded from outlays

                             Net Resources Used (Budgetary Outlays)

                             Resources Provided:

                             Current-year appropriation
                             Net transfers and other

                             Net Resources Provided

                             Increase in U.S. Treasury Funds

                             U.S. Treasury Funds, Beginning of Year

                             U.S. Treasury Funds, End of Year
$ 4,957,183

    (18,838)
     (8,897)

    (21,973)
    (24,068)
    (32,124)

  4,851,283
     24,348
     31,074

   4,906,705
   5,364,188
     (57,229)

   5,306,959

    400,254

   9,881,824

$ 10,282,078
                              The accompanying notes are an integral part of these statements.
                                           39

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Notes to Financial Statements
Note 1: Significant Accounting Policies

Entity

EPA was created in 1970 by executive reorganization from various
components of other agencies in order to better marshal and coordi-
nate federal pollution control efforts.  The agency is generally orga-
nized around the media and substances it regulates—air, water, land,
hazardous waste, pesticides, and toxic substances.

Basis of Consolidation

EPA's consolidated financial statements are prepared in conformity
with generally accepted accounting principles for federal agencies as
contained in title 2 of the General Accounting Office's (GAO) Policy
and Procedures Manual for Guidance of Federal Agencies.

The accompanying consolidated financial statements of EPA include
all accounts under EPA's control which have been established and
maintained to account for the resources entrusted to the Agency's
management. These accounts, as reflected, are maintained on the
accrual basis of accounting. In our financial statements, all material
intra-agency balances and transactions have been eliminated in con-
solidation.

Revenue Recognition and Expended Appropriations

Financing sources are provided through congressional appropria-
tions on an annual, multi-year, and no-year basis. Appropriations
may be used to finance operating expenses as well as capital expen-
ditures for land, equipment, and other assets as specified by law.
Additional revenue is recognized from services provided on a reim-
bursable basis, fines levied against nonperforming entities and per-
sons making false claims, and penalties charged to delinquent
debtors. Revolving fund revenue is recognized when services have
been rendered.

The current budgetary process does not distinguish between capital
and operating expenditures. For budgetary purposes, both are rec-
ognized as a use of budgetary resources (outlays) as paid. However,
for financial reporting purposes under accrual accounting, operating
expenses are recognized currently in the statement of operations,
while advances, reimbursements, and expenditures for capital and
other assets are recognized when consumed, or collected, in EPA
              40

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operations. Financing sources for these expenses, which are derived
both from current and prior-year appropriations, are recognized on
the same basis. The consolidated statement of changes in financial
position and reconciliation to budget presents a reconciliation of
operating expenses on an accrual basis with cash basis budgetary
expenditures. Appropriations for fund activities are recorded as a
financing source when expended. Unexpended  appropriations are
recorded as equity of the U.S. government.

Future financing sources represent annual leave  expense accrued as
earned in the current period, to be funded in the year leave is taken.

Advances

Advances receivable represent funds paid to employees (such as
travel advances), other federal agencies, contractors, and grantees for
goods or services; actual spending for goods and services which
have not been received; or unspent funds which have not been
returned. These advances include an accrual of $6.7 million repre-
senting EPA's estimate of drawdowns by letter-of-credit recipients
for which costs have not yet been incurred.

Advances payable represent funds paid to EPA by other federal
agencies and grantees to purchase goods and services on their behalf
and prior to EPA providing the goods and/or services.

Property and Equipment

Land, buildings, and equipment with a cost greater than $5,000 and
a useful life of 2 years or greater are capitalized. Currently, the
Agency's procedure is not to calculate depreciation on buildings or
library volumes; on equipment, it is calculated on a straight-line
basis over an estimated useful life of 5 years.

Annual, Sick, and Other Types of Leave

Employee's annual leave is accrued as it is earned, and the accrual is
reduced as leave is taken. At least once per year, the balance in the
accrued leave account is adjusted to reflect current pay rates of
cumulative annual leave earned but not taken. Senior Executive
Services employees may carry forward an unlimited amount of
annual leave from one year to the next. Most other employees may
carry forward up to 240 hours. Any excess hours not taken are for-
feited unless special approval is granted. Sick and other types of
leave are expensed as taken.
               41

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Cost Allocation

Indirect overhead costs, consisting of rent, utilities, telephone, etc.,
are allocated to Superfund and Non-Superfund accounts based upon
a formula of direct labor hours using budgeted or actual full-time
equivalent personnel, not to exceed the administrative ceiling estab-
lished by appropriations.

Funds with U.S. Treasury

This total represents all unexpended balances on EPA's accounts
with the U.S. Treasury.
Note 2 : Intragovernmental Financial Activities

EPA's financial activities are affected by, and are dependent upon,
those of the federal government as a whole. Thus, EPA's financial
statements do not reflect the results of all financial decisions and
activities applicable to EPA operations, as if it were a stand-alone
entity.

•     The U.S. Treasury receives, disburses, and holds moneys on
      behalf of EPA for 53 different account titles or fund types for
      which EPA has management responsibilities.

•     EPA's consolidated financial statements are not intended to
      report the Agency's proportional share of the federal deficit
      or of public borrowings, including interest thereon.

•     Financing for major construction projects was provided
      through appropriations. To the extent this financing was
      obtained through public borrowing by the U.S. Treasury, no
      interest has been capitalized, since such borrowings are
      recorded in total by the U.S. Treasury and are not allocated to
      individual departments and agencies.

•     During fiscal year 1987, the majority of EPA's employees par-
      ticipated in the Civil Service Retirement System (CSRS).
      Contributions to the plan are based on 7 percent of the
      employees' gross pay, to which EPA made a matching contri-
      bution.  EPA pension contributions for the year ending
      September 30,1987, totaled approximately $27 million.
             42

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      On January 1,1987, the Federal Employees' Retirement
      System (FERS) was implemented, pursuant to Public Law 99-
      335. This is a defined contribution retirement plan and is
      comprised of a Social Security Benefits Plan, a Basic Benefit
      Plan, and a Savings Plan. Generally, it is mandatory for all
      employees hired on or after January 1,1984. Employees
      hired before January 1,1984, had the option until
      December 31,1987, to elect to transfer coverage from CSRS
      (extended to June 30,1988, for extenuating circumstances).
      Contributions to the plans are based on a percentage of the
      employees' gross pay. Under the Thrift Savings Plan,
      employees can also elect additional contributions between 1
      and 10 percent of their gross pay and EPA will match up to 4
      percent of the employee-elected contribution. EPA also pays
      1 percent of the employees' salary into the Thrift Savings
      Plan.  FERS and Thrift Savings employer contributions for
      the year ended September 30,1987, totaled approximately
      $10.7 million. There is the potential for EPA to incur
      increased costs due to transfers from CSRS to FERS.
      However, EPA management does not believe the increase
      will be material.

      EPA matches the employees' PICA and Medicare contribu-
      tions. PICA and Medicare employer's contributions for the
      year ended September 30,1987, totaled approximately $12.5
      million.

      EPA does not report CSRS or FERS assets, actuarial present
      value of accumulated plan benefits, or unfunded liabilities
      applicable to its employees, since this data is maintained by
      the Office of Personnel Management and is not allocated to
      individual departments and agencies.

•     The General Services Administration (GSA) provides many
      services to the EPA, such as procurement and telecommuni-
      cations, which are charged through interagency billings as
      goods are shipped or services are rendered.

•     The EPA contracts for a wide range of goods and services
      through interagency agreements with other federal agencies
      and units of state and local governments (reimbursable only)
      which, for the fiscal year ended September 30,1987, amount-
      ed to approximately $102.9 million in expenditures and $31
      million in reimbursements.
              43

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Note 3: Receivables

Receivables, as of September 30,1987, consisted of the following:

 Advances

  Other federal agencies         $  4,897,656

  The public                     11,610,806

  EPA employees                   652,548

 Total Net Advances                                $17,161,010

 Accounts Receivable

  Other federal agencies

  The public
 Less: Allowance for
  doubtful accounts

 Total Net Accounts Receivable

 Loans Receivable (A, B)

    Due through July 31,2007, at
    interest rates of up to
    6.125 percent

 Interest on loans receivable

 Total Loans Receivable
 (including interest)

 Total Net Receivables

A.  The Asbestos School Loans
  2,303,204

 84,308,755


(61,797,960)
 51,297,291

   360,476
                    24,813,999
                    51,657,767

                   $93,632,776
The Asbestos School Hazard Abatement Act of 1984 (ASHAA), as
amended by the Asbestos Hazard Emergency Response Act of 1986
(AHERA), gives EPA the lead responsibility to compile technical
information on asbestos, to develop procedures and standards for
both public and private local educational agencies (LEAs) to use in
              44

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abating asbestos hazards, and to provide financial assistance to LEAs
on a school-by-school basis to carry out abatement projects. This
financial assistance includes both grants and loans to the LEAs.  In
addition, AHERA provides authority for the issuance of grants in
1988 and 1989 to states or LEAs to carry out inspections for asbestos-
containing material in school buildings and preparation of manage-
ment plans for school buildings as defined by this Act. Not more
than 10 percent of the 1988 and 1989 amounts available under
ASHAA may be used for these purposes. Due to the recent nature of
loans extended under ASHAA and AHERA, the related collection
history was not sufficient to make possible the establishment of a
meaningful allowance for doubtful loans receivable. As of
September 30,1987, there were outstanding loans under this Act of
$46,812,306.

AHERA also established a trust fund in the U.S. Treasury, known as
the "Asbestos Trust Fund." Repayments of loans must be made to
EPA for deposit in the General Fund of the U.S. Treasury.
Repayments of Asbestos School Loans totaled $846,184 for the fiscal
year ended September 30,1987.

B.  Puerto Rico Loans

EPA, pursuant to Public Law 97-357 (October 1982), has loaned
funds to the Commonwealth of Puerto Rico in the amount of
$16,720,039.  These loans were granted as a result of special congres-
sional action to allow certain construction grant unobligated bal-
ances to be used as loans to enable the Commonwealth of Puerto
Rico to fund five specific regional wastewater treatment systems.
These funds may be used by the Commonwealth of Puerto Rico to
fund the nonfederal share of the costs of such projects. Interest for
these loans is recorded monthly, based on the U.S. Treasury rate
established for this loan program. An allowance for doubtful loans
receivable was not established for these loans due to the large
amount of FY 1987 collections ($12.2 million) and the immaterial
amount of the balance outstanding. As of September 30,1987, there
were outstanding loans for this program in the amount of $4,484,984.
              45

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Note 4: Property and Equipment
Property and equipment, as of September 30,1987, consisted of the
following:
                                    Accumulated    Net book
                        Cost        depreciation      value
Land

Building

Equipment

Library
volumes

Total
      (Dollars in thousands)

$  3,821

   64,443

 239,038        $  190,878


   13,351
            $  3,821

              64,443

              48,160


              13,351
$320,653
$  190,878   $129,775
Note 5: Leases

The Agency leases office and laboratory space, copiers and comput-
ers from GSA and the public. The Agency also leases laboratory
space directly from the lessors.  All leases are considered to be oper-
ating leases; some may be cancelable without penalty cost and expire
at variable intervals. Lease payments during fiscal year 1987 totaled
$94.7 million.

The majority of EPA's office space is leased through GSA, and the
majority of the leased laboratory space is leased directly. Rates
charged to EPA by lessors are based upon appraisals of comparable
space. GSA's rates are approximations based upon these appraisals,
while rates for direct leases are negotiated. During fiscal year 1987,
EPA did not cancel any leases. EPA does not foresee any termination
of leases in the near future.

Note 6: Commitments and Contingencies

Under the Federal Insecticide, Fungicide, and Rodenticide Act
(FIFRA), as amended at 7 U.S.C. 136m, EPA is authorized to suspend
or cancel registration of pesticides determined to be hazardous.
Under certain conditions, EPA makes indemnity payments to own-
ers who suffer losses as a result of such actions. This has the poten-
              46

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tial to result in millions of dollars in claims. The continuing resolu-
tion for FY1988 and appropriation bills for FY1989 specify that dur-
ing these years, EPA should seek payment for these claims from
Treasury's Claims, Judgements, and Relief Acts Fund. As of
September 30,1987, EPA had actual outstanding indemnification
claims for two chemicals totaling $12.5 million, with a possibility of
an additional $27.5 million pending.

Both the Comprehensive Environmental Response, Compensation,
and Liability Act (CERCLA)  and the Superfund Amendments and
Reauthorization Act (SARA) provide for cost-recovery of funds. (See
note 7). Potential cost recovery expenditures are expensed because
potential collection of these funds is not measurable, and there is no
assurance that these funds will be recovered. EPA establishes the
account receivable when there is a greater potential (sum certain) in
receiving the funds from the responsible party(ies). This is done
when a judgement, order of payment, or an agreement is made for
payment. Since the inception of Superfund, EPA has collected
approximately $48.6 million  in cost-recovery through fiscal year
1987.

EPA is a party in various administrative proceedings, legal actions,
and claims brought by, or against, it. These include:

•      Under the Federal Tort Claims Act, any award, compromise,
       or settlement in excess of $2,500 is paid from the Claims,
       Judgements, and Relief Acts Fund maintained by the
       Department of the Treasury, while those of $2,500 or less are
       paid by EPA. Payments during fiscal year 1987 for awards,
       compromises, and settlements resulting from such legal
       actions amounted to $25,000 from the Treasury's Claims,
       Judgements, and Relief Acts Fund, and $9,568 from EPA.

•      Various personnel actions, suits, or claims brought against
       the Agency by employees and others.

•      Various contract and  assistance program claims brought
       against the Agency by vendors, grantees, and others.

•      The legal recovery of Superfund costs incurred for pollution
       cleanup of specific sites, to include the collection of fines and
       penalties from responsible parties.

•      Claims against recipients for improperly spent assistance
       funds which may be settled by a reduction of future EPA
       funding to the grantee or the provision of additional grantee
       matching funds. As of September 30,1987, approximately


               47

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       $33.7 billion of EPA payments to units of state and local gov-
       ernments for construction of wastewater treatment facilities
       are awaiting audit. EPA believes that recovery of any improp-
       erly spent costs will not be material to its financial
       statements.
                                                     9
In the opinion of EPA's management and General Counsel, the ulti-
mate resolution of legal actions still pending will not materially
affect EPA's operations or financial position.

Note  7: Major Activities

Superfund

On December 11,1980, Congress passed the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980
(CERCLA), commonly referred to as "Superfund." This Act created
the Hazardous Substance Response Trust Fund, which is adminis-
tered by the U.S. Treasury. The Trust Fund was established to pro-
vide money to respond to actual or threatened releases of hazardous
substances, pollutants, or contaminants that may endanger public
health or the environment.

The Superfund Amendments and Reauthorization Act (SARA) was
enacted October 17,1986. SARA reauthorized CERCLA for $8.5 bil-
lion to be appropriated over a 5-year period for the continuation of
the program launched by CERCLA to clean up hazardous waste
sites, strengthen and expand the cleanup program, and  change the
tax structure for financing the Fund.

Grants and Other Assistance

The Agency, in fulfilling its responsibilities for protecting and
enhancing the quality of the  environment, provides financial assis-
tance to various public, private, and state recipients in the form of
grants and cooperative agreements.  Assistance represents the most
significant portion of the Agency's appropriation. In fiscal year 1987,
the Agency obligated $2.6 billion for recipients.

At the expiration of an Assistance Agreement, unused or improperly
applied funds are either collected from the recipients or appropriate-
ly adjusted by an offset, or otherwise utilized in accordance with the
conditions of the Assistance  Agreement. Arrangements are made for
the disposition of property purchased through the Assistance
Agreements according to federal regulations.
              48

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Supplemental  Schedules
The following supplemental schedules provide further detail of, by
major fund activity, assets, liabilities, and U.S. government equity;
revenue, financing sources, and expenses; sources and uses of funds
by major fund activity; and budgeted and actual outlays.

General fund accounts are used to record financial transactions aris-
ing under congressional appropriations or other authorizations to
spend general revenues. EPA is managing 46 general fund accounts,
of which 23 are funded by current-year appropriations, and 9 cannot
incur new obligations. The remaining 14 are suspense, receipt, and
deposit accounts. In addition, the general fund has been combined
with a small certification revolving fund for financial reporting pur-
poses. This revolving fund generated the full amount of the $1.2 mil-
lion excess of revenues over expenses on EPA's consolidated state-
ment of revenues and expenses.

Superfund accounts are used to record transactions arising from the
fulfillment of EPA's responsibilities under CERCLA and SARA. (See
note 7.) The Superfund Trust Fund has been consolidated with two
smaller trust funds, the Leaking Underground Storage Tanks Trust
Fund and the Miscellaneous Contributed Funds.
              49

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 Schedule of Financial Position by Fund Activity
 As of September 30,1987 (Dollars in thousands)
                                 General fund
                                 appropriations
                       Superfund
                     appropriations
                     Consolidated
                       balances
 Assets

 Funds with U.S. Treasury
 Advances, accounts and loans
  receivable, net
 Land, buildings, and equipment,
  net of accumulated depreciation
 Future financing sources

 Total Assets

 Liabilities and Equity

 Liabilities

 Accounts payable and accruals:
  To the public
  To other federal agencies
 Advances:
  From other federal agencies
  From the public
 Accrued payroll and leave

  Total Liabilities

 Equity of the U.S. Gover|jment

 Unexpended appropriations:
  Unobligated balances
  Unliquidated obligations:
  Grants and  other assistance
  Contracts and other
 Invested capital
 Cumulative results of operations

  Total Equity

Total Liabilities and Equity
$ 8,921,028

    83,865

   120,933
    33,524

  9,159,350
   210,749
    59,476

       710
     1,566
    57,963

   330,464
  1,409,681

  6,937,027
   385,034
   172,231
   (75,087)

  8,828,886
 $ 1,361,050

      9,768

      8,842
      4,647
     48,085
     44,186

     13,559
     10,359
      9,819

    126,008
    504,001

    242,674
    530,124
      8,842
    (27,342)

  1,258,299

S 1,384,307
$ 10,282,078

      93,633

     129,775
      38,171
     258,834
     103,662

      14,269
      11,925
      67,782
   1,913,682

   7,179,701
     915,158
     181,073
    (102,429)

  10,087,185

$ 10343,657
                                             50

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Schedule of Revenues and Expenses by Fund Activity
For the Fiscal Year Ended September 30, 1987 (Dollars in thousands)
General fund Superfund Consolidated
appropriations appropriations balances
Expenses
Grants and other assistance
Contractual services
Personnel compensation and
fringe benefits
Rent, utilities, and telephone
Travel, printing, supplies,
and other expenses
Depreciation
Total Expenses
Revenues
Appropriations expended
Transfer and reimbursements
Fines, penalties, and other
revenues
Total Revenues
Excess of Revenues Over Expenses

$ 3,310,592
423,210
494,546
84,535
48,048
15,881
4,376,812

4,343,800
31,501
2,711
4,378,012
$ 1,200

$ 42,946
373,465
89,995
14,409
56,599
2,957
580,371

579,462
909
0
580,371
$ 0

$ 3,353,538
796,675
584,541
98,944
104,647
18,838
4,957,183

4,923,262
32,410
2,711
4,958,383
$ 1,200
51

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Schedule of Changes in Financial Position and Reconciliation
to Budget by Fund Activity
For the Fiscal Year Ended September 30, 1987 (Dollars in thousands)
General fund Superfund Intra- Agency Consolidated
appropriations appropriations eliminations balances
Resources Used:
Operating uses:
Operating expenses
Items requiring (providing)
funds:
Depreciation
Loss on property
Increase (decrease) in
advances, accounts,
and loans receivable, net
Decrease (increase)
in accounts payable and
accruals
Revenue accounted for
as offsetting receipts
Funds Used by Operations
Nonoperating uses:
Acquisitions of equipment
Interfund transfers
Funds transactions
excluded from outlays
Net Resources Used
(Budgetary Outlays)
Resources Provided:
Current-year appropriation
Net transfers and other
Net Resources Provided
Increase (decrease) in U.S.
Treasury Funds
U.S. Treasury Funds,
Beginning of Year
U.S. Treasury Funds,
End of Year


$ 4,376,812


(15,881)
(7,846)


(24,495)


32,437

(26,329)
4,334,698

19,378
650,000

28,570

5,032,646

4,552,869
1,991
4,554,860

(477,786)

9,398,814

$ 8,921,028


$ 580,371


(2,957)
(1,051)


2,522


(56,505)

(5,795)
516,585

4,970
0

2,504

524,059

1,461,319
(59,220)
1,402,099

878,040

483,010

$ 1,361,050


$ 0 $ 4,957,183


(18,838)
(8,897)


(21,973)


(24,068)

(32,124)
0 4,851,283

24,348
(650,000) 0

31,074

(650,000) 4,906,705

(650,000) 5,364,188
(57,229)
(650,000) 5,306,959

0 400,254

0 9,881,824

$ 0 $ 10,282,078
52

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