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EPA 205-R-97-002
March 1997
FY 1996 Audited
Financial Statements
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March 1997
FY1996
A UDITED FINANCIAL
STATEMENTS
Produced by the U.S. Environmental Protection Agency
Office of the Chief Financial Officer
Financial Management Division
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TABLE OF CONTENTS
Message from the Administrator ii
Overview of EPA 1
EPA Programs
-Air 7
-Radiation 13
-Drinking Water 15
-Water Quality 20
-Toxic Substances 25
-Hazardous Waste 31
-Superfund 37
-Oil Spills 50
-Leaking Underground Storage Tank 54
-Pesticides 62
-Water Infrastructure Financing 67
Message from the Chief Financial Officer 71
CFO Analysis 73
Principal Financial Statements 83
OIG's Report on EPA's FY 1996 Financial Statements 125
Acronyms 137
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MESSAGE FROM THE ADMINISTRATOR
I am pleased to present the Fiscal Year 1996 Annual Financial Statements for the U.S.
Environmental Protection Agency. These statements, which were prepared in accordance with
the Chief Financial Officers Act of 1990, provide a snapshot of the financial condition of the
Agency.
The President has challenged the Nation to make our environment cleaner and safer for the
next generation. For over 25 years, the American people have united to protect our health by
making sure the air we breathe, the water we drink, and the soil our children play in is free of
toxic substances. As Administrator, I am proud of our accomplishments over the past several
years.
We have made tremendous progress, but there is still much work to be done. In order for
the Agency to ensure our children have a safe environment into the next century, we have
targeted the highest risk environmental problems and built a strong partnership with states,
tribes, communities, and the public. EPA and state leaders have established the National
Environmental Performance Partnership system which allows states to operate their programs
with less review by the Federal government, in return for increased emphasis on measuring and
reporting results. We are attempting to find the most efficient way to invest our resources
while, at the same time, protecting the Nation's health ~ the health of our families, the health
of our communities, and the health of our economy.
In order to meet our ambitious agenda, it is essential that our management structure and
systems provide the information necessary to make the crucial decisions facing us.
Accordingly, in 1996,1 initiated a new Planning, Budgeting, Analysis and Accountability
(PBAA) system for the Agency. This new PBAA initiative will improve the link between
long-term environmental planning and resource management; make better use of scientific
information in setting environmental priorities; and implement a new accountability system to
assess accomplishments and provide feedback for future decisions. This initiative includes an
organizational change whereby EPA's Chief Financial Officer assumes responsibility for
PBAA. I believe these changes will better position the Agency to implement mandated
management reform initiatives, particularly the Government Performance and Results Act.
Sound stewardship of the Agency's (i.e. taxpayer's) financial resources remains a high
priority for me. Preparing the annual financial statements will continue to be a critical function
under the newly organized Office of the Chief Financial Officer. Along with the Office of the
Inspector General's audit report, the statements provide fundamental information for evaluating
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the strength and effectiveness of the Agency's financial systems, processes and operations. As
the first audited financial statements for all Agency programs and operations, the 1996
statements are an important first step in providing accountability for EPA resources and
program results.
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OVERVIEW OF EPA
The U.S. Environmental Protection
Agency (EPA) was established in 1970 to
guide the Nation's efforts to protect and
preserve the public health and the vitality of
natural ecosystems. EPA is committed to
achieving these goals by reducing risks to
human health and the environment,
preventing pollution, and fostering
environmentally sound, sustainable economic
development in the most cost-effective,
efficient ways.
EPA envisions a world in which all
individuals and institutions value the
environment and choose to act in a manner
that ensures achievement of sustainable
environmental and economic goals, and the
natural balance of all living things is no
longer threatened. In accomplishing these
goals, EPA continues to implement provisions
from seventeen major environmental statutes.
The Agency's overall mission is to
perform the work of protecting the health of
our land, our drinking water, our air, and our
communities. In FY 1996, Congress provided
the Agency with an enacted level of $6.5
billion and 17,416 workyears to perform this
work. Despite significant gains over the last
25 plus years, the Nation continues to face
significant environmental challenges. There
are Americans still living in areas where
contamination has resulted in soil that is
unsafe to live, work and play on, water that is
unfit to drink, and air that is dangerous to
breathe. Providing our Nation with a healthy
environment for generations to come
continues to be a high priority for EPA. To
make this dream come true, the Agency
continues to target the highest risk
environmental problems and strengthen our
partnerships with states, tribes, communities,
businesses, and the public. Sound science
continues to provide a basis for our decisions,
and a vigorous enforcement program ensures
compliance and provides a foundation for
regulatory and voluntary activities.
Implementing New Environmental Laws
In FY 1996, Congress authorized two
new environmental laws the Safe Drinking
Water Act Amendments and the Food Quality
Protection Act. These two laws establish new
approaches to improve the safety of
America's drinking water and food supply.
Environmental Laws
.The Clean Air Act
. The Clean Water Act
. The Safe Drinking Water Act
. The Comprehensive Environmental Response,
Compensation and Liability Act
. The Emergency Planning and Community
Right-to-Know Act
. The Resource Conservation and Recovery Act
. The Federal Insecticide, Fungicide, and Rodentkade Act
. The Food Quality Protection Act
. The Toxic Substances Control Act
. The Marine Protection, Research, and Sanctuaries Act
. The Uranium Mill Tailings Radiation Control Act
. The Indoor Radon Abatement Act
. The Ocean Dumping Ban Act
. The Coastal Zone Management Act
Ĥ The Pollution Prevention Act
. The Federal Facilities Compliance Act
Ĥ The Oil Pollution Act
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Strengthening Partnership
The Agency continues to expand its
efforts in providing stronger state and tribal
programs more leeway to manage their
programs, while concentrating EPA technical
assistance on developing the programs that
are still evolving. EPA and state leaders have
established a National Environmental
Performance Partnership System which
allows states to operate their programs with
less review by the Federal government, in
return for increased emphasis on measuring
and reporting environmental results. The
Agency is working on eliminating barriers in
the regulatory and permitting processes which
inhibit the private sector from developing new
technologies and fostering cleaner and
cheaper solutions to environmental problems.
Through the Brownfields initiative, the
Agency is forging partnerships with
communities to redevelop urban contaminated
and industrial properties. This initiative will
provide communities with an increased tax
base, additional jobs, and improved urban
environment.
Pfpypnting Pollution
Pollution prevention is a guiding principle
at EPA and is the Agency's option of first
choice in environmental protection. The
Pollution Prevention Act of 1990 requires
EPA to develop and implement a strategy to
promote source reduction. Pollution
prevention, also referred to as source
reduction, aims both to conserve finite natural
resources and to prevent waste and harmful
substances from entering the environment.
The Agency uses a program called
"Design for the Environment" (DfE) to
encourage voluntary partnerships with
industry, professional organizations, state and
local governments, other Federal agencies,
and the public to promote safer substitutes,
technologies, and chemical processes. The
DfE program includes broad institutional
projects aimed at changing general business
practices, as well as more targeted joint
projects with trade associations and
businesses in specific industry segments.
EPA is working to create an environment
that is conducive for small and mid-sized
businesses to obtain needed assistance to
develop and implement pollution prevention
technologies, processes, procedures or
products. The Agency has been working with
the dry-cleaning industry to develop and test
toxic free alternative cleaning processes to
limit exposure to perchloroethylene solvent.
In conjunction with the Printing Wiring Board
and industry, EPA is evaluating alternative
technologies in order to minimize risks and
production costs. Recognizing environmental
liability is a major concern for the industrial
companies, EPA is working with insurance
and underwriting industries to promote
pollution prevention as an effective method
for companies to reduce their environmental
liabilities.
As required by the Pollution Prevention
Act, the Agency establishes and manages the
Pollution Prevention Information Clearing-
house and provides other information sources
to interested parties.
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Section 6605 of the Pollution Prevention
Act directs EPA to support and help state
environmental programs carry out pollution
prevention strategies developed by the
Agency. In FY 1996, EPA's Regional offices
awarded approximately $6 million to the
states for this program.
Reaching out to the Community
Regional prevention programs support
innovative approaches to pollution prevention,
including education and outreach, technical
assistance, regulatory integration,
demonstration projects, legislation and
infrastructure activities. The Regions
encourage the practice of pollution prevention
through public awareness activities and
provide advice and assistance to businesses,
state and local governments.
In FY 1996, EPA's Regional offices
awarded 11 environmental justice grants
(about $2 million) to community groups and
local government organizations in
economically disadvantaged and minority
communities. The grants fund initiatives in
public education, training, demonstration
projects, research, surveys, studies, public-
private partnerships, technologies, revolving
funds and efforts to utilize non-regulatory
strategies.
Summary
Over the years, EPA has implemented
major programs to address the Nation's
environmental problems. Accomplishments
in such programs as Drinking Water, Air,
Hazardous Waste, Superfund, and Oil Spills,
just to name a few, have made it possible for
Americans to have cleaner water, air, and soil.
While EPA has experienced many successes
to date, both existing and emerging issues
present new challenges which the Agency
must meet to assure a clean and safe
environment into the twenty-first century.
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EPA
PROGRAMS
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NOTE: The analysis in this Section includes dollar amounts associated with selected Agency
programs. These dollar amounts are derived from internal reports of budgetary data from the
Agency's accounting system and are not presented on the same basis of accounting as the Principal
Financial Statements.
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AIR
The overall mission of the Office of Air is
to protect and enhance the quality of the
Nation's air resources and protect human
health and the environment from airborne
pollutants. This mission is accomplished
through: implementation of the 1990 Clean
Air Act (CAA) Amendments; a nationwide
program to prevent and reduce air pollution
through air quality planning, regulation,
compliance, enforcement, and research; the
1993 Climate Change Action Plan; and
development and implementation of programs
to reduce risk from indoor air pollution.
Program Description
The Air Program helps carry out three
major national environmental goals: Clean
Air, Reducing Global Environmental Risks,
and Safe Homes and Work Places. Under the
Clean Air goal, the Agency protects public
health and the environment through programs
to attain Federal clean air standards, reduce air
toxics emissions, and control acid rain. Under
the Reducing Global Environmental Risks
goal, the Agency seeks to reduce greenhouse
gas emissions to 1990 levels by the year 2000
and return the stratospheric ozone layer to
levels found prior to the discovery of the
Antarctic ozone hole. Lastly, under the Safe
Homes and Work Places goal, the Agency
attempts to ensure that the air inside buildings
is as healthy as outdoor air that meets Federal
clean air standards.
EPA is required to set National Ambient
Air Quality Standards (NAAQS) for air
pollutants that endanger public health and
welfare. EPA has set NAAQS for six air
pollutants (particulate matter, sulfur dioxide,
ozone, carbon monoxide, lead, and nitrogen
dioxide). EPA strives to reduce these air
pollutants in all areas of the country as well as
to maintain clean air in areas that comply with
the NAAQS. The NAAQS are attained and
maintained primarily through state and local
air pollution control programs aimed at the
control of stationary and mobile sources of
emissions. EPA directly provides emission
controls for many of these sources, primarily
through Federal standards for motor vehicles,
fuels, and new stationary sources.
EPA is also required to review the
NAAQS every five years and revise them as
necessary. The review process includes
economic, risk, health and benefits analyses.
Over the past three and a half years, EPA has
conducted an extensive review of the science
relating to ozone and particulate matter. As a
result of this extensive scientific review, EPA
proposed new standards in November 1996.
EPA will take comments on the proposed new
standards through spring of 1997 and expects
to issue a final regulation in June 1997. Using
a Federal Advisory Committee Act process
involving stakeholders from all sectors, EPA
is currently developing an implementation
strategy for a potential revised ozone standard
(in conjunction with particulate matter and
regional haze). After a NAAQS is set, states
are responsible for developing State
implementation plans (SIPs) to reduce
pollution and bring areas into NAAQS
attainment. This program provides policy,
guidance and technical assistance for
modeling and monitoring air quality and
devising strategies available to states to
include in their SIPs. EPA plays a major role
in helping achieve the NAAQS through
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setting standards for vehicles, non-road
engines, and fuels and through an outreach
and communication program.
To reduce emissions of hazardous air
pollutants, EPA develops technology-based
standards known as Maximum Achievable
Control Technology (MACT) standards for
189 hazardous air pollutants from 174
industries. The standards are being developed
on a phased schedule through the year 2000,
at which point EPA will determine whether
the residual public health risk warrants
additional regulation. EPA is developing
other air toxic rules for combustion sources
and developing and implementing strategies
to reduce public health risk in urban areas, as
well as reducing atmospheric deposition of
toxic compounds to the Nation's water bodies,
including the Great Lakes.
Title V of the Clean Air Act establishes an
operating permit program in which a single
permit will contain all the applicable
requirements for a major source of air
pollution. Major industrial sources must file
periodic reports identifying how they have
complied with the requirements. These
sources pay fees to the states; and the fee
revenues cover the cost of the program. EPA
provides guidance and assistance to those
states developing and implementing permit
programs. If a state does not submit an
operating permit program for EPA approval,
EPA is required under Part 71 of 40 CFR to
develop and implement a Federal operating
permit program for that state. The Federal
Operating Permit Program became effective
in ten states and four local areas upon
promulgation of the Part 71 rules in
July 1996. The Federal program serves as a
deterrent to permitting authorities which
might otherwise default on their
responsibilities. EPA is working with these
states to facilitate approval of their programs.
When states complete approvable programs,
the Federal program is removed from that
state.
The Acid Rain Program is a market-based
incentive program for reducing annual sulfur
dioxide (S02) emissions by 10 million tons
from 1980 levels (a 40 percent reduction).
Additionally, the program will reduce
nitrogen oxide (NOJ emissions by at least 1.5
million tons. The Agency will achieve the
S02 emission reductions through an
innovative market-based program that will
provide affected sources with flexibility in
meeting required emission reductions at least
cost (both to industry and government). The
program features tradeable units called
allowances (1 allowance = 1 ton of S02),
accurate and verifiable measurement of
emissions, and a cap on total emissions. The
Acid Rain Program is seen as a model for
regulatory reform efforts here and abroad.
To restore the stratospheric ozone layer,
EPA focuses on four areas: domestic and
international phase-out of three ozone
depleting chemicals (chlorofluorocarbons
(CFCs), halons, and methyl chloroform);
implementation of limitations on two other
ozone depleters (hydro fluorocarbons (HCFCs)
and methyl bromide); more intensive
recycling programs in the U.S. and abroad;
and earlier voluntary phase-out of CFCs and
HCFCs in developing countries.
To stabilize greenhouse gases, EPA
promotes voluntary, partnership programs to
prevent and reduce emissions of air pollution.
By demonstrating the pollution prevention
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benefits of energy efficiency, the program
educates manufacturers, designers and
consumers on the purchase, installation and
use of energy efficient products in a manner
that benefits the environment while not
imposing net costs on participating
organizations. The Climate Change Action
Plan also expands cooperative, non-regulatory
programs to profitably capture and use
methane and emissions of other potent
greenhouse gases. The Program provides
technical assistance in removing institutional
barriers such as property rights issues and fair
pricing from utilities. Furthermore, EPA is
working with the U.S. automobile industry to
develop a "clean car", an affordable vehicle
that would have three times the fuel efficiency
of today's cars (representing a 67 percent
reduction in carbon dioxide emissions), while
preserving utility and comfort features and
emitting very low levels of all other air
pollutants.
The Agency's primary strategy to reduce
exposure to indoor air pollutants is to use
voluntary partnerships to educate audiences
from consumers to building managers about
indoor air problems and solutions. The
Agency develops guidance about ways to
reduce the risk of indoor contaminants (such
as radon, environmental tobacco smoke and
emissions from building and consumer
products) and works through partner
organizations to create awareness and change
consumer and institutional behavior.
Program Results
The Air Program regularly tracks real
world accomplishments. FY 1996 highlights
include:
Environmental Results/Reduced Health
Risks
Through the combined efforts of OAR
and the Regions, 35 of the original 99
ozone (smog) areas have been
redesignated to attainment ensuring an
additional 33 million people now breath
clean air. Additionally, 16 of the 43
carbon monoxide non-attainment areas
have been redesignated, providing
healthier air for 12 million people.
All of the MACT standards required to be
completed two and four years after the
CAA Amendments are now complete.
These standards are expected to reduce air
toxic emissions by over 800,000 tons per
year and other pollutants by over
1,600,000 tons per year.
Under the Acid Rain Program, S02
emissions from the 445 Phase I units have
been reduced dramatically to 5.3 million
tons, or 39 percent below the 1995
allowable emission limit of 8.7 million
tons. The S02 reduction by these sources
from their 1980 baseline level
(10.9 million tons) is even more
dramatic emissions were reduced by
more than 5.6 million tons, or 51 percent.
As a result of the Radon Program,
73 percent of the public is aware of the
health risks from radon and 10.2 million
homes have been tested. About 1.2
million homes have reduced radon levels
either through mitigation efforts or use of
radon-resistant construction techniques.
Eighty-six percent of Americans now
know that Environmental Tobacco Smoke
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(ETS) is harmful. We have reached
millions of people with the message of
preventing involuntary exposure to ETS.
The number of households where young
children are exposed to ETS is now 29
percent, a decline of 10 percent since
1986.
The 3,000 partners that have joined EPA's
Energy Star and Green Lights programs
are already eliminating over 8 million tons
of carbon dioxide from utilities in
FY 1996, which is equivalent to taking
one million cars off the road. Program
partners also saved over $750 million on
their energy bills during FY 1996.
New Approaches
The Federal Advisory Committee Act
process was used and will continue to be
used extensively to gain stakeholder input
and acceptance of rulemakings and
implementation processes.
Other programs developed to gain
stakeholder input include the "one
industry-one rule" project with the
Chemical Manufacturers Association.
The goal of this project is to consolidate
13 separate Federal rules affecting the
organic chemical industry into one
consolidated rule, thus eliminating
redundant and time-consuming reporting
and record keeping requirements. EPA
expects to propose this rule in the spring
of 1997 and promulgate it by the end of
1997.
The Ozone Transport Assessment Group
(OTAG) has made significant progress in
assessing regional ozone transport. The
group agreed on a modeling system
(UAM-V), developed a modeling
protocol, identified four modeling centers
and the episodes to be modeled, and
established a Data Clearinghouse.
Rulemakings/Standard Setting
EPA proposed revised Ozone and
Particulate Matter NAAQS Standards in
November 1996. After reviewing public
comment, EPA expects to issue a final
regulation in July 1997.
EPA has completed all of the MACT
standards required to be completed two
and four years after the CAA
Amendments.
EPA proposed the National Low Emission
Vehicle regulations which would result in
more stringent tailpipe emission standards
applicable to new cars and light trucks.
EPA revised the test procedures that are
used to measure emissions from cars in
order to make the procedures more
representative of how cars are operated in
urban areas.
Education/Outreach/Information Sharing
This year, more than 12;000 students
enrolled for courses offered through the
Air Pollution Distance Learning Network
(APDLN). More than 5,000 small
businesses have attended broadcast
viewings.
The Technology Transfer Network (TTN)
provided for 500,000 information
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downloads from 23 topical bulletin
boards.
Worldwide Web Internet Home Pages
effectively provide environmental
information to a broad and diverse
audience. Home Pages were created for
the Aerometric Information and Retrieval
System (AIRS) and the TTN Bulletin
Board System.
Research Program
Program Description
The Air Research Program provides
scientific data and information for regulatory,
policy, and public information needs of the
Air Program. The program provides a wide
variety of research information on air
pollution health and ecological effects,
monitoring methods, models, assessments,
emission reduction technology, and quality
control. Research focuses on: 1) developing
the scientific bases for both NAAQS and
vehicle emission standards, evaluating
potential changes to, and benefits of, such
standards, and assessing the effectiveness of
these programs; 2) investigating and assessing
the risks presented by particulate matter,
tropospheric ozone, toxic air pollutants, as
well as assessing the extent to which toxic air
pollutants can be mitigated by control
technology methods; 3) identifying,
characterizing, and comparing the health risks
associated with exposures to indoor air
pollutants so that risk assessors and risk
managers can make informed decisions to
protect the public health; 4) providing the
scientific basis to assess, evaluate, and predict
the ecological, environmental, and human-
health consequences of global change,
including the feedback these systems have on
climate change and 5) quantifying the ultra-
violet rays (UV-B) increases and under-
standing the responses of humans and
sensitive ecological systems to these larger
UV-B doses, as well as finding replacements
for ozone depleting substances that are more
environmentally acceptable.
FY 1996 Highlights and Accomplishments
Air research focused on air toxics, criteria
air pollutants, such as particulate matter and
tropospheric ozone, indoor air pollutants,
global climate and stratospheric ozone
depletion. Highlights/accomplishments in
these areas include the following:
Air Toxics: characterized the risks of
hazardous pollutants emitted in significant
amounts from small sources concentrated in
large numbers in urban neighborhoods;
developed methodologies to estimate air toxic
emissions from key sources in the Great
Lakes area.
Particulate Matter: using two animal
models, demonstrated the mortality and
morbidity in susceptible human sub-
populations and determined the exposure
response relationships for selected ambient
source particles.
Tropospheric Ozone: improved the
understanding of both ozone formation and
health effects and emissions inventory
methods and modeling approaches needed to
ensure effective control measures.
Indoor Air Pollutants: characterized the
sources of indoor air pollutants and developed
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data to determine the capability of air cleaners
and ventilation systems to reduce
concentrations of indoor air pollutants.
Global Climate: evaluated the emissions
data from biomass combustion of chemically
treated wastes in order to consider mixed
fuels for power generation and developed
regional vegetation models to assess the
potential effects of climate change on global
terrestrial vegetation.
Stratospheric Ozone Depletion:
evaluated environmentally acceptable
alternatives to determine energy efficiency in
refrigerators and freezers.
AIR Program Obligations - FY 1996
Total Obligations - $501.4 Million
Air Pollution Control 12.2%
6.8% Air Quality Stds.
Research &
15.1%
Development
State/Local
Assistance
32.8%
Air Quality Mgt. 5,
Enforcement
Indoor Air Program
16.4% Atmospheric Programs
6.1% Trends Monitoring
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RADIATION
The EPA program to protect public health
and the environment from adverse effects of
radiation exposure is grounded in the
following statutes: the Indoor Radon
Abatement Act; the Clean Air Act
Amendments of 1990; the Waste Isolation
Pilot Project Land Withdrawal Act of 1992;
the Energy Policy Act of 1992; the Atomic
Energy Act; the Public Health Service Act;
the Uranium Mill Tailings Radiation Control
Act; the Marine Protection, Research, and
Sanctuaries Act; and the Superfund
Amendments and Reauthorization Act. These
Acts authorize a wide range of regulatory,
assessment, assistance, and research activities.
Program Description
The Radiation Program helps carry out
three major national environmental goals
including Safe Waste Management,
Preventing Accidental Releases and
Restoration of Contaminated Sites. EPA's
Radiation Program has two specific goals:
Reducing adverse health effects and
environmental impacts from radiation
exposure through a program of standards
and guidelines.
Responding to radiation issues of serious
public concern while maintaining the
capability to respond to radiological
emergencies including collaborating on
the development and testing of Federal,
state, and local plans for emergency
response.
To accomplish these objectives, EPA
assesses and regulates sources of airborne
radionuclides; evaluates and regulates
radioactive waste disposal; provides site
assessments and radiochemical analyses of
environmental samples; operates the
Environmental Radiation Ambient
Monitoring System; develops radiation clean-
up and waste management standards; and
responds to radiological emergencies.
FY 1996 Highlights and Accomplishments
Highlights and accomplishments of this
program in FY 1996 include the following:
Yucca Mountain rulemaking package near
completion.
Extensive comments were provided to the
Department of Energy on their Draft
Compliance Certification Application for
the Waste Isolation Pilot Plant.
Site clean up regulations for Federal
facilities were proposed in early 1996.
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RADIATION Program Obligations - FY 1996
Total Obligations - $37.8 Mllion
Radiation Program
Irrpiementabon 77%
VVbste Isolation
Blot Project
IrrpterrBntabon
11.8%
Radiation Criteria,
28.3% standards & Guidelines
RadaBon Environmental
Irrpact Ac bobs merit
52.2%
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DRINKING WATER
The Drinking Water Program was
established to ensure that public water
supplies are free of contaminants that may
pose unacceptable human health risks and to
protect our groundwater resources. Public
concern over the quality of the nation's
drinking water supplies has been elevated by
a series of emergencies in recent years,
including the 1993 Milwaukee drinking water
crisis and further outbreaks in Washington,
D.C. and New York City. In 1994,23 million
people were provided water that violated
drinking water health standards at least once
during the year. An additional 23 million
people were placed at increased risk because
they were served by systems that had
inadequate or no filtration treatment.
The Drinking Water Program was
reauthorized on August 6, 1996 with the
passage of the Safe Drinking Water
Amendments of 1996, which amended the
amended Title XIV of the Public Health
Service Act (commonly known as the "Safe
Drinking Water Act").
Program Description
EPA's goal is to ensure that every public
water system will provide water that is
consistently safe to drink. The Agency has
therefore undertaken an initiative to make
fundamental changes in the direction and
scope of the national drinking water program.
This "reinvention/redirection" effort centers
around four major principles, each equally
important to ensuring safe drinking water.
These principles are: targeting resources to
those contaminants posing the greatest human
health risk and focusing standard setting on
those high priority contaminants, especially
microbial and disinfection byproducts; setting
safety standards based on sound science and
data; building strong, flexible partnerships
with states and local governments in
implementation efforts; and promoting
community-based, source water protection.
This redirection effort, which began in 1995,
not only continued in 1996, but was bolstered
by the enactment of the amendments to the
Safe Drinking Water Act (SDWA) in
August 1996.
FY 1996 Highlights and Accomplishments
In 1996, EPA conducted an extensive
reassessment of its Drinking Water Program
in response to the need to focus on the highest
risk reduction activities, implement
stakeholder requested improvements, and be
better prepared to deal with serious public
health concerns caused by contaminated
drinking water. The Agency held a series of
public meetings, attended by over 500
stakeholders, to discuss EPA's approach to
this reinvention/redirection effort, and on
June 7,1996, the Assistant Administrator for
Water signed the drinking water program
redirection document, focusing the program
on those high priority activities that maximize
the reduction of public health risks.
On August 6, 1996, President Clinton
signed into law the SDWA Amendments of
1996, the first major revision to our Nation's
principal drinking water protection law since
1986. The Agency provided extensive
technical assistance to the Congressional
drafting Committees, and as a result, the
priorities of the amendments are closely
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aligned with the priorities reflected in EPA's
drinking water redirection document.
SDWA's Amendments improve our ability to
assure safe drinking water by: providing for
more efficient operations and management of
water systems; adding a new and stronger
source water protection program; giving better
information to consumers; and ensuring sound
scientific work, including the use of risk and
cost-benefit analysis in setting drinking water
standards.
States and communities across the country
are starting to realize that they will need to
optimize the operations of water filtration
plants to maximize public health protection
from microbial contaminants like
Cryptosporidium. The Agency has developed
and demonstrated an approach to achieve
cost-effective optimization called the
Composite Correction Program (CCP) that
helps these communities make the best use of
their existing infrastructure. Through the use
of CCP, a community determines the reasons
for not achieving optimization and
implements sensible solutions for their unique
situation. These efforts have already
demonstrated that, in many cases,
optimization can be achieved solely by
redirecting existing staff activities, rarely
requiring the construction of additional
treatment processes. Current activities are
focusing on several pilot programs and how to
bring the benefits of CCP to communities
through either their state drinking water
program or the Partnership for Safe Water.
Over the past year, the Agency has made
major progress in the evaluation of costs for
its regulatory impact assessment functions.
The Agency convened a Blue Ribbon Panel to
conduct an in-depth evaluation of its
regulatory alternatives costing program. The
panel's recommendations matched well with
other statutory and regulatory requirements
and provided a firm foundation for the
regulation cost analysis in the coming year.
In addition, the Agency completed the
Community Water Supply Survey of 3,000
public water systems. This effort replaces a
ten year old one and will considerably
enhance our ability to consider a broad
spectrum of regulatory and economic impacts.
The Agency has developed a conceptual
approach to identify contaminants for future
regulation. The Contaminant Identification
Approach, which will rely heavily on risk
assessment, provides for the nomination of
contaminants from many different sources,
the application of contaminant occurrence
data and analysis, and the use of toxicity and
public health effects screening to propose a
candidate contaminant list. From this list,
contaminants that appear to pose the greatest
risk to public health will be selected for
further evaluation.
The Drinking Water Program has been
improving the Public Water System
Supervision data management system to better
and more easily track and report on program
implementation. The system, known as the
Safe Drinking Water Information System
(SDWIS), has been under development since
1993 and was designed to better identify
drinking water problems, solutions and
trends.
SDWIS is user friendly, network
compatible and automates much of the
burdensome manual data accounting and
auditing responsibilities. The first state-level
installation, including the capability for
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EPA's FY 1996 Annual Financial Statements
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electronic transfer of water quality data, was
successfully completed in September of 1996.
SDWIS will be expanded to become the
National Contaminant Occurrence Data Base.
This action will conserve limited resources for
data base development and build on a data
base that already focuses on contamination in
public water systems. The Data Base will be
instrumental in providing data on occurrence
of contaminants below maximum contaminant
levels for regulated contaminants, and on
concentrations of unregulated contaminants
for analysis to select contaminants for
regulation. Plans are being made for input
from the scientific community and to
encourage the public to obtain maximum use
of the data base.
The Agency completed a study to
demonstrate that the benefits of avoiding
contamination of drinking water sources are
greater than the costs of implementing a local
prevention programs for wellhead protection.
While the study examined a limited number of
communities, the results were staggering. In
communities where contamination had
occurred and either new water sources had to
be instituted or where ground water
remediation had to occur, the associated costs
significantly exceeded the small dollar outlay
required to implement a local protection
program.
The Wellhead Protection Program is one
of the premier Agency programs for
community-based environmental protection.
Headquarters, Regions and states have all
made efforts to promote this program and
advance its implementation. Forty-four states
and two territories now have EPA approved
programs. Even in States without approved
programs, many communities are
implementing local protection programs.
Future Trends
With the passage of the Safe Drinking
Water Amendments of 1996, the Drinking
Water State Revolving Fund (DWSRF) has
been authorized at $9.6 billion. While this
Fund is still in the process of coming on line,
it is designed to provide Federal financial
assistance to the states, localities, and Indian
tribes to protect the Nation's drinking water
resources. The DWSRF will provide
capitalization grants to state and tribal
governments to fund low-interest loans to
local drinking water systems to install or
improve drinking water treatment facilities.
The Drinking Water Program's highest
priority is protecting human health from
microbiological contaminants and
disinfectant/disinfection by-products (M-
DBP). Development of safety standards and
regulation for these contaminants is a long-
term endeavor of the Agency. Planned
activities include: targeting resources to work
with states, water systems (especially small
systems), and equipment suppliers to expand
technology choices for treating drinking water
and preventing microbial contamination. In
addition, the Agency will continue to work
with the 300 large systems under the
Information Collection Rule (ICR) to collect
and analyze occurrence and treatment data,
crucial to the Agency's work on the M-DBP
rule cluster.
EPA is committed to strengthening both
the science and data bases for developing
human health standards. Specific activities to
be supported include: developing the means
EPA's FY 1996 Annual Financial Statements
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and methodologies for making comparative
risk assessments between microbial and
chemical contaminants; expanding health
endpoints to include such non-cancer
endpoints as effects on the immune system;
and, focusing on emerging, high-risk
contaminants that could pose significant
health risks in the future.
Assistance to small systems in capacity
development or enhancement activities that
ensure conformance with safety standards will
be emphasized. Furthermore, EPA will
provide additional technical and other
capacity-building support to states to assist
them in maintaining their primary
enforcement authority (primacy) for drinking
water standards.
Source Water Protection (SWP) program
activities will be strengthened. The Agency
will expand its efforts with the some 60,000
community public water systems that supply
drinking water from both surface and ground
water sources to implement SWP programs.
The final rule for Class V underground
injection wells will be implemented by those
states with primacy for the Underground
Injection Control program and by EPA in
those states without primacy or with partial
primacy. Through its multi-partner effort,
EPA will work with local government
managers of SWP programs to incorporate
both the implementation of the Class V rule as
well as management of other Class V wells,
especially storm water and agricultural
drainage wells, into their ongoing SWP
activities.
Research Program
Program Description
The Drinking Water Research program
develops and analyzes scientific data and
technologies to ensure the safety of our public
water supplies in accordance with the SDWA.
The goal of the program is to prevent and
remove contamination from drinking water
supplies by researching pollutants,
disinfection, non-point sources of pollution,
and groundwater. Information is also
determined regarding the health effects and
associated health risks of specific
contaminants in drinking water, such as
disinfectants used in particular water
treatments and distribution systems and the
related by-products of disinfection. This
requires developing new analytical methods
for quantifying unidentified contaminants as
well as improving existing methodology.
FY 1996 Highlights and Accomplishments
Highlights and accomplishments of this
program in FY 1996 include the following:
Arsenic compounds have been reliably
speciated and quantitated using a sensitive
new mass spectrometry approach.
A reliable sensitive method has been
developed for detection, quantitation, and
viability testing of GIARDIA LAMBLIA
cysts.
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EPA's FY 1996 Annual Financial Statements
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Critical data has been developed on the
toxicity and reproductive toxicity of
priority disinfection by-products,
including dichloroacetic acid and
dibromoacetic acid.
Improved methods were developed and
field tested for evaluating the toxicity of
individual chemicals and selected
mixtures of contaminants in sediments.
Nanofiltration has been successfully used
to remove organic contaminants and
control disinfection by products in
domestic drinking waters.
Human studies have been completed on
human bladder cancers from exposure to
chlorinated drinking water.
DRINKING WATER Obligations - FY 1996
Total Obligations - $165.3 Million
Drinking Water Criteria,
Standards & Guidelines
21.6%
Drinking Water State
Program Resource
Assistance
52.1%
12 3% Research &
Development
3.3% Enforcement
10.7% Groundwater
Protection
EPA's FY 1996 Annual Financial Statements
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WATER QUALITY
The Water Quality Program is mandated
by the Water Quality Act of 1987, which
amended the Clean Water Act (CWA). The
1987 Act enhanced water quality management
and improved the Agency's partnerships with
the states. This Act also authorized the
development of new standards and guidelines
to prevent and control water quality pollution
and authorized new approaches to deal with
nonpoint sources of pollution. Other statutory
mandates for this program are the Great Lakes
Critical Programs Act (GLCPA), Water
Resources Development Act (WRDA) of
1992, the Marine Protection, Research and
Sanctuaries Act (MPRSA), the Shore
Protection Act (SPA), the Coastal Zone Act
Reauthorization Amendments (CZARA), and
the North American Waterfowl Conservation
Act (NAWCA).
Since the passage of the CWA in 1972,
the United States has had tremendous success
in reducing pollution entering our surface
waters from factories and municipal sewage
plants. However, in spite of the great strides
that have been made, over six billion pounds
of toxic industrial pollution is still being
discharged annually into our rivers, lakes and
streams. Only 71% of assessed rivers can
support recreational activity without risk of
adverse health effects. While this is a
dramatic improvement over conditions thirty
years ago, it is well short of our long-term
goal. Moreover, in 1994, state authorities
issued over 1,500 advisories warning
consumers to either not eat or limit their
consumption of fish and shellfish taken from
polluted water.
Program Description
The Water Quality Program has
broadened its emphasis over the years to
consider all sources of water quality pollution
by looking at entire watersheds. This broader
"place-based" approach considers critical
ecosystems affected, stakeholders involved,
strong science and data available, and
pollution prevention strategies in developing
effective solutions. In this way, both point
source and nonpoint source problems such
as wet weather runoff from farms, streets,
lawns and construction sites -- will be
addressed. This is critical since nonpoint
source pollution has become the Nation's
most significant remaining water quality
problem.
FY 1996 Hiehliehts and Accomplishments
EPA's Water Quality Program faces three
main challenges: improving the quality of our
surface water, protecting ground water
resources, and reducing wetlands loss. With
these three guiding principals, the Agency
seeks to prevent or control pollution sources
and adverse physical alteration, to restore
degraded areas, and to gain a better
understanding of the condition of our surface
water resources. The Agency must protect
ground water from pollution and help the
public better understand the ways in which to
prevent the ground water from becoming
polluted. In addition, EPA is seeking to
continue the trend towards reduced wetlands
loss, ultimately realizing a net gain in wetland
acreage through efforts to create new
wetlands and to protect, improve and better
understand wetlands conditions.
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EPA's FY 1996 Annual Financial Statements
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The Agency placed a heavy emphasis in
1996 on expanding efforts to promote
understanding of the condition of aquatic
resources in geographic terms ~ on a
watershed basis. We implemented a multi-
pronged effort to encourage and facilitate the
use of the watershed approach nationwide.
We worked with states, tribes and local
governments to determine which tools EPA
can develop or share with them through
training, and how EPA can use its authorities
to assist them in implementing community-
based environmental protection approaches.
The Agency initiated the Watershed Academy
in 1996 to provide training for watershed
managers and others implementing the
watershed approach. The Academy includes
core courses and related EPA reference
materials about watershed processes,
functions, and management techniques. EPA
cosponsored Watershed '96, a national
conference that attracted almost 4,000 people
interested in developing, enhancing,
implementing and sharing information on
place-based environmental protection
techniques and issues. Our Watershed
Technical Assistance Coordinating Team
developed and disseminated the Watershed
Tools Directory.
The Agency embarked on a major project
intended to facilitate decision making within
the watershed protection framework: the
National Watershed Assessment Project
(NWAP). NWAP will array existing
information from multiple sources to paint a
portrait of the Nation's 2,150 watersheds.
Citizens and all levels of government will be
able to learn about and work to preserve their
watersheds; watersheds at particular risk can
be closely analyzed and improvements
hastened. An integral part of NWAP is Surf
Your Watershed, an Internet application and
community-based information system that,
when fully populated, will serve as a model
platform for communicating to the United
States and the world water quality information
critical for understanding problems and
developing solutions.
The Agency worked on several fronts to
build partnerships to more effectively protect
and restore coastal ecosystems. Examples
include partnerships with Coastal America,
consisting of Federal agencies responsible for
natural resource management and protection,
and the National Association of Counties to
provide local governments in coastal
communities with community-based environ-
mental decision-making tools, skills, and
knowledge. Our National Estuary program,
one of the Water Quality program's seminal
place-based, stakeholder oriented efforts, saw
the completion and approval of Compre-
hensive Conservation and Management Plans
for Massachusetts Bays, Delaware Estuary,
Sarasota Bay, and Casco Bay. The Inter-
agency National Dredging Team, established
in response to ocean disposal concerns in New
York and New Jersey, improved coordination
of dredging issues among relevant Federal
agencies, including developing guidance on
long-term dredged material management
plans in cooperation with all affected
stakeholders.
The Water Program established a special
initiative on air deposition of chemicals,
heavy metals, nutrients, and other pollutants
in the Nation's surface waters. The goal of
the initiative is to characterize and manage air
deposition effects on downwind waters by
building upon ongoing programs, primarily
under the Clean Air Act and the CWA.
EPA's FY 1996 Annual Financial Statements
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The Water Program developed an
agreement with the states on a major new
direction in the national nonpoint source
(NPS) program. The states agreed to review
and upgrade their NPS programs to assure that
they address critical elements, while EPA
committed to streamlining and refocusing the
grants issuance and reporting process to
maximize efficiency. A powerful and
comprehensive NPS Grants Information and
Tracking System was developed to supply
information on the $100 million NPS grant
program.
The Agency made significant advances
toward the goal of providing to our state, local
and private partners accurate information on
the quality of our Nation's waters. EPA's
efforts to develop appropriate indicators of
environmental health, support monitoring
programs, and store and provide data are
critical to maintaining the ability to identify
and understand remaining high-risk problems,
develop appropriate solutions, and evaluate if
and when environmental results are being
achieved. We continued in our role as Federal
government leaders in the area of
environmental indicators, publishing a report
featuring 18 indicators to help measure true
progress toward goals of human and
ecosystem health, improving ambient
conditions, and preventing or reducing
pollutant loadings.
The team tasked with development of a
new generation of STORET, the nation's
primary water quality data storage and
retrieval system, completed the system
prototype. We announced a new five-year
rotating basin approach to developing CWA
required state water quality reports, including
electronic updating. Our new approach will
provide much-improved and more continuous
information about the location of water
quality impairments and threats throughout
the country.
EPA continues to build the capacity of
states, tribes and local governments to
perform wetlands preservation, restoration
and management. As part of the President's
plan to improve the effectiveness and
flexibility of wetlands protection efforts, EPA
sponsored workshops and developed tools to
support the use of wetlands mitigation banks.
Wetland banks give greater flexibility to
permit applicants by providing opportunities
for wetlands mitigation more easily, at
reduced cost, and with a greater certainty of
environmental success.
Future Trends
The total maximum daily load (TMDL)
process is prescribed by the CWA, and
requires states to make a complete public
accounting of which water bodies do not meet
water quality standards or are threatened, to
set priorities for action, and then to develop
watershed-scale protection plans for achieving
the standards. These plans are then
implemented through the National Pollutant
Discharge Elimination System permits,
nonpoint source programs, and a variety of
other Federal, state and local programs.
Where states are unable to fulfill their
responsibilities, EPA must act in their stead.
Recent litigation and the rapidly increasing
availability of environmental information and
management tools create a new opportunity
for us to reinvigorate the TMDL program and
to accelerate the watershed protection
approach.
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EPA's FY 1996 Annual Financial Statements
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The Agency will continue its long-
standing trend toward common sense, place-
based approaches that build on the solid
foundation for the basic water programs. In
particular, we will revise existing water
quality criteria, assist stakeholders in
incorporating a risk-based approach,
investigate newly-identified environmental
problems like endocrine disruptors, and
provide increased support for tribal water
quality programs.
Continuing EPA's success in
demonstrating that economic renewal and
environmental protection go hand in hand, the
Agency will participate in an urban
revitalization initiative to address cities'
special environmental needs. The Water
Quality Program will participate in a multi-
media effort by establishing partnerships and
creating tools for protecting and restoring
polluted waterways that hold vast potential for
economic development.
Finally, through state and tribal program
assistance, EPA will continue to pursue its
strategy of building state and local capacity to
implement and enforce the Nation's
environmental laws. One approach will be to
encourage states and tribes, under the new
authority of Performance Partnership Grants
(PPGs), to group categorical grant funds into
PPGs so they can address their own unique
environmental priorities. By fostering a
decentralized nationwide approach to
environmental protection, we are ensuring
that the Nation's environmental goals will
ultimately be achieved through the actions,
programs, and commitments of local
governments, organizations, and citizens.
EPA's role will be to help those who need our
assistance and strive to make sure that Federal
financial assistance brings the Nation the best
possible return on its investment in a cleaner,
safer environment.
Research Program
Program Description
The Water Quality Research Program
develops and analyzes scientific data and
technologies to protect and enhance the
designated uses of our Nation's waters and
related ecosystems in accordance with the
CWA and other related provisions and
policies by providing technical assistance to
EPA regulatory programs, states and
municipalities. The goal of the program is to
minimize environmental health risks from
pollutant discharges, environmental stressors
and disturbances. Scientific understanding
and techniques are being developed for
integrated ecological risk assessment and
ecosystem protection for fresh, estuarine and
marine waters, such as coastal and marine
waters, large lakes and rivers, wetlands,
contaminated sediments, aquatic ecocriteria,
non-point sources, habitat/biodiversity,
wastewater and sludge. This requires
improving analytical methods for quantifying
pollutants.
FY 1996 Hiehliehts and Accomplishments
Highlights and accomplishments of this
program in FY 1996 include the following:
Approaches have been developed to
evaluate the toxicity of selected chemical
mixtures in the aquatic environment to
establish criteria for the protection of
aquatic life and human health.
EPA's FY 1996 Annual Financial Statements
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An exposure assessment module was
developed for modeling South Florida
everglades and estuaries to assess
restoration and resource management
strategies.
Big Darby River of Ohio has been
assessed for the development of indicators
of multiple stressors affecting aquatic
systems and will be used as a prototype
for four ongoing watershed assessment
case studies.
Methods have been developed for
estimating bioaccumulation factors for
selected organic chemicals, and a method
was validated for describing the
availability and toxicity of sediment-
associated metals.
Evaluation procedures have been
developed for whole sediment toxicity
identification to evaluate the toxicity of
mixtures of sediment contaminants.
Models have been developed to
characterize wetland sedimentation,
nutrient cycling, and food web models in
targeted geographic areas; description of
the effects of agricultural land-use and
best management practices on water
quality of seasonal wetlands; and
development of ecological criteria and
indicators of ecological integrity of prairie
wetlands.
Approaches have been developed to
prioritize riparian restoration in
watersheds in the Western United States
and strategies to monitor the ecological
health of wetlands.
WATER QUALITY Obligations - FY 1996
Total Obligations - $470.1 Million
Grants Assistance Programs 2q 4%
Water Quality Strategies 445^
Implementation
Engineering 4 Analysis
Water Quality A Grants
6 7* Prog Mgt
3.0% Research A
Development
4 6%
Water Quality Enforcement
A Other *
15.3% Water Quality Monitoring
A Analysis
Other includes Municipal Source Control & Permit Issuance
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EPA's FY 1996 Annual Financial Statements
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TOXIC SUBSTANCES
The Toxic Substances Program is
responsible for environmental programs
carried out under six major statutes, with
emphasis on preventing pollution and
reducing risks associated with toxic
chemicals. The Toxic Substances Control Act
(TSCA) is designed to protect human health
and the environment from unreasonable risks
arising from the manufacture, processing,
distribution, use or disposal of new or existing
chemical substances. The Pollution
Prevention Act of 1990 (PPA) authorizes the
Agency to work with private and public
sectors to prevent toxic chemical pollution.
The Asbestos Hazard Emergency Response
Act (AHERA), requires inspection for and
abatement of asbestos in all public and private
schools, and requires EPA to examine similar
asbestos exposure issues in public and
commercial buildings. The Asbestos School
Hazard Abatement Act (ASHAA) authorizes
EPA to provide financial assistance as loans
or grants to local education agencies to
conduct asbestos abatement projects in school
buildings. Section 313 of Title III of the
Emergency Planning and Community Right-
to-Know Act of 1986 (EPCRA) requires
facilities that emit toxic materials to report
those emissions to EPA, and requires EPA to
collect and provide the data to the public.
Finally, Title X of the Residential Lead-based
Paint Hazard Reduction Act of 1992 requires
EPA to provide a comprehensive national
approach to dealing with lead-based paint in
the Nation's housing stock.
Program Description
Core TSCA Program
The primary goals of the core Toxic
Substances Program are to identify and
prevent the introduction into the environment
of chemicals that may be harmful to human
health or the environment, and to mitigate the
effects on the environment and human health
of toxic chemicals already present in
commerce. This is done in such a manner as
not to impede unduly, or create unnecessary
economic barriers, to technological innova-
tion. The regulatory approach to carrying out
the core TSCA program is giving way to
voluntary compliance with emphasis on
pollution prevention as the strategy of first
choice. Chemical assessment and manage-
ment rely on chemical testing and scientific
analysis to gain knowledge about the
environmental and health effects of toxic
chemicals. Without a thorough understanding
of the health and environmental effects of
chemicals, sound chemical management
cannot be achieved.
To improve the Agency's ability to set
priorities for toxic chemicals and the public's
knowledge of the uses of chemicals, the
Office of Pollution Prevention and Toxics
(OPPT) is developing the Chemical Use
Inventory.
National Program Chemicals
The National Program Chemicals
component concentrates on risk management
EPA's FY 1996 Annual Financial Statements
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activities for lead, asbestos, polychlorinated
biphenyls (PCBs) and other toxic chemicals
of national concern and impact. Nationwide
chemical management efforts have been made
for lead, asbestos, and PCBs, targeting the
reduction of risks from contaminants in
residential, school, and workplace settings.
Dioxin, a toxic chemical that accumulates in
the environment, is also being further
addressed for its health hazards and
exposures.
Health hazards from lead contamination
may be found in paint, dust, soil and drinking
water. The goal of the lead program is to
reduce lead exposure, particularly for
children, and identify the most serious
exposure sources. The lead program
addresses past, current and new uses of lead
and works to empower the public through
improved understanding of the problem. EPA
is responsible for carrying out over 30
mandates contained in the Lead-Based Paint
Hazard Reduction Act of 1992 ("Title X").
Asbestos and other hazardous fibers are
commonly found as indoor air contaminants.
The asbestos program supports activities
necessary for Federal, state, and local
governments and the private sector to develop
and carry out asbestos control and
management programs.
The PCB Program was mandated by
TSCA Section 6(e). The Program ensures
that PCBs are managed in an environmentally
sound manner while they are in use and
requires that PCBs are properly disposed.
The Program regulates the use of PCBs in
electrical equipment and other products;
directs appropriate clean-up of spills, leaks,
and other releases of PCBs to the
environment; and permits facilities for the
storage and disposal of PCB wastes.
Toxic Release Inventory (TRI) Program
The Toxic Release Inventory (TRI) is a
database that provides information to the
public about releases and waste management
of toxic chemicals from manufacturing and
Federal facilities into the environment. The
TRI is mandated by Section 313 of EPCRA.
Section 6607 of the PPA expanded the type of
information included in TRI. TRI
information is reported by covered facilities
yearly to EPA and states. As mandated by
EPCRA Section 313, EPA makes this
information available to the public in various
formats, including on the Internet.
Eees.
Section 5 of TSCA requires that chemical
manufacturers notify the Agency at least 90
days before the commercial manufacture of a
new chemical. EPA's review process is called
the Premanufacture Notice (PMN) process;
new chemical submissions are called PMNs.
There are several exemptions to the PMN
process, such as low volume and polymer
exemptions. TSCA allows the Agency to
collect fees up to $2,500 ($100 for small
businesses) for each PMN submission, which
generates annual revenues of about $3 million
for deposit into the General Fund.
FY 1996 Highlights and Accomplishment*
Core Toxic Substances Control Act (TSCA)
Program
The Chemical Assessment and
Management program is the core framework
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EPA's FY 1996 Annual Financial Statements
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for the implementation of TSCA. In 1996,
EPA continued its chemical testing program,
concentrating both on chemicals designated
by the Interagency Testing Committee (ITC),
and also on multi-chemical rules identified
through non-ITC sources. The use of multi-
chemical rulemaking resulted in an
acceleration of chemicals handled in the
rulemaking process. Additional testing
candidates were identified for inclusion on the
Agency's Master Testing List. The chemical
testing program continued to play a major
international role in the high production
volume/screening information data set testing
program.
The new chemical and biotechnology
review program concentrates on reviewing
new chemical substances, for which
manufacturers must submit a PMN to the
Agency for review before the chemical can be
manufactured for commerce. In 1996, EPA
received approximately 2,300 PMNs. Many
PMNs provided information detailing
pollution prevention practices in use by
industry. The new chemical review program
emphasizes both quick reviews of new
chemicals to identify those which may present
unreasonable risks, and the use of cost-
effective risk reduction measures. The
primary focus of the program is pollution
prevention and Design for the Environment
applications for new technology. Our
scientific staffs continue to develop assess-
ment tools, collect data, and prepare guidance
for the biotechnology program.
The existing chemicals program focuses
on identifying risks, assessing alternatives and
identifying pollution prevention opportunities
through the screening of existing chemicals,
chemical clusters, processes, and use patterns.
To mitigate risks, the program emphasizes
voluntary agreements with industry as well as
regulatory approaches where necessary. The
program continues to stress information
collection and distribution, taking advantage
of the wealth of knowledge EPA holds on
toxic chemicals and their associated risk.
This program promotes risk reduction,
pollution prevention and source reduction
throughout the life cycle of chemicals of
concern, and encourages information sharing.
The program continues to conduct initial
chemical screening to determine the
chemical's potential human health and
environmental effects. Additionally, the
program examines control options, conducts
more detailed risk management reviews and
implements appropriate risk control measures.
During FY 1996, OPPT drafted a
proposed rule to collect information on
chemical uses (i.e., a Chemical Use
Inventory). OPPT plans to publish the
proposal in early 1997.
As part of the Reinventing Environmental
Regulations Initiative, on March 16, 1995,
President Clinton announced the Green
Chemistry Challenge Program to "promote
pollution prevention and sustainability
through a new Design for the Environment
partnership with the chemical industry."
There are two phases to the program. The
first phase is a recognition of accomplish-
ments in chemistry that have been used to
achieve pollution prevention goals. The
Challenge will focus on the design and
synthesis of chemicals which incorporate
pollution prevention principles into their use
and manufacture. The second phase will
promote basic research through EPA research
GPA's FY 1996 Annual Financial Statements
Page 27
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grants and encourage industrial and university
collaboration to develop innovative
approaches to achieve pollution prevention.
The research will help identify ways of
making chemicals which reduce or eliminate
the use or generation of toxic feedstocks, by-
products, and impurities. By changing the
types of chemicals that are used in all types of
consumer and industrial projects, Green
Chemistry is promoting pollution prevention
at the molecular level.
National Program Chemicals
Asbestos: The Agency continued to help
the states improve their asbestos accreditation
programs, as required under the AHERA, and
continued to close out site evaluations of the
ASHAA loan and grant projects previously
awarded. The Agency also coordinated with
the Occupational Safety and Health
Administration (OSHA) on amending both
agencies' asbestos regulations to ensure that
the two Federal asbestos programs are
complementary.
Polychlorinated Biphenyls (PCBs): The
PCB program made substantial progress in
completion of the major rule to overhaul the
PCB program to allow risk-based decision
making and significant cost reductions in PCB
clean-up and disposal. Efforts were also
focused on permitting of disposal facilities,
support to other Federal agencies on PCB
issues, and international efforts to promote
sound management and disposal of PCBs.
Lead: The 1996 Lead program efforts
focused on development and implementation
of major rules mandated under Title X. Rules
were promulgated to require information
disclosure on lead hazards in residential real
estate transactions (purchase and lease); to
establish a Federal program for accreditation
of lead training providers, certification of
workers in lead abatement, inspection, risk
assessment, etc.; and to establish standard
work practices. Promulgation of the second
rule also allows EPA to approve state lead
programs.
Additional efforts were also directed to
outreach, evaluation of low cost abatement
and alternatives to abatement, and coordina-
tion with other state and Federal agencies.
Grants were also awarded to states and tribes
to assist in the development and imple-
mentation of state/tribal lead programs.
Dioxin: In 1996, EPA expanded its
activities related to dioxin. EPA's ongoing
dioxin assessment supports recent scientific
evidence that reconfirms dioxin to be a major
environmental pollutant. EPA currently has
insufficient understanding of dioxin sources,
transport and human exposure to ensure sound
policy and program development. In 1996,
EPA expanded its cross-media efforts to
characterize human exposure to and sources
of dioxin. This included a measurement of
dioxin levels in all major fat components of
the United States food supply, and
identification of the processes that contribute
to food contamination. The latter effort
includes the identification and character-
ization of suspected sources of dioxin,
including industrial, natural and reservoir
sources; identification and quantification of
fate and transport mechanisms affecting
dioxin emissions; and the identification of
rates and mechanisms for dioxin deposition
contributing to food contamination. EPA
works to improve the understanding of the
chemical mechanisms of dioxin formation and
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EPA's FY 1996 Annual Financial Statements
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ways to prevent its formation. The dioxin
exposure initiative is being managed across
EPA programs and involves work in
cooperation with the Department of
Agriculture and the Food and Drug
Administration.
Toxic Release Inventory
The original list of industry sectors
required to report on TRI data were limited to
the manufacturing sector. The original list of
chemicals for which reporting was required
was approximately 320 chemicals and chemi-
cal categories. Both lists have undergone
expansion, with the original industry list still
in the process of being expanded.
The list of chemicals has more than
doubled since 1986, primarily through the
November 1994 addition of 286 chemicals
and chemical categories. President Clinton
expanded the facility coverage through
Executive Order 12856 which requires
Federal facilities reporting to TRI and
developing goals to reduce releases and
transfers of toxic chemicals by 50 percent by
the year 1999.
EPA proposed in June 1996, to further
expand the types of industry groups required
to report under EPCRA Section 313 and PPA
Section 6607. EPA proposed the addition of
the following seven industry groups to TRI:
metal mining, coal mining, utilities, hazardous
waste treatment and disposal facilities, solvent
recyclers, petroleum bulk terminals, chemical
wholesalers. EPA plans to finalize this
addition as soon as possible. EPA has also
published an Advance Notice of Proposed
Rulemaking on the possible expansion of the
type of data collected in the TRI. EPA is
investigating whether to collect materials
accounting data, worker exposure data and
data on toxic chemicals in products.
EPA has undertaken a number of burden
reducing activities. EPA has developed a
short form for facilities that have generated
small quantities in waste and manufacture,
process, or use less than a million pounds.
EPA has deleted or modified several high
volume/low toxicity chemicals, such as non-
aerosol forms of sulfuric acid. EPA is also
reviewing the initial list of chemicals to
remove those chemicals that do not meet the
EPCRA Section 313 toxicity criteria.
In 1996, EPA concentrated on data
management, data quality, public data access,
and expansion of the use of TRI data by state
and local governments, other EPA offices,
industry and the public. OPPT publishes
the annual national report on TRI data. OPPT
develops tools to simplify public access to
and usefulness of chemical information,
and will put in place the latest technology to
ease the reporting burden on industry in
submitting TRI reports.
EPA's FY 1996 Annual Financial Statements
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TOXIC SUBSTANCES Obligations - FY 1996
Total Obligations - $99 6 Million
Toxic Substances
Strategies
Research A
Development
B% EPCRA Enforcement
Toxic Substences
Enforcement
Emergency Planning * Community 21.0%
Right to Know
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HAZARDOUS WASTE
The Hazardous Waste Program was
established to address the prevention,
management and disposal of hazardous and
municipal solid wastes generated nationwide.
Hazardous wastes are produced by large
businesses and industries, such as chemical
and manufacturing plants, and small
businesses. Over 210 million tons, approxi-
mately 4.4 pounds per person per day, of
municipal solid wastes are produced annually.
These wastes can pose short and long term
health and environmental hazards unless they
are properly managed and disposed. The
Resource Conservation and Recovery Act
(RCRA) of 1976, as revised by the Hazardous
and Solid Waste Amendments (HSWA) of
1984, provides the legislative mandate for a
nationwide program to protect human health
and the environment from the risks of
improper management of hazardous and solid
wastes. The goals of the Act are to: ensure
protective management of hazardous waste
from generation to disposal as well as
minimize the generation of hazardous waste;
ensure adequate and safe management and
disposal capacity for solid wastes; and prevent
and detect leakage from underground storage
tanks (USTs).
The Emergency Planning and Community
Right-to-Know Act (EPCRA), Title III of the
Superfund Amendments and Reauthorization
Act of 1986, helps state and local officials
address risk posed by hazardous chemicals
present in their communities. This program
gives state and local governments tools they
need to develop response plans to protect and
inform the public in the event of a chemical
release emergency. The Clean Air Act (CAA)
accidental release provisions, require facility
owner/operators to prepare risk management
plans to prevent, detect, and respond to
chemical accidents.
The goal of the UST program is to
prevent, detect, and address leaks from
underground storage tanks containing
petroleum and hazardous substances. The
program encompasses both leak prevention as
well as remedial activities. The UST program
objectives are to stimulate development and
implementation of comprehensive state, local
and tribal regulatory programs with
prevention requirements (i.e., installation,
upgrade, leak detection, and technical
operating standards) that are at least as
stringent as Federal regulations; to improve
implementation and enforcement perfor-
mance; and to provide ongoing technical
information, assistance, and training. These
objectives directly support the Agency's
guiding principle of partnerships through
building strong state, local and tribal UST
programs. Environmental damage is mini-
mized by the development of effective state
leak detection and corrective action programs.
The Agency continues to refine program
strategies to direct both private and public
resources towards the greatest environmental
risk. In the RCRA program, an expanded
strategic planning process is being employed
to set goals for improving the program.
Strategic planning facilitates setting priorities
according to relative risk across the RCRA
program, including corrective action stabili-
zation and permit writing work. Additionally,
the RCRA program will continue ongoing
efforts to develop risk based management
EPA's FY 1996 Annual Financial Statements
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standards for hazardous waste. Enhanced and
expanded risk assessments will be incor-
porated into the RCRA permitting process.
FY 1996 Highlights and Accomplishments
HCM
In FY 1996, EPA began the Jobs Through
Recycling (JTR) a national effort to build
markets for reusables and recyclables in state,
local and regional economic development
activities. Through national competition the
RCRA program awarded 10 JTR grants and
issued 22 cooperative agreements with states
and tribes totaling $1.9 million.
The RCRA program established a
partnership with the Association of State
Territorial Solid Waste Management Officials
(ASTSWMO) to develop a voluntary guid-
ance document pertaining to the management
of industrial non-hazardous wastes. The
guidance document will complement existing
state programs and recommend management
practices tailored to risk and strategies for
waste minimization. The program also
formed an external Focus Group of stake-
holders from state solid waste managers,
EPA, industry, waste management companies
and environmental groups to advise the
EPA/ASTSWMO partnership. This initiative
provides an opportunity to enlist industry sup-
port for voluntarily upgrading management
practices and to enhance state industrial waste
programs.
Much of the environmental progress
achieved in the management of hazardous
waste can be measured through the Agency's
efforts to develop useful guidance and rational
regulations. The RCRA program has been an
Agency leader in regulatory reinvention to
provide flexibility to our state partners and
continuous improvement in program
implementation.
Reduction in paperwork burden associated
with waste management was proposed for the
Land Disposal Restrictions (LDR) program
through a number of changes, including
allowing generators of wastes and treatment,
storage, and disposal facilities shipping waste
for further management to submit a one-time
notification, rather than a notification with
each shipment. The changes to the LDR
program amounted to more than 1.5 million
hours of paperwork burden reduction.
Paperwork burden hours were also reduced
through the Capacity Assurance Process. The
Information Collection Request (ICR) for this
process was not renewed, reducing the
paperwork burden by more than 73,000 hours.
The ICR expired on March 31, 1996. These
changes will maintain strong environmental
protection at a significantly lower cost.
The expanded Public Participation rule
was finalized in FY 1996. This rule
empowers communities to become more
actively involved in local hazardous waste
management activities by expanding public
participation aspects of RCRA Subtitle C
permitting. Also, in a common sense reform
to RCRA, the requirement to promulgate
stringent and costly treatment requirements
for wastes already regulated under the Clean
Water Act or Safe Drinking Water Act was
eliminated. Certain municipal landfill
groundwater monitoring requirements were
also reformed, easing burdens on local
governments.
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EPA's FY 1996 Annual Financial Statements
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Three significant changes to the 1997
Biennial Report (BR) process were approved
by OMB in September 1996. These will
substantially decrease burden (by about 30%)
on the regulated community. In addition,
methodologies for in-depth analysis of the
BR, identification of areas for potential
burden reduction, and comparison of data
elements and uses of BR with other RCRA
data sources (such as manifest) were
developed.
The RCRA program continues to be an
Agency leader in the development of multi
pathway and indirect pathway risk assessment
methods. The Office of Solid Waste and
Emergency Response (OSWER) will continue
close coordination with the Office of Research
and Development (ORD) in addressing
technical issues associated with risk
assessment.
USI
In FY 1996, EPA's UST program formed
the Private Sector Initiative Team which
began exploring ways in which UST
programs could more closely work with the
lending, insurance, and real estate industries
in their states or communities. The Office of
Underground Storage Tanks (OUSTs) antici-
pates that educating commercial realtors,
lenders, and insurers about USTs can
ultimately result in more sites that comply
with requirements and will be suitable for
redevelopment and reuse. The Team began
exploring possible roles for the private sector,
which include conducting inspections, par-
ticipating in licensing and certification
programs, providing insurance to owner/
operators, and developing lender/realtor
compliance programs.
In FY 1996, the program actively
promoted the development and imple-
mentation of risk-based decision making
through information sharing and technical
assistance. Risk-based corrective action
(RBCA) provides a framework for con-
sidering both contamination and site specific
factors to determine the danger to human
health and the environment from a given
release. The RBCA process allows for
environmental response action at all UST
sites, while focusing resources on highest risk
sites and allowing more sites to be closed and
thus available for reuse. To date, 48
states/territories have entered the RBCA
training process. The support provided to
each state varies according to state officials'
understanding of the risk-based concept and
compatibility of their regulations with a
RBCA approach. Nine states have issued
risk-based corrective action guidance and are
using the RBCA process.
While much of EPA's current brownfields
work involves Superfund sites, old and
abandoned gasoline stations and other
commercial or industrial properties with
"orphan" USTs may also be brownfields.
Many of the estimated 100,000 to 450,000
brownfields sites in the U.S. involve USTs.
OUST is assisting in efforts to clean up
and reuse commercial and industrial sites with
USTs and working to prevent future UST
brownfields. OUST has participated on
evaluation panels for national brownfields
pilot projects. In a related effort, OUST
provided $50,000 to EPA Region X to support
a regional brownfields pilot to develop new
methods for assessing total petroleum
EPA's FY 1996 Annual Financial Statements
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hydrocarbon (TPH) levels at leaking U ST
sites. OUST also provided $50,000 to EPA's
Region V to support a brownfields project in
St. Louis, Illinois.
Title III
Under Section 112(r) of the Clean Air
Act, certain facilities are required to prepare
and submit risk management plans (RMPs)
which contain very specific information on
risks of chemical accidents in communities by
June 1999. OSWER's Chemical Emergency
Preparedness and Prevention Office (CEPPO)
convened an Electronic Submission Work-
group to examine the technical and practical
issues associated with creating a national
repository of electronic RMPs. The
workgroup will recommend the best way for
the regulated community to report their
RMPs, and the best way for the EPA, state
and local governments, and the public to have
access to this information. This workgroup
includes local government, the media,
industry, environmentalists, and others. In
FY 1996, CEPPO also made significant
progress using the Internet to ensure that the
States, local emergency planning committees
and other local level entities including
individual citizens are empowered with
emergency planning and community right-to-
know and accident risk related information
24 hours a day.
The National Response Team, which the
CEPPO Director chairs, developed Integrated
Contingency Plan Guidance published in the
Federal Register on June 5, 1996. This
guidance (also known as "one plan" guidance)
provides a way to consolidate multiple plans
that a facility may have prepared to comply
with various regulations, into one functional
emergency response plan. This one-plan
approach will minimize duplication of effort
and unnecessary paperwork burdens. This
project was awarded the Hammer Award
given by Vice President A1 Gore's National
Performance Review to teams who have made
significant contributions in support of
reinventing government principles. This is an
example of how local involvement can
enhance local efficiency and safety.
Research Program
Program Description
ORD conducts research on hazardous
wastes, bioremediation, pollution prevention,
ecorisk assessment methods/ecosystems
protection, groundwater, surface cleanup,
health effects, and international and national
technology transfer pursuant to RCRA as
amended by HSWA. The goal of this
research program is to help OSWER ensure
adequate and safe treatment of hazardous
wastes from generation through disposal, to
ensure safe management and disposal capacity
for solid wastes, and to prevent and detect
leakage from underground storage tanks.
The Hazardous Waste Research Program
provides a core of scientific and technical
support necessary to implement requirements
of the Comprehensive Environmental
Response, Compensation, and Liability Act of
1980, as amended, and the enforcement
actions undertaken to obtain cleanup and to
recover costs. The largest portion of this
program addresses technical assessment for
remedy selection, site assessment, and
technology field evaluation, each of which is
integral to direct site cleanup. The goal is to
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EPA's FY 1996 Annual Financial Statements
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provide the strong scientific and technical
foundation for OSWER to investigate and
mitigate health and environmental problems at
the priority sites.
FY 1996 Highlights and Accomplishments
Highlights and accomplishments within
the Hazardous Waste Research program for
FY 1996 included the following;
Produced reports on some full-scale field
demonstrations of innovative remediation
technologies under the Superfund Inno-
vative Technology Evaluation program,
providing effectiveness and applicability
information which will aid EPA Remedial
Project Managers (RPMs), private site
managers and others in finding the most
cost-effective technologies for site
remediation.
Developed computer software for the
interpretation of non-invasive ground
penetrating radar surveys to delineate
subsurface Non-Aqueous Phase Liquids
(NAPLS) in fracture formations. Initiated
bench-scale research on the feasibility of
the use of passive barriers for remedia-
tion of groundwater contaminated by
arsenic and lead, two significant metal
contaminants.
Developed reports and articles on air
analytical methods for rapid detection of
emissions from Superfund sites.
Provided results from studies to automate
a VOC CEM device to measure 20
organic VOCs real time.
Produced book summarizing the state-of-
knowledge of groundwater flow and
contaminant transport in fractured
crystalline rock.
Initiated studies of the use of high
temperature sorbents to control the
emission of Hg and other volatile metals.
Also, Hg speciation as functions of
fuel/waste composition and combustion
environment.
Provided characterization of the residuals
produced from treating PAH contami-
nated soils from the Riley Tar site.
EPA's FY 1996 Annual Financial Statements
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HAZARDOUS WASTE Obligations - FY 1996
Total Obligations - $275.8 Million
Financial
Assistance 36.7%
Hazardous Watte Mgl. Strategic* 19.5%
Implementation
Waste Management Regulations,
Guidelines A Policies
Research A
0.6% Development
Hazardoua Waste
12.2% Enforcement
Emergency Planning/
Community
Right to Know
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EPA's FY 1996 Annual Financial Statements
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SUPERFUND
EPA administers the Superfund Program
under the Comprehensive Environmental
Response, Compensation and Liability Act of
1980 (CERCLA) as amended by the
Superfund Amendments and Reauthorization
Act, 1986 (SARA) and the Omnibus Budget
Reconciliation Act of 1990. The Office of
Solid Waste and Emergency Response
(OSWER) and the Office of Enforcement and
Compliance Assurance (OECA) provide
primary management of the program. In this
section, Headquarters Superfund references
will include OSWER and OECA unless
otherwise noted.
Program Description
Superfund Program was enacted on
December 11, 1980 to address public health
and environmental threats from spills of
hazardous materials and from sites contami-
nated with hazardous substances. It
established a comprehensive program to
identify and clean up these spills and sites.
The cleanup program consists of a pipeline of
activity. This pipeline includes site assess-
ment, removal, remedial and enforcement
activities.
The law also created the "Hazardous
Substance Response Trust Fund" known now
as the Hazardous Substance Superfund or
Superfund. CERCLA is predicated on a
"polluter pays" principle. As such EPA
works first to compel potentially responsible
parties to respond and conduct site cleanups.
When this is not possible because an
agreement cannot be reached or because of an
emergency, Fund dollars can be used to
address and cleanup hazardous waste sites.
Cleaning up a Superfund site is often a
multi-stage and multi-year process. In fact,
the average site takes seven to ten years from
discovery to start of cleanup. Superfund site
cleanup phases include site assessment,
removal, remedial and enforcement activities.
Prior to placing a site on the National
Priorities List (NPL), EPA conducts a
preliminary assessment of the site. This is the
beginning of the site assessment phase of site
cleanup. Where warranted, this is followed
by a site investigation. The conclusion of this
phase of site cleanup could be a removal
action to stabilize the site and/or listing the
site on the NPL.
Removal actions are a critical phase of
addressing and cleaning up sites. They are
conducted at NPL and at non-NPL sites.
Since 1980, more than 3,100 short-term
removal actions at 2,780 non-NPL sites have
been started (225 actions at 197 non-NPL
sites in FY 1996 alone, excluding Federal
facilities). These short-term responses
address an immediate threat posed by the
uncontrolled release of a hazardous substance,
such as from a newly discovered dump,
transportation accident, or a fire.
Early actions also are a part of the overall
removal action phase of site cleanup. Early
actions are similar to removals but are usually
non-time critical and can be performed under
EPA's FY 1996 Annual Financial Statements
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removal or remedial program authority. An
example of an early action is implementing
interim controls to contain/stabilize a plume
of contamination in groundwater.
The next phase of site cleanup is remedial
actions. Sites that require a long-term,
permanent cleanup remedy become part of the
remedial action pipeline and enter the
remedial phase of cleanup. These sites
represent circumstances where the risk to
human health and the environment also
warrants placing the site on the NPL.
Once a site is listed on the NPL, EPA
works with responsible parties, the
community, and other stakeholders around the
site to plan the long-term cleanup with a
detailed study of the site and an evaluation of
cleanup options. The planning process can
take up to four years with an average cost of
$1.4 million per site.
The actual cleanup (construction) work
itself averages $18 million per site. Because
of the high cost of construction and limited
Superfund resources, EPA's Superfund
Enforcement Program emphasizes compelling
potentially responsible parties (PRPs) to
conduct a majority of the cleanup actions and
to reimburse the Federal government for
cleanup actions financed by the Trust Fund.
PRPs currently fund more than 70 percent of
new remedial work at NPL sites.
While Superfund responsibilities cannot
be delegated, at some sites the state or local
government or Indian tribe takes the lead in
managing the site cleanup. At other sites,
the State or local agency cooperates with EPA
on handling a site cleanup.
Financial Perspective
In 1980, the Congress established, in the
Department of the Treasury, the "Hazardous
Substance Response Trust Fund," known as
the Hazardous Substance Superfund.
Congress also authorized program funding for
five years totaling $1.6 billion. As the long-
term nature and expense of site cleanup
became more evident, Congress reauthorized
the program in 1986 extending the authorizing
program funding level for an additional five
years totaling $8.5 billion. In 1990, Congress
extended the authorizing program funding
level through calendar year 1995 with the
Omnibus Budget Reconciliation Act, adding
an additional $5.1 billion.
The Trust Fund is supported primarily by
taxes on crude and petroleum, on the sale or
use of certain chemicals, and an environ-
mental tax on corporations. Other sources of
funding for Superfund include cleanup costs
recovered from responsible parties, interest,
fines and penalties paid by individuals and
entities who violate the terms of the CERCLA
provisions, and by general revenues.
The Trust Fund is the primary source of
funding for EPA's Superfund account.
Through annual and supplemental appro-
priations, Congress establishes the amount
from the Fund that EPA may use. EPA then
with-draws those monies from the Trust Fund,
as needed, to cover disbursements. At the end
of FY 1996, the Trust Fund reflected an
unappropriated balance of $3.1 billion. Con-
gress could make these funds available to
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EPA's FY 1996 Annual Financial Statements
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EPA in future appropriations. In FY 1996,
Congress appropriated $1.3 billion for the
Superfund Program.
Parties responsible for contaminating
Superfund NPL sites are increasingly
conducting and paying for the cleanup at their
sites, reserving the Trust Fund monies for
those sites where parties are unable to
contribute. PRPs' commitments to site
cleanup have averaged over $1 billion per
year for three of the past five years.
Superfund response program expenditures
through FY 1996 total $13.1 billion. In EPA's
FY 1994 Superfund Annual Report to
Congress, the Office of Solid Waste and
Emergency Response estimated the remaining
costs of cleaning up the 1,291 sites (1,131
non-Federal facilities and 160 Federal
facilities) currently on the NPL to be $15.9
billion for FY 1996 and beyond. This
estimate does not include the responsible
party contribution.
Stpertund Financial Trends
Miens cf$
Superfund Obligations by Location,
Obligations are displayed by "Regions",
"Headquarters (HQ) - Office of Solid Waste
and Emergency Response (OSWER)", and
"HQ - All Others". Much of the operational
responsibility for direct Superfund activities
resides in the EPA Regions.
EPA Headquarters is further broken down
between HQ OSWER (includes components
of the OECA formerly located in OSWER)
and all other remaining non-OSWER offices.
Superfund Obligations by Location - FY 1996
HQ-All Others 9.5%
Program Results
In FY 1996, EPA announced and
implemented a third round of Administrative
Reforms in a continuing effort to protect
human health and the environment. The
Program also maintained progress toward
completing site cleanup. Taken together these
two efforts during FY 1996 contributed to a
faster, fairer and more efficient site cleanup
program. In addition, the Superfund
Response program was a GPRA pilot. This
effort is designed to improve the tie between
funding distribution and strategic planning
efforts.
EPA's FY 1996 Annual Financial Statements
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There are many noteworthy
Administrative Reform achievements in
FY 1996 which include:
establishing a National Remedy Review
Board - reviewed and proposed 12
decisions at 11 sites;
identifying over 30 potential sites for
remedy decision updates based on
improved technology;
issuing a memorandum and fact sheet on
the role of cost in the remedy selection
process;
issuing national consistency memorandum
for remedy selection;
deleting clean parcels from the NPL -
issued 4 notices for the intent to delete
clean parcels from the NPL;
promoting risk-based prioritization for
NPL sites - established national panel to
rank sites based on risk;
reducing oversight of cooperative PRP's -
reduced or reached agreement to reduce
PRP oversight at 100 sites;
establishing Regional Superfund
Ombudsman - each region appointed a
regional Ombudsman;
issuing memorandum on changes in
procedures for equitable issuance of
unilateral administrative orders (UAO);
and
adopting private party allocations.
As part of measuring the impact of site
cleanup efforts, EPA established Environ-
mental Indicators for the Superfund program.
There are 3 indicators, A, B, and C. Indicator
A, Addressing Immediate Threats, measures
how the immediate response actions taken by
cleanup workers at hazardous waste sites
protect people's health through access
restrictions, alternate water supplies, and
relocation. Indicator B, Achieving Permanent
Cleanup Goals, measures the progress
Superfund cleanup actions make toward
achieving permanent cleanup goals set for
contaminated land, surface water, or
groundwater. Indicator C, Bringing Tech-
nology to Bear, tracks the different types of
cleanup technologies available and/or being
used at Superfund sites, as well as how much
soil, groundwater, surface water, sediment,
liquid waste, and solid waste have been
cleaned up.
These Environmental Indicators continue
to show progress in hazardous waste cleanup.
Data gathered through March 1996 shows
that Superfund continues to fulfill its environ-
mental mission and is gradually reducing the
risks to human and ecological health posed by
dangerous chemicals in the air, soil and water.
Through 1991, cleanup systems had been
constructed and completed at a total of 61
Superfund NPL sites. Now, over five years
later, more than six times that number, 400
non-Federal facility sites, have been
completed by the end of FY 1996. There
were 62 non-Federal facility construction
completions in FY 1996. In addition,
assessment and cleanup is now underway at
95 percent of the sites on the NPL.
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EPA's FY 1996 Annual Financial Statements
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Since the beginning of the program in
1980 through March, 1996, Superfund has
performed 990 emergency cleanups at NPL
sites greatly reducing risks to site workers and
the surrounding communities. Superfund
workers also supplied 23,834 people with
temporary safe drinking water supplies
eliminating exposure to contaminated surface
water and groundwater sources.
As for achieving long-term cleanup goals
at Superfund sites since 1980:
Cleanup goals were fully achieved for all
media at an additional 185 sites (sites
restored to safe levels for communities
living on or near previously contaminated
areas)
Cleanup goals were fully achieved for at
least one medium at 158 sites (cleaning
one medium means that other media are
less likely to become more contaminated)
Cleaning up of a contaminated medium
started at 224 sites
In terms of cleaning individual media at
NPL sites since 1980, Superfund workers
fully cleaned up 307 areas of contaminated
land, 39 areas of contaminated groundwater,
and 41 areas of contaminated surface water.
Additionally, cleaning up began at 162 areas
of land contamination, 265 areas of
groundwater contamination, and 40 areas of
surface water contamination.
The direct beneficiaries of Superfund are
those people living in the vicinity of the
clean-up sites. Indirect beneficiaries include
those living further from the sites who might
suffer degradation of their groundwater,
drinking water, or air if these programs did
not alleviate the risk of contamination before
it became more widespread. Early action to
contain impacted areas also lessens the
potential liability of parties responsible for the
contamination.
The purpose of this section of the financial
statements is to relate program performance to
Trust Fund expenditures. Since the funds
used to cleanup Federal facility sites do not
come from the Trust Fund, accomplishments
attributable to EPA's Federal facilities
program have been excluded from this report.
EPA's performance measures for the
Superfund program for FY 1996 fall into two
categories: site cleanup (Measures 1-5) and
enforcement/cost recovery (Measures 6-10).
Cleanup: For site cleanup we measure
not only the completion stage but also the
critical steps in the cleanup process. Because
the cleanup process can take a number of
years, it is important to look at the "pipeline"
of activities to get an accurate sense of
progress. Please note that in measures 1-5,
the cumulative totals reflect current
information and methodology refinements and
may not reconcile with previous annual
reports. Part of this difference in comparing
cumulative totals is attributable to the
conversion of a site from Fund-lead to State-
lead and the point in time when that
conversion is captured in the State and
Agency systems.
Measure 1: Number of sites on the NPL
where the first cleanup or investigation has
started compared to the total number of
sites on the NPL.
EPA's FY 1996 Annual Financial Statements
Page 41
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Activities captured under this measure are
short-term removal actions and the remedial
investigation/feasibility study which assesses
the nature and extent of contamination at the
site and analyzes cleanup alternatives so that
a remedy can be selected.
Results: In FY 1996, the first cleanup or
investigation was started at 9 sites.
Cumulative performance to date is 1,157
cleanups or investigations begun compared to
1,223 non-Federal NPL sites.
The number of cleanups started to decline
in FY 1991 through 1996, relative to earlier
years, as the Superfund program's emphasis
shifted to the later stages of the cleanup effort
needed to complete work at a site. Also,
cleanup has now begun at nearly all sites on
the NPL. The remaining sites have been
evaluated for immediate threat, even though
cleanup action has not yet begun.
Measure 2: The number of non-NPL
sites with hazardous releases where EPA
has begun a cleanup action.
Sites with confirmed hazardous releases,
which do not score high enough to be
included on the NPL or where an emergency
exists, are eligible for a short-term Superfund
removal action if they meet certain regulatory
criteria. This measure counts the number of
sites where a removal action has started.
Results: In FY 1996, cleanup actions
were begun at 155 non-NPL sites, bringing
the total number of sites addressed through
such actions since program inception to 2,838
non-NPL sites.
Measure 3: The number of sites on the
NPL where a decision has been made about
how to proceed with the cleanup of at least
a significant portion of the site compared to
the total number of sites on the NPL.
Activities counted under this measure
include the documentation of how to proceed
with the remedial action - the signing of a
Record of Decision (ROD) - or the docu-
mentation of the selection and authorization
of a removal - an Action Memorandum. The
ROD identifies the remedy that has been
chosen for remediating the site (or a portion
of the site) and summarizes the site problems,
the alternative remedies considered, and the
public's involvement in the decision. The
Action Memorandum substantiates the need
for removal action, identifies the proposed
action, and explains the rationale for the
particular type of removal action selected.
Results: Cleanup decisions were made for
24 sites in FY 1996, resulting in a total to
date of 1,003 sites of the 1,223 non-Federal
sites on the NPL
Measure 4: Number of sites on the NPL
where remedial action has been completed
for at least a significant portion of the site
compared to the total number of sites on
the NPL.
This measure counts those NPL sites (or
portions thereof) which have progressed
through the remedial action phase. At this
stage the construction work to implement the
remedy is complete, and EPA has conducted
a final inspection to determine that the remedy
is functioning properly and performing as
designed.
Page 42
EPA's FY 1996 Annual Financial Statements
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As indicated above, a site may have more
than one remedial action.
Results: In FY 1996, 43 sites (or
significant portions thereof) progressed
through the Remedial Action cleanup phase.
This brings the total number of such sites to
434 of the 1,223 non-Federal sites on the NPL
(excluding Federal facilities).
Measure 5: The number of sites on the
NPL where cleanup construction is
completed compared to the total number of
sites on the NPL.
This measure counts the sites for which
EPA has declared cleanup construction com-
plete. Sites qualify for construction
completion when:
any necessary physical construction is
complete whether or not final cleanup
levels or other requirements have been
achieved;
EPA determines that the response action
does not involve construction; or
the site qualifies for deletion from the
NPL.
Additional clarification on the definition
of site cleanup is described in the Federal
Register, March 2,1993.
Results: During FY 1996, cleanup was
completed at 62 non-Federal facility sites.
The continuing cumulative increases in
completions reflect management's increasing
focus on completions, the maturing of sites
already in the pipeline, and the streamlining
of documentation requirements. Cumulative
results for the program to date are 400 sites
with cleanup construction completed of the
1,223 non-Federal sites on the NPL
(excluding Federal facilities).
Enforcement Program
Program Description
In FY 1996, EPA's Enforcement Program
continued seeking settlement with those
parties potentially responsible for contami-
nating Superfiind sites and pursuing recovery
of expended Trust Fund monies.
Measure 6: The number of enforce-
ment actions taken at NPL sites to have
potentially responsible parties (PRPs)
conduct or participate in response activities
compared to the total number of sites on
the NPL. The percentage and estimated
value of PRP commitments to response
activities at non-Federal Facility sites on
the NPL.
This measure counts the number of legal
actions taken to involve PRPs in site study
and cleanup at NPL sites (including proposed
sites). This measure includes all administra-
tive and judicial settlements, judicial actions,
and administrative orders for removals, site
studies, and remedial design and remedial
actions (RD/RA). It includes those instances
where parties have voluntarily entered into a
settlement, as well as those instances where
unilateral enforcement order authority was
used to compel PRPs to conduct work and the
PRPs have agreed to comply with the order.
EPA's FY 1996 Annual Financial Statements
Page 43
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Results: During FY 1996, 95 enforcement
actions for site study and cleanup were taken
at 80 sites on the NPL. 58 of these actions
were settlements for RD/RA (39 consent
decrees referred to the Department of Justice
(DOJ) and 19 unilateral administrative
orders in compliance).
Since the inception of the Superfund
program, PRPs have committed to conduct
site response at 837 sites (68 percent) of the
1,223 non-Federal Facility sites on the NPL,
with an estimated cumulative value of over
$10.4 billion. In FY 1996, PRPs committed to
conduct response work at 80 (over 6 percent)
of the 1,223 NPL sites, with an estimated
value of approximately $810 million.
Measure 7: The total value of cost
recovery settlements and judicial actions
achieved, and past costs considered
recoverable.
This measure provides the amount of cost
recovery that has been achieved to date. A
number of factors limit EPA's ability to
recover its past costs. The first limitation is
that EPA can only recover money that has
been spent. A significant portion of EPA's
budget is obligations for future years. These
funds will be eligible for cost recovery after
they are actually expended. EPA's ability to
recover money that has been spent is also
limited. A number of factors, including
bankruptcy of PRPs, other litigation concerns,
the inability to identify financially viable
PRPs, and the exclusion of certain indirect
costs make 100% cost recovery not realistic.
Results: Through FY 1996, EPA has
achieved settlement for approximately $2.1
billion with over $451.6 million of this
amount achieved in FY 96 and is seeking
approximately an additional $1.6 billion in
ongoing cost recovery actions. Through
FY 1996, of the $13.1 billion in total past
costs, $7.5' billion are considered potentially
addressable.
EPA has been very effective in addressing
past costs for Statute of Limitation (SOL)
cases at sites where the past costs exceeded
$200,000. The SOL requires EPA to address
cases by certain dates. EPA addresses these
cases by negotiating a settlement, referring
the case to DOJfor trial, or writing the case
off when no financially viable PRP can be
found. In FY 1996, the number of cost
recovery cases addressed was 181 with a total
value of $653.5 million. EPA addressed all
but 3 of the FY 1996 SOL cases (where past
costs exceeded $200,000) prior to the
expiration of the SOL. EPA intended to write
off the costs associated with these cases
because no financially viable PRPs were
located. The documents, however, were not
finalized prior to the expiration of the SOL.
Measure 8: The amount of money EPA
has collected from PRPs compared to the
total amount achieved in cost recovery
settlements and judicial actions.
'Under current Agency policy, $7.5 billion of
Superfund past costs are addressable (eligible to be
included in cost recovery actions), of which $5.5 billion
(73%) has already been addressed and $2 billion is yet to
be addressed. The Agency has also incurred a significant
amount of indirect costs which are not addressable under
current policy. Current estimates are that future policy
actions may make $1.2 billion of these indirect costs
addressable. A significant portion of the costs yet to be
addressed, and any indirect costs which become
addressable, will be unrecoverable due to write-offs,
bankruptcies, orphan share compensation, ability-to-pay,
and other issues which arise during cost recovery activity
-------
This compares the total value of cost
recoveries, penalties, and damages collected
to-date to the total amount of cost recoveries
achieved through settlements and judicial
actions.
There is frequently a delay between the
date the settlement is reached (the day cost
recovery is considered to be achieved) and the
date the funds are collected. Delays are not
uncommon because of the time required to
file the necessary documents with the courts,
and because in some cases settlement
payments are received in installments. As a
result, settlements may be reached in one
fiscal year, and the settlement payment
collected in a later fiscal year.
Results: In FY 1996, the Agency collected
over $252 million in cost recovery and
reached settlements for the recovery of over
$451.6 million. Since the inception of the
program, the Agency has collected over
$1,440 million in cost recoveries. This
represents approximately 68 percent of the
total value of cost recovery settlements
(approximately $2.1 billion) reached by the
program to-date.
Measure 9: The estimated amount of
money PRPs have committed legally to site
cleanup compared to the total amount of
funds obligated by the Superfund
enforcement program.
This measure compares the estimated
dollar value of cleanups PRPs have agreed to
perform at NPL and non-NPL sites to the
enforcement obligations EPA has incurred
achieving settlements. The estimate of the
value of PRP work to be performed is derived
from sources such as the Record of Decision,
the Remedial Design, enforcement settlement
document (i.e., Administrative Order on
Consent (AOC), Unilateral Administrative
Order (UAO)), or other relevant source (i.e.,
Action Memorandum, Engineering and
Evaluation Cost Analysis). The estimate of
PRP work to be performed is then compared
to the amount of funds obligated from the
trust fund for enforcement activities. This
provides an order-of-magnitude contrast
between EPA and DOJ enforcement
obligations versus the estimated value of
private party settlements for site response
(recognizing that the actual outlay of funds by
PRPs may take place over several years).
The resulting ratio is a measure of
enforcement effectiveness.
Results: In FY 1996, the Agency reached
settlements with PRPs valued at over $1.3
billion ($888.5 million in response settlements
and over $451.6 million in cost recovery
settlements) for NPL and non-NPL sites.
EPA's FY 1996 enforcement obligations
(including DOJ obligations) were $171
million. The resulting ratio of approximately
8 to 1 indicates that PRPs have committed
approximately $8 for every dollar obligated
for Superfund enforcement. This ratio varies
from year to year for a variety of reasons,
such as the number and/or value of the
settlements completed in a given year.
Over the life of the Superfund Program,
the Agency reached settlements with an
estimated value of over $14 billion ($11.9
billion in response settlements and $2.1
billion in cost recovery settlements) for NPL
and non-NPL sites. EPA's enforcement
obligations over this period were
approximately $1.9 billion. The resulting
ratio of approximately 7 to 1 indicates that
EPA's FY 1996 Annual Financial Statements
Page 45
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PRPs have committed over $7 for every dollar
obligatedfor Superfund enforcement.
Measure 10: The number of ds minimis
settlements, potential value of these
settlements, and the estimated number of
settlors.
EPA continues to seek enforcement
fairness by entering into ds. minimis
settlement with PRPs who have contributed
only a very small amount of waste to a site.
EPA may consider parties who have
contributed only a small amount of waste to a
site to be ds minimis parties if their
contribution of waste is minimal compared to
the other waste at the site. In recognition of
their relatively small contribution of waste,
and to help ensure that these ds. minimis
parties do not get drawn into lengthy and
expensive private party lawsuits, EPA may
offer a special type of settlement to these
parties known as a ds minimis settlement.
Although the amount a ds. minimis settlor may
pay varies from site to site, in general, the
amount paid in the settlement is a
combination of a basic payment (based on
cleanup costs and waste contribution by the ds
minimis party) and a premium payment.
This measure counts the total number of
administrative and judicial settlements
reached with PRPs that qualify as ds minimis
settlors under Section 122(g) of SARA. The
measure also counts the potential value of
these settlements and the estimated number of
settlors.
Results: In FY 1996, the Agency achieved
40 ds. minimis settlements valued at
approximately $50 million with over 1,800 ds.
minimis settlors. Through FY 1996, the
Agency achieved over 240 ds. minimis
settlements with over 14,000 settlors.
Summary and Next Steps
While continuing with previous
Administrative Reforms, in FY 1996,
Superfund Enforcement continued to sub-
stantially expand and improve the program;
through another round of Administrative
Reforms, the Superfund program is now
"Faster, Fairer, and More Efficient."
Recoenizine the Orphan Share
Traditionally, the costs of the cleanup
obligations of companies responsible for past
pollution who are insolvent or defunct would
be allocated entirely to the remaining viable
parties at a site under Superfund's principles
of joint and several liability (rather than to the
Superfund or the taxpayer). Over the past
year, however, EPA has agreed to share this
burden by offering to forgive a portion of its
past costs and projected future oversight costs
at sites in recognition of fairness to viable
parties. On June 3, 1996, EPA issued its
"Interim Guidance on Orphan Share
Compensation for Settlors of Remedial
Design/Remedial Action and Non-Time-
Critical Removals." This fiscal year alone,
the Agency offered over $57.5 million to
potential settling parties at 24 sites across the
United States.
Additionally, the "orphan share" reform
has reduced litigation and transaction costs by
addressing arguments over who should bear
the burden of the "orphan shares." If the
parties settle, these dollars would be written
Page 46
EPA's FY 1996 Annual Financial Statements
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off and thus future cost recovery amounts
would be reduced as this reform progresses.
Ensurine Interest is Preserved for Individual
Sites
The Superfund statute provides EPA with
authority to retain and use funds received in
settlement at the site for future work. Prior to
the reform, interest earned on settlement funds
was not credited to special accounts (accounts
which are site-specific within the Superfund
Trust Fund). As a result of this reform,
$35 million (interest is through August 31,
1996) is now available for site-specific
cleanup. This is in addition to the $226
million in principle in these accounts.
Reducing Costs for PR Ps Through Reduced
Oversight
PRPs incur costs at sites in part because of
EPA's need to oversee the quality of the work
they are doing. Oversight is the process EPA
uses to ensure that all studies and work
performed by PRPs comply with the statute,
its regulations, guidance and policies and the
signed settlement agreement and are
technically sound. As the Superfund program
has matured, parties performing work at sites
have developed a considerable body of
experience in conducting response activities at
sites, such that EPA could reduce oversight of
such parties while continuing to exercise
sufficient oversight to ensure that the work is
performed properly and in a timely manner.
On July 31, 1996, EPA issued a Directive
(#9200.4-15) entitled "Reducing Federal
Oversight at Superfund sites with Cooperative
and Capable Parties" implementing this new
reform. Already EPA Regions have identified
approximately 100 sites where reductions in
oversight of ongoing work for cooperative
and capable PRPs have occurred or will
occur, significantly reducing costs at some of
these sites.
Earlv Settlements with Small Volume Waste
Contributors
EPA has reformed the way it administers
the liability system in order to release small
volume contributors of waste {de minimis
parties,) from Superfund litigation. The
government has completed settlements with
more than 1800 small volume contributors in
1996 and over than 14,000 de minimis parties
to date. These settlements protect the settling
parties from burdensome private contribution
suits and free up resources for use in cleaning
up sites.
EPA has also stepped in to prevent the big
polluters from dragging untold numbers of the
smallest "de micromis" contributors of waste
into contribution litigation by publicly
offering settlements to any such party that
would preclude lawsuits by other PRPs. On
June 3, 1996, EPA issued the "Revised
Guidance on CERCLA Settlements with De
Micromis Waste Contributors" which doubled
previous eligibility cut-offs and stated that
EPA would settle with these parties for $0.
The revised guidance and seven attachments
are designed to streamline and simplify the
process by creating routine settlement
practices.
EquitableIssuance ol Unilateral
Administrative Orders
There has been criticism that EPA has
issued cleanup orders under Section 106
(Unilateral Administrative Orders or UAOs)
EPA's FY 1996 Annual Financial Statements
Page 47
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to only a subset of the parties that have been
identified at a particular site. On August 2,
1996, EPA issued a memorandum entitled
"Documentation of Reason(s) for Not Issuing
CERCLA 106 UAOs to all Identified PRPs",
reaffirming EPA commitment to issue such
UAOs to the largest manageable number of
PRPs after considering the adequacy of
evidence of a party's liability, the party's
financial viability, and the party's
contribution to the site. The Regions are also
required to document the reasons why UAOs
weren't issued to other PRPs.
Removing Liability Barriers
EPA is promoting redevelopment of
contaminated properties by protecting
prospective purchasers, lenders and property
owners from Superfund liability. EPA's
"Guidance on Agreements with Prospective
Purchasers of Contaminated Property" is
stimulating the development of sites where
parties otherwise may have been reluctant to
take action by clarifying, through agreements
known as "prospective purchaser agree-
ments," that bona fide prospective purchasers
will not be responsible for cleaning up sites
where they did not contribute to or worsen
contamination. Of the 45 agreements to date,
over 50 percent (23) have been reached since
the May 1995 guidance. In FY 1996, EPA
also issued several fact sheets as a follow-up
to its 1995 guidance summarizing its
intentions toward certain parties as a result of
their association with and activities at a site:
(1) "The Effect of Superfund on Involuntary
Acquisitions of Contaminated Property by
Government Entities" fact sheet; (2) "Policy
Toward Owners of Property Containing
Contaminated Aquifers" fact sheet; and (3)
"The Effect of Superfund on Lenders that
Hold Security Interests in Contaminated
Property" fact sheet. [NOTE: Legislation
passed as part of the Omnibus Appropriations
Bill for FY 1997 (the Asset Conservation,
Lender Liability and Deposit Insurance
Protection Act; H.R. 4278, Sections 2501 to
2505) contains statutory provisions which are
based on EPA's lender liability policy and
address the CERCLA liability of lenders,
fiduciaries, and government entities who
acquire property involuntarily.]
An Ombudsman in Every Region
This initiative was undertaken by a joint
Headquarters-Regional Workgroup. The goal
of the initiative was to place an Ombudsman
in each Region to serve as a point of con-
tact for the public and help resolve stake-
holder concerns. On June 4, 1996, EPA
Administrator Carol Browner announced that
all ten Regions had nominated an
Ombudsman by the prescribed date of
March 31,1996.
7\te Use of ADR
EPA continuesto use ADR mechanisms
in enforcement actions and to implement the
Administrative Dispute Resolution Act and
the Executive Order on Civil Justice Reform.
Significant strides were made in every aspect
of the ADR Program including case use of
ADR, case support systems, training,
provision of ADR services, and outreach to
the regulated community.
The use of ADR mechanisms to assist
resolution of enforcement negotiations was
initiated by regional offices in over 20 civil
actions. In addition, regional offices
-------
supported PRP allocation efforts by
encouraging and/or providing ADR services
at over 25 sites. Regional support for the use
of ADR grew substantially, with all regional
offices using or supporting PRP use of ADR
assisting settlement efforts. Awareness of
ADR as a tool for increasing the efficiency of
future disputes also increased, with mediation
included in the dispute resolution provisions
of several judicial and administrative
settlement documents.
SUPERFUND Obligations - FY 1996
Total Obligations - $1.5 Billion
Hazardous Substance
Response 73.2%
Hazardous Substance Response - 5 c
Interagency
Research &
1.2% Development
9.8% Management & Support
gg% Hazardous Substance Response -
Enforcement
EPA's FY 1996 Annual Financial Statements
Page 49
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OIL SPILLS
EPA's Oil Pollution Prevention Program
is administered by the Office of Solid Waste
and Emergency Response (OSWER) and uses
the Oil Spill Trust Fund to finance the cost of
cleaning up spills. OSWER's Office of
Emergency and Remedial Response (OERR)
provides assistance to Regional On-Scene
Coordinators during oil spill incidents and for
implementation of the oil pollution prevention
program. Support for enforcement activities
is provided by EPA's Office of Enforcement
and Compliance Assurance (OECA).
Program Description
The goal of the Oil Pollution Prevention
Program, which is authorized by the Clean
Water Act (CWA) and has been in effect for
over 20 years, is to protect public health,
welfare and the environment from hazards
associated with a discharge, or a threat of a
discharge, of oil or hazardous substances into
navigable waters through pollution pre-
vention, response, preparedness and effective
response actions. The program was
strengthened by the Oil Pollution Act of 1990
(OPA) which was passed in response to
increasing frequency and severity of acciden-
tal oil discharges into the environment, such
as the Exxon-Valdez spill.
Under the CWA and OPA, EPA is
responsible for oil spill prevention, prepared-
ness, response, and enforcement activities
associated with non-transportation-related
facilities. These facilities, which range from
hospitals and apartment complexes to large
tank farms, include any storage facility with
aboveground storage capacity greater than
1,320 gallons, a single aboveground storage
storage tank larger than 660 gallons, or
underground storage greater than 40,000
gallons.
The OPA requires area committees
(comprised of state, local and Federal
officials) to develop Area Contingency Plans
which: detail the responsibilities of those
involved in planning the response process;
describe unique geographical features of the
area covered; and identify available response
equipment. Certain high-risk facilities must
prepare facility response plans (FRPs) which
EPA must review and approve to: ensure
consistency with the National Contingency
Plan (NCP); identify and ensure the
availability of resources to respond to a worst
case discharge; establish communications;
identify an individual with authority to
implement removal actions; and describe
training and testing drills at the facility.
As described in the FY 1995 report,
current program prevention efforts focus on
periodic re-reviews of FRP facilities and
continued implementation of Spill Prevention
Control and Countermeasures (SPCC)
regulations. In FY 1996, EPA reviewed about
600 FRPs, and conducted about 2,300 SPCC
inspections.
EPA has established the regulatory
framework under which it will proceed with
its OPA-mandated responsibilities. This
framework includes the Oil and Hazardous
Substances National Contingency Plan (40
CFR Part 300) and the Oil Pollution
Prevention regulation (40 CFR Part 112). The
National Contingency Plan (NCP) is the
Nation's blueprint for responding to releases
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EPA's FY 1996 Annual Financial Statements
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of oil and hazardous substances. The Oil
Pollution Prevention program establishes
requirements to prevent and prepare to
respond to spills at oil storage facilities
subject to the regulation. Both the NCP and
FRP regulations were published in the Federal
Register in mid-summer, 1994.
Headquarters develops policy and
program guidance to: 1) prevent harmful
releases of oil and other petroleum products;
2) improve nationwide capability to respond
to threats of discharge of oil or other
petroleum products; 3) improve nationwide
capability for containment and removal of
releases that occur in navigable waters;
4) coordinate with other Federal agencies on
FPR requirements and review and approval;
5) minimize the resulting environmental
damage from releases; and 6) fully utilize
enforcement authority to compel responsible
parties to clean up spills and to provide a
strong economic incentive to invest in
preventive measures and comply with
regulations.
In addition, Headquarters supports field
operations through operational guidance,
technical bulletins, and demonstrations of new
technologies. Headquarters also supports the
OPA-mandated facility response plan process,
chiefly through the development of approval
criteria for the response plans.
The Regions conduct oil storage facility
inspections to ensure compliance with EPA's
oil pollution prevention regulation, also
known as the SPCC regulation. Each
regulated facility must have an SPCC plan
certified by a registered professional
Engineer. EPA inspects hundreds of these
facilities each year, including site visits and/or
plan reviews. A major component of the
Regions' work is the monitoring, directing, or
performance of removal actions during oil
spills. They also conduct periodic equipment
inspections and unannounced area drills. The
Regions take administrative actions against
facility operators for failure to comply with
SPCC plans and new OPA requirements, and
refer a limited number of actions for judicial
action. Administrative and judicial actions
also are brought as a result of oil and
hazardous substance spills. Regions also
assist the Federal Emergency Management
Agency at major disasters and participate in
response training of state and local staff.
The beneficiaries of the Oil Pollution
Prevention Program are those people living in
the vicinity of confirmed spills when cleanup
actions are taken either by EPA or the
responsible party. People living near
regulated facilities benefit from the increased
safety measures incorporated into the
facilities' response plans.
Financial Perspective
Since the beginning of the Oil Spill Trust
Fund's existence through FY 1996, Congress
has appropriated a total of $95.2 million to
the Agency. In FY 1996, EPA received a
budget authority of $15 million to implement
the Oil Pollution Prevention program. The
Agency obligated $16.5 million for oil spill
response activities in FY 1996 and processed
$22 million in net outlays.
Program Results
Since the FY 1993 CFO Report, the oil
program prevention measures report have
changed depending on the most accurate
EPA's FY 1996 Annual Financial Statements
Page 51
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reflection of activity in the program. In
FY 1995, the review and approvals of FRPs
were measured; that was the most accurate
reflection of activity and coincided with
statutory deadlines for those approvals.
Measure 1: FRP Reviews and SPCC
Inspections.
To ensure continued compliance with the
statute and consistency with the FRP
regulation, EPA will continue to review FRPs
on a periodic basis. This typically includes
review of written plans, evaluation of
response resources, communication with
facilities, and site visits, leading to an overall
evaluation of plan adequacy and facility
preparedness. To ensure compliance with the
prevention portions of the SPCC regulation,
EPA conducts inspections of SPCC-regulated
facilities each year. This typically includes
review of written SPCC Plans, interviews of
facility personnel, and inspection of facilities
and equipment on site.
Results; About 2,300facilities received
FRP approval in FY 1996, and a few
additional facilities were identified or
received approval since then. In FY 1996,
EPA conducted about 600 re-reviews of
facility response plans. EPA regulates about
440,000facilities under the SPCC regulation.
In FY 1996, EPA inspected about 2,300
SPCC-regulated facilities.
Measure 2: Oil Spill Cleanups and On-
Scene Monitoring of Potentially responsible
Party (PRP) Lead Cleanups.
This measure counts the number of oil
spills cleaned up by EPA using OPA funds
and the number of times EPA monitors a
PRP's cleanup actions. EPA monitors a
cleanup when a PRP responds to the spill to
ensure adequate cleanup takes place.
Results: 69 oil spills cleanups were
started in FY 1996 using OPA funds. EPA
monitored 130 responsible party oil spill
cleanups in FY 1996. Since program
inception through FY 1996, 226 oil spills have
been cleaned up using OPA funds. For that
same period, EPA monitored 1,167
responsible party cleanups.
Measure 3: Administrative Actions for
spill violations and prevention regulation
violations and Judicial Penalty Enforce-
ment Actions for spill violations and
prevention regulation violations.
This measure counts the number of
administrative and judicial enforcement
actions resulting from prohibited spills and
violations of the regulations of the CWA as
amended by OPA. These two actions reflect
a significant portion of the resources used in
the Oil Program and indicate significant
achievements in compliance. An adminis-
trative complaint is counted on the date it is
issued to the respondent. A judicial case is
counted on the date of the referral letter/cover
memo to the Department of Justice (DOJ).
Results: Thirty-eight administrative cases
were filed, and five judicial enforcement
actions were referred to the DOJ in FY 1996.
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EPA's FY 1996 Annual Financial Statements
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Research Program
Program Description
For the Agency's Oil Spill Prevention and
Response Program, the Office of Research
and Development conducts research on new
approaches to cleaning up oil spills. As a
member of the International Coordinating
Committee on Oil Spill Research, as
mandated by OP A, the Agency has primary
responsibility for research on the use of
bioremediation to remediate spilled oil, the
use of dispersants and other chemical agents,
mechanical cleanup on fast flowing streams,
and debris disposal. Bioremediation is the
primary focus. The goal of this research
program is to provide the Federal on-scene
coordinators with the technical information
they require to allow them to make decisions
on the best cleanup procedure to be used on
any given spill. Additionally, the information
produced is required by the OERR to
periodically revise the NCP and its annexes.
FY 1996 Highlights m4 Accomplishments
During FY 1996, Oil Spill Research
included: 1) laboratory method for affirming
that biodegradation is occurring in the field;
2) develop standardized seawater inoculum
for use in laboratory protocols; 3) evaluate
interactions between hydrocarbon degraders
and indigenous sediment bacteria; and 4) a
report on finding of effectiveness of bio-
remediation on sandy shorelines contaminated
with crude oil.
OIL SPILLS RESPONSE Obligations - FY 1996
Total Obligaations $16.5 Million
EPA's FY 1996 Annual Financial Statements
Page 53
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lust trust fund
The Leaking Underground Storage Tank
(LUST) Program was authorized by the
Resource Conservation and Recovery Act.
The Office of Solid Waste and Emergency
Response (OSWER) is responsible for
implementation of the LUST Program.
Program Description
The Resource Conservation and Recovery
Act was amended in 1984 to give EPA the
authority to regulate underground tanks
storing petroleum products. In 1986,
Congress set up a $500 million Leaking
Underground Storage Tank (LUST) Trust
Fund which was financed by a 1/10 of a cent
tax on the sale of motor fuels. The Trust Fund
was reauthorized for five years in 1990 with
no cap on funds collected. The tax expired in
December 1995 and has not been reinstated.
The Fund is, in large majority, used to enter
into cooperative agreements with states to
oversee cleanups by responsible parties or to
clean up LUSTs where the owner/operator
cannot or will not do so, or where no
owner/operator can be found.
State Assurance Funds have been
established in many states to assist owners
and operators in demonstrating financial
responsibility and to help pay owner and
operator costs for cleanup. State Fund
solvency is becoming a major LUST program
issue, as claims submitted by owners and
operators begin to exceed Fund revenues. The
LUST Trust Fund Cooperative Agreements
help pay for technical staff to perform reviews
of corrective actions. This step is necessary to
facilitate state fund reimbursement processes.
In 1988, it was estimated that the United
States had 5-7 million underground tanks
storing petroleum products. Approximately
2.1 million of these tanks were regulated by
EPA; the rest, that contain heating oil for on-
site consumption and Eire mainly on farms and
at other locations, are exempt by law.
Currently there are 1.1 million active
regulated underground storage tanks (USTs)
and 1.1 million tanks have been closed.
USTs are found at gas and service
stations, convenience stores and non-marketer
locations such as bus depots and government
facilities. An estimated 15-25 percent of
regulated tanks may have leaked since their
installation. Leaks from USTs can cause fires
or explosions, and states have indicated that
LUSTs are the leading source of ground water
contamination in the Nation and that
petroleum is the most common contaminant
(National Water Quality Inventory, Report to
Congress, December 1995).
Financial Perspective
Since 1986, the LUST Trust Fund,
through the Treasury Department, has
collected about $1.5 billion. This Fund is the
source of funding for EPA's LUST account.
Through annual and supplemental appro-
priations, Congress establishes the amount of
the Fund that EPA may use. Congress has
appropriated a total of $605.8 million to EPA
through the end of FY 1996. At the end of
FY 1996, the Trust Fund had a balance of
$1 billion. Congress could make these funds
available to EPA in future appropriations.
Page 54
EPA's FY 1996 Annual Financial Statements
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The LUST Program is primarily a state-
run program. Since the program's inception,
approximately 85 percent of EPA's appro-
priated funds have been distributed to the
states through cooperative agreements.
In FY 1996, EPA obligated $46.6 million
to implement the LUST program. OSWER
supported the LUST program with $43.9
million , while approximately $3.2 million
were provided to non-OSWER offices in
Headquarters and the Regions. Responsible
parties conducted 96 percent of the cleanups
with state oversight.
The purpose of this next section of the
Overview is to describe the results of the
Leaking Underground Storage Tank Program
Pilot under the Government Performance and
Results Act (GPRA) in FY 1996.
L FY 1996 LUST Performance Goals.
Indicators and Results
Background: In FY 1994, the U.S.
Environmental Protection Agency (EPA)
proposed the LUST program as a performance
pilot under GPRA. In FY 1996, the LUST
program continued its participation in the
GPRA performance pilot and submitted a
performance plan in accordance with OMB
Memorandum M-94-32.
The purpose of the LUST Trust Fund is to
ensure protection of human health and the
environment by paying for the oversight of
responsible party cleanups or for the cleanup
of petroleum releases from underground
storage tanks when the owner or operator is
unknown or cannot or will not conduct the
cleanup. The LUST program is administered
by the Office of Underground Storage Tanks
(OUST), within the Office of Solid Waste and
Emergency Response.
Performance Goal: The performance
goal for the LUST Program is to ensure that
underground storage tanks (UST) releases are
detected and cleaned up promptly and cost-
effectively to the extent necessary to protect
human health and the environment. The
LUST program goal changed to accommodate
the UST Program's new mission statement:
"Protect human health and environmental
quality by creating conditions under which
good management of UST systems is
common business practice. Good tank
management includes prevention, detection,
and timely, cost-effective cleanup of
releases." This mission statement and LUST
program goal are stated in the Underground
Storage Tank Program Strategy dated July 24,
1996.
Performance Indicators/Measures:
OUST used three performance measures to
evaluate progress in meeting its performance
goal. These performance measures are:
confirmed releases, cleanups initiated, and
cleanups completed. OUST has been tracking
all three measures since 1990.
Confirmed releases are the cumulative
number of incidents where the owner/
operator has identified a release from a
Subtitle I regulated petroleum under-
ground storage tank, reported the release
to the state/local or other designated
implementing agency, and the imple-
menting agency has verified the release.
The number of confirmed releases
represents the universe of petroleum
leaking underground storage tank sites
EPA's FY 1996 Annual Financial Statements
Page 55
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that require corrective action. This
measure does not count releases from
heating oil tanks or other tanks exempted
from the Federal underground storage
tank regulations.
Cleanups initiated are the cumulative
number of confirmed releases at which the
state or responsible party (under state
supervision) has initiated management of
petroleum contaminated soil, removal of
free product, management or treatment of
dissolved petroleum contamination or
monitoring of the groundwater or soil
being remediated by natural attenuation.
Cleanups can be conducted by the
responsible party or the state (with or
without LUST Trust Fund money).
Cleanups completed are the cumulative
number of confirmed releases where
cleanup has been initiated and where the
state has determined that no further
cleanup actions are necessary to protect
human health and the environment. Site
characterization, monitoring plans, and
site-specific goals must be established and
maintained for sites being remediated by
natural attenuation to be counted in this
category. Cleanups can be conducted by
the responsible party or the state (with or
without LUST Trust Fund money).
Performance Targets and Results: For
FY 1996, OUST projected that the rate of
cleanups initiated would be 70% of the
cumulative number of confirmed releases. In
FY 1996, the rate of cleanups initiated was
80% of the cumulative number of confirmed
releases, which exceeds the original target.
For FY 1996, OUST set a target of
approximately 17,000 cleanups to be com-
pleted. In FY 1996, 21,411 cleanups were
completed, which exceeds the original target.
Background on Measures and Results:
The LUST program has initiated corrective
actions that are protecting hundreds of
thousands of people from the effects of
leaking petroleum storage tanks. As
described previously, the FY 1996 perfor-
mance measures count the number of sites
with confirmed releases of petroleum
products, the number of these where cleanup
has been initiated and the number where it has
been completed.
During FY 1996, 13,853 additional
releases were confirmed from leaking
USTs resulting in a cumulative total of
317,488 confirmed releases since the
beginning of the program.
In FY 1996, the program initiated cleanup
of 13,944 sites, resulting in a cumulative
total of 252,615 cleanups initiated since
the beginning of the program.
During FY 1996, 21,411 cleanups were
completed. The cumulative number of
cleanups completed is 152,683 out of a
universe 317,488 cumulative confirmed
releases.
77. Success in and Impediments to Achieving
Performance Goals
The UST Program exceeded its target of
70% for the rate of cleanups initiated and its
target of 17,000 cleanups completed. This
-------
can be attributed to OUST's assistance to
states in incorporating risk-based decision
making into their corrective action processes
despite LUST Trust Fund reductions in
FY 1996.
It should be noted that the rate of newly
confirmed releases and cleanups initiated has
been decreasing since 1993 (see chart on tank
history). The core reasons for these declines
are twofold. First, even though the rate of
newly confirmed releases has declined in the
past three years, the total number of
confirmed releases still continues to out pace
the number of cleanups completed. This
means that states are faced with an ever
increasing workload and have less time to
devote to any one particular case. Second,
many of the remaining cleanups are more
complicated (i.e., groundwater contamination
or complex hydrogeological conditions) and
therefore will take longer to complete.
OUST believes that the number of
cleanups completed exceeded the FY 1996
GPRA target because more States are
beginning to use a risk-based approach to
making corrective action decisions. The use
of risk-based corrective action enables states
to assess their workload and close some of
their low risk sites more efficiently. The
number of confirmed releases has steadily
been declining since the beginning of the
program and thus percentages of cleanups
initiated have not declined as originally
anticipated. At the onset of the program,
many historical releases were being
discovered as tank owners and operators
conducted maintenance, began leak detection
or performed work related to the regulatory
requirements at their sites. Fewer new
releases are occurring because newer tanks,
which are less likely to leak, comply with the
new tanks standards set by the regulatory
program.
However, it is expected that the number of
confirmed releases will begin to increase
again as owners and operators begin to
upgrade, replace, or close their tanks in
compliance with the 1998 deadline. This will
be due to the discovery of existing
contamination as work is performed on tank
systems to bring them into compliance with
equipment requirements associated with the
1998 deadline.
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ILL Verification and Validation of
Performance Results
The Office of Underground Storage Tanks
(OUST) uses the following processes to verify
and validate the performance measures data.
EPA's FY 1996 Annual Financial Statements
Page 57
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In FY 1996, designated state agencies
submitted semi-annual progress reports to
the EPA regional offices, who review,
verify and then forward the data to the
OUST Headquarters office. OUST
Headquarters staff examine the data and
resolve any discrepancies with the
regional offices. The data are displayed
on a region by region basis, which allows
regional staff to verify that their data are
the same as Headquarters'.
The performance results are also used in
OUST's Regional Strategic Overview
(RSO) Process to assess the status of state
progress in implementing the program.
This process is based on strategic
discussions that Headquarters has with the
Regions and the Regions have with the
states, regarding how to continue to
improve states' performance. In the mid-
year and end of year state evaluations, the
Regions discuss with states their efforts
to update and validate their data, and to
make continual improvements in their
performance. OUST has asked the
Regions to increase their emphasis on
verifying the data that states report.
IV. FY 1997 Performance Plan Relative to
FY 1996 Performance
For FY 1997, OUST anticipates
approximately 20,000 more confirmed
releases will occur. Until a final FY 1997
appropriation from the LUST Trust Fund is
available, planned targets for the rate of
cleanups initiated and completed will not be
available.
Historically, as funding has decreased, so
have the number of cleanups initiated and
completed. The Tank History chart shows a
comparison of LUST Trust Fund Cooperative
Agreement funding to cleanups initiated and
completed. Over time, as LUST Trust Fund
support increases, cleanups initiated and
completed increase. However, when funding
remains static (as it has between 1992 and
1994) states are faced with an ever increasing
backlog of cleanups to complete, since the
cumulative number of confirmed releases
continues to exceed states' ability to complete
cleanups.
In FY 1996, LUST Trust Funds decreased
and states completed less cleanups than in
FY 1995, although more than expected.
OUST attributes this in part to the imple-
mentation of risk-based corrective action
which enabled states to identify and move
cleanup at low risk sites to completion more
efficiently. Despite the increase in cleanups
completed in FY 1996, OUST continues to
believe that there will be a trend of decreasing
numbers of cleanups initiated and completed,
as a result of a decrease in funding and
because of the 1998 deadline for upgrading,
replacing, or closing tanks which will increase
the number of confirmed releases states must
address.
V. Use of Managerial Flexibility Waiver in
Achieve Performance Goal
OUST has considered the possibility of
using a managerial flexibility waiver from
reporting requirements (e.g. to the Treasury
Department or the Office of Management and
Budget) in order to achieve greater program
results. However, at this time OUST does not
have a need to seek this type of waiver.
Page 58
EPA's FY 1996 Annual Financial Statements
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VT. Summary Findings of Program
Evaluations Completed During FY 1996
No formal LUST Trust Fund Program
evaluations were conducted by Headquarters
during FY 1996 as part of this pilot.
However, OUST reevaluated its RSO process
to be consistent with changes in OUST's and
the Agency's vision. The RSO is the process
whereby the regions outline status of program
implementation in their states and propose
and discuss projects with OUST that directly
develop and improve state and local pro-
grams. During the process, the Regions
discussed geographical initiatives in the area
of compliance and enforcement.
In addition, on August 6, 1996, the
Inspector General issued its "Consolidated
Report on EPA's Leaking Underground Stor-
age Tank Program". OSWER has responded
to the audit report, proposing actions to the
report's recommendations. The Inspector
General will continue state program audits in
FY 1997.
VII. Summary of Accomplishments for
Resources Expended
Accomplishments for LUST Trust Fund
resources expended fall into two categories:
first, the amount of outputs (i.e., cleanups
initiated and completed) for the amount of
funding spent and second, how LUST Trust
Fund money is effectively used to leverage
the clean up of sites. As mentioned in Section
III of this report, the relationship between the
amount of LUST Trust Fund Cooperative
Agreement funding and cleanups initiated and
completed is illustrated in the Tank History
chart which suggests a correlation between
the amount of LUST Trust Cooperative
Agreement funding and cleanups initiated and
completed; when Cooperative Agreement
funding decreases, so do cleanups initiated
and completed. When funding remains about
the same, (approximately $65 million from
FY 1992 through FY 1994), states cannot
make progress on the number of cleanups they
complete because the cumulative number of
confirmed releases continues to grow. OUST
was able to exceed its targets for cleanups
initiated and completed in FY 1996 due to the
implementation of risk-based decision making
as a tool for advancing remediation.
The majority of cleanups (96 percent) are
conducted by responsible parties with state
oversight. State oversight costs range from
$1,500 to $3,000 per site. EPA is saving
significant resources by requiring responsible
party cleanups because state lead cleanups
range from $10,000 to over $1 million
depending on the severity of the site.
Research Program
Program Description
Research to support the LUST Program is
authorized under Subtitle I of the Hazardous
and Solid Waste Amendments of 1984, as
amended by the Superfiind Amendments and
Reauthorization Act of 1996. The Office of
Research and Development conducts research
on new approaches for leak detection and
remediation at LUST sites. This includes
identifying information needed on the sub-
surface environment, released petroleum
products therein, and how the information
can be used to select appropriate corrective
action technologies. Technical support is
provided to the Office of Underground
EPA's FY 1996 Annual Financial Statements
Page 59
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Storage Tanks, Regions, state and local
agencies, and practicing professionals imple-
menting the LUST program. This effort
includes providing scientific expertise on low-
cost approaches for the assessment of site
contamination and evaluation of remedial
technologies.
FY 1996 Highlights and Accomplishments
During FY 1996, LUST research
included: 1) report on lab studies of
applicability of chemical oxidation to
treatment of MTBE, n-:hexadecane, 2-
methylnapthalene and diesel fuel; 2) report of
state of the art of coupling chemical oxida-
tion with electro-osmosis for use in low-
permeability soils; 3) report on lab studies of
photothermal treatment of BTEX vapors; and
4) technical resource document on screening
thermal desorption of LUST sites.
TANK HISTORY
Year
Confirmed Releases
Cleanups
Initiated
Cleanups Completed
Annual
Cumulative
Annual
Cumulative
Annual
Cumulative
FY 1990
71,087
87,528
35,620
51,770
11,208
16,905
FY 1991
39,667
127,195
27,736
79,506
9,761
26,666
FY 1992
57,262
184,457
49,568
129,074
28,778
55,444
FY 1993
52,565
237,022
42,008
171,082
31,621
87,065
FY 1994
33,545
270,567
38,715
209,797
20,383
107,448
FY 1995
33,068
303,635
28,874
238,671
23,824
131,272
FY 1996
13,853
317,488
13,944
252,615
21,411
152,683
Page 60
EPA's FY 1996 Annual Financial Statements
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LUST Obligations-FY 1996
Total Obligations - $46.7 Million
Guidelines £
Implementation
92.5%
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1.3%
\
0.5%
"*5.7%
Research £
Development
Legal Enforcement
Management A Support
EPA's FY 1996 Annual Financial Statements
Page 61
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PESTICIDES
The Agency's Pesticides Program was
established pursuant to the Federal
Insecticide, Fungicide and Rodenticide Act
(FIFRA) to protect public health and the
environment. The law requires the Agency to
balance public health and environmental
concerns with the expected economic benefits
derived from pesticides. The guiding
principles of the Pesticides Program are to
reduce risks from pesticides in food, the
workplace, and other exposure pathways and
to prevent pollution by encouraging the use of
new and safer pesticides.
In accordance with FIFRA and the Federal
Food, Drug and Cosmetic Act, the Pesticides
Program administers the Revolving Fund for
Certification and Other Services (Tolerance
Fund); and the Pesticides Reregistration and
Expedited Processing Fund (FIFRA Fund).
Certification and Other Services
(TOLERANCE FUND)
Program Description
As part of its authority to regulate
pesticides, EPA is responsible for setting
"tolerances". If the pesticide is being
considered for use on a food or feed crop or as
a food or feed additive, the applicant must
petition EPA for establishment of a tolerance
(or exemption from a tolerance) under
authority of the Federal Food, Drug and
Cosmetic Act (FFDCA). A tolerance is the
maximum legal limit of a pesticide residue on
food commodities and animal feed.
Tolerances are set at levels that ensure that the
public is protected from unreasonable health
risks posed by eating foods that have been
treated with pesticides in accordance with
label directions. The tolerance program is a
major part of the Agency's Food Safety goals.
In 1954, Congress authorized the
collection of fees for the establishment of
tolerances for raw agricultural commodities
(Section 408 of FFDCA). Congress, however,
did not authorize the collection of fees for
food additive tolerances (Section 409 of
FFDCA). EPA, therefore, does not collect
fees for food additive tolerances. The Agency
also does not collect fees for Agency-initiated
actions such as the revocation of tolerances
for previously canceled pesticides. Fees
collected for tolerances for raw agricultural
commodities were deposited to the U.S.
Treasury General Fund until 1963 when
Congress established the Tolerance Fund.
Specific fees are contained in 40 CFR 180.33
and range from $3,500 to $61,950, depending
on the type of tolerance action requested.
Waivers and/or refunds are granted for minor
use pesticides submitted under the Inter-
Regional Research Project Number 4 (IR-4
Program), public interest, such as reduced-risk
pesticides, and economic hardship. The fee
schedule is changed annually by the same
percentage as the percent change in the
Federal General Schedule (GS) pay scale.
Fees were increased 2.54 percent in 1996.
In 1996, the Agency supported pesticide
reform legislation which included provisions
for additional fees to support reregistration
activities. Passage of the Food Quality
Protection Act (FQPA) of 1996 requires
tolerances to be reassessed as part of the
reregistration program. Effective January,
1997, all fees related to tolerance activities
Page 62
EPA's FY 1996 Annual Financial Statements
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will be deposited in the Reregistration and
Expedited Processing Fund (FIFRA Fund).
Program Results
Tolerance fees collected in FY 1996 were
approximately $2.3 million and obligations
were $1.4 million.
Measure 1: Number of permanent
tolerance petitions completed.
Results: The number of permanent
tolerance petitions completed in FY 1996for
Section 408 raw agricultural commodities
and Section 409 food additives was 106
compared to a target of 65. This represents
final determinations by the Agency
concerning permanent tolerance petition
requests for allowable levels of pesticide
residues on raw agricultural commodities and
in processed foods. This is a decrease of 10
completions compared to the 116 in FY 1995.
The number of permanent tolerance petition
reviews ("cycles") completed was 336
compared to a target of330. The number of
actions pending at the beginning of FY 1996
was 183 compared to 172 at the end of
FY 1996.
Pesticides Reregistration and
Expedited Processing Fund (FIFRA
FUND)
Program Description
As part of its authority to regulate
pesticides, EPA is responsible for re-
registering existing pesticides. The FIFRA
legislation, requiring the registration of
pesticide products, was originally passed in
1947. Since then, health and environmental
standards have become more stringent and
scientific analysis techniques are much more
precise and sophisticated. In the 1988
amendments to FIFRA (FIFRA '88), Congress
mandated the accelerated reregistration of all
products registered prior to November 1,
1984. The amendments established a
statutory goal of completing reregistration
eligibility decisions by 1997. The legislation
allows for various time extensions which can
extend the deadline by three years or more.
Congress authorized the collection of two
kinds of fees until 1997 to supplement
appropriated funds for the program - an
annual maintenance fee and a one-time
reregistration fee. Maintenance fees are
assessed on registrants of pesticide products
and are structured to collect approximately
$14 million per year. Reregistration fees are
assessed on the manufacturers of the active
ingredients in pesticide products and are
based on the manufacturer's share of the
market for the active ingredient. In fiscal
years 1992, 1993, 1994, 1995, and 1996,
approximately 14 percent of maintenance fees
collected, up to $2 million each year, were
used for the expedited processing of old
chemical and amended registration appli-
cations. Fees are deposited to the FIFRA
Revolving Fund. By statute, excess monies in
the FIFRA Fund may be invested. Waivers
and/or refunds are granted for minor use
pesticides, antimicrobial pesticides, and small
businesses.
In 1996, the Agency supported pesticide
reform legislation which included provisions
for additional fees to support reregistration
activities. Passage of the FQPA of 1996
implements the following changes in the
EPA's FY 1996 Annual Financial Statements
Page 63
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Pesticide Reregistration Program: reauthorizes
collection of fees through 2001 to complete
the review of older pesticides to ensure they
meet current standards (increases annual fees
from $14 million to $16 million per year for
1998, 1999, and 2000 only); requires toler-
ances to be reassessed as part of the re-
registration program. Tolerance fees received
will be included and reported in the FIFRA
Fund.
The reregistration process is being
conducted through reviews of groupings of
similar active ingredients called cases. There
are five (5) major phases of reregistration:
Phase 1 - Listing of Active Ingredients.
EPA publishes lists of active ingredients
and asks registrants whether they intend
to seek reregistration. Completed in
FY 1989.
Phase 2 - Declaration of Intent and
Identification of Studies. Registrants
notify EPA if they intend to reregister and
identify missing studies. Completed in
FY 1990.
Phase 3 - Summarization of Studies.
Registrants submit required existing
studies. Completed in FY 1991.
Phase 4 - EPA Review and Data Call-Ins.
(DCIs). EPA reviews the studies,
identifies and "calls-in" missing studies
by issuing a DCI. A "DCI" is a request to
a pesticide registrant for scientific data to
assist the Agency in determining the
pesticide's eligibility for reregistration.
Completed in FY 1994.
Phase 5 - Reregistration Decisions. EPA
reviews all studies and issues a
Reregistration Eligibility Decision (RED)
for the active ingredient(s). A "RED" is a
decision by the Agency whether uses of a
pesticide active ingredient are eligible or
ineligible for reregistration. The regis-
trant complies with the RED by sub-
mitting product specific data and new
labels. EPA reregisters or cancels the
product. Pesticide products are re-
registered, based on a RED, when it meets
all label requirements. This normally
takes 14 to 20 months after issuance of the
RED.
Financial Perspective
During FY 1996, the Agency's obligations
charged against the FIFRA Fund for the cost
of the reregistration and expedited processing
programs were $15.8 million and 194
workyears. Of these amounts, the Office of
Pesticide Programs obligated $14.2 million of
this cost and funded the 194 workyears.
Appropriated funds are used in addition to
FIFRA revolving funds. In FY 1996,
approximately $16.5 million in appropriated
funds were obligated for reregistration and
expedited processing program activities. The
unobligated balance in the Fund at the end of
FY 1996 was $10.6 million. This is a
decrease of $.4 million compared to the
FY 1995 year-end balance of $11 million.
The Fund has two types of receipts: fee
collections and interest earned on invest-
ments. Of the $14.7 million in FY 1996
receipts, approximately 96 percent were fee
collections. The fee collections decreased by
$.3 million in FY 1996 compared to FY 1995.
Page 64
EPA's FY 1996 Annual Financial Statements
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Program Results
The following measures support the
program's strategic goals of Food Safety and
Safer Pesticides as contained in the Pesticide
Program Strategy, 1994-1997.
Measure 1: Number of Reregistration
Eligibility Documents (REDs) completed.
Results: The number of Reregistration
Eligibility Decisions (REDs) completed was
27', a decrease of 13 from FY 1995 when 40
were completed. This decrease is due to the
government furlough and the passing of the
Food Quality Protection Act. There are
approximately 3822 active ingredient cases, of
which 148 REDs have been completed.
contain more than one active ingredient.
Since products are reassessed separately
for each active ingredient, EPA will
conduct approximately 38,000 product
reviews.
Results: In FY 1996, 159 products were
reregistered3, 24 were amended and 284 were
canceled. The combined 467 decisions were
achieved versus a target of 300. The 4674
decisions is an increase over the 405 in
FY 1995. In addition, 158 products were
forwarded to the EPA Office of Compliance
Monitoring for suspension. The cumulative
totals at the end of FY 1996 were 1,459
products canceled5, 44 products amended,
and 906 products reregistered.
Measure 2: Number of products
reregistered, canceled, or amended.
Approximately 19,000 products are subject
to reregistration. Many products, however,
'Product reregistrations include
federally registered products and
special local needs registrations
issued by states pursuant to Section
24(c) of FIFRA.
'Of the total 27 RED decisions made,
one decision was a suspension notice and
three decisions were due to voluntary
cancellations of the active ingredient by
the registrant.
2The total number of active
ingredient cases to date is 382. The
decrease of 23 cases from last year's
total of 405 reflects additional
unsupported and canceled cases.
4153 of these decisions were
product cancellations that occurred in
prior fiscal years, but were unreported
until FY 1996 due to a software
problem.
5OPP will disclose in FY 1996
Overview to the Financial Statements
that a product cancellation is reported
as a product reregistration decision
when a voluntary cancellation request
is received, when the annual
maintenance fee is not paid or when a
notice of intent to cancel due to
unreasonable adverse effects is issued.
In the case of a voluntary cancellation
request, the process of finalizing the
cancellation required by Section 6(f)
of FIFRA may take about six months
after receipt of the request to
complete.
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PESTICIDES Obligations - FY 1996
Total Obligations - $90.2 Mllion
Generic Chemical 39.4%
& tolerances Implementation
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WATER INFRASTRUCTURE FINANCING
The Clean Water State Revolving Fund
(CWSRF) Program provides financial
assistance to states, localities, and Indian
tribes to protect the Nation's water resources
by meeting the requirements under Title II
and Title VI of the Federal Water Pollution
Control Act (FWPCA), commonly known as
the Clean Water Act (CWA). With the
passage of the Safe Drinking Water
Amendments of 1996, the Drinking Water
State Revolving Fund (DWSRF) has been
authorized at $9.6 billion. While this fund is
still in the process of coming on line, it is
designed to provide Federal financial
assistance to the states, localities, and Indian
tribes to protect the Nation's drinking water
resources. The DWSRF will provide capital-
ization grants to state and tribal governments
to fund low-interest loans for local drinking
water systems needing to install or improve
drinking water treatment facilities and for
source water protection, operator certification,
and other priority activities.
Proeram Description
The Water Infrastructure Financing media
is comprised of: the CWSRF; DWSRF; the
U.S./Mexican Border Integrated Border
Environmental Plan; grants for communities
facing extraordinarily high needs and user
charges; and wastewater infrastructure needs
of Alaskan Native Villages. The State
Revolving Funds (SRFs) Program provides
Federal financial assistance to states,
localities, and Indian tribes to protect the
Nations water resources by providing funds
for the construction of wastewater treatment
facilities and financing the facilities needed
to keep harmful contaminants from our
drinking water. The SRFs are two of the
Agency's premier tools for building the
financial capacity of our partners.
The Special Needs Program provides
focused grant assistance to areas facing
extraordinarily high needs in relation to
household income, while the U.S./Mexican
Border Program provides funds to support the
planning, design and construction of high
priority wastewater treatment projects along
the U.S./Mexican Border and in the U.S.
Colonias. The goal of this Program is to
reduce the incidence of waterborne diseases
along the Mexican border and in the U.S.
Colonias.
FY 1996 Highlights and Accomplishments
Through 1996, EPA has invested more
than $12 billion to capitalize the 51 CWSRFs.
Under the Program, EPA provides grants or
"seed money" to all 50 states plus Puerto Rico
to capitalize state loan funds. The states, in
turn, make loans to communities, individuals,
and others for high-priority water quality
activities. As money is paid back into the
revolving fund, new loans are made to other
recipients that need help in maintaining the
quality of their water. States have contributed
the required 20% match and, in some cases,
leveraged their funds in the bond market to
increase the total amount available for loans.
Currently, the Program has over $20 billion
in assets. As of June 30,1995, states reported
they had issued 3,372 loans worth $14.6
billion for wastewater, storm water, combined
sewer overflow, and nonpoint source projects.
EPA estimates that these loans have helped to
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improve wastewater treatment and protect
water quality for approximately 50 million
Americans.
EPA estimates that states have issued
approximately 140 loans to communities with
populations of more than 100,000. These
loans have served approximately 37 million
people. In addition, EPA estimates that states
have issued approximately 3,230 loans to
medium and small communities, which have
served approximately 13 million people. The
Program allows Federal, state, and local
agencies to leverage limited dollars. Because
of the funds' revolving nature, the Federal
investment can result in the construction of up
to four times as many projects over a 20-year
period as a one-time grant.
A major benefit for municipalities and
other loan recipients is the substantial
financial savings they can realize. When
funded by a loan from this Program, a project
typically costs much less than it would if
funded through the bond market. Many states
offer low-interest loans to small and
disadvantaged communities, providing an
additional boost to get projects started. For
example, a state can make a zero-percent loan
to a community for 20 years, saving the
community 50 percent of the total project
costs over a similar loan at 7.5 percent. The
SRF Program's primary mission is to promote
water quality. Aside from the financial
savings, loan recipients can realize significant
environmental benefits, including protection
of public health and conservation of local
watersheds. Loans for such infrastructure
projects also tend to stimulate local
economies by encouraging commercial
development and construction.
The Administration's goal is to continue
to capitalize the CWSRF so that it will be able
to provide approximately $2 billion annually
in assistance to communities to help fund
critical water quality infrastructure projects.
Because of the revolving nature of the
CWSRF Program, every dollar invested will
result in four dollar's worth of environmental
protection over the next twenty years. If
capitalized as planned, the CWSRF should be
available to fund a significant portion of the
nation's water quality infrastructure needs.
The Agency initiated the Drinking Water
Needs Survey effort in 1993 to better quantify
the total picture of drinking water
infrastructure needs across the U.S. The
survey focuses on the needs and costs
associated with developing new drinking
water sources and storage, treatment,
transmission and distribution facilities. Data
collected from over 4,000 water systems has
been quality controlled and used in the
development of the draft report. With the
authorization of the DWSRF in the 1996
Amendments, the Agency has undertaken the
development of initial, interim guidance for
the administration of this loan Program, as
well as started reviewing options for the
allocation of funds. The final allocation
formula will be developed with input from the
States and the results of the Drinking Water
Needs Survey.
Special Infrastructure projects were
appropriated $306.5 million in 1996,
including $141.5 million for Special
Infrastructure Needs Cities, $15 million for
Rural and Alaskan Native Villages, $50
million for Colonias, and $100 million for the
Mexico Border. The Agency has developed
and issued guidance on how to award
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grants for the 22 special projects authorized
by the Omnibus Consolidated Rescissions and
Appropriations Act of 1996, and awarded
grants for 21 of the projects by the end of the
fiscal year.
To support wastewater infrastructure
development on Indian Lands and in Alaskan
Rural and Native Villages, the Agency
initiated a $10 million program of assistance
for Tribal water and wastewater projects along
the Mexican border and successfully
negotiated with the Indian Health Services
(IHS) to provide field level support for the
projects.
During the Continuing Resolutions of
1996, EPA worked with Region VI to award
more than $30 million to the State of
Texas for the colonias. The Agency also
initiated a project to demonstrate alternative
wastewater treatment technology in colonias
communities.
Future Trends
To further the Agency's strategic goal of
providing an economical source of capital for
the states to address their environmental
problems, EPA proposes continued capital-
ization of the CWSRF through the year 2004
at a level that will enable states to finance
$2 billion in loan activity for several more
decades. This level of funding will help
ensure that a long-term , low-cost source of
financing will be available to meet the
$137 billion in wastewater infrastructure
needs that have been documented throughout
the United States.
EPA will continue to encourage states
to expand the availability of CWSRF
capitalization grants for more water quality
infrastructure projects. EPA will also
continue to encourage states to provide loans
to small and disadvantaged communities
which have difficulty constructing complex
infrastructure projects or participating in the
financial markets. One of EPA's efforts to
assist small communities such as tribes is the
Indian Set-Aside Program funded through the
CWSRF, which helps address the serious
health problems some tribes face due to the
lack of basic sewage treatment. EPA will
work with the Council of State Community
Development Agencies and other Federal
agencies to facilitate the use of the CWSRF
by small communities.
Serious public health problems due to
water contamination and communicable
waterborne diseases are prevalent along the
U.S./Mexican Border, as untreated domestic
and industrial wastes flow into the rivers
contaminating both sides of the Border. EPA
will continue to support the U.S./Mexico
Border Plan and NAFTA through wastewater
treatment projects along the U.S./Mexican
Border. In cooperation with the NAFTA
Border Environment Cooperation Com-
mission (BECC), EPA will help set priorities
for funding wastewater infrastructure projects
along the Border. In addition, EPA will
provide grants to the State of Texas to help
finance wastewater projects in U.S. colonias
communities. EPA will also provide Federal
grants to the State of Alaska, subject to an
appropriate cost share as determined by the
Administrator, for necessary wastewater
infrastructure projects in Native Alaskan
villages.
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WATER INFRASTRUCTURE Obligations - FY 1996
Total Obligations -$1.8 Billion
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MESSAGE FROM THE CHIEF
FINANCIAL OFFICER
As the Chief Financial Officer (CFO) of the U.S. Environmental Protection Agency (EPA),
I am proud to present the Fiscal Year 1996 Annual Financial Statements. These statements
provide Agency managers with a tool for assessing the financial condition of EPA's operating
programs. The Agency's financial statements are submitted in accordance with requirements
of the Chief Financial Officers Act of 1990 (CFO Act), the Government Management Reform
Act of 1994 (GMRA), and Office of Management and Budget guidance. The CFO Act was
authorized to bring about improvements in government agency accounting systems, financial
management activities and internal controls. The CFO Act requires EPA to prepare annual
financial statements for its Trust Funds, Revolving Funds, and Commercial Activities. With
the enactment of the GMRA, EPA is responsible for preparing annual financial statements for
all of its operating programs beginning in 1996.
The fiscal year 1996 financial statements present the financial position of the Agency's
operating programs. The principal schedules are organized into three components ~
Superfund; State and Tribal Assistance Grants; and all other Agency funds. The financial
statements, including the Overview, along with the accompanying audit report from EPA's
Inspector General provide useful information about the Agency programs and accounting
systems and help us identify areas where improved information systems, management controls,
and accountability are needed.
During the past year, EPA continued to resolve several major problem areas identified in
previous audit reports. Many of these improvements included strengthening our internal
control systems in accounting for real and personal property, expense allocation, and grants
funded with more than one appropriation. These improvements have been noted in the
Inspector General's audit report. The accompanying CFO Analysis provides the highlights of
the issues raised by the Inspector General's audit and the Agency's plans to resolve these issues
in order to secure unqualified opinions on future year's financial statements.
Over the years, EPA has made significant progress in its financial systems and processes.
However, the Agency continues to focus on enhancing initiatives already in place and initiating
new ones to maximize the efficiency of its financial systems. For fiscal year 1997, the Agency
will focus on:
implementing the new Planning, Budgeting Analysis and Accountability System and
Organization,
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creating a Program and Cost Accounting Branch in the Office of the CFO to assist program
offices in developing managerial cost accounting procedures,
strengthening accountability for all Agency officials with financial management
responsibilities,
initiating a comprehensive working capital fund for administrative services that bills costs
for services directly to the program supported,
expanding the use of electronic commerce and electronic data interchange to simplify and
accelerate the contract and procurement payment process from review and approval to
establishing an electronic time and attendance management process by implementing an
approach that is cost effective, meets National Performance Review guidelines, and reduces
current administrative burdens, and
continuing to implement enhancements for the Federal Agencies Centralized Tracking
System (FACTS) for preparing pre-closing adjusted trial balances and notes.
These actions are just a few of the many activities that comprise the Agency's overall
strategy for strengthening financial management functions at EPA. As the Agency's CFO, I
personally accept responsibility for ensuring that these plans are executed; and as always, I
challenge managers throughout the Agency to meet the highest possible standards of efficiency
and effectiveness.
The preparation of these financial statements represents a partnership between my office
and the Agency's program offices. I want to acknowledge the hard work and commitment of
all the employees throughout the Agency who contributed to this effort.
payment,
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EPA's FY 1996 Annual Financial Statements
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CFO
ANALYSIS
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Chief Financial Officer's Analysis of the
FY 1996 Audited Financial Statements
INTRODUCTION
Under the Chief Financial Officers Act of 1990 (CFOs Act), as amended by the Government
Management Reform Act, EPA was required to prepare Agency-wide financial statements for
FY 1996. We aggregated the Agency's appropriations into the following four reporting entities:
Hazardous Substances Superfund Trust Fund (Superfund);
State and Tribal Assistance Grants (STAG);
All Other Appropriations (All Other); and
Consolidated.
Structure of CFO's Analysis
This analysis is organized into the following sections:
Highlights of significant program information;
Summary of auditor's reports, including plans and timeframes for correcting problems;
Impediments to correcting problems; and
Progress in correcting previously identified problems.
HIGHLIGHTS OF EPA'S SIGNIFICANT PROGRAM INFORMATION
In FY 1996, EPA continued to guide the Nation's efforts to protect and preserve the public
health and vitality of natural ecosystems. Among the many events of 1996, Congress passed the
Safe Drinking Water Act (SDWA) Amendments and the Food Quality Protection Act. Meanwhile,
EPA worked to strengthen partnerships with states, tribes, communities and industries with the
National Environmental Performance Partnership System and the Design for Environment
Program.
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In FY 1996, Congress provided EPA with an enacted level of $6.5 billion and 17,416
workyears. The Agency's accomplishments are reported in the Overview. Some of the significant
highlights include the following:
To reduce emissions of hazardous air pollutants, EPA developed technology-based standards
known as Maximum Achievable Control Technology (MACT) standards for 189 hazardous
air pollutants from 174 industries. EPA has completed all of the MACT standards required to
be completed two and four years after the Clean Air Act Amendments. In addition, based on
research of criteria air pollutants, EPA proposed National Ambient Air Quality Standards for
ozone and particulate matter.
With the passage of the Safe Drinking Water Act Amendments of 1996, the Drinking Water
State Revolving Fund has been authorized at $9.6 billion. This Fund, which is still in the
process of coming on line, is designed to provide Federal financial assistance to the states,
localities, and Indian tribes to protect the Nation's drinking water resources.
For the Superfund Program, the Agency obligated $1.5 billion in FY 1996. At the end of
FY 1996, the Trust Fund reflected an unappropriated balance of $3.1 billion. During FY 1996,
cleanup construction was completed at 62 non-Federal facility sites, bringing the total of
construction completions to 400 out of 1,223 non-Federal sites on the NPL.
The Superfund Enforcement Program continues seeking settlement with those parties
potentially responsible (PRPs) for contaminating Superfund sites and pursuing recovery of
expended Trust Fund dollars. Since the inception of the Superfund Program, PRPs have
committed to conduct site response at 837 sites (68 percent) of the 1,223 non-Federal facility
sites on the NPL, with an estimated cumulative value of $10.4 billion. In FY 1996, PRPs
committed to conduct response work at 80 (over 6 percent) of the 1,223 NPL sites, with an
estimated value of approximately $810 million. On the cost recovery front, EPA has achieved
settlement for approximately $2.1 billion with over $451.6 million of this amount achieved in
FY 1996. Actual collections in FY 1996 exceeded $252 million.
EPA obligated $46.6 million in FY 1996 to implement the LUST Program. At the end of
FY 1996, the Trust Fund had a balance of $ 1 billion. The LUST Program is primarily a state-
run program. Since the inception of the program, approximately 85 percent of EPA's
appropriated funds have been distributed to the states through cooperative agreements.
During FY 1996, the Agency obligated $15.8 million against the FIFRA Revolving Fund for
Pesticides Reregistration and Expedited Processing programs and obligated another
$16.5 million from appropriated funds. At the end of FY 1996, the unobligated balance in the
FIFRA Fund was $10.6 million.
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In 1996, the Agency supported pesticide reform legislation which included provisions for
additional fees to support reregistration activities. Passage of the Food Quality Protection Act
of 1996 resulted in the following changes in the Pesticide Reregistration Program:
reauthorized collection of fees through year 2001 to complete the review of older pesticides
to ensure they meet current standards; and required tolerances to be reassessed as part of the
reregistration program. Tolerance fees received will be deposited to and reported in the FIFRA
Fund.
Through 1996, EPA has invested more than $12 billion to capitalize state loan funds for high-
priority water quality activities.
The Agency implemented multi-pronged efforts to encourage and facilitate the use of a
watershed approach nationwide. These efforts included (1) initiating a Watershed Academy
to provide training, (2) co-sponsoring a national conference (Watershed '96) for sharing
information on place-based environmental protection techniques and issues, and (3) developing
and disseminating the Watershed Tools Directory.
In the Toxic Substances Program, EPA continued its chemical testing program; accelerated the
rule making process through the use of multi-chemical rule-making; and promoted risk
reduction pollution prevention and source reduction throughout the life cycle of chemicals.
In 1996, EPA proposed expanding the types of industry groups required to report Toxic
Release Inventory (TRI) data and the type of data collected in the TRI. The Agency undertook
activities to reduce the reporting burden on industries and increase the use of TRI data.
In FY 1996, EPA awarded 10 Jobs Through Recycling (JTR) grants and issued 22 cooperative
agreements to build markets for recyclables and reusables. The Agency reduced the paperwork
burden associated with waste management by more than 1.5 million hours through changes to
the Land Disposal Restrictions (LDR) and by more than 73,000 hours through changes in the
Capacity Assurance Process.
In June 1996, the National Response Team published Integrated Contingency Plan Guidance
which provides a way to consolidate multiple risk management plans that a facility may have
prepared to comply with various regulations into one functional emergency response plan.
This project won the National Performance Review Hammer Award, recognizing a significant
contribution to "reinventing government" principles.
SUMMARY OF AUDITOR'S REPORT AND OPINIONS
Pursuant to OMB guidance for 1996, we prepared two statements: a Statement of Financial
Position and a Statement of Operations and Changes in Net Position for each of the four reporting
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EPA's FY 1996 Annual Financial Statements
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entities. We did not prepare a Statement of Cash Flows or a Statement of Budget and Actual
Expenses because we had obtained waivers from OMB for these two statements.
For FY 1996, the OIG reported that (except for Superfund) they had not previously audited
the financial statements of the STAG, All Other, and Consolidated activities. Because of these
limitations, they could not determine whether the FY 1996 opening balances reported for assets,
liabilities, and net position were fairly presented. These balances affect the Statements of
Operations and Changes in Net Position for FY 1996. However, the OIG informed us that they
performed work during their current audit to enable them to provide an opinion on all our FY 1997
financial statements.
For STAG, All Other, and Consolidated, we received qualified opinions on the Statements of
Financial Position and disclaimer of opinions on Statements of Operations and Changes in Net
Position. We are pleased that the OIG reported no new material accounting weaknesses on the
new funds audited.
For Superfund, we received a disclaimer of opinion on both Statements the same opinion
received for FY 1995 statements.
The table below summarizes the audit opinions for fiscal years 1995 and 1996.
Fund/Activity
Statement of Financial Position
Statements of Operations and Changes
in Net Position
Fiscal Year
FY 1995
FY 1996
FY 1995
FY 1996
Superfund
Disclaim
Disclaim
Disclaim
Disclaim
STAG*
N/A
Qualified
N/A
Disclaim
All Other*
N/A
Qualified
N/A
Disclaim
Consolidated*
N/A
Qualified
N/A
Disclaim
~This was the first year audit for these reporting entities.
A more detailed discussion of the reasons for the auditor's FY 1996 opinions is provided
below.
Superfund
The OIG disclaimed an opinion on the Superfund Statement of Financial Position and
Statement of Operations and Changes in Net Position for FY 1996, because:
The Superfund net position could not be reconciled to its components accounts;
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The methodology for estimating unbilled Superfund oversight costs incurred was unreliable-
and
The OIG was unable to assess the fairness of the accrual for year-end grantee expenses.
STAG. All Other, and Consolidated
The OIG qualified their opinion on the STAG and All Other Statements of Financial Position
for FY 1996 because they were unable to assess the fairness of the accrued year-end grantee
expenses. For the Consolidated Statement of Financial Position, the OIG qualified their opinion
because of accrued year-end grantee expenses and unbilled Superfund oversight cost. While the
OIG agreed to an alternative methodology for developing the accrual amount, it was unable to
verify directly with the grantees the information obtained from a sample of grantees used in
developing the accrual. The OIG disclaimed an opinion on the Statement of Operations and
Changes in Net Position because they had not previously audited the financial statements for these
activities during their FY 1995 audit.
REPORT ON INTERNAL CONTROLS
The OIG's evaluation of the Agency's internal controls identified the following material
weaknesses:
The net position for Superfund did not reconcile to its component accounts;
The methodology for estimating unbilled Superfund oversight costs was unreliable; and
The fairness of the accrued year-end unbilled grantee expenses could not be assessed.
Each of these weaknesses, along with management's planned corrective actions, are discussed
in greater detail below.
Superfund Net Position was not Reconciled to its Component Accounts
Because we have not completed our corrective action plan to correct this problem, which is
scheduled for completion by June 30,1997, the OIG continues to report that the components of
Superfund net position are not reconcilable. The problem stems from our use of an accounting
model which did not properly maintain accounting relationships when applied to non-appropriated
funds.
We have now implemented a new reimbursable accounting model based on the
recommendations of a government-wide task force formed to improve accounting for reimbursable
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activities. This new model should eliminate most of the problems that the OIG has reported. In
addition, we have issued instructions to all finance offices to review specific accounts and
transactions and to adjust account balances of prior years. The OIG acknowledged our efforts and
made no new recommendations on this issue.
Methodology for Estimating Unbilled Supcrfund Oversight Costs was Unreliable
The OIG found our first attempt at developing a methodology to compute unbilled Superfund
oversight costs did not include all appropriate costs. As a result, the OIG concluded that the
accruals for unbilled oversight costs were not fairly presented.
The OIG recommended that a working group consisting of regional and Headquarters finance
personnel be established to determine the population of recoverable Superfund oversight costs and
to develop a better methodology for estimating the amount of unbilled Superfund oversight costs.
We agreed to implement the OIG recommendation, and fully expect to resolve this issue for the
FY 1997 Financial Statements Audit.
Accrued Year-End Unbilled Grantee Expenses could not be Assessed
In prior year audits, the OIG has questioned how the year-end grant accruals for unbilled grant
expenses were derived. The auditors expressed concern with how the estimates were computed,
and in how to verify the reasonableness of the estimates. These problems stem from a confluence
of factors. First, grantees are not required on their payment requests to identify the period of time
to which the payment request applies. In addition, since the payment request does not state what
time period is covered by the request, the auditors are unable to use these requests as a basis for
assessing the reasonableness of the grant accrual because they do not know if costs billed were
incurred in the prior or current year. Second, there are no prescribed requirements for grantees to
bill at regular intervals. Thus, grantee payment requests can and do come at irregular intervals.
As a result, it is not feasible to use past payment history to develop an estimate of unbilled grant
expenses.
This is a government-wide issue that affects agencies which provide significant amounts of
financial assistance to states and local governments. Because of its significance, this issue is being
addressed by a government-wide task force on which both the CFO and OIG staffs are
participating. Our EPA representatives have proposed that grantees be required to provide grant
expenses not billed as of September 30 to all Federal agencies to assure fair presentation in both
Agency and government-wide financial statements. However, the task force has not yet acted upon
this proposal.
For FY 1996, as an interim step, we developed a methodology acceptable to the OIG that
would provide a more reliable and verifiable estimate for unbilled grantee expenses. We polled
a sample of grantees and obtained information directly from them on their billing cycle and actual
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accrual amounts. However, when the OIG contacted a sample of these grantees to verify the
information we had obtained, the grantees provided different information. Consequently, the OIG
was unable to conclude if the amount reported was reasonable.
The OIG recommended that the CFO work with the Acting Assistant Administrator for
Administration and Resources Management (OARM) to obtain information that would assist us
in estimating accrued year-end grant expenses. We agreed to implement the recommendation and
have already established a work group consisting of representatives from the Financial
Management Division, the Grants Administration Division and the OIG. We believe that this work
group will be able to develop a methodology that will result in reliable and verifiable amounts for
grant accruals. We expect to resolve this issue for the FY 1997 audit.
Compliance with Laws and Regulations
The OIG did not find any instances of non-compliance with applicable laws and regulations
for the funds audited that would have resulted in material misstatements of the audited financial
statements. However, the OIG did report one issue involving compliance with laws and
regulations that is being addressed by EPA management. This issue is that the Agency has not
performed biennial reviews of fees required by the CFO's Act. We plan to complete the required
reviews by April 30,1997.
Impediments to Correcting Problems
In our efforts to correct these internal control weaknesses, we have had to confront four major
impediments. First, is the very dynamic and changing environment in which we operate. The
development of new accounting standards and new information technologies, such as electronic
data interchange and electronic signature, require us to make numerous and sometimes substantial
changes to our systems and operations as well as our policies and procedures. This environment
often creates competing priorities.
A second problem is that because we use an off-the-shelf financial system we have to rely on
the contractor to make the necessary programming changes in a timely fashion. This does not
always happen. Third, correcting some of these problems takes time because they involve
complex issues and several organizational components within EPA, and in some instances the
solution requires government-wide action.
Finally, we are challenged to improve and strengthen our internal controls using a common
sense approach which takes into consideration the costs and benefits of our decisions. For
example, in implementing the Federal accounting standards, we often have to determine whether
it is cost beneficial to implement such standards retroactively.
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Progress in Correcting Previously Identified Problems
Overall, we believe we have made exceptional progress this year towards resolving
fundamental issues that have prevented us from obtaining unqualified opinions on our Agency-
wide financial statements. We still have, as explained in the Report on Internal Controls section,
three material weaknesses which are (1) reconciling the components of Superfund net position,
(2) developing a better methodology for accounting for unbilled Superfund oversight costs, and
(3) developing reliable estimates of unbilled grants expenses. Despite the difficulties involved in
resolving these complex issues, we expect to resolve them for the FY 1997 Financial Statement
Audit. We are also pleased that the OIG has been willing to work cooperatively with us in
developing alternative analytical procedures and methodologies for fair presentation in our
financial statements on these issues.
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PRINCIPAL
FINANCIAL
STATEMENTS
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CONTENTS
Financial Statements
Consolidating Statements of Financial Position
Consolidating Statements of Operations and changes in Net Position
Notes to Financial Statements
Note 1. Summary of Significant Accounting Policies
Note 2. Fund Balances with Treasury
Note 3. Investments and Marketable Securities
Note 4. Accounts Receivable
Note 5. Loans Receivable, Net Non-Federal
Note 6. Property, Plant and Equipment - Net
Note 7. Debt - Federal
Note 8. Other Liabilities - Federal
Note 9. Leases
Note 10. Total Net Position
Note 11. Program or Operating Expenses
Note 12. Other Expenses
Note 13. Prior Period Adjustments
Note 14. Non-Operating Changes
Note 15. Contingencies
Note 16. Cash and Other Monetary Assets
Note 17. State Cost Share Credits
Note 18. Income and Expenses from Other Appropriations
Note 19. Amounts Held by Treasury (unaudited)
Sunplemental Information Requested bv OMB
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EPA Hazardous Substance Superfund Trust Fund, State and Tribal
Assistance Grants, and AH Other Funds
Consolidating Statements of Financial Position
As of September 30,1996
(Dollars in Thousands)
ASSETS
Entity Assets:
Intragovernmental Assets:
Balance With Treasury (Note 2)
Investments (Note 1 and 3 )
Accounts Receivable, Net (Note 4)
Interest Receivable
Advances and Prepayments
Governmental Assets:
Accounts Receivable, Net (Note 4)
Credit Program Receivables, Net (Note 5)
Interest Receivable
Advances and Prepayments
Cash and Other Monetary Assets (Note 16)
Operating Materials and Supplies
Property and Equipment, Net (Note 6)
Marketable Securities Equity (Note 1 and 3)
Appropriated Amounts Held By Treasury (Note 1)
Total Entity Assets
Non-Entity Assets:
Amounts Held By Treasury for Future Appro (Note 1)
Total Non-Entity Assets
Total Assets
LIABILITIES
Liabilities Covered by Budgetary Resources:
Intragovernmental Liabilities:
Accounts Payable
Debt (Note 7)
Other Intragovernmental Liabilities (Note 8)
Governmental Liabilities:
Accounts Payable
Pensions & Other Acturial Liability (Note 8)
Other Governmental Liabilities (Note 8)
Total Liabilities Covered by Budgetary Resources
Liabilities not Covered by Budgetary Resources:
Pensions & Other Acturial Liability (Note 8)
Other Governmental Liabilities (Note 8)
Total Liabilities not Covered by Budgetary Resources
Total Liabilities
Superfund
AU
Trust Fund
STAG
Others
1996
1996
1996
$4,948
$7,364,623
$1,959,973
--
-
8,892
43,555
5,845
52,773
-
-
400
~
24,226
733,980
527,883
50,260
48,766
--
-
132,773
55,025
-
1,634
6,377
-
7,831
-
6,856
-
-
258
7,945
-
204,263
5,146
2.967.505
71.659
3.618.384
7.444.954
3.230.058
3.836.151
980.380
3.836.151
_
980.380
S7.454.535
_S7.444.954
00
m
o
$194,429
$1,734
530,067
-
-
40,329
741,788
--
887,027
120,409
74,283
133,351
301.030
91.632
1,357,656
76,017
1,182,406
14.158
90.475
14.158
__
90.475
1.371.814
76.017
1 J272.881
NET POSITION (Note 10)
Balances:
Unexpended Appropriations
Invested Capital
Cumulative Results of Operations
Other
Amounts Held By Treasury for Future Appropriation (Note 1)
Future Funding Requirements
Total Net Position
Total Liabilities and Net Position
2,444,053
7,945
2,288
540,397
3,102,196
(14.1581
6.082.721
S7.454.535
7,368,484
453
7.368.937
NOTE: The accompanying notes are an integral part of these statements.
1,841,121
204,263
2,268
980,380
(90.4751
2-937-.SS7
$4.210 438
Page 86
EPA's FY 1996 Annual Financial Statements
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EPA Hazardous Substance Superfund Trust Fund, State and Tribal
Assistance Grants, and All Other Funds
Consolidating Statements of Financial Position
As of September 30,1996
(Dollars in Thousands)
ASSETS Eliminations Consolidated
Entity Assets:
Intragovernental Assets:
Balance With Treasury (Note 2) - $9,329,544
Investments (Note 1 and 3) - 8,892
Accounts Receivable, Net (Note 4) - 102,173
Interest Receivable - 400
Advances and Prepayments ($733,955) 24,251
Governmental Assets:
Accounts Receivable, Net (Note 4) - 626,909
Credit Program Receivables, Net (Note 5) - 132,773
Interest Receivable - 56,659
Advances and Prepayments - 14,208
Cash and Other Monetary Assets (Note 16) - 6,856
Operating Materials and Supplies - 258
Property and Equipment, Net (Note 6) - 212,208
Marketable Securities Equity (Note 1 and 3) - 5,146
Appropriated Amounts Held By Treasury (Note 1) = 3.039.164
Total Entity Assets (733.955) 13.559.441
Non-Entity Assets:
Amounts Held By Treasury for Future Appro (Note 1) = 4.816.531
Total Non-Entity Assets - 4.816.531
Total Assets (733.9551 SI 8 375.972
LIABILITIES
Liabilities Covered by Budgetary Resources:
Intragovernmental Liabilities:
Accounts Payable
Debt (Note 7)
Other Intragovernmental Liabilities (Note 8)
Governmental Liabilities:
Accounts Payable
Pensions & Other Acturial Liability (Note 8)
Other Governmental Liabilities (Note 8)
Total Liabilities Covered by Budgetary Resources
Liabilities not Covered by Budgetary Resources:
Pensions & Other Acturial Liability (Note 8)
Other Governmental Liabilities (Note 8)
Total Liabilities not Covered by Budgetary Resources
Total Liabilities
(733,955)
(733,955)
(733.9551
$226,230
40,329
894,860
328,043
392.662
1,882,124
104.633
104.633
$1.986.757
NET POSITION (Note 10)
Balances:
Unexpended Appropriations
Invested Capital
Cumulative Results of Operations
Other
Amounts Held By Treasury for Future
Appropriation (Note 1)
Future Funding Requirements
Total Net Position
Total Liabilities and Net Position
($733.9551
11,653,658
212,208
5,009
540397
4,082,576
(104.6331
16.389.215
im.37S.972
Note: The accompanying notes are an integral part of these statements.
EPA's FY 1996 Annual Financial Statements
Page 87
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EPA Hazardous Substance Superfund Trust Fund, State and Tribal
Assistance Grants, and All Other Funds
Consolidating Statement of Operations and Changes in Net Position
For the Year Ended September 30,1996
(Dollars in Thousands)
Superfund
Trust Fund
1996
STAG
1996
REVENUE AND FINANCING SOURCES
Appropriated Capital Used
Revenues from Services to the Public
Trust Fund Revenue Collected By Treasury (Note 19)
Trust Fund Investment Income Earned By Treasury (Note 19)
Interest and Penalities, Non-Federal
Interest Income, Federal
Income From Other Appropriations (Note 18)
Other Revenues
Less: Receipts Returned to Treasury
Total Revenues and Financing Sources
EXPENSES
Program or Operating Expenses (Note 11)
Depreciation and Amortization
Bad Debts and Writeoffs
Expenses From Other Appropriations (Note 18)
Interest Expense
Expenses Of The Trust Fund Incurred By Treasury (Note 19)
Other Expenses (Note 12)
Total Funded Expenses
Excess (Shortage) of Revenues and
Financing Sources Over Total Funded Expenses
before changes in accounting principle (policy)
Changes in Accounting Principle (Note 6):
Change in Capitalization Threshold
Addition to Capital Leases
Appropriated Capital Used for Accounting Change
Plus (Minus) Unfunded Expenses
Excess (Shortage) of Revenues and
Financing Sources Over Total Expenses
NET POSITION
Net Position, Beginning Balancers
Previously Stated
Adjustments (Note 13)
Net Position, Beginning Balance, as Restated
Excess (Shortage) of Revenues and
Financing Sources Over Total Expenses
Plus (Minus) Non Operating Changes (Note 14)
Net Position, Ending Balance
All
Others
1996
$1,367,672
110,292
888,373
350,300
11,587
75,399
532,507
626.513
2.709.617
1,455,610
4,605
8,086
75,399
3
497
L
1.544.201
1,165,416
(5,642)
5,642
(730)
Sl.164.68fi
$2,552,594
89.924
2,642,518
1,164,686
2.275-517
$6.082 721
$2,507,599
400,801
2.908.400
2,507,423
3,343
400,801
2.911.567
(3,167)
$7,139,474
(608')
7,138,866
(3,167)
233.238
$7.368.9^7
$2,549,697
86,934
47,979
59,620
8,599
556
(476,200)
91,993
95.263
w
2,610,551
25,979
6,967
(476,200)
2,803
3
16
2.170.119
103,796
(380)
37,788
(37,408)
(8.047)
&2J6ZJ $95 7^Q
$1,828,356
499
1,828,855
95,749
-1.012,
S2
-------
EPA Hazardous Substance Superfund Trust Fund, State and Tribal
Assistance Grants, and All Other Funds
Consolidating Statement of Operations and Changes in Net Position
For the Year Ended September 30,1996
(Dollars in Thousands)
Eliminations Consolidated
REVENUE AND FINANCING SOURCES
Appropriated Capital Used - $6,424,968
Revenues from Services to the Public - 197,226
Trust Fund Revenue Collected By Treasury (Note 19) - 936352
Trust Fund Investment Income Earned By Treasury (Note 19) - 409,920
Interest and Penalities, Non-Federal - 20,186
Interest Income, Federal - 556
Income From Other Appropriations (Note 18) - 0
Other Revenues - 624,500
Less: Receipts Returned to Treasury = 721.776
Total Revenues and Financing Sources - 7.891.932
EXPENSES
Program or Operating Expenses (Note 11) - 6,573,584
Depreciation and Amortization - 30,584
Bad Debts and Writeoffs - 18396
Expenses From Other Appropriations (Note 18) - 0
Interest Expense 2,806
Expenses Of The Trust Fund Incurred By Treasury (Note 19) - 500
Other Expenses (Note 12) - 17
Total Funded Expenses - 6.625.887
Excess (Shortage) of Revenues and
Financing Sources Over Total Funded Expenses
before changes in accounting principle (policy) - 1,266,045
Changes in Accounting Principle (Note 6):
Change in Capitalization Threshold - (6,022)
Addition to Capital Leases - 37,788
Appropriated Capital Used for Accounting Change - (31,766)
Plus (Minus) Unfunded Expenses ~ f8.7771
Excess (Shortage) of Revenues and
Financing Sources Over Total Expenses - SI-257.268
NET POSITION
Net Position, Beginning Balance,as
Previously Stated - $11,520,424
Adjustments (Note 13) = $89.815
Net Position Beginning Balance as Restated - 11,610,239
Excess (Shortage) of Revenues and
Financing Sources Over Total Expenses - 1,257,268
Plus (Minus) Non Operating Changes (Note 14) = 3.521.708
Net Position, Ending Balance - $16.389.215
Note: The accompanying notes are an integral part of these statements.
EPA's FY 1996 Annual Financial Statements
Page 89
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EPA Hazardous Substance Superfund Trust Fund, State and
Tribal Assistance Grants, and All Other Funds
Notes to Financial Statements
(Dollars in Thousands)
Note 1. Summary of Significant Accounting Policies:
A. Basis of Presentation
These consolidating financial statements have been prepared to report the financial position and
results of operations of the Environmental Protection Agency (Agency) for the Hazardous
Substance Superfund (Superfund) Trust Fund, State and Tribal Assistance Grants (STAG) and All
Other Funds as required by the Chief Financial Officers Act of 1990 and the Government
Management Reform Act of 1994. The reports have been prepared from the books and records
of the Agency in accordance with "Form and Content for Agency Financial Statements," specified
by the Office of Management and Budget (OMB) in Bulletin 94-01, those sections of OMB Bulletin
97 01 that are applicable for the FY 1996 financial statements and the Agency's accounting policies
which are summarized in this note. These statements are therefore different from the financial
reports also prepared by the Agency pursuant to OMB directives that are used to monitor and
control the Agency's use of budgetary resources.
B. Reporting Entities
The Environmental Protection Agency was created in 1970 by executive reorganization from
various components of other Federal agencies in order to better marshal and coordinate Federal
Dollution control efforts. The Agency is generally organized around the media and substances it
regulates - air, water, land, hazardous waste, pesticides and toxic substances^ ForFY 1996 the
reporting entities are grouped as Hazardous Substance Superfund, State and Tribal Assistance
Grants (STAG), and All Other Funds.
Superfund
In 1980 the Hazardous Substances Superfund, commonly referred to as the Superfund Trust
Fund was established by the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 (CERCLA) to provide resources needed to respond to and clean up hazardous
substance emergencies and abandoned, uncontrolled hazardous waste sites. The Superfund Trust
Fund financing is shared by Federal and state governments as well as mdustry. The Agency also
allocates funds from its appropriation to other Federal agencies to carry out the Act. Risks to
Dublic health and the environment at uncontrolled hazardous waste sites qualifying for the Agency s
National Priorities List (NPL) are reduced and addressed through a process involving site
assessment and analysis, and the design and implementation of cleanup remedies. Throughout this
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EPA's FY 1996 Annual Financial Statements
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process, cleanup activities may also be supported by shorter term removal actions to reduce
immediate risks. Removal actions may include removing contaminated material from the site,
providing an alternative water supply to people living nearby, and installing security measures. NPL
cleanups and removals are conducted and financed by the Agency, private parties, or other Federal
agencies. Through 1995, construction of cleanup remedies had been completed at a total of 346
NPL sites and 4,271 removal actions had been taken at 3,245 sites. Superfund includes the
Treasury collections and investment activity. The Superfund Trust Fund is accounted for under
Treasury symbol number 8145.
State and Tribal Assistance Grants
In 1996, Congress restructured the Agency's appropriations. The new structure combines the
State grants moved from the Abatement, Control and Compliance (now called Environmental
Programs and Management) appropriation with the Water Infrastructure/State Revolving Fund
appropriation. The restructured appropriation is now called State and Tribal Assistance Grants.
TTie new appropriation provides the Agency Administrator with the authority to allow States and
Indian tribes to consolidate numerous existing media specific or multimedia grants into one or more
Performance Partnership grants. The Administrator is also provided with authority to allow States
to consolidate Clean Water and Drinking Water State Revolving Funds into a Performance
Partnership. The appropriation provides funds for capitalization grants to States for Clean Water
State Revolving Funds for purposes of making low interest loans to communities to construct
municipal wastewater treatment infrastructure. Since 1989, the Federal government has invested
approximately $11.5 billion in grants to help capitalize the 51 State revolving funds. With required
State match, additional State contributions, and funds from program leveraging, funds available for
loans total approximately $16.3 billion. In support of the U. S. Mexico Border Environmental Plan,
funds are provided to address the serious environmental and human health problems associated with
untreated industrial and municipal sewage, including the impoverished colonias in Texas. Funds
are provided to help address significant wastewater needs of Alaska Native Villages and for U. S.
cities that are facing exceptionally high capital needs and user charges. Funds will also be provided,
upon enactment of authorizing legislation, for capitalization grants to new Drinking Water State
Revolving funds for the purpose of making low interest loans to help municipalities comply with
the Safe Drinking Water Act. Once the Drinking Water State Revolving Fund program is
authorized, these resources will allow States to fund both construction of needed infrastructure
improvements for drinking water systems and the restructuring of small systems (including
consolidation) to improve compliance. The State and Tribal Assistance Grants is accounted for
under Treasury symbol number 0103.
All Other Funds
All Other Funds include Trust Fund appropriations to the Leaking Underground Storage Tank
(LUST) Trust Fund and the Oil Spill Response Trust Fund, General Fund appropriations to Science
and Technology (S&T), Environmental Programs and Management (EPM), Office of Inspector
EPA's FY 1996 Annual Financial Statements
Page 91
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General Buildings and Facilities, and Payment to the Hazardous Substance Superfund.
Appropriations which no longer receive General Fund appropriations but have unexpended
authority are the Asbestos Loan Program, Program and Research Operations and Energy Research
and Development. Besides Trust and General Fund appropriated accounts All Other Funds includes
the FIFRA revolving fund and Tolerance revolving funds which receive no direct appropriations;
however thev do collect fees as a source of reimbursement for the services provided. In addition,
Lds were collected to the Exxon Valdez settlement fund as a result of the Exxon Valdez oil spill.
Resides the Agency appropriated and reimbursable funds, other Federal agencies transfer
appropriated funds to the Agency under authority of the Economy Act of 1932. In addition All
Other Funds include the Agency Budgetary Clearing accounts, Deposit funds, General Fund
Receipt accounts the Environmental Services Unavailable Receipt Account, and the Miscellaneous
Contributed Funds Trust Fund. Activities conducted by the various All Other Funds are as follows:
Th t T 1ST Trust Fund was authorized by the Superfund Amendments and Reauthorization Act
of 1986 (SARA) as amended by the Omnibus Budget Reconciliation Act of 1990. The LUST
appropriation provides funding to respond to releases from leaking underground petroleum tanks.
The Agency oversees cleanup and enforcement programs which are implemented by the States.
Funds are allocated to the States through cooperative agreements to clean up those sites posing
the Greatest threat to human health and environment. Funds are used for grants to non-state entities
including Indian Tribes under section 8001 of the Resource Conservation and Recovery Act. The
Tmst Fund also covers administrative expenses necessary to carry out the program. Risks from
releases at leaking underground petroleum tanks are reduced and addressed by cleanup actions.
The LUST program tracks the number of cleanups completed, which includes all sites where a state
determines risks have been addressed through completed corrective actions. The complexity of
cleanups is increasing due to other environmental issues such as contaminated groundwater. The
program is financed byaO.l cent a gallon tax on motor fuels, and is accounted for under Treasury
symbol number 8153.
ThĞ Oil Soill Response Trust Fund was authorized by the Oil Pollution Act (OPA) of 1990.
The OU Soill Response Trost Fund was established in FY 1993 and monies were appropriated to
the Oi! Soill Response Trust Fund. The Agency is responsible for Erecting, monitoring and
providing technical assistance for major inland oil spill response activmes. This involves satmg oil
prevention and response standards, initiating enforcement acttons for compliance wuh OPA and
M Prevention Control and Countermeasure requirements, and directing response actions when
.nnmnriate The Anencv carries out research to improve response actions to oil spills including
reS on the use of repudiation techniques such as dispersants and bioremed.at.on. Funding of
dlrfdeanup actions is provided through the Department of Transportation under the Oil Sp.U
Uabffity Trust Fund. The Oil SpiU Response Trust Fund is accounted for under Treasury symbol
number 8221.
Th c.nce Technology (S&T) appropriation combines all resources from the previous
Res^ch De^oPrt account, prog office lab costs from the previous Abatement,
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EPA's FY 1996 Annual Financial Statements
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Control, and Compliance account, and payroll and travel costs for the Office of Research and
Development and for the program office labs. S&T finances salary, travel, science, technology,
research and development activities including laboratory and center supplies, certain operating
expenses, grants, intergovernmental agreements, and purchases of scientific equipment. These
activities provide the scientific basis for the Agency's regulatory actions. Research for Air provides
the data base needed to support national ambient air quality standards, establish emission standards
for stationary and mobile sources and assess acid rain controls. Research is also performed to
support the indoor air, radon mitigation, global change, and stratospheric ozone protection
programs. Research for Water Quality develops data and technologies to help protect coastal and
marine waters, large lakes and rivers, wetlands, and related ecosystems. Programs evaluate
contaminated sediments, aquatic ecocriteria, non point sources of pollution, habitat biodiversity,
wastewater and sludge. Research for Drinking Water includes evaluating the health effects of
drinking water contaminants, methods to prevent or remove thjse contaminants in a cost effective
manner, and research to support ground water protection. Research for Hazardous Waste includes
providing hazardous waste measurement methods and protocols, assessing the risk from exposure
to hazardous and municipal solid wastes, conducting research on surface cleanup, bioremediation,
pollution prevention, and developing the necessary data to revise and implement treatment, storage
and disposal standards and regulations. Research for Pesticides supports the pesticides program
through health and environmental exposure studies, development of exposure protocols, and
environmental review of new chemicals. Biotechnology research is also included in these activities.
Research for Radiation supports radiological monitoring and surveillance services for Department
of Energy nuclear testing at the Nevada Test Site. Research for Multimedia provides cross
program support for ecosystems protection (including environmental monitoring and assessment),
human exposure, risk assessment methods, health effects, pollution prevention, heavy metals, and
innovative technologies. Exploratory research grants and centers, technology transfer, quality
assurance and procurement of laboratory equipment is also included. Toxic Substance activities
support the development of scientific and technological methods to understand, predict and manage
the entry and movement of chemicals in commerce and into the environment and to determine the
effects of these chemicals on human health and the environment. Management and Support
activities executive direction, program planning, resource and facilities management. The Science
and Technology appropriation is accounted for under Treasury symbol 0107.
The Environmental Programs and Management (EPM) appropriation combines all previous
Program and Research Operations payroll and travel funds not moved to S&T with the previous
Abatement, Control and Compliance funds. Funds for State grants have been moved to STAG.
EPM finances contracts, grants, and cooperative agreements for pollution abatement, control, and
compliance activities and administrative activities of the operating programs. The Air program sets
standards for ambient air quality, emissions of hazardous and criteria air pollutants and acid
deposition precursors from stationary sources, motor vehicle emissions, prevention of significant
deterioration of air quality and protection of the stratospheric ozone layer. The program also
conducts motor vehicle testing for which user fees are collected. The Water Quality program has
as its goal the protection and restoration of the Nation's waters. The program relies on a
EPA's FY 1996 Annual Financial Statements
Page 93
-------
partnership between the Agency and the States to meet the goals of the Act. The Water Quality
program encompasses (1) developing water quality standards, (2) establishing technology based
effluent limits for industrial discharges, (3) monitoring water quality, (4) developing guidelines for
advanced identification of wetlands and programs to enhance State and local wetlands protection,
(5) risk based targeting of abatement activities to protect important habitats through geographic
initiatives (6) issuing and enforcing requirements of National Pollutant Discharge Elimination
Svstem permits for industrial and municipal sources resulting in user fee collections, and (7)
managing the municipal wastewater facilities completion / closeout of construction grants, and
managing the State Revolving Fund programs. The Drinking Water program protects the Nation's
drinking water supplies from contaminants. This involves (1) setting national drinking water
standards (2) assisting States and Indian tribes in implementing these regulatory programs, (3)
initiating e'nforcement actions against noncompliance with drinking water and underground injection
control regulations, and (4) directing the Agency's activities to manage and improve ground water
aualitv Tht Hazardous Waste program is designed to ensure that hazardous wastes are managed
in a manner that protects public health and the environment. The program emphasizes delegation
of authority to the States, permitting of operating and closed facilities, enforcement of hazardous
waste regulations and correction action. State assumption of hazardous waste authorities will be
encouraged through Federal financial assistance, regulations, and guidance. Major activities of the
Pesticides program include (1) review and registration of pesticide products, (2) developing and
processing registration standards, (3) registration of pesticides as required by the 1988
amendments to the Federal Insecticide, Fungicide, and Rodenticide Act, (4) enforcement of
pesticide use rules with emphasis on Federal/State cooperation, and (5) developing guidelines to
ensure the protection of pesticide workers as well as assisting in the development of State plans for
pesticide use that will protect ground water and endangered species. The Radiation program
develops and promulgates standards, regulations, and guidelines to reduces exposure from radiation
sources The Agency assesses risks associated with high levels of naturally occurring radon,
certifies radon remediation contractors, and provides technical assistance and guidance to States
on radon The Agency also carries out its responsibilities under the Waste Isolation Pilot Plant
Land Withdrawal Act The Multimedia program comprises several activities that cut across media
programs This involves (1) technical and legal aspects of the Agency's enforcement efforts
including criminal investigations, (2) review of environmental impact statements to ensure actions
taken bv Federal agencies do not adversely affect the environment, (3) Federal agencies compliance
with the statutes and regulations for pollution control, (4) the Regional funding of complex
multimedia projects with significant state and local concerns due to the high risk to human health
and ecosystems The Toxic Substances program is responsible for protecting human health and the
environment from unreasonable risks posed by chemicals. The program places a balanced emphasis
on evaluation and control of new and existing chemicals and the reduction of exposure through
pollution prevention Nonregulatory approaches to obtain compliance are used where appropriate.
The program has developed a comprehensive lead control strategy to examine the long term
efficacy of lead abatement, and to implement the requirements of Title X of the Housing and
Community Development Act of 1992. The program also provides technical assistance to
various requirements of Title HI of the Superfund Amendments and Reauthorization Act
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EPA's FY 1996 Annual Financial Statements
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of 1986 relating to chemical releases, and the Pollution Prevention Act of 1990. Management and
Support funds contract work for policy studies in the management and support program. The
Environmental Programs and Management appropriation is accounted for under Treasury
symbol 0108.
The Office of Inspector General appropriation provides funds for audit and investigative
functions to identify and recommend corrective actions on management and administrative
deficiencies that create the conditions for existing or potential instances of fraud, waste and
mismanagement. Additional funds for audit and investigative activities associated with the
Superfund Trust Fund and the Leaking Underground Storage Tank Trust Fund are appropriated
under those Trust Fund accounts and are transferred to the Office of Inspector General account.
The audit function provides contract audit, internal and performance audit, and financial and grant
audit services. The Office of Inspector General appropriation is accounted for under Treasury
symbol 0112, and the annual appropriations for 8145 and 8153.
The Buildings and Facilities appropriation provides for the construction, repair, improvement,
extension, alteration, and purchase of fixed equipment or facilities that are owned or used by the
Environmental Protection Agency. The Buildings an Facilities appropriation is accounted for under
Treasury symbol 0110.
The Payment to the Hazardous Substance Superfund appropriation authorizes appropriations
from the General Fund of the Treasuiy to finance activities conducted through Hazardous
Substance Superfund. Payment to the Hazardous Substance Superfund is accounted for under
Treasury symbol 0250.
The Asbestos Loan Program was authorized by the Asbestos School Hazard Abatement Act
of 1986 to finance control of asbestos building materials in schools. Funds were not appropriated
for FY 1996; accordingly no new loan obligations occurred in FY 1996. For the FY 1993 and 1992
obligations, the program is funded by a subsidy appropriated from the General Fund for the actual
cost of financing the loans, and by borrowing from Treasury for the unsubsidized portion of the
loan. The Program fund received the subsidy and administrative appropriations in FY 1992 and
1993, disburses the subsidy to the Financing fund as loans are made, and disburses administrative
expenses to the providers. The Financing fund receives the subsidy payment, borrows from
Treasury and disburses and collects the asbestos loans. Loans obligated before 1992 are
maintained in a Liquidating fund and are disbursed from the Liquidating fund. The loans receivable
and collections on those loans are recorded in a General Fund receipt account. Under provisions
of the Federal Credit Reform Act, the balance of any monies collected on loan repayments must be
returned to the General Fund at Treasury. The Asbestos Loan Program is accounted for under
Treasury symbol 0118 for the subsidy and administrative support, under Treasury symbol 4322 for
loan disbursements, loans receivable and loan collections on post FY 1991 loans, under Treasury
symbol 4321 for pre FY 1992 loan obligations and disbursements, and under Treasuiy symbol 2917
for pre FY 1992 loans receivable and loan collections.
GPA's FY 1996 Annual Financial Statements
Page 95
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The Program and Research Operations appropriation provided salaries and travel associated
with administering the operating programs within the Environmental Protection Agency. It
incorporated personnel, compensation and benefit costs and travel, exclusive of the Hazardous
Substance Response Trust Fund, the Leaking Underground Storage Tank Trust Fund, the Office
of Inspector General and the Oil Spill Response Trust Fund. In fiscal year 1996, Congress
restructured the Agency's accounts. The Program and Research Operations appropriation was
eliminated. Activity remaining from prior fiscal year appropriations is accounted for under Treasury
symbols 0200 and 0201.
The FIFRA Revolving Fund was authorized in 1988 by amendments to the Federal Insecticide,
Fungicide and Rodenticide Act. The 1988 amendments mandated the accelerated reregistration of
all products registered prior to November 1, 1984. Congress authorized the collection of fees to
supplement appropriations to fund reregistration and to fund expedited processing of pesticides.
FIFRA also includes provisions for the registration of new pesticides, monitoring the distribution
and use of pesticides, issuing civil or criminal penalties for violations, establishing cooperative
agreements with the states, and certifying training programs for users of restricted chemicals.
Appropriated funds, however, pay for these activities. Legislation has been proposed to increase
fees from pesticide manufacturers in support of reregistration of pesticides currently in use. The
fees will also be extended beyond the current expiration date in order to fund timely completion of
the reregistration program. The FIFRA Revolving Fund is accounted for under Treasury symbol
number 4310.
The Tolerance Revolving Fund was authorized in 1963 for the deposit of tolerance fees. A
tolerance is the maximum legal limit of a pesticide residue on food commodities and animal feed.
Tolerances are established by the Agency to prevent consumer exposure to unsafe levels of
oesticide residues In 1954, Congress authorized the collection of fees for raw agricultural
commodities Fees were deposited to the Treasury General Fund until 1963 when Congress
established the Revolving Fund for Certification and Other Services (Tolerance Revolving Fund).
The Department of Agriculture and the Food and Drug Administration are responsible for enforcing
adherence to these tolerance levels. Funding is provided by fee collections and by appropriated
funds for federal services in establishing tolerances for residues of pesticide chemicals in or on raw
agricultural commodities. The Tolerance Revolving Fund is accounted for under Treasury symbol
number 4311.
The Exxon Valdez Settlement Fund has funds available to carry out authorized environmental
restoration activities. Funding is derived from the collection of reimbursements under the Exxon
Valdez settlement as a result of the oil spill. The Exxon Valdez Settlement fund is accounted for
under Treasury symbol number 5297.
Appropriations transferred to the Agency from other Federal agencies include funds from the
Appalachian Regional Commission and the Department of Commerce which provide economic
assistance to State and local developmental activities, the Agency for International Development
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EPA's FY 1996 Annual Financial Statements
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which provides assistance on environmental matters at international levels, and from the General
Services Administration which provides funds for rental of buildings, and operations, repairs, and
maintenance of rental space. The transfers appropriations are accounted for under Treasury
symbols 0200, 1010, 1021, 2050, and 4542.
Clearing Accounts include the Budgetary suspense account, Deposit in Transit differences,
Unavailable Check Cancellations and Overpayments, and Undistributed and Letter of Credit
differences. Clearing accounts are accounted for under Treasury symbols 3875, 3878, 3879, and
3880.
Deposit funds include Fees for Ocean Dumping, Nonconformance Penalties, Suspense and
payroll deposits for Savings Bonds, and State and City Income Taxes Withheld. Deposit funds are
accounted for under Treasury symbols 6050, 6264, 6265, 6275, and 6875.
General Fund Receipt Accounts include Hazardous Waste Permits, Miscellaneous Fines,
Penalties and Forfeitures; General Fund Interest; Interest from Credit Reform Financing Accounts;
Fees and Other Charges for Administrative and Professional Services; and Miscellaneous
Recoveries and Refunds. General Fund Receipt accounts are accounted for under Treasury
symbols 0895, 1099, 1435, 1499, 2410, 3200, and 3220.
The Environmental Services Receipt account was established for the deposit of fee receipts
associated with environmental programs, including radon measurement proficiency ratings and
training, motor vehicle engine certifications, and water pollution permits. Receipts in this special
fund will be appropriated to the S&T appropriation and to the EPM appropriation to meet the
expenses of the programs that generate the receipts. Environmental Services are unavailable
receipts accounted for under Treasury symbol 5295.
The Miscellaneous Contributed Funds Trust Fund includes gifts for pollution control programs
that are usually designated for a specific use by the donor and deposits from pesticide registrants
to cover the costs of petition hearings when such hearings result in unfavorable decisions to the
petitioner. Miscellaneous Contributed Funds Trust Fund is accounted for under Treasury
symbol 8741.
The accompanying financial statements include the accounts of all funds described in this note.
Superfund and STAG may charge some administrative costs directly to the fund and charge the
remainder of the administrative costs to the All Other Funds in the Agencywide appropriations.
The administrative costs funded by Agencywide appropriations for Superfund is 75,399 and
400,801 for STAG. These amounts are included in the Income from Other Appropriations and
Expenses from Other Appropriations on the Statement of Operations and Changes in Net Position.
The Superfund Trust Fund is allocated general support services costs (such as rent,
communications, utilities, mail operations, etc.) that were initially charged to the Agency's S&T and
EPA's FY 1996 Annual Financial Statements
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EPM appropriations. During the year, these costs are allocated from the S&T and EPM
appropriations to the Superfund Trust Fund based on a ratio of direct labor hours, using budgeted
or actual full-time equivalent personnel charged to these appropriations, to the total of all direct
labor hours. Agency general support services cost charges to the Superfund Trust Fund may not
exceed the ceilings established in the Superfund Trust Fund appropriation. The related general
support services costs charged to the Superfund Trust Funds was $10,793 for FY 1996.
C. Budgets and Budgetary Accounting
Superfund
Congress adopts an annual appropriation amount to be available until expended for the
Superfund Trust Fund. A transfer account for the Superfund Trust Fund has been established for
purposes of carrying out the program activities. As the Agency disburses obligated amounts from
the transfer account, the Agency draws down monies from the Superfund Trust Fund at Treasury
to cover the amounts being disbursed.
State and Tribal Assistance Grants
Congress adopts an annual appropriation amount to be available until expended for State and
Tribal Assistance Grants. When the appropriation is enacted, Treasury issues a warrant to the
Agency in the amount of the appropriation. As the Agency disburses the obligated amounts the
balance of funds available to the appropriation is reduced at Treasury.
All Other Funds
Congress adopts an annual appropriation amount for the LUST Trust Fund and for the Oil Spill
Response Trust Fund to remain available until expended. A transfer account for the LUST Trust
Fund has been established for purposes of carrying out the program activities. As the Agency
disburses obligated amounts from the transfer account, the Agency draws down monies from the
LUST Trust Fund at Treasury to cover the amounts being disbursed. The Agency draws down all
the appropriated monies from the Treasury's Oil Spill Liability trust fund to the Oil Spill Response
Trust Fund when Congress adopts the appropriation amount. Congress adopts an annual
appropriation for Buildings and Facilities and for Payments to the Hazardous Substance Superfund
to be available until expended; adopts annual appropriation for S&T and EPM to be available for
two fiscal years; and adopts an annual appropriation for the Office of Inspector General that expires
at the end of the fiscal year. When the appropriations for the General Funds are enacted, Treasury
issues a warrant to the respective appropriations. As the Agency disburses obligated amounts the
balance of funds available to the appropriation is reduced at Treasury.
The Asbestos Loan Program is a commercial activity financed by a combination from two
sources: one for the long term cost of the loan and another for the remaining non-subsidized
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portion of the loan. Congress annually adopts a one year appropriation, available for obligation in
the fiscal year for which it is appropriated, to cover the estimated long term cost of the Asbestos
loans. The long term costs are defined as the net present value of the estimated cash flows
associated with the loans. The portion of each loan disbursement that does not represent long term
cost is financed under a permanent indefinite borrowing authority established with the Treasury.
The annual appropriation bill limits the amount of obligations that can be made for direct loans.
A permanent indefinite appropriation is available to finance the costs of subsidy re-estimates that
occur after the year in which the loan is disbursed. No appropriation was adopted by Congress for
FY 1996; therefore, there was no new financing available to the Asbestos Loan Program for
FY 1996.
Funding of the FIFRA and the Tolerance Revolving Funds is provided by fees collected from
industry to offset costs incurred by the Agency in carrying out these programs. Each year the
Agency submits an apportionment request to OMB based on the anticipated collections of industry
fees.
Funds transferred from other Federal agencies is funded by a non expenditure transfer of funds
from the other Federal agencies. As the Agency disburses the obligated amounts, the balance of
funding available to the transfer appropriation is reduced at Treasury.
Clearing accounts, Deposit accounts, and Receipt accounts receive no budget. Rather amounts
are recorded to the Clearing and Deposit accounts pending further disposition. Amounts recorded
to the Receipt accounts capture amounts receivable to or collected for the General Fund of the
Treasury.
D. Basis of Accounting
Transactions are recorded on an accrual accounting basis and on a budgetary basis (where
budgets are issued). Under the accrual method, revenues are recognized when earned and expenses
are recognized when a liability is incurred, without regard to receipt or payment of cash. Budgetary
accounting facilitates compliance with legal constraints and controls over the use of Federal funds.
All interfund balances and transactions have been eliminated.
E. Revenues and Other Financing Sources
Superfund
The Superfund receives most funding needed to support the program through appropriations
that may be used, within statutory limits, for operating and capital expenditures (primarily
equipment). Additional financing for the Superfund Trust Fund is obtained through reimbursements
from potentially responsible parties (PRPs).
EPA's FY 1996 Annual Financial Statements
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State and Tribal Assistance Grants
The STAG receives all funding needed to support the program through appropriations that may
be used, within statutory limits, for operating expenditures.
All Other Funds
The majority of All Other Funds appropriations receive funding needed to support the program
through appropriations, which may be used, within statutory limits, for operating and capital
expenditures. Under Credit Reform provisions, the Asbestos Loan Program received funding to
support the subsidy cost of loans through appropriations which may be used with statutory limits
The Asbestos Direct Loan Financing fund, an off-budget fund, receives additional funding to
support the loan disbursements through collections from the Program fund for the subsidized
portion of the loan and through borrowing from Treasury for the non-subsidized portion. The last
year Congress provided appropriations for this fund was 1993, accordingly no new funding has
been available for this program. The FIFRA and the Tolerance Revolving Funds receive funding
through fees collected for services provided. The FIFRA Revolving Fund also receives interest on
invested funds. Exxon Valdez Settlement Fund received funding through reimbursements
Appropriations are recognized as revenues when earned, i.e., when services have been rendered
without regard to payment of cash. Appropriations expended for property and equipment are
recognized as expense and revenue when the asset is consumed in operations. Other revenues are
recognized when earned, i.e., when services have been rendered.
F. Funds with the Treasury
The Agency does not maintain cash in commercial bank accounts. Cash receipts and
disbursements are handled by Treasury. The funds maintained with Treasury are Appropriated
Funds, Revolving Funds and Trust Funds. These funds have balances available to pay current
liabilities and finance authorized purchase commitments.
G. Investments in U. S. Government Securities
Investments in U. S. Government securities are maintained by Treasury and are reported at
amortized cost net of unamortized discounts. Discounts are amortized over the term of the
investments and reported as interest income. The FIFRA Revolving Fund, which is included in All
Other Funds, holds the investments to maturity, unless they are needed to finance operations of the
fund. No provision is made for unrealized gains or losses on these securities because, in the
majority of cases, they are held to maturity.
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H. Marketable Equity Securities
During FY 1993, and FY 1996, the Agency received marketable equity securities, valued at a
total $5,146, from a company in settlement of Superfund cost recovery actions. The Agency
records marketable securities at cost as of the date of receipt. Marketable securities are held by
Treasury, and reported at their cost value in the financial statements until sold.
L Accounts Receivable and Interest Receivable
The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) as
amended by the Superfund Amendments and Reauthorization Act (SARA) provides for the
recovery of costs from potentially responsible parties (PRPs). However, cost recovery expenditures
are expended when incurred since there is no assurance that these funds will be recovered.
It is the Agency's policy to record accounts receivable from PRPs for Superfund site response
costs when a consent decree, judgment, administrative order, or settlement is entered. These
agreements are generally negotiated after site response costs have been incurred. It is the Agency's
position that until a consent decree or other form of settlement is obtained, the amount recoverable
should not be recorded. The allowance for uncollectible PRP accounts receivable is determined on
a specific identification basis as a result of a case-by-case review of receivables at the regional level,
and a general reserve for those not specifically identified.
The Agency also records accounts receivable from states for a percentage of Superfund site
remedial action costs incurred by the Agency within those states. As agreed to under Superfund
State Contracts (SSCs), cost sharing arrangements under SSCs may vary according to whether a
ate was privately or publicly operated at the time of hazardous substance disposal and whether the
Agency response action was removal or remedial. SSC agreements are usually for 10% or 50%
of site remedial action costs. States may pay the full amount of their share in advance, or
incrementally throughout the remedial action process. Allowances for uncollectible state cost share
receivables have not been recorded, because the Agency has not had collection problems with these
agreements.
The majority of other receivables for Asbestos and FIFRA represent interest receivable and
receivables to the General Fund of the Treasury.
A summary of accounts receivable as of September 30,1996 is in Note 4.
J. Loans Receivable
Loans are accounted for as receivables after funds have been disbursed. The amount of
Asbestos Loan Program loans obligated but not disbursed are disclosed in Note 5. Loans receivable
resulting from obligations on or before September 30, 1991 are reduced by the allowance for
EPA's FY 1996 Annual Financial Statements
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uncollectible loans. Loans receivable resulting from loans obligated on or after October 1, 1991
are reduced by an allowance equal to the present value of the subsidy costs associated with these
loans. The subsidy cost is calculated based on the interest rate differential between the loans and
Treasury borrowing, the estimated delinquencies and defaults net of recoveries offset by fees
collected and other estimated cash flows associated with these loans.
K. Appropriated Amounts Held by Treasury
For the Superfund and LUST Trust Funds, and for amounts appropriated to the Office of
Inspector General from the Superfund and LUST Trust Funds, cash available to the Agency that
is not needed immediately for current disbursements remains in the respective Trust Funds managed
by Treasury. At the end of FY 1996, approximately $2,967,505 remained in the Treasury managed
Superfund Trust Fund and approximately $65,997 remained in the LUST Trust Fund to meet the
Agency's disbursement needs.
L. Advances and Prepayments
The Agency records the differences resulting from disbursements recorded by Treasury but not
recorded by the Agency and the disbursements recorded by the Agency but not by Treasury as
advances and prepayments. As a result of a data conversion error, the LUST Trust Fund has
recorded a prepayment of $636 which relates to prior years. Other amounts are current.
M. Property, Plant, and Equipment
Purchases of EPA-held and contractor-held personal equipment are capitalized if the equipment
is valued at $25 thousand or more and has an estimated useful life of at least two years.
Depreciation is taken on a modified straight-line basis over a period of six years depreciating 10%
the first and six year, and 20% in years two through five.
Real property consists of land, buildings and leasehold improvements and are capitalized when
their value is $ 75 thousand or more. Buildings are valued at an estimated original cost basis and
land is valued at fair market value. Capital improvements and work-in-progress, subject to the
$75 thousand capitalization threshold, not completed prior to the appraisals, are recorded at actual
cost. Depreciation for real property is based on specific identification.
N. Liabilities
Liabilities represent the amount of monies or other resources that are likely to be paid by the
Agency as the result of a transaction or event that has already occurred. However, no liability can
be paid by the Agency without an appropriation or other collection of revenue for services
provided. Liabilities for which an appropriation has not been enacted are classified as unfunded
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EPA's FY 1996 Annual Financial Statements
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liabilities and there is no certainty that the appropriations will be enacted. Liabilities of the Agency,
arising from other than contracts, can be abrogated by the Government acting in its sovereign
capacity.
O. Borrowing Payable to the Treasury
Borrowing payable to Treasury result from loans from Treasury to fund the Asbestos direct
loans described in part B and C of this note. Periodic principal payments are made to Treasury
based on the collections of loans receivable.
P. Interest Payable to Treasury
The Asbestos Loan Program makes periodic interest payments to Treasury based on its debt
to Treasury. At the end of FY 1996, there was no outstanding interest payable to Treasury since
payment was made through September 30.
Q. Annual, Sick and Other Leave
Annual leave is accrued as it is earned and the liability is reduced as leave is taken. Each year,
the balance in the accrued annual leave account is adjusted to reflect current pay rates. To the
extent current or prior year appropriations are not available to fund annual leave earned but not
taken, funding will be obtained from future financing sources. Annual leave expense for the
Superfiind Trust Fund was a negative $936 and for All Other Funds a negative $7,110 in FY 1996.
Sick leave and other types of nonvested leave are expensed when taken.
R. Retirement Plan
The majority of the Agency's employees participate in the Civil Service Retirement System
(CSRS), to which the Agency makes matching contributions equal to 7% of pay.
On January 1, 1987, the Federal Employees Retirement System (FERS) went into effect
pursuant to Public Law 99-335. Most employees hired after December 31, 1983, are automatically
covered by FERS and Social Security. Employees hired prior to January 1, 1984 were allowed to
either join FERS and Social Security or remain in CSRS. A primary feature of FERS is that it
offers a savings plan to the Agency employees which automatically contributes 1 percent of pay and
matches any employee contribution up to an additional 4 percent of pay. For most employees hired
after December 31, 1983, the Agency also contributes the employer's matching share for Social
Security.
EPA's FY 1996 Annual Financial Statements
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The Agency does not report CSRS or FERS assets, accumulated plan benefits, or unfunded
liabilities, if any, applicable to its employees. Reporting such amounts is the responsibility of the
Office of Personnel Management. Such data is not allocated to individual departments and
agencies.
Note 2. Fund Balances with Treasury:
The Treasury maintains EPA's fund accounts and processes all of EPA's receipts and
disbursements. The available balances are for payment of EPA's obligations under its various
programs. The restricted balances pertain to expired appropriated authority and are unavailable for
future obligations.
Fiscal Year 1996:
STAG
Superfund
ALL Others
Total
S 7,364,623
4,948
1,959,973
Available
S 7,364,623
4,948
1,231,975
Restricted
$
727,998
Note 3. Investments and Marketable Securities:
Amounts for Balance Sheet Reporting-
Superfund
Intragovernmental
Securities:
Governmental
Securities:
Uniroyal Tech
Total
Coat
Unamortized
Amortization (Premium) Market Investments,
Method Discount Value Net
5.146
$5-146
3.615
S3-615
3,615
$3.615
Required
Market
Value
Disclosure
$3.615
All Others
Intragovernmental
Securities: S8.925 $ : $ 33 $8.892 $8.892 $ -
CERCLA, as amended by SARA, authorizes EPA to recover monies to clean up Superfund
sites from responsible parties (RP). Some RP's file for bankruptcy under Title 11 of the U.S. Code.
In bankruptcy settlements, EPA is an unsecured creditor and is entitled to receive a percentage of
the assets remaining after secured creditors have been satisfied. Some Rps satisfy their debts by
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EPA's FY 1996 Annual Financial Statements
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issuing marketable securities in the reorganized company. The Agency does not intend to exercise
ownership rights related to these securities, instead will convert these securities to cash as soon as
practicable.
Note 4. Accounts Receivable:
Fiscal Year 1996:
Intergovernmental Assets
Superfund
STAG
AU Others
Accounts Receivable
$ 43,555
$ 5,845
$ 52,773
Less Allowance for Doubtful Accounts
-
-
-
Total:
$ 41,555
$ 5.845
S 52.773
Governmental Assets
Accounts Receivable
$827,772
$ 71,345
$ 86,839
Less Allowance for Doubtful Accounts
(299.8891
f21.0851
(38.0731
Total:
£ 527,883
$ 50.260
$ 48.766
The Allowance for Doubtful Accounts is determined on a specific identification basis as a result
of a case-by-case review of receivables at the regional level, and a general reserve on a percentage
basis for those not specifically identified.
Note 5. Loans Receivable, Net - Non-Federal:
Asbestos Loan Program loans disbursed from obligations made prior to FY 1992 would be
reported net of an allowance for estimated uncollectible loans, if an allowance was considered
necessary. Loans disbursed from obligations made after FY 1991 are governed by the Federal
Credit Reform Act. The Act mandates that the present value of the subsidy costs (i.e., interest rate
differentials, interest subsidies, anticipated delinquencies, and defaults) associated with direct loans
be recognized as an expense in the year the loan is made. The net present value of loans is the
amount of the gross loan receivable less the present value of the subsidy.
An analysis of loans receivable and the nature and amounts of the subsidy and administrative
expenses associated entirely with Asbestos Loan Program loans is provided in the following
sections.
Post Credit Reform Loans:
Loan* Allowance for Loan*
Receivable, Estimated Receivable,
Grog* Uncollectible Loan* Net
September 30,1996 $ 93,543 $ (103) $93,440
EPA's FY 1996 Annual Financial Statements
Page 10S
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Post Credit Reform Loans:
Loans
Receivable,
Gross
Allowance for
Subsidy Cost
(present value)
Loans
Receivable,
Net
September 30,1996
Total 1996:
$ (24.7921
$ (24.8951
$ 39.333
$132.773
Subsidy Expenses for Post Credit Reform Loans:
Current Year's Loans:
Fee
Offsets
$ 0
Interest Expected
Total Differential Defaults
Fiscal Year 1996: $ 2.392 $ 2 390 $ ?.
Total Direct Loan Subsidy Expense:
Fiscal Year 1996 $ 3,894
Fiscal Year 1996 Other Information: $1,993 for obligations established prior to credit reform
and $13,416 for obligations established after credit reform remain unpaid. No expenses were
incurred in FY 1996 for subsidy reestimates.
Note 6. Property, Plant and Equipment - Net:
Superfund property, plant and equipment, consists primarily of personal property items held by
contractors and the Agency. EPA also has property funded by various other Agency
appropriations. The property funded by these appropriations are presented in the aggregate under
"All Others" and consists of real, personal, and contractor-held property.
During FY 1996, management made valuation adjustments to EPA-held equipment and
changed the method used to depreciate buildings from "straight-line" to specific identification of
each building's useful life. These lives ranged from 15 to 100 years. The cumulative effect of the
chances in accounting estimates resulted in a net adjustment to Superfund and All Other property,
plant and equipment by $(23), and $39,444, respectively, with a corresponding adjustment to the
capital asset component of equity.
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EPA's FY 1996 Annual Financial Statements
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In 1996, EPA increased the capitalization threshold of contractor-held personal property to
$25,000. EPA also determined that all contractor-held property was half way through its useful
life at the beginning of the fiscal year. The cumulative effect of these changes resulted in a net
adjustment to property, plant and equipment for Superfund and All Other of $(5,642) and $(380),
respectively, with a corresponding adjustment to the capital asset component of equity.
In addition, EPA determined that certain real property leases that were previously expensed
were capital leases. The affect of this change was to reflect net book value of capital leases of
$37,788 and a lease liability of $39,527 (Note 9). Due to the recapture of matching appropriations,
there is not impact on the statement of operations and changes in net position.
Schedule of Property, Plant, and Equipment by Fund
EPA-Held Equipment, 1996
Beginning Balance - Equipment
Adjustments
Adjusted Beginning Balance - Equipment
Current Year Purchases
Adjustments
Ending Balance - Equipment
Beginning Balance - Accum Depr
Adjustments
Adjusted Beginning Balance - Accum Depr
Current Year Depreciation
Adjustments
Ending Balance - Accum Depreciation
Net Book Value - EPA-Held Equipment
Superfund STAG All Other*
$13,747 $ - $78,239
(1051 : 1.306
13,642 - 79,545
1,818 - 17,197
(5121 - (9121
14.948 - 95,830
(9,235) - (48,070)
82 - (919)
(9.1531 ; (48.9891
(2,130) - (14,814)
567 - 717
10.716 ; 63.086
4.232 - 32.744
Contractor-Held Equipment, 1996
Beginning Balance
Adjustments
Ending Balance
Beginning Balance - Accumulated Depreciation
Adjustments
Adjusted Beginning Balance
Current Year Depreciation
Ending Balance - Accumulated Depreciation
Net Book Value - Contractor-Held Equipment
$23,659 $ - $41,207
(11-2821 ; (7601
12377 ; 40.447
(11,829) - (20,604)
5.640 - 380
(6,189) - (20,224)
(2,475) - (8,089)
(8,664) : (28,313)
3.713 ^ 12.134
EPA's FY 1996 Annual Financial Statements
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Land and Buildings
Beginning Balance - Land and Buildings
Adjustments
Adjusted Beginning Balance
FY 96 Acquisitions
Ending Balance - Land and Buildings
Beginning Balance - Accumulated Depreciation
Adjustments
Adjusted Beginning Balance
Current Year Depreciation
Ending Balance - Accumulated Depreciation
Net Book Value - Land and Buildings
141,389
14,970
156.359
7.009
163.368
(62,782)
24.087
(38,695)
(1.438')
(40.1331
Capital Leases
Beginning Balance - Capital Leases
Adjustment
Adjusted Beginning Balance
Beginning Balance - Accumulated Depreciation
Adjustment
Adjusted Beginning Balance
Current Year Depreciation
Ending Balance - Accumulated Depreciation
Net Book Value - Capital Leases
Net Book Value - PP & E
S7.945
40.913
40.913
(3.1251
(3,125)
(1.6381
(4.7631
36.150
S204.263
Note 7. Debt - Federal:
Under the provisions of the Federal Credit Reform Act, borrowing from Treasury represents
the portion of loan disbursements not subsidized by appropriated funds.
Fiscal Year 1996 Borrowing from Treasury:
Beginning New Ending
Balance Borrowing Repayments Balance Refinancing
Intragovernmental Debt:
Fiscal Year 1996:
Borrowing from Treasury
$37.050
$3.279
$40.329
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Note 8. Other Liabilities- Federal:
Fiscal Year 1996:
Intragovernmental Liabilities - Funded
Governmental Liabilities - Funded:
Accrued Funded Payroll
Unearned Revenue:
State Cost Shares
Site Cleanup Costs
Other
Superfund
$ 7,833
301,030
9,615
STAG
$
All Others
$887,027
91,632
41,188
37,388
254,027
14,784
Governmental Liabilities - Unfiuided
$ 14,158
$
35,660
$ 90,475
Standard General Ledger does not provide breakdown by current/non current.
The Governmental Liabilities-Unfunded consists of accrued unfunded leave and actuarially
unfunded liabilities related to workmen compensation.
Note 9. Leases:
Capital Leases:
Summary of Assets Under Capital Lease:
Land and Buildings $40,913
Accumulated Amortization $ 4,763
EPA has three capital leases for land and buildings housing scientific laboratories and/or
computer facilities. All of these leases include a base rental charge and escalator clauses bases upon
either rising operating costs and/or real estate taxes. These leases terminate the end of fiscal years
2010, 2013 and 2025. The charges are expended out of the EPM appropriation. The amounts
capitalized are $5,628, $10,800 and $24,485. The minimum future costs of these three capital
leases are listed below.
EPA's FY 1996 Annual Financial Statements
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Future Payments Due:
Land and
Fiscal Year Buildings
1997
1998
1999
2000
2001
After 2001
Total Future Payments
Less: Imputed Interest
Total Capital
Lease Liability
Funded
Unfunded
Operating Leases:
The General Services Administration (GSA) provides leased real property (land and
buildings) as office space for EPA employees. GSA charges a Standard Level Users Charge that
approximates the commercial rental rates for similar properties.
EPA has three direct operating leases for land and buildings housing scientific laboratories
and/or computer facilities. All of these leases include a base rental charge and escalator clauses
based upon either rising operating costs and/or real estate taxes. One lease terminates in fiscal year
1999 and the other two leases will terminate in the year 2000. The charges are expended out of the
EPM appropriation. The minimum future costs of the three operating leases are listed below.
All Others
$ 6,103
6,103
6,103
6,073
Total Future Lease £24382 $ ; $ ; £24.382
Payments
Note 10. Total Net Position:
The total net position of EPA's Other funds and activities represents the financial position
of these funds after consideration of the net effects of operations in the current year and the
$ 6,295
6,295
6,295
6,295
6,295
121,375
$152,851
113,324
39,527
Total Land &
Fiscal Year Buildings Superfund STAG
1997
After 2001
$ 6,103 $ - $
1998 6,103
1999 6,103
2000 6,073
2001
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EPA's FY 1996 Annual Financial Statements
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cumulative effects of all prior years. Unexpended Appropriations represents that portion of the
funding authority provided by Congress, net of interagency transfers, which has not reached the
Accrued Expenditure stage. Invested Capital represents the book value, net of depreciation, of
EPA resources invested in equipment. Cumulative Results of Operations represents the cumulative
deficit or surplus from the funds' operations.
Fiscal Year 1996:
Simerfund
STAG
All Others
Unexpended Appropriations
$2,444,053
$7,368,484
$1,841,121
Unobligated
551,704
652,063
455,601
Available
551,704
652,063
455,601
Unavailable
-
-
-
Undelivered Orders
1,892,349
6,716,421
1,382,884
Invested Capital
7,945
-
204,263
Other
540,397
-
-
Cumulative Results of Operations
2,288
453
2,268
Amounts Held by Treasury for Future Appropriations
3,836,151
-
980,380
Future funding requirements non-actuarial
(14.1581
-
(90.475}
Total Net Position
S6.082.721
$7,368,937
$2.937.557
Note 11. Program or Operating Expenses:
FY 1996 Operating Expenses by Object
SuDerfund
STAG
All Others
Classification:
(1) Personnel Services and Benefits
$ 222,810
$
$ 941,533
(2) Travel and Transportation
6,498
12
22,320
(3) Rental, Communication and Utilities
33,548
2
172,517
(4) Printing and Reproduction
624
6
9,252
(5) Contractual Services
1,021,175
42,587
554,285
(6) Supplies and Materials
3,342
62
21,383
(7) Equipment not Capitalized
6,530
33
27,172
(8) Land and Structures
2
-
5,155
(9) Investments and Loans
-
-
(36)
(10) Grants, Subsidies and Contributions
160,787
2,464,721
856,590
(11) Insurance Claims and Indemnities
294
-
380
Total Expenses by Object Class
$ 1.455.610
$2.507.423
$2.610.551
EPA's FY 1996 Annual Financial Statements
Page 111
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Note 12. Other Expenses:
As a matter of policy, EPA expenses discounts lost during the fiscal year as interest expense.
EPA pays Treasury interest on the Asbestos loan borrowings. For FY 96, Interest Expense paid
to Treasury for Asbestos Loan Borrowings is shown on the Income Statement as a separate line
item.
Sunerfund All Others
Fiscal Year 1996:
Discounts Lost SI $ 8
Inventory adjustments - 8
Total $16
Note 13. Prior Period Adjustments:
During fiscal year 1996, a number of analyses and reclassifications of account balances
brought forward from prior fiscal years occurred. One of the major activities which resulted in
large prior period adjustment amounts was the analysis and recording of unbilled Superfiind
Oversight. In addition to the Superfiind Oversight, there was a cumulative reconciliation of
receivables to the subsidiary records, an analysis of equity accounts between the Appropriated
Capital and Cumulative Results of Operations for budget years 1988 and prior, an analysis of
reimbursable earnings, and an analysis of Bad Debt Expenses recorded during the fiscal year. Based
on these activities prior period adjustments were made as follows:
All Other
Superfund STAG Funds
Superfiind Oversight $77,749 $ $
Account Receivable 15 (58) (192)
Equity -- (4,227) (129)
Unbilled Reimbursements 10,994 - (10,562)
Bad Debt 1.166 3.677 11.382
Total $89.924 $ C6081 $ 499
Page 112
EPA's FY 1996 Annual Financial Statements
-------
Note 14. Non-Operating Changes:
The Non-Operating Changes resulted from funds transferred-in from Treasury, funds
collected and returned to Treasury, statement of financial position reclassifications, and other non-
operating increases and decreases.
Fiscal Year 1996
Superfund
STAG
All Others
Increases:
Transfers-in
$ 1,299,647
$2,813,000
$ 2,660,306
Other Increases
733,955
Total Increases
2,033,602
2,813,000
2,660,306
Total Decreases
<Ĥ975.8701
2.579.762
1.647.353
Net Non-Operating
Changes
$ 3.009.472
$ 233,238
$1.012-953
Note 15. Contingencies:
EPA is a party in various administrative proceedings, legal actions, and claims brought by or
against it. These include:
Various personnel actions, suites, 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 Superfiind 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.
Superfund
Under CERCLA /106 (a), EPA issues administrative orders that require parties to clean up
contaminated sites. CERCLA /106(b) allows a party that has complied with such an order to
petition EPA for reimbursement from the Fund of its reasonable costs of responding to the order,
EPA's FY 1996 Annual Financial Statements
Page 113
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plus interest. To be eligible for reimbursement, the party must demonstrate either that it was not
a liable party under CERCLA i 1079(a) for the response action ordered or that the Agency's
selection of the response action was arbitrary and capricious or otherwise not in accordance with
law.
There are approximately fifteen CERCLA / 106(b) administrative claims and four pending
lawsuits. If the claimants are successful, the total losses on the administrative and judicial claims
could amount to approximately $40,365 and $13,096, respectively. The incurrance of a loss on
these cases could be considered to be reasonably probable, however, an accurate estimate of the
amount of the contingent loss cannot be made. As of September 30, 1996, no accruals had been
made for these claims since losses had not yet been incurred.
EPA is responsible to indemnify response action contractors (CERCLA /119) for legal costs.
In each CERCLA 119 case, it is reasonable possible that legal defense costs will eventually exceed
or have exceed the deductible specified in the current indemnification agreements. Such payments
by the United States would be recoverable government response costs.
In addition, EPA is a party to certain pending litigation upon which EPA believes it has a
reasonable legal position. No estimate has been provided for a loss.
Unasserted Claims and Assessments
There are a number of outstanding CERCLA f 106(a) cleanup orders where the recipients
of the orders have not yet completed the ordered response actions. Each such recipient could
potentially file a claim with EPA for reimbursements under CERCLA i 106(b) of its costs of
responding to the order once it has completed the ordered actions.
As of September 30, 1996, there were no material pending claims or litigation involving the
State and Tribal Assistance Grants Fund (STAG) or all other appropriated funds of the agency (All
Other Funds).
In the opinion of EPA's management and General Counsel, the ultimate resolution of any
legal actions still pending will not materially affect EPA's operations or financial position.
Note 16. Cash and Other Monetary Assets:
Cash available for EPA use include petty cash imprest funds and other deposit funds which
will not be transferred into the U. S. Treasury general fond.
Page 114
EPA's FY 1996 Annual Financial Statements
-------
Cash under the control of EPA was as follows:
Entity Assets Non-Entitv Assets
September 30,1996 $ 6,856 $ 0
Note 17. State Cost Share Credits:
The authorizing Superfund statute and Federal regulations require States to share in the costs
of the Superfund program. The cost share requirements range from 0 to 50% of either remedial
action costs only or total response costs depending on the circumstances of the individual site. In
some cases, States are permitted to fulfill the cost share requirement through the provision of in-
kind services or through credits earned from the incurrence of response costs by the State using its
own funds. For a State to claim a credit, certain regulatory requirements must be met and EPA
must approve the credit on a site-specific basis. Once EPA grants a credit, any account receivable
which has been established will be adjusted since the State will not be making a payment to EPA.
The total amount of outstanding state credits is estimated at $9.4 million.
Note 18. Income and Expenses from other Appropriations:
OMB Bulletin 94-01 requires financial statements to "include all material costs incurred by
the Agency in support of the activities of the revolving fund(s), trust fund(s), or commercial
function(s)." For FY 1996, OMB expanded the scope of this requirement to include all of the
Agency's operations.
During Fiscal Year 1996, EPA had three appropriations which funded a variety of
programmatic and non-programmatic activities across the Agency, subject to statutory
requirements. The Environmental Programs and Management (EPM) appropriation was created
for 1996 to fund personnel compensation and benefits, travel, procurement, and contract activities.
Two prior year appropriations, Program and Research Operations (PRO) and Abatement Control
and Compliance (AC&C) generated expenses that benefitted FY 1996. PRO funded travel,
personnel compensation and benefits. AC&C funded procurement and contract activities.
All of the expenses from EPM, PRO and AC&C were distributed among EPA's three
Reporting Entities: Superfund, STAG, and All Others. This distribution is calculated using a
combination of specific identification of expenses to Reporting Entities, and a weighted average that
distributes expenses proportionately to total programmatic expense.
EPA's FY 1996 Annual Financial Statements
Page 115
-------
As illustrated below, this estimate does not impact the net effect of the Statement of
Operations and Changes in Net Position.
Fiscal Year 1996:
Income From Expenses
Other From Other Net
Appropriations Appropriations Effect
Superiund $75,399 $(75,399) $ 0
STAG 0 0 0
All Others 0 0 0
Note 19. Amounts Held by Treasury (Unaudited):
Amounts Held by Treasury for Future Appropriations consists of amounts held in trusteeship
by the U.S. Department of Treasury in the "Hazardous Substance Response Fund" (Superfund).
Superiund is supported primarily by an environmental tax on corporations, cost recoveries of funds
spent to clean up hazardous waste sites, and fines and penalties. Prior to December 31, 1995, the
fund was also supported by other taxes on crude and petroleum and on the sale or use of certain
chemicals. The authority to assess those taxes expired on December 31, 1995 and has not been
renewed by Congress. It is not known if or when such taxes will be reassessed in the future.
The following reflects the "Hazardous Substance Response Fund" as maintained by the U.S.
Department of Treasury. The amounts contained in these statement have been provided by
Treasury and are unaudited.
Combined
EPA
Undisbursed Balances:
Available for Investment
$ (286)
Unavailable for Investment
733.955
Total Undisbursed Balance
$ 733,669
Investments, net of discounts
6.069.987
Total Assets
£6.803 656
2.967.505
$2.967.505
Treasury
$ (286)
733.955
$ 733,669
3.102.482
S3.836.151
Page 116
EPA's FY 1996 Annual Financial Statements
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Liabilities & Equity
Debt
Equity
Total Liability and Equity
$ 733,955
S6.069.701
S6.803.656
2.967.505
S2.967.505
$ 733,955
3.102.196
83,836,1?)
Receipts
Crude and Petroleum
Certain Chemicals
Corporate Environmental
Cost Recoveries
Fines & Penalties
Total Revenue
Interest Income
Total Receipts
$ 159,559
94,341
382,190
248,946
3.337
888,373
350.300
SI .238.673
$ 159,559
94341
382,190
248,946
L327
888,373
350.300
SI .238.673
Outlays
Returned Unobligated
Appropriations
Transfers to EPA
Total Outlays
Net Custodial Distribution
$ (497)
1.294.376
1-293.879
S f55.2061
S (497)
1-294376
1 <293,879
S (55.2061
LUST
Amounts Held by Treasury for Future Appropriations consists of amounts held in trusteeship
by the U.S. Department of Treasury in the "Leaking Underground Storage Tank Trust Fund"
(LUST). LUST is supported primarily by a sales tax on motor fiiels to clean up LUST waste sites.
The following reflects the "Leaking Underground Storage Tank" Fund as maintained by the
U.S. Department of Treasury. The amounts contained in these statement have been provided by
Treasury and are unaudited.
EPA's FY 1996 Annual Financial Statements
Page 117
-------
Undisbursed Balances:
Available for Investment
Unavailable for Investment
Total Undisbursed Balance
Investments, net of discounts
Total Assets
Liabilities & Equity
Debt
Equity
Total Liability and Equity
Receipts
Highway TF Tax
Inland Waterway TF Tax
Airport/Air TF Tax
Gross Revenue
Less: Reimbursement to G/F
Net Revenue
Interest Income
Net Receipts
Outlays
Operating Expenses
Incurred by Treasury
Transfers to EPA
Total Outlays
Net Custodial Collections
Combined EPA Treasury
$ 3
1.046.374
65.997
$ 3
980.377
imago
1.046.377
S 1 046.377
65.997
980.380
S 980.380
S 50,433 $ - $ 50,433
168 - 168
4,347 - 4,347
54,948 - 54,948
(6.9691 : (6.9691
47,979 - 47,979
59.620 : 59.620
$ 107.599 $ : $ 107.599
$ (3) $ - $ (3)
ZLlil ; 71.151
71,148 : 71.148
S (36.4511 S S (36.4S11
Page 118
EPA's FY 1996 Annual Financial Statements
-------
SUPPLEMENTAL INFORMATION
REQUESTED BY
OMB*
* Supplemental Information Only - Statements Were Not Audited
EPA's FY 1996 Annual Financial Statements Page 119
-------
State and Tribal Assistance Grants and All Other Funds
Supplemental Statements of Financial Position (Unaudited)
As of September 30,1996
(Dollars in Thousands)
LUST Oil Spill
Trust Fund Trust Fund FIFRA
1S96 1326 1QQ"
Tolerance EPM
mfi KHK
ASSETS
Entity Assets:
Intragovemmental Assets:
Balance With Treasury
Investments
Accounts Receivable, Net
Interest Receivable
Advances and Prepayments
Governmental Assets:
Accounts Receivable, Net
Credit Program Receivables, Net
Interest Receivable
Advances and Prepayments
Property and Equipment, Net
Cash and Other Monetary Assets
Operating Materials and Supplies, Net
Marketable Securities Equity
Appropriated Amounts Held By Treasury
Total Entity Assets
Non-Entity Assets:
Amounts Held By Treasury For Future Appropriation
Total Non-Entity Assets
Total Assets
LIABILITIES
Liabilities Covered by Budgetary Resources:
Intragovemmental Liabilities:
Accounts Payable
Debt
Other Intragovemmental Liabilities
Governmental Liabilities:
Accounts Payable
Other Governmental Liabilities
Total Liabilities Covered by Budgetary Resources
Liabilities not Covered by Budgetary Resources:
Pensions & Other Acturial Liability
Other Intragovemmental Liabilities
Other Governmental Liabilities
Total Liabilities not Covered by Budgetary Resources
Total Liabilities
NET POSITION
Balances:
Unexpended Appropriations
Invested Capital
Cumulative Results of Operations
Amounts Held By Treasury For Future Appropriation
Other
Future Funding Requirements
Total Net Position
Total Liabilities and Net Position
$5,675
355
$6,037
8,450
752
39
83
154
65.997
-
72.862
14.680
980.380
$980,380
$1,053,242
$14,680
$44
$129
1,833
2.690
198
247
2.075
3.066
421
538
421
538
2.496
3.604
70,709
11,460
83
154
(5)
-
980,380
-
(421)
(538)
1.050.746
11.076
$473
8,892
3
1
16
41
9.426
$12
43
3.011
3.066
1.198
1.198
4.264
41
6,319
5.162
$4,253
4.253
21
4.232
4.253
311
311
4.564
(311)
$710,840
7,655
54
638
4,424
305
723.916
9.426 *4.253 $723.916
$4,216
407
43,437
32-248
80.308
74.182
74,18?
154.490
643,397
305
(94)
tiJiS) ftin (74.182t
-$69,426
$1.053,242 $14,680 $9,426 $4.253 $72391*
Note: Supplemental Information Only - Statements Were Not Audited
Page 120
EPA's FY 1996 Annual Financial Statements
-------
State and Tribal Assistance Grants and All Other Funds
Supplemental Statements of Financial Position (Unaudited)
As of September 30,1996
(Dollars in Thousands)
Science &
Building St
Inspector
STAG
Other
Technology
Facilities
General
STAG
SRFSG
Fundi
10
-------
State and Tribal Assistance Grants and All Other Funds
Supplemental Statements of Operations and Changes in Net Position (Unaudited)
For the Year Ended September 30,1996
(Dollars in Thousands)
LUST
Oil Spill
Trust Fund
Trust Fund
FIFRA
Tolerance
EPM
too/:
iio*
lOOC
kmc
1QQ/L
REVENUE AND FINANCING SOURCES
Appropriated Capital Used
$68,456
$16,283
-
$1,366
$1,032,519
Revenues from Services to the Public
--
5,845
15,835
..
9,735
Trust Fund Revenue Collected By Treasury
47,979
-
-
Trust Fund Investment Income Earned By Treasury
59,620
-
-
Interest and Penalities, Non-Federal
-
-
-
..
Interest Income, Federal
-
-
556
Income From Other Appropriations
12,815
3,158
16,512
1,598
Other Revenues
-
-
-
1
Less: Receipts Returned to Treasury
-
-
1
Total Revenues and Financing Sources
188.870
25.286
32.903
2.964
1.042.254
EXPENSES
Program or Operating Expenses
68,449
22,039
15,782
1,381
1,042,179
Depreciation and Amortization
11
89
53
.
34
Bad Debts and Writeoffs
1
1
_
132
Expenses From Other Appropriations
12,815
3,158
16,512
1,598
Interest Expense
-
-
-
_
3
Expenses Of The Trust Fund Incurred By Treasury
3
-
-
..
Other Expenses
-
-
1
Total Funded Expenses
81.279
25.287
32.347
2.979
1.042.349
Excess (Shortage) of Revenues and
Financing Sources Over Total Funded Expenses
before changes in accounting principle (policy)
107,591
(1)
556
(15)
(95)
Changes in Accounting Principle
Change in Capitalization Threshold
-
-
32
Addition of Contractor Held Property
-
-
..
Appropriated Capital Used for Accounting Change
-
-
(32)
-
-
Plus (Minus) Unfunded Expenses
(143)
(256)
(77)
(164)
(74.1821
Excess (Shortage) of Revenues and
Financing Sources Over Total Expenses
$107.448
$479
($1791
($74.2771
NET POSITION
Net Position, Beginning Balance.as
Previously Stated
$92,900
$12,732
$4,710
($163)
Adjustments
4
-
(1)
15
1
Net Position, Beginning Balance.as
Restated
92,904
12,732
4,709
(148)
1
Excess (Shortage) of Revenues and
Financing Sources Over Total Expenses
107,448
(257)
479
(179)
(74,277)
Plus (Minus) Non Operating Changes
850.394
(1.3991
(26)
16
643.702
Net Position, Ending Balance
$1,050,746
$11.076
$5.162
($3111
SS69 A1A
Note: Supplemental Information Only - Statements Were Not Audited
Page 122
EPA's FY 1996 Annual Financial Statements
-------
State and Tribal Assistance Grants and All Other Funds
Supplemental Statements of Operations and Changes in Net Position (Unaudited)
For the Year Ended September 30,1996
(Dollars in Thousands)
Science & Building & Inspector
Technology Facilities General
Itttf tOOA 1QQC
STAG
STAG
SRFSG
lSOfi-
Other
Fundi
I'm
REVENUE AND FINANCING SOURCES
Appropriated Capital Used
Revenues from Services to the Public
Trust Fund Revenue Collected By Treasury
Trust Fund Investment Income Earned By Treasury
Interest and Penalities, Non-Federal
Interest Income, Federal
Income From Other Appropriations
Other Revenues
Less: Receipts Returned to Treasury
Total Revenues and Financing Sources
EXPENSES
Program or Operating Expenses
Depreciation and Amortization
Bad Debts and Writeoffs
Expenses From Other Appropriations
Interest Expense
Expenses Of The Trust Fund Incurred By Treasury
Other Expenses
Total Funded Expenses
Excess (Shortage) of Revenues and
Financing Sources Over Total Funded Expenses
before changes in accounting principle (policy)
Changes in Accounting Principle
Change in Capitalization Threshold
Addition of Contractor Held Property
Appropriated Capital Used for Accounting Change
Plus (Minus) Unfunded Expenses
Excess (Shortage) of Revenues and
Financing Sources Over Total Expenses
NET POSITION
Net Position, Beginning Balance,as
Previously Stated
Adjustments
Net Position, Beginning Balance,as
Restated
Excess (Shortage) of Revenues and
Financing Sources Over Total Expenses
Plus (Minus) Non Operating Changes
Net Position, Ending Balance
$227,939 $19,857 $28,437 $340,709 $2,166,890 $1,134,840
5,530 - 9,530 - - 40,459
40,284
273.753
233,417
50
40,284
1
L
273.753
19.857
18,359
1,498
19.857
160,962
37.967
37,933
33
3
37.969
(2)
JM
$160,416 $25,968
546 15
25,983
400,801
340.709 2.567.691
340,709
97
340.806
(97)
2,166,714
3,246
400,801
2-570.761
(3,070)
8,599
(550.567)
91,992
21262
650.061
1,171,012
24,211
6,830
(550,567)
2,799
14
654.299
(4,238)
(412)
37,788
(37,376)
66.863
= ($901 ($971 ($3.0701 $62.625
$7,139,474 $1,531,793
3-677 (4.285) (811
3,677 7,135,189 1,531,712
(90) (97) (3,070) 62,625
(9.33?) ?,338,167 (2-104.9291 (895.2661
296.536 128.231
$289.193 $16.658 $2.341.747 $5.027.190 $699 071
Note: Supplemental Information Only - Statements Were Not Audited
EPA's FY 1996 Annual Financial Statements
Page 123
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OIG'S
REPORT
ON EPA'S
FY 1996 FINANCIAL
STATEMENTS
This summary is part of Audit Report E1AML6-20-7001-7100120 issued by the EPA Office of
Inspector General on March 24, 1997. Therefore, it contains references to other sections of the
report (e.g., attachments), which are not included.
EPA's FY 1996 Annual Financial Statements Page 12S
-------
INSPECTOR GENERAL'S REPORT ON EPA'S
FISCAL 1996 FINANCIAL STATEMENTS
The Administrator
U.S. Environmental Protection Agency:
In accordance with the requirements of the Government Management Reform Act (GMRA),
we undertook an audit of EPA's fiscal 1996 financial statements. Following, are the results of our
work that included determining whether: (1) EPA's Consolidating Statement of Financial Position
is fairly presented (2) adequate internal controls related to the Agency's financial statements were
in Dlace (3) the Agency complied with applicable laws and regulations, and (4) information
reported in the overview section of the financial statements is consistent with information in the
principal financial statements.
As described in Note 1, these financial statements were prepared in accordance with
aoolicable provisions of OMB Bulletins 94-01 and 97-01, entitled "Form and Content of Agency
Financial Statements" both of which are considered a comprehensive basis of accounting other than
generally accepted Accounting principles. EPA received a waiver from OMB for the preparation
of Statements of Cash Flow and Budget and Actual Expenses for fiscal 1996. Smce ths was the
first year GMRA required Agency-wide financial statements for EPA, comparative fiscal 1995
financial statements are not presented.
The Office of Inspector General (OIG) is not independent with respect to amounts pertaining
to its operations that are presented in the financial statements. The amounts included for the OIG
are not material to the Consolidated Financial Statements. The OIG is organizationally independent
with respect to all other aspects of the Agency's activities.
The financial statements include expenses of grantees, contractors and other Federal agencies.
Our audit work pertaining to these expenses included testing only within EPA. Audits of grants,
contracts and interagency agreements performed at a later date may disclose questioned costs of
an undeterminable amount at this time.
In addition the United States Treasury collects and accounts for excise taxes that are
deposited into the Superfund and Leaking Underground Storage Tank Trust Funds.1 The United
1 The Leaking Underground Storage Tanlc Trust Fund is included in the All Other Funds column of the
financial statements.
Page 126
-------
States Treasury is also responsible for investing amounts not needed for current disbursements and
transferring funds to EPA as authorized in legislation. Since the United States Treasury, and not
EPA, is responsible for these activities our audit work did not cover these activities.
OPINION ON EPA'S CONSOLIDATING STATEMENT OF FINANCIAL POSITION
As further discussed in the section of this report which summarizes our evaluation of internal
controls, we were unable to determine if the Agency fairly presented: (1) the amount of unbilled
Superfund oversight costs recoverable from potentially responsible parties (affects the Superfund
and the Agency's Consolidated financial statements), (2) the amount owed grantees for costs they
had incurred but for which they had not billed EPA (affects the Superfund, State and Tribal
Assistance Grants Appropriation, All Other Funds, and the Agency's Consolidated financial
statements), and (3) the components of Superfund net position (affects only the Superfund financial
statements).
In our opinion, except for the affects, if any, of adjustments that might have been necessary
had we been able to audit the unbilled oversight costs, and the amounts accrued for unbilled grantee
expenses, the Consolidating Statement of Financial Position fairly presents the financial position of
EPA, the State and Tribal Assistance Grants Appropriation, and All Other Funds as of September
30, 1996. We are disclaiming an opinion on the Superfund Statement of Financial Position as of
September 30, 1996 because we were unable to audit the unbilled oversight costs, the amounts
accrued for unbilled grantee expenses, and the components of Superfund net position.
DISCLAIMER OF OPINION ON EPA'S CONSOLIDATING STATEMENT OF
OPERATIONS AND CHANGES IN NET POSITION
Except for the Superfund Trust Fund (for which we disclaimed an opinion on the fiscal 1995
financial statements), we had not previously audited the financial statements of the other entities
included in the financial statements. Therefore, we could not determine whether the balances
reported for assets, liabilities and net position as of October 1, 1995 were fairly presented. Since
these balances impact the Statement of Operations and Changes in Net Position for the year ended
September 30,1996 we could not express an opinion on the Statement of Operations and Changes
in Net Position for Superfund, the State and Tribal Assistance Grants Appropriation, All Other
Funds, and the Agency as a whole. In addition, the issues described above that caused us to qualify
or disclaim an opinion on the entities reported in the Statement of Financial Position also affect the
Statement of Operations and Changes in Net Position.
The Supplemental Statements of Financial Position and Operations and Changes in Net
Position are supplementary information presented for purposes of additional analysis. We reviewed
these statements to determine if they were consistent with information in the consolidating financial
EPA's FY 1996 Annual Financial Statements
Page 127
-------
statements. However, our audit work was not designed to express, and we are not expressing, an
opinion on the financial statements for the individual funds presented in the supplemental
statements.
OVERVIEW SECTION OF THE FINANCIAL STATEMENTS
Our audit work related to the information presented in Management's Overview of EPA and
EPA Programs consisted of comparing the overview information with information in EPA's
principal financial statements to ensure that it was consistent. We did not identify material
inconsistencies between the information presented in the two documents. However, we did not
perform sufficient audit work to express an opinion on the information contained in the overview.
We also considered the results of other audits that addressed information contained in the
overview. Regarding the performance measures reported for the Leaking Underground Storage
Tank (LUST) Program, in a recently completed audit ("Consolidated Report on EPA's Leaking
Underground Storage Tank Program," Report No. E1LLF5-10-0021-6100264 issued August 6,
1996), we reported that states did not accurately report their LUST program results. EPA
Headquarters used this information to report the results of the program in the overview. The three
measures reported are: (1) number of sites with confirmed releases of petroleum products, (2)
number of these sites where cleanup has been initiated, and (3) number where cleanup has been
completed. For the states where we performed audit work, we found an overstatement of the
numbers reported by 7 to 47 percent.
We concluded that states did not accurately report their program accomplishments because
they: (1) did not correctly use the definition of the measures, (2) improperly reported unregulated
tanks, (3) had reporting systems that did not count actual activities, and (4) placed too little
emphasis on reporting requirements. Although Agency officials disagreed that the misstatements
represented a significant reporting problem, they did agree to take corrective actions which are in
process.
EVALUATION OF INTERNAL CONTROLS
We evaluated the Agency's internal control structure: (1) to determine the audit procedures
necessary to express an opinion on the financial statements, and (2) to determine whether the
internal controls provide reasonable assurance that:
transactions are properly recorded and accounted for to permit the preparation of reliable
financial statements and to maintain accountability over assets;
transactions, including those related to obligations and costs, are executed in compliance with
applicable laws and regulations; and
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funds, property, and other assets are safeguarded against loss from unauthorized use or
disposition.
Our objective in evaluating controls was not to express an opinion on controls. Accordingly,
we do not express such an opinion. Our evaluation would not necessarily disclose all matters in the
internal control structure that might be reportable conditions or material weaknesses. Because of
inherent limitations in any internal control structure, losses, noncompliances, or misstatements could
occur and not be detected. Also, projecting our evaluation of internal controls to future periods
is subject to the risk that controls may become inadequate because of changes in conditions, or the
degree of compliance with such controls may deteriorate.
MATERIAL WEAKNESSES
OMB Bulletin 93-06, "Audit Requirements for Federal Financial Statements," defines a
material weakness as a situation where internal control procedures do not reduce to a relatively low
level, the risk that errors or irregularities in amounts material to the audited financial statements
may occur and not be detected in a timely manner by employees in the normal course of performing
their assigned functions. In evaluating the Agency's internal control structure, we noted the
following material weaknesses. Attachment 1 describes these material weaknesses in more detail,
including the Agency's actions to correct the weaknesses and any additional corrective actions we
are recommending.
EPA incurs oversight costs to monitor cleanups of hazardous waste sites. These oversight
costs are recoverable by EPA from Potentially Responsible Parties according to the terms of
Consent Decrees or Consent Orders. Until bills for these costs are prepared they are not
recorded as an asset in EPA's accounting system. Therefore, regional finance personnel had
to estimate the amount of unbilled oversight costs as of September 30, so the costs could be
shown as an asset in the financial statements. Financial Management Division (FMD)
personnel provided regional finance offices with procedures for developing and recording the
amount of unbilled oversight costs. However, we found the Agency's methodology resulted
in some costs that should have been included not being included, while other costs were
included that should not have been included. We believe this occurred because Agency staff
did not always consistently code oversight costs in the Integrated Financial Management
System (IFMS), and prior to fiscal 1996 there was no requirement that Agency staff input
activity codes into IFMS.
Superfiind net position does not reconcile to its component accounts. This problem exists
because the budget execution process within IFMS was initially set up to expend funds as
though the source of all funds was appropriated authority; however, Superfund has both
appropriated and non-appropriated authority. When finance officials recorded various
transactions in IFMS for non-appropriated authority, equity, budget and revenue accounts
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were improperly affected. Therefore, we were unable to determine if the components of net
position are fairly stated. FMD officials are taking the necessary corrective actions which they
expect to complete during June 1997.
EPA's grantees are not required to provide the Agency with information on the amount of
expenses they have incurred as of September 30, but for which they have not billed EPA.
Lacking this information, the Agency in the past estimated the amount owed its grantees
based on payments made to these grantees during the first two weeks of the new fiscal year.
We found however, that this methodology does not result in the amount of unbilled grant
expenses (or the accrued liability for grant expenses) being fairly presented in the financial
statements.
To obtain a more reasonable estimate of the fiscal 1996 accrued liability for grant expenses,
Agency financial management staff contacted by phone a sample of 150 grant recipients to obtain
either the amount of the accrued liability or billing cycle information. They used this information
to estimate the Agency's accrued liability for grantee expenses. We concurred with this alternative
methodology. However, when we attempted to confirm the information provided by the grantees
we found that most grantee responses did not correspond with the original information they had
provided. Therefore, we were unable to determine whether the accrued grant liability included in
the financial statements is fairly presented.
REPORTABLE CONDITIONS
OMB Bulletin 93-06 defines a reportable condition as an internal control weakness that could
adversely affect EPA's ability to ensure: (1) obligations and costs are in compliance with applicable
laws (2) funds property, and other assets are safeguarded against unauthorized use or disposition;
and (3) transactions are properly recorded to permit the preparation of reliable financial statements.
We identified the following reportable conditions which are discussed in more detail in Attachment
2 We will also report other less significant matters involving the internal control structure and its
operation in a separate management letter or audit report.
In the accounts receivable area, we identified weaknesses in. (1) recording receivables,
(2) managing outstanding receivables, (3) calculating the allowance for doubtful accounts,
and (4) accruing and recording interest. We believe the Agency has made improvements in
managing its accounts receivable, but the weaknesses we identified show that Agency
management needs to continue its emphasis in this area.
Although the Agency has taken aggressive action to correct weaknesses in the property area,
we found some leases and leasehold improvements that should have been capitalized that had
not been capitalized, and we found information in the Agency's property system was
incomplete.
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The Agency's Financial Management Offices (FMOs) conducted analytical reviews on only
selected accounts. More comprehensive analysis could reduce errors and improve the
reliability of the Agency's financial statements. The Agency acknowledges this and intends
during fiscal 1997 to provide FMOs additional guidance on account analysis.
Invoice approval forms for interagency agreements EPA has with other Federal agencies were
not always timely approved and returned to the finance office responsible for their payment.
In addition, detailed information to support amounts billed were not always received and
reviewed. As a result, the Agency had limited assurance the costs billed were valid and
allowable under the terms of the interagency agreements.
During fiscal 1996 and prior years, FMOs did not properly recognize revenue on Superfund
State Contracts. Although policies and procedures were developed to ensure revenue was
properly recognized, regional personnel encountered difficulties in making the necessary
accounting entries that caused revenue on Superfund State Contracts to be misstated by
nearly $50 million.
We were unable to identify and test the automated processing controls for accounting events
contained in IFMS because existing documentation is not detailed enough to allow a sufficient
test plan to be developed. Agency officials believe they have sufficient documentation to
operate IFMS effectively, but the supporting contract staff have acknowledged that existing
IFMS manuals do not contain the necessary information for the contractor to create the
desired documents and flowcharts. Therefore, the Agency has taken positive action to
acquire additional documentation to facilitate our review of automated Accounts Receivable
applications controls. Agency representatives are working with us to ensure the additional
documentation meets our needs.
COMPARISON OF EPA'S FMFIA REPORT WITH OUR EVALUATION OF INTERNAL
CONTROLS
As required by OMB Bulletin 93-06, we compared EPA's Federal Managers' Financial
Integrity Act (FMFIA) report to our evaluation of the Agency's internal control systems. For
reporting under FMFIA, material weaknesses are defined differently than for financial statement
auditing purposes. For FMFIA purposes, OMB Circular A-123, "Management Accountability and
Control" defines a material weakness as a deficiency that the Agency head determines to be
significant enough to be reported outside the Agency. While the criteria for financial statement
audits, OMB Bulletin 93-06, defines a material weakness as a weakness in controls that creates a
risk that amounts material to the financial statements could occur and not be detected.
For fiscal 1996, the Agency reported the following FMFIA material weaknesses relating to
the Agency's financial statements.
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Grant Close Outs and Oversight of Assistance Agreements. Agency staff have not
adequately managed assistance agreements. Agency project files lack documentation to show
that EPA monitored progress on the projects or required recipients to complete projects and
submit the required close out documentation. This lack of oversight has created a significant
backlog of assistance agreements to be closed out.
Construction Grant Close Out. Of the more than $50 billion in construction grants
awarded in the last 20 years, grants totaling $12 billion had not been closed out as of the end
of fiscal 1996. As a result, millions of dollars in potentially ineligible program costs are not
being reimbursed for reuse on other high priority state clean water projects.
Accounting System-Related Financial Management Problems. The Agency has reported
this weakness since 1989. At the end of fiscal 1996, the Agency reported that it had
corrected all deficiencies, except for implementing a Fixed Asset System which is scheduled
for implementation in fiscal 1997. In addition, the Agency continued to report as material
non-conformances: accounts receivable, the Agency's property accounting system and the
Agency's accounting system interfaces.
The Agency is also tracking the following Agency-level weaknesses that could affect the
financial statements.
Adequacy of Regional Administration of the State Revolving Fund Program.
Headquarters' reviews during fiscal 1996 identified problems in several regions with the
administration of the State Revolving Fund Program. The problems included failure to fully
support a national information system and inadequate oversight of the program. In addition,
inadequate financial audit coverage existed in more than half the states and concerns about
the pace of the program existed in more than one-third of the states.
Year 2000 Data Conversion. Information systems that store the millennium year as a two-
digit number are unable to properly process transactions with dates beyond 1999, placing the
data and the programs they support at risk of loss, waste or potential abuse.2
The material weaknesses we identified that affected the financial statements were not reported
in the Agency's FMFIA report. We do not believe these weaknesses meet the criteria for reporting
as material weaknesses under FMFIA.
In our report entitled "Major EPA Information Systems Are Vulnerable to Failure Due to the Upcomino
Century Change," Report No. E1NMB5-15-3038- 6400036 dated March 14, 1996, IFMS was one of the systems
identified as not being prepared to address the Year 2000 problem.
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TESTS OF COMPLIANCE WITH LAWS AND REGULATIONS
We tested compliance with those laws and regulations that could either materially affect the
financial statements, or that OMB or we considered significant to the audit. Our compliance testing
did not disclose any material misstatements to the financial statements as a result of noncompliance
with laws and regulations. However, the objective of our audit, including our tests of compliance
with applicable laws and regulations, was not to provide an opinion on overall compliance with such
provisions. Accordingly, we do not express such an opinion.
There are a number of ongoing investigations involving EPA's grantees and contractors which
could reveal violations of laws and regulations, but a determination about these cases has not been
made. Also, we identified the following issue that did not cause a material misstatement to the
financial statements, but that is a significant issue.
As discussed in prior audits (most recently the "Fiscal 1995 Financial Statement Audit of
EPA's Trust Funds, Revolving Funds and Commercial Activity," Report No. E1SFL5-20-8001-
6100200 issued May 1996), the Agency has not performed the biennial reviews of fees that are
required by the Chief Financial Officers Act. By completing the reviews, the Agency might identify
fees EPA could increase which would generate additional revenues. During fiscal 1996, the Acting
Chief Financial Officer (CFO) developed a process that will be used to perform the biennial review
of fees. On February 10, 1997, the Acting Deputy CFO requested program offices complete the
required reviews of fees by April 30, 1997.
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RESPONSIBILITIES AND METHODOLOGY
EPA MANAGEMENT AND PIG RESPONSIBILITIES
EPA's management is responsible for
preparing annual Agency-wide financial statements,
establishing and maintaining a system of internal controls, and
complying with applicable laws and regulations
We are responsible for auditing the financial statements in order to determine if the statements
are free of material misstatements and are presented fairly in accordance with the basis of
accounting described m Note 1 to the financial statements We are also responsible for evaluating
related internal controls and testing compliance with applicable provisions of laws and regulations
AUDIT METHODOLOGY
In order to fulfill our responsibilities/ except as described in our opinions and disclaimer of
opinion on the financial statements, we
examined on a test basis, evidence supporting the amounts and disclosures in the financial
statements,
assessed the accounting principles used and significant estimates made by management,
evaluated the overall presentation of the financial statements,
obtained an understanding of the significant internal control structure policies and procedures
and assessed the level of control risk relevant to the following significant cycles, classes of
transactions, and account balances
Receivables and Collections
Disbursements and Operating Expenses
Payroll
Investments
Property
Budget and Obligations
~ Accounts Payable and Accrued Liabilities
Fund Balances
General Accounting and Financial Reporting
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tested significant controls to determine whether the controls were effective,
evaluated the adequacy of the automated general control structure affecting EPA's Small
Purchases Electronic Data Interchange Local Area Network operations,
followed-up on findings and recommendations from previous audits that could materially
affect the financial statements,
obtained an understanding of management's process for evaluating and reporting on internal
controls and accounting systems as required by FMFIA,
compared the material weaknesses reported in the Agency's FMFIA report to the material
weaknesses we found, and
tested compliance with applicable sections of laws and regulations that either materially affect
the financial statements or that OMB or our office considered significant to the audit
In addition, we attempted to assess the adequacy of the application processing controls for
IFMS However, detailed system documentation was not available that would allow us to develop
an understanding of the IFMS automated control structure and to test these controls We did
evaluate selected aspects of the IFMS maintenance structure, and participated in IFMS Subrelease
testing, to include reviewing contract deliverables and observing testing activities^
The information presented m Management's Overview of EPA and EPA Programs is
supplemental information required by OMB Bulletins 94-01 and 97-01, both entitled "Form and
Content of Agency Financial Statements " OMB Bulletin 93-06, "Audit Requirements for Federal
Financial Statements," requires that we obtain an understanding of the internal control structure
policies and procedures designed to ensure that data supporting the measures are properly recorded
and accounted for to permit the preparation of reliable and complete performance information
OMB Bulletin 93-06 also requires us to assess the risk that the controls in place would not prevent,
detect or correct a material misstatement of the information Our audit work in the area of
performance measures was limited to
comparing the financial information included m the overview with information contained in
the principal financial statements,
considering other audit work that addressed information presented in the Agency's overview,
and
providing comments to management regarding the presentation of the overview
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DETAILS OF AUDIT FIELD WORK
We selected statistical and non-statistical samples from EPA's detailed accounting records
supporting various financial statement amounts. We tested these sample transactions to determine
if they were adequately supported by documentation and were recorded in accordance with internal
control policies and procedures and applicable laws and regulations. We also reviewed other
supporting documentation, such as worksheets and schedules, that the Agency used in preparing
its financial statements. In addition, we applied certain analytical review procedures to account
balances.
The financial management records and supporting documentation we reviewed were
maintained by Financial Management Centers in Washington, D C., Research Triangle Park,
Cincinnati and Las Vegas; Financial Management Offices in EPA's regional offices; the Office of
the Chief Financial Officer; various offices within the Office of Administration and Resources
Management; and by Headquarters and regional program offices. To gain an understanding of
established internal control procedures, and to evaluate these controls, we also interviewed
personnel in these offices and reviewed applicable policies and procedures. In addition, we
observed the Agency's physical inventory of its property, and we conducted a physical inventory
of a statistical sample of property items.
Our fieldwork for the audit was performed from April 11, 1996, through January 17, 1997.
We conducted our audit work in accordance with Government Auditing Standards, issued by the
Comptroller General of the United States, and OMB Bulletin 93-06, except as previously discussed
in this report. These standards require that we plan and perform our audits to obtain reasonable
assurance that the financial statements are free of material misstatement. We believe that our audit
provides a reasonable basis for our opinion.
les O. Rauch
)eputy Assistant Inspector General
for Audit Field Operations
U.S. Environmental Protection Agency
January 17,1997
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ACRONYMS
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ACRONYMS
AHERA
Asbestos Hazard Emergency Response Act
AIRS
Aerometric Information and Retrieval System
AOC
Administrative Order on Consent
APDLN
Air Pollution Distance Learning Network
ASHAA
Asbestos School Hazard Abatement Act
ASTSWMO
Association of State Territorial Solid Waste Management Officials
BECC
Border Environment Cooperation Commission
CAA
Clean Air Act
CEPPO
Chemical Emergency Preparedness and Prevention Office
CERCLA
Comprehensive Environmental Response, Compensation and Liability Act
CCP
Composite Correction Program
CFCs
Chlorofluorocarbons
CWA
Clean Water Act
CWSRF
Clean Water State Revolving Fund
DCIs
Data Call-Ins
DfE
Design for the Environment
DOJ
Department of Justice
DWSRF
Drinking Water State Revolving Fund
EPA
Environmental Protection Agency
EPCRA
Emergency Planning and Community Right-To-Know Act
ETS
Environmental Tobacco Smoke
FFDCA
Federal Food, Drug and Cosmetic Act
FIFRA
Federal Insecticide, Fungicide and Rodenticide Act
FWPCA
Federal Water Pollution Control Act
FQPA
Food Quality Protection Act
GS
General Schedule
HCFCs
Hydrofluorocarbons
HSWA
Hazardous and Solid Waste Amendments
ICR
Information Collection Rule
ITC
Interagency Testing Committee
JTR
Jobs Through Recycling
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LDR
Land Disposal Restrictions
LUST
Leaking Underground Storage Tank
MACT
Maximum Achievable Control Technology
M-DBP
Microbiological Contaminants and disinfectant by-products
NAAQS
National Ambient Air Quality Standards
NAPLs
Non-Aqueous Phase Liquids
NCP
National Contingency Plan
NPL
National Priorities List
NPS
Nonpoint Source
NWAP
National Watershed Assessment Project
OAR
Office of Air and Radiation
OARM
Office of Administration and Resources Management
OECA
Office of Enforcement and Compliance Assurance
OIG
Office of Inspector General
OPA
Oil Pollution Act
OPPT
Office of Pollution Prevention and Toxics
ORD
Office of Research and Development
OSHA
Occupation Safety and Health Administration
OSWER
Office of Solid Waste and Emergency Response
OTAG
Ozone Transport Assessment Group
OUSTs
Office of Underground Storage Tanks
PPA
Pollution Prevention Act
PCBs
Polychlorinated Biphenyls
PMN
Premanufacture Notice
PPGs
Performance Partnership Grants
PRPs
Potentially Responsible Parties
RBCA
Risk-Based Corrective Action
RCRA
Resource Conservation and Recovery Act
RED
Reregistration Eligibility Decision
ROD
Record of Decision
RPMs
Remedial Project Managers
RSO
Regional Strategic Overview
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SDWA Safe Drinking Water Act
SDWIS Safe Drinking Water Information System
SLPs State Implementation Plans
SOL Statute of Limitation
SPCC Spill Prevention Control and Countermeasures
SRFs State Revolving Funds
S&T Science and Technology
STAG State and Tribal Assistance Grants
SWP Source Water Protection
TMDL Total Maximum Daily Load
TPH Total Petroleum Hydrocarbon
TRI Toxic Release Inventory
TSCA Toxic Substances Control Act
TTN Technology Transfer Network
UAO Unilateral Administrative Orders
USTs Underground Storage Tanks
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For more information, contact:
Financial Management Division
U.S. Environmental Protection Agency
401 M Street, SW (2733)
Washington, DC 20460
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