September 1999
              FY1998
       AUDITED FINANCIAL
           STATEMENTS
             ^£0 sr-%
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	 iii
Overview of EPA	  1
EPA Programs - Descriptions and Highlights/Accomplishments and Future Trends
      -Air	  13
      -Radiation	  21
      -Drinking Water	  23
      -Water Quality	  28
      -Toxic Substances	  35
      -Hazardous Waste	  41
      -Superfund	  49
      -Oil Spills	  62
      -Leaking Underground Storage Tank	  66
      -Pesticides	  68
      -Water Infrastructure Financing	  73
Message from the Chief Financial Officer	  77
Chief Financial Officer's Analysis	  79
Principal Financial Statements	  89
OIG's Report on EPA's FY 1998 Financial Statements	  127
Acronyms	  145
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            MESSAGE  FROM THE ADMINISTRATOR
       I am pleased to present the U.S. Environmental Protection Agency's (EPA) Annual Financial
Statements for Fiscal Year 1998.  These statements summarize EPA's financial activities from
October 1, 1997 through September 30, 1998, and highlight the successes achieved by the Agency's
programs during this time.

       I am proud that this year's financial  statements received an unqualified opinion from the
Agency's Inspector General.  An unqualified opinion means that the principal financial statements
contained in this report fairly present the Agency's financial  position and results of operations as of
September 30, 1998.  This opinion also recognizes that the information presented in these statements
is reliable and that the Agency uses sound financial management practices.

       This nation has made great progress since it passed its major environmental laws more than
25 years ago. Our air is healthier, our water cleaner, our land freer from toxic chemicals. Today,
America has some of the strongest environmental and public health protections in the world. But we
still face tremendous challenges. One out of three Americans live in areas that do not meet EPA's
standards for healthier air. Ten million children live within four miles of a toxic waste dump. A third
of our surveyed  rivers, lakes, and coastal waters are still too polluted for fishing and swimming.
Global warming looms as a serious threat.

       To meet  these difficult challenges, EPA, in the 1998 fiscal year, has continued to take
important actions to protect public health and the environment in the most cost effective, common
sense ways possible. Here are a few highlights:

•      We've taken steps to address  polluted runoff with the President's new Clean Water Action
       Plan - the nation's blueprint to finish the job of cleaning up and restoring the nation's waters.

•      We've made Superfund toxic waste cleanups 20 percent faster and cheaper, with 90 percent
       of the sites either cleaned up or in the midst of cleanup.

•      We've helped more than 300 cities and communities cleanup and redevelop abandoned
       industrial properties through the Brownfields Redevelopment Initiative.

•      We've  continued to  expand the public's right to know about toxic  pollution in their
       communities by providing more information about air and water pollution.

       To make EPA programs more effective, the agency continued to change the way we conduct
business and make decisions.  Our Strategic Plan, issued in 1997, defines the Agency's strategic
mission and establishes long term goals and objectives. The Plan also serves as EPA's framework for
Agency managers to  set annual goals, measure performance, and focus resources on the highest
priority issues to ensure that we use taxpayer dollars to achieve environmental results.  EPA's FY


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1999 Annual Performance Plan and Budget integrates the Agency's budget with Annual Performance
Goals and Performance Measures. EPA can use performance information to measure our progress
toward meeting our FY 1999 goals and objectives, and to make smarter resource allocation decisions
in the future.

       Effective financial management remains a high priority for me. Our financial statements will
continue to be an important means of ensuring that EPA is accountable to the American people and
that the Agency continues to build on its accomplishments to provide all Americans with a cleaner,
safer, and healthier environment.
                           Carol M. Browner
                           Administrator
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                                  OVERVIEW OF  EPA
Background

    The U.S. Environmental Protection Agency (EPA) was established in 1970 to lead the Nation's efforts to protect and
preserve human health, and to safeguard the natural environment.  EPA is working to achieve this mission by reducing risks
to human health and the environment, preventing pollution, and simultaneously promoting economic development in an
environmentally sound and cost-effective manner. EPA has made significant strides during the past 25 years towards
achieving these goals, but the Nation still faces critical environmental challenges. Americans continue to live in areas where
the soil is contaminated and is unsuitable to live or play on, the water is unsafe to drink, and the air is dangerous to breathe.
Despite these challenges, EPA is committed to ensuring that the Nation's environment is made safe and clean for our next
generation.

    Congress provided EPA with $7.6 billion and 17,975 workyears for F Y 1998. During F Y 1998, the Agency began
advancing the environmental commitments made by the President and began implementing new environmental and public
health standards.  For example, EPA issued guidance and worked with states on implementing the improved air quality
standards for ozone and particulate matter (July 1997 standards). EPA also accelerated Superfund cleanups of hazardous
waste sites, and expanded Brownfields redevelopment efforts under the Brownfields Redevelopment Initiative. The Agency
improved access to information about pollution in local communities consistent with its commitment to the public's right-to-
know about toxic and hazardous chemicals in their neighborhoods. EPA increased assessments of health risks to children
who may be vulnerable to the effects of toxic substances.  The Agency assisted in the revitalization of urban areas, applied
new research tools to the state of the environment, and ensured the safely of the Nation's water and food supplies. Also, EPA
continued to promote environmental justice and urban environmental quality; improve Federal environmental management;
empower states, tribes, communities, and the university research community; and develop a more dynamic enforcement
program to enhance compliance, regulatory, and voluntary activities.

GPRA Implementation

    In September 1997, EPA issued its first Strategic Plan required by the Government Performance and Results Act
(GPRA). This plan describes EPA's mission, long-term goals, and identifies specific objectives the Agency would meet
in achieving these goals. The Plan also serves as the framework by which the Agency is transitioning to performance-based
planning and budgeting. EPA's FY 1999 Annual Performance Plan and Budget integrates resource requests with annual
performance goals and measures. The performance results for these annual  goals and measures will then be used to assess
the contributions of the FY 1999 accomplishments towards achieving EPA's longer-term goals and objectives.

    During FY 1998, EPA continued to develop other key mechanisms to strengthen the Agency's planning, budgeting,
analysis, and accountability framework in cooperation with its partners and stakeholders. First, EPA initiated a new multi-
year planning process in January 1998 to examine the links between the Annual Performance Goals (APGs) identified in
EPA's FY 1999 Annual Performance Plan and Budget and the longer-term goals and objectives outlined in the Strategic
Plan.  Goal Teams, having a Regional Administrator and a National Program Manager as co-leaders, discussed plans with
EPA's Deputy Administrator to improve the availability and quality of environmental information, and their plans for
achieving environmental and programmatic results. For the first time, EPA's planning focus was based on the  Agency's
strategic goals and objectives rather than on the activities of individual program offices.

    Second, EPA  reviewed its F Y 1999 APGs  and Performance Measures and began work to improve its APGs and
Performance Measures for the F Y 2000 Annual Performance Plan and Budget.  The Office of the Chief Financial Officer
(OCFO) developed the criteria for establishing APGs and Performance Measures, and evaluated the Agency's ability to
measure progress against its strategic objectives and sub-objectives.
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    Third, EPA developed the FY 1999 performance accountability process with advice from a broad range of partners and
stakeholders including representatives of states and tribes. Approved by EPA's Deputy Administrator in June 1998, the F Y
1999 process is centered on the creation of a basic framework to support the development of EPA's first Annual
Performance Report under GPRA — due to Congress in March 2000. The initial accountability process is part of a two-track
strategy that recognizes FY 1999 as a learning year that will ultimately contribute to the  development of a long-term
accountability process for F Y 2000 and beyond. Accomplishments to date include the development of an initial outline on
the form and content of the Annual Performance Report, and the design and testing of a central accountability database to
record performance information on APGs and Performance Measures.

    Finally,EPA developed a major outreach effort to communicate the Agency's need and capacity to  implement the GPRA.
Accordingly, the OCFO conducted regional workshops to provide regional employees and managers with information
concerning the Agency's planning, budgeting, analysis, and accountability processes.  The OCFO also presented briefings
to a number of EPA headquarters offices and to several external stakeholders.

Protecting Communities from Toxic Pollution

    The President made a national commitment to protect our Nation's communities from the dangers of toxic pollution.
Accordingly, EPA began carrying out this promise by addressing four key areas:

    4  Began efforts to accelerate toxic waste cleanups at 900 of the Nation's worst toxic waste  sites.

    4  Expanded the Brownfields Redevelopment Initiative to increase the number  of grants provided by EPA to
        communities for site assessments, cleanups, and redevelopment planning of contaminated and abandoned urban
        properties.

    4  Enhanced the availability of right-to-know information to our Nation's citizens and communities by working with
        federal, state, and local agencies to develop a nationwide network that monitors key environmental health indicators
        relating to air, land, and water. Americans will have the ability to access timely health-related data needed to make
        informed choices affecting their health and  information concerning the possible links between toxics and
        environmental health risks (e.g., cancer and reproductive risks).

    4  Continued to get tough on criminal polluters by helping prosecutors, police, and investigators develop better tools
        to protect our communities from the threat of toxic pollution. EPA also provided state and local law enforcement
        officers with training to enhance their abilities to investigate and detect environmental crimes.

Implementing New Environmental Laws

    EPA continued to implement new requirements under the Safe Drinking Water Act (SDWA)  Amendments of 1996
to ensure that our Nation's public water system provides safe drinking water.  To achieve this goal, EPA has improved the
way drinking water safely standards are established and regulations are developed, emphasized prevention programs such
as protecting source waters, set regulatory priorities based on risk, and expanded consumer
information about contaminants found in drinking water. EPA also provided technical and
financial assistance to state and local governments to assist them in the operation of small
drinking water systems, and EPA capitalization grants were issued  to states for loans to
local  municipalities to improve their drinking water systems.  EPA's drinking water
research efforts strengthened the scientific basis for drinking water standards through the
use of improved methods and new data to better evaluate the risks associated with exposure
to chemical and microbial contaminants in drinking water.

    EPA implemented the requirements of the Food Quality Protection Act (FQPA) of
1996 created to improve the safety of our Nation's food supply.  To ensure that pesticides
are safer,  EPA reassessed existing pesticide tolerances, streamlined reviews of safer
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pesticides, reviewed pesticide registration for new health concerns such as endocrine disrupters, and accelerated the review
of existing pesticides.  EPA also developed and distributed more useful information to the public to inform them of the risks
posed from exposures to adverse pesticides.  To help finance these new requirements, EPA increased the pesticide
reregistration and tolerance fees. Finally, EPA initiated a major research effort to address critical science needs, such as
cumulative exposure, identified under Titles III and IV of the Act.

Protecting Children from Environmental Threats

    Assessing the health risks of our children from environmental pollutants is a primary concern of the President.  In
support of this policy, EPA initiated a research program to improve understanding of the unique health risks children face
when exposed to pesticides  and other environmental pollutants. Accordingly, EPA's Administrator established policy
ensuring that all environmental health risks to children are explicitly and consistently evaluated as part of the Agency's risk
assessments, risk characterizations, and environmental and public health standards pursuant to EPA's national agenda on
children's environmental health issued in 1996. EPA continues to increase families' awareness of possible health threats
to their children by way of public information and education under the Right-to-Know program. Also, EPA's enforcement
efforts have focused on children through coordinated initiatives, case development, and litigation to protect them from the
dangers of lead-based paint.  To fulfill the President's commitment, EPA reassessed existing information and approaches
used to determine health risks to children, and began revising national standards to provide our children with greater
protection.

Revitalizing Cities

    EPA is committed to making America's cities more livable through effective environmental protection.  EPA continued
to build  new partnerships with urban communities by increasing urban  revitalization efforts through an  expanded
Brownfields Redevelopment Initiative which promotes cleanup and redevelopment of abandoned and contaminated industrial
and commercial properties (i.e., brownfields) across the Nation.  In addition to redeveloping contaminated properties, the
Brownfields Initiative provides communities with an increased tax base, creates additional jobs, and improves the overall
quality of urban environments.

    EPA produced  guidelines for preventing polluted runoff that could threaten urban drinking water  sources and for
improving air quality in urban communities. EPA also provided support to cities for pilot projects in waste minimization
outreach and through coordinated pollution prevention goals that reduce waste generation,  energy usage, and water usage.

Applying Advanced Technology to Environmental Management

    Recent technological developments in remote sensing, information systems, and computer technologies have created
new and more effective  ways for EPA to monitor and manage the environment.  The Advanced Measurement Initiative
(AMI) has enabled the identification, research, and  application of advanced monitoring tools and technologies that provide
more timely, accurate, comprehensive, and cost-effective monitoring information for assessing the status of the environment,
human health, and ecosystems. Fundamental to AMI is the demand for effective partnerships  with intra-agency and inter-
agency (e.g., NASA and the  Departments  of  Defense,  Energy, Interior, and  Commerce) organizations,  including
partnerships with communities, academia, and private industry. EPA will continue to leverage these vital partnerships while
matching specific environmental monitoring needs with the appropriate technological solutions.

Regulatory Reinvention

    EPA continued to support high-priority reinvention activities such as Project XL (i.e., excellence and leadership), the
Common Sense Initiative  (CSI), and the Sustainable Development Challenge Grant Program, while seeking alternatives to
the current regulatory system.

    Under Project XL, companies, states, and localities may redesign current EPA rules if they can formulate alternative
systems that are both cheaper and cleaner for the environment. Through Project XL, EPA has successfully  forged new and


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challenging partnerships with businesses and communities interested in contributing new and innovative strategies for
efficient and effective environmental management.

    The CSI is central to EPA's ongoing efforts to improve the way it undertakes environmental missions. The CSI has
enabled EPA to find cleaner, cheaper, and smarter solutions to help overcome the Nation's environmental problems.  The
CSI concept is based on the understanding that EPA should be uncompromising in achieving its health and environmental
objectives, but flexible enough to provide regulated entities with cost-effective ways to meet their environmental regulatory
objectives.

    The  Sustainable Development Challenge  Grant Program awards funds to projects that leverage public and private
community investment for the purpose of developing comprehensive environmental management plans.  The program is
designed to improve environmental quality and economic prosperity. Through open community involvement and investment,
this program has challenged communities to meet their present environmental and economic needs without compromising
the needs of future generations.

    Finally, EPA's Environmental Leadership Program continued to work with Federal and state partners to initiate projects
that will  provide new and  innovative approaches to compliance.  EPA has provided funding to assist small businesses,
including Small Business Compliance Assistance Centers that help small businesses in specific industries, comply with their
environmental requirements. EPA's compliance with the Small Business Regulatory Enforcement Fairness Act has steadily
increased the amount of consideration and accommodation afforded small business concerns in regulatory matters.

Strengthening State and Tribal Partnerships

    EPA continued its efforts to build and support state, local, and tribal environmental protection programs. Since effective
Federal/state/local/tribal partnerships are essential  to fully realize our Nation's environmental  laws, EPA continues to
enhance its partnership efforts to implement, operate, and enforce these laws.

    EPA continued to provide state and tribal governments with technical and financial assistance.  Additional resources
were provided to states for their air, water, and multimedia enforcement programs to assist them in addressing growing
program requirements created by the FQPA, new clean air standards, and the need to review the quality of surface waters
for Total Maximum Daily Loads. Increased resource levels also were provided to tribes to  help them continue developing
their own environmental protection programs.  For example, resources were provided to tribes through Indian General
Assistance Program grants. These resources enabled tribes to identify the scope of their environmental management needs,
establish their program development priorities, and to continue building their individual environmental programs.  These
grants have provided EPA with its most effective means for building the tribal capacity necessary for making and
implementing environmental management decisions.

    Under the National Environmental Performance Partnership System, EPA has recognized the states' increasing capacity
to operate their own environmental programs. Accordingly, EPA continued to explore new approaches that would provide
its state and tribal partners with more flexibility in managing their environmental programs.  For example, the Agency is
attempting to formalize Tribal/EPA Environmental Agreements with every Federally recognized Indian tribe. Through these
agreements, EPA can support its Indian partners in a manner that is consistent with both tribal priorities and various statutory
requirements.

Performance Partnership Grants and Agreements

    In 1996, Congress enacted the President's proposal to establish permanent authority  for EPA to enter into Performance
Partnership Grants with states and tribes. During 1998, EPA continued to work with states and tribes to combine individual
categorical grants (e.g., air, water, hazardous waste, etc.) into one or more consolidated grants. Consolidating several
individual grants into one has helped to streamline administrative burdens and has enabled states and tribes to direct valuable
resources to their most pressing environmental problems. As states and tribes begin to realize the major benefits of these
combined grants, a further increase in state and tribal participation is anticipated. Also, Performance Partnership Grants,
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which are closely tied to the National Environmental Performance Partnership System (NEPPS), have allowed states to sign
agreements with EPA which reduce oversight in exchange for strong state performance.

Enforcement and Compliance Assurance

    EPA's enforcement program continued to emphasize a balanced approach between traditional activities of compliance
monitoring, civil and criminal enforcement actions, and more recent approaches such as compliance assistance and
compliance incentives. In 1998, the Agency carefully invested and redirected resources to support its dual role which
requires the use of enforcement and compliance tools to ensure adherence to environmental regulations, particularly in high
risk areas.  Resources were subsequently redirected from relatively low risk areas, such as Hazardous Waste Enforcement,
to programs that protect children's health from lead-based paint and pesticide misuse. The enforcement program also
provided additional resources to protect public water systems and to address unique water pollution problems associated
with concentrated animal feedlot operations.

    Although the amount of Federal  compliance  assistance resources has been reduced as states assume greater
responsibility, the enforcement program provided additional resources for compliance incentives to the regulated community.
During 1998, the enforcement program emphasized and provided increased resources to establish the new self-audit policy
as a way of achieving greater compliance levels at a lower cost to the public and private sectors, including industry and
Federal agency partnerships.

    EPA continues to direct resources to multimedia compliance.  The enforcement program is enhancing compliance by
providing compliance assistance to  the regulated  community, including Federal facilities, and by developing and
implementing ways  to encourage voluntary compliance with environmental regulations.  One example of developing
assistance tools for the regulated community is the Small Business Compliance Assistance Centers. These Centers provide
one-stop shopping for all regulations for a given industry
sector such as printing or metal finishing. The Centers
provide plain-English guides to compliance requirements and
technical  assistance  resources, assistance  and  training on
treatment technologies, and methodologies for self-audits and
compliance surveys.

    The enforcement program completed the pilot phase of
the Sector Facility Indexing Project (SFIP).  The pilot SFIP
makes it easier for the public to access a wide range of
environmental information about regulated facilities.  In the
past, these records, although public, were very  difficult for
government and public users to access because they were
spread across  many  different databases.  Under SFIP, the
Agency has integrated this information so that it  can be
viewed in one place, and can be used to better understand
overall facility environmental records.  SFIP, in its current pilot stage, will allow EPA to gauge the level of public interest
in examining records regarding  government oversight of regulated facilities, facility compliance with environmental laws,
and the overall pollutant releases that are reported.  SFIP currently contains records for five industry sectors that consist of
a total of 653 facilities. The Agency publicly released the SFIP data on May 1, 1998, via the Internet. In September 1998,
EPA made available  a hard copy report of SFIP for those who do not have ready access to the Internet. In FY 1999, the
Agency will evaluate the SFIP to determine future directions of the project.

    The  primary goal of EPA's Federal Facility Compliance Program is to ensure that all agencies reach  a level of
compliance with environmental requirements that equals or surpasses the rest of the regulated community. EPA uses a three-
pronged approach: training and compliance assistance; compliance oversight and enforcement; and review of federal agency
environmental plans and programs. This comprehensive approach is designed to help federal agencies develop appropriate
compliance strategies and to request adequate funding to carry out those strategies.  Environmental Reviews and multimedia
inspections continue to be used for compliance assistance at federal facilities.
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    In FY 1998, the Environmental Justice Program (EJP) continued to emphasize public outreach efforts and focused on
disadvantaged communities with a disproportionate number of polluting sources. A total of $2.5 million in small grants up
to $20,000 each were awarded to 123 community organizations seeking solutions to local environmental problems.  Also,
a total of $500,000 was awarded to states and tribes to provided financial assistance to state and environmental departments
to address environmental justice issues. Finally, the National Environmental Justice Advisory Council held 18 meetings in
FY 1998. The EJP will continue to develop tools for identifying impacted communities and to target enforcement actions
in areas with the greatest risk from environmental hazards.

    The enforcement and compliance assurance program continued to emphasize the review of environmental impacts of
proposed major federal actions as required by the National Environmental Policy Act (NEPA); Section 309 of the Clean Air
Act; Executive Order on Environmental Justice; Antarctic Science, Tourism, and Conservation Act.  The program also
focused on EPA's compliance with NEPA, the Endangered Species Act, the National Historic Preservation Act, and other
relevant executive orders.  EPA continued to fulfill the Nation's commitments under the legislation implementing the North
American Free Trade Agreement, other international trade and environmental agreements and treaties, such as the General
Agreement on Tariffs and Trade, and other international commitments.

    The enforcement and compliance assurance programs continue to support the expansion of the American public's right-
to-know by providing the public with access to information through a variety of avenues: 1) the enforcement  DOCKET, a
physical and electronic site where the public can access policies, guidance documents, and legal interpretations; 2) Integrated
Data for Enforcement Analysis (IDEA) which integrates compliance data from individual databases available  nationally in
an interactive, on-line mode; and 3) the Sector Facility Indexing Project (SFIP), implemented in FY 1998, which provides
the public with profiles of major regulated industries and information on  industry demographic processes, pollution
emissions, compliance history, pollution prevention, and regulatory requirements.

    The enforcement and compliance assurance program deters noncompliance by maintaining levels of field presence and
enforcement actions, particularly in high risk areas and/or where populations are disproportionately exposed. The program
used the following performance measures for assessing success in FY 1998:
Key Performance Measures
Hits to Several Web Sites
Lab Integrity Inspections
Lab Integrity Audits
Import/Export Notifications
Multimedia Inspections - Headquarter
Federal Facility Inspections
Other EPCRA Inspections
Administrative Orders Issued
Number of Small Entities Receiving Relief
under Small Business Policy
Compliance Assistance Centers, in Operation
Compliance Tools Development
NEPA Compliance Actions
1998 Goal
67,400 Documents
86 Inspections
230 Audits
2,300 Notices
15 Inspections
28 Inspections
700 Inspections
90 Administrative Orders
10 Entities
8 Centers
7 Sector Notebooks
100% Documented
1998 Actual
80,000 Documents
96 Inspections
277 Audits
1,700 Notices
23 Inspections
82 Inspections
700 Inspections
84 Administrative Orders
5 Entities
8 Centers
3 Sector Notebooks
100% Documented
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Key Performance Measures
Major Proposed Federal Actions, Draft
Environmental Impact Statement (DEIS) Filed
DEIS Requiring EPA Follow-up
Impacts Requiring EPA Follow-up Successfully
Mitigated
Federal Facilities Management Reviews
Environmental Justice Grants
CERCLA Environmental Justice Grants
Multimedia Inspections - Regions
Documents included in Enviro$en$e
Specialized Assistance and Training
Administrative Cases Concluded
Civil Judicial Cases Concluded
Criminal Cases Referred
Compliance Tools Development
Facilities that Self Disclosed Potential Violations
as a Result of Targeted Agency Action
Facilities that Self Disclosed Potential Violations
Single Media Inspections - Field
Multimedia Inspections - Field
1998 Goal
325 DEIS
650 Impacts
70% of Impacts
1 5 Reviews
100 Grants
27 Grants
120 Inspections
4,200 Documents
100 Courses
80 Administrative Cases
2 Civil Cases
310 Cases
4 Sector Guides
75 Facilities
330 Facilities
1 4 Inspections
1 5 Inspections
1998 Actual
273 DEIS
655 Impacts
62% of Impacts
26 Reviews
114 Grants
20 Grants
41 Inspections
4, 1 26 Documents
72 Courses
97 Administrative Cases
2 Civil Cases
266 Cases
4 Sector Guides
7 10 Facilities
954 Facilities
23 Inspections
1 0 Inspections
    The criminal provisions of the nation's environmental statutes are enforced by EPA's criminal investigators.  These
special agents, located nationwide, conduct criminal investigations, support Department of Justice (DOJ) prosecutors, and
coordinate with other law enforcement agencies to present a highly visible and effective component in the Agency's
enforcement strategy. The goal of the criminal enforcement program is to bring to bear the most serious sanctions for the
most significant environmental violations.  By demonstrating to the regulated community that serious, knowing statutory
violations will be met with harsh sanctions in terms of both fines and jail sentences, the program acts to forcefully deter
violations of environmental laws and regulations in a way that civil judicial and administrative enforcement rarely can.  Cases
are referred to the U. S. Attorneys' Offices or DOJ for prosecution, with special agents serving as key witnesses in the judicial
proceedings.

    Performance Measures: Criminal cases, in all media, referred for prosecution.

    This measure provides the number of criminal cases referred by EPA to the United States Attorneys and/or DOJ for
prosecution. EPA is responsible for criminal investigations, while any decisions of a prosecutorial nature are made by DOJ
in cases referred by EPA.
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    Results: In FY 1998, 266 cases were referred to DOJ. This number is lower than the estimated number of 310
referrals. This is due to two factors, an increase in the number of complex cases, consistent with program guidance, and
the development of new agents hired at the end of FY 1997.  The program had anticipated hiring all 200 agents, as
mandated by the Pollution Prosecution Act. However, delays in hiring during FY 1997 meant that a portion of FY 1998
was spent training new staff. Now that the program is fully staffed and trained, it is anticipated that the Agency will be
able to make the projected number in the future.

Reducing Uncertainties Through Research

    During 1998, EPA continued its support of a vigorous research and development program focused on strengthening
the Agency's understanding in areas having major environmental and human health uncertainties.  Research priorities were
developed by the Agency in accordance with the  Office and Research Development's strategic plan which uses a risk-based
priority process.  One particular area identified  as having great risk and major uncertainty is Particulate Matter (PM). PM
is probably the largest single contributor to the adverse health effects caused by air pollution and cause, within an estimated
range, thousands to tens of thousands of premature deaths each year.  PM research has focused on mortality risks, exposure,
and the mechanisms by which the particles affect human health.

    EPA conducted research, in response to growing scientific concerns, on the unknown effects of environmental exposure
to  substances that interact with the endocrine system. Research in this area has characterized the effects of environmental
exposure to various chemicals in two target populations, humans and wildlife.  EPA also conducted research to gain a better
understanding of the potential health risks associated with human exposure to drinking water disinfection by-products and
microbial pathogens.  EPA research developed a rapid response measure for recreational water quality.  Typically, it takes
48 hours to estimate whether recreational water  is contaminated with gastrointestinal bacteria. If contamination is present,
this time period carries a high risk for illness, especially for children. EPA developed a method that only takes 24 hours,
thereby  cutting the time at risk in half.

    Additional research focused on EPA's Mid Atlantic Integrated Assessment (MAIA), a cooperative geographic  study
conducted under the Environmental Monitoring and Assessment Program.  The MAIA program has generated a number
deliverables, including An Inventory of Existing Programs, An Ecological Assessment of the United States Mid Atlantic
Region: A Landscape Atlas, and the State of Estuaries Report for Mid Atlantic Estuaries.

    EPA's research program also includes the  Superfund Innovative Technology and Evaluation (SITE) program.
Recognizing the movement towards remediation and away from the removal of soil and groundwater (ex-situ), the  SITE
program has emphasized the development of technologies that treat contamination in place (in-situ). In FY 1998, in-situ
groundwater, vadose zone-in-situ remediation, and  containment technologies were developed.   Work continued in
phytoremediation evaluation processes along with system cost documentation.

Climate Change Action Plan

    EPA continued to support the implementation of the Climate Change Action Plan (CCAP).  The actions taken under
the CCAP are the means by which the U.S. is striving to meet its commitment to reduce annual greenhouse gas emissions
to  1990 levels by the year 2000. The  heart  of the CCAP relies heavily on voluntary partnerships between EPA and
organizations, or individuals, that join to save energy and/or increase productivity while reducing greenhouse gases.  EPA
continued to develop new partnerships and  to strengthen its on-going partnerships with entities such as states, cities, farmers,
and large and small businesses.

Year 2000 (Y2K} Activities

    FY 1998 was a critical year in positioning the Agency's information technology assets to successfully transition to the
next millennium. The Agency strategy was to address mission critical assets first and systematically devolve through the
remaining assets.  EPA is on schedule to meet the government-wide compliance deadline of March 31,1999  for mission
critical systems - already completed the Assessment, Renovation, and Validation phases. The agency has also implemented


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an independent certification program: six systems have successfully completed third party review/testing, another eight are
being reviewed/tested and therest are being scheduled. The Agency also has made major progress in addressing potential
Y2K vulnerabilities of servers, personal computers, networks, scientific equipment, and our base computing environments
(i.e., mainframe, client/server, supercomputer), and our other than mission critical application systems. We are confident
that all EPA-leased and owned buildings will be compliant by February 1999 and will request written confirmation of Y2K
compliance from GSA for each building leased through them by no later than March 1, 1999.

    The Agency has greatly expanded outreach efforts to ensure continuity of environmental services to the public.  EPA
is responsible for coordination and outreach for three sectors identified by the President's Council on Year 2000 Conversion:
Water, Waste, and Chemicals. As the "sector coordinator," EPA coordinates federal agency efforts to address the Y2K issue
with federal, state, local, and private  sector organizations whose activities affect the protection of public health and the
environment. EPA also has established internal environmental sectors for Air, Water, Waste, Chemicals, Pulp and Paper,
Manufacturing/Metals, and Regulatory Compliance and Enforcement.  EPA also developed detailed outreach plans that
clearly identify constituent organizations/key stakeholders, define specific awareness raising events and opportunities, and
developed plans to promote awareness and encourage assessment. EPA has issued a Y2K enforcement policy designed to
encourage prompt testing of computer related equipment to ensure that environmental compliance is not impaired by the
Y2K issue.

    EPA's primary vehicle to ensure continuity of its core business functions is the Continuity of Operations Planning
(COOP) process. EPA has an internal Agency Order which requires Regional and Headquarters offices' plans to address
essential functions, safety and security, vital records, primary and alternate COOP planners, and responsibility for exercising
and implementing the plans. Following completion of individual office plans, EPA will develop an overarching Agency plan
in accordance with Presidential Decision Directive (FDD) #67 which addresses the need for Continuity of Operations
Planning, and requires department and agencies to have an Agency COOP plan completed by October 1999.  As part of
this process we will be performing Business Continuity and Contingency Planning (BCCP) for our Y2K program.  The
Agency's Year 2000 Senior Council has directed that an interdisciplinary team be formed to develop the  Y2K BCCP that
will be  an addendum to  our overarching COOP Agency plans. Additionally, the Agency is coordinating milestones and
activities of PPD #67 and Y2K to enhance the Critical Infrastructure Protection Plan (CIPP) required by FDD #63 - Critical
Infrastructure Protection.  Coordinating these concurrent efforts will eliminate redundancy and ensure that the Agency can
meet its obligations to protect people and the environment.

The agency's schedule for BCCP development was:
Date
1/26/99
3/15/99
4/22/99
4/30/99
5/31/99
9/30/99
Activities
Establish BCCP Project Group
Determine High-Level Core Business Functions
Set Master Schedule and Milestones
Complete Initial Prioritzation of Areas
Assess Criticality of Potential Disruptions
Critical Infrastructure Protection Plan (FDD #63)
Perform Business Impact Analysis
Assess Infrastructure Risks
Define Minimum Acceptable Levels of Performance
Develop contingency Plans and Implementing Triggers
Prepare Contingency Test Plans
Establish Business Resumption Teams
Prepare and Execute Tests
Update Disaster Recovery Plans and Procedures
    Individual system specific plans will be developed as neccessary consistent wth the outcome of the above analysis.
                                  EPA's FY 1998 Annual Financial Statements
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    The worst case scenario for Y2K is that all or many systems will not work and we will have have to implement the
procedures currently being developed in EPA's contingency plans (COOP, BCCP). The use of COOP plans to continue
the Agency's essential functions in response to a Y2K failure is recognized by the Agency and we will continue to examine
the use of this vehicle for Y2K contingencies. In the area of buildings and facilities, we are preparing contingency plans for
each facility.  We also are exploring the need for a contingency plan to support EPA programs if state data exchange partners
are unable to provide data electronically and must resort to paper reporting of regulated environmental information.

    The agency estimates total expenditures of $37.2M from FY 1996 through FY 2000 to support the Y2K program.

Summary

    EPA is committed to protecting our Nation from environmental threats.  EPA's increased focus on toxic pollution in
1998 has effectively paved the way for future generations of Americans to grow up in a cleaner and safer environment. By
targeting those geographical areas hardest hit by pollution, EPA will ensure that the families living in environmentally
disadvantaged communities have hope for a better future. Through these initiatives  and  programs, EPA continues to
demonstrate  that its investments are in tune with America's most demanding environmental priorities — including a
government that works for its people.
Page 10                           EPA's FY 1998 Annual Financial Statements

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EPA's FY 1998 Annual Financial Statements
                                                                Page 11

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                   U.S. ENVIRONMENTAL PROTECTION AGENCY
                                         (EPA)
     OFFICE OF
   ADMINISTRATION
   AND RESOURCES
   MANAGEMENT
      (OARM)
OFFICE OF
AIR AND
RADIATION
   OFFICE OF
  ENFORCEMENT
 AND COMPLIANCE
  ASSURANCE
    (OECA)
   OFFICE OF
   THE CHIEF
FINANCIAL OFFICER
    (OCFO)
   OFFICE OF
   GENERAL
   COUNSEL
    (OGC)
OFFICE OF
INSPECTOR
 GENERAL
  (DIG)
     OFFICE OF
     CERNATIONAL
     iCTIVITIES
      (OIA)
OFFICE OF
 POLICY
  (OP)
   OFFICE OF
  PREVENTION,
 PESTICIDES, AND
TOXIC SUBSTANCES
    (OPPTS)
   OFFICE OF
 RESEARCH AND
 DEVELOPMENT
     (ORD)
   OFFICE OF
SOLID WASTE AND
  EMERGENCY
   RESPONSE
   (OSWER)
OFFICE OF
 WATER
  (OW)




REGION I REGION E REGION El
(Boston, MA) (New York, NY) (Philadelphia, PA)




REGION IV REGION V REGION VI
(Atlanta, GA) (Chicago, IL) (Dallas, TX)
Page 12
                               EPA's FY 1998 Annual Financial Statements

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                                                   AIR
    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 develops and implements programs to help reduce greenhouse gas emissions and to return the stratospheric
ozone layer to levels found prior to the development of the Antarctic ozone hole. Lastly, under the Preventing Pollution and
Reducing Risk goal, the Agency works to ensure healthier indoor environments.

                                        Air Program Description

    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 controlling stationary and mobile source emissions.  EPA directly provides emission
controls for many of these sources, primarily through federal  standards for motor vehicles, fuels, and new stationary sources.
    EPA also is required to review the NAAQS every five years and revise them as
necessary. The review process includes risk, health, and benefits analyses.  In July 1997,
EPA promulgated  a new standard for fine particulate  matter (PM25) and revised the
standards for ozone and coarse particulate matter (PM10) after an extensive review of the
science.  FY 1998 was the first full year in which the new standards were in effect.

    After a NAAQS is set, states are responsible for monitoring ambient air quality and
developing state implementation plans (SIPs) to reduce pollution and bring areas into
NAAQS  attainment.  EPA provides  policy, guidance, and technical assistance for
modeling and monitoring air quality and devising strategies available to states to include
in their SIPs. EPA also plays a major role in helping states achieve the NAAQS through
standard setting for vehicles, non-road engines, fuels, and stationary sources.
    To determine whether areas are attaining the new PM25 standards, EPA is funding a 1,500 site PM25 monitoring
network.  By the end of FY 1998, grants were approved for 940 sites to be established by the end of calendar year 1998 .
By the end of calendar 1999, all sites will be established and fully instrumented.  Three years of data will be available from
the earliest monitors in the spring of 2001 and three years of data will be available from all monitors in 2004. Following
this monitoring schedule and allowing time for data analysis, governors and EPA will be able to make the first determinations
as to which areas should be designated non-attainment with the new PM2 5 standards in 2002.  The data from the monitoring
network also will provide the basis for EPA and states to further and better characterize the PM2 5 problem which in turn will
help states develop attainment strategies.

    To reduce emissions of hazardous air pollutants, EPA develops technology-based standards known as Maximum
Achievable  Control Technology (MACT) standards for 188 hazardous air pollutants from 174 industry categories.  The
standards are being developed on a phased schedule through the year 2000.  After standards are implemented, 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 CAA establishes an operating permit program in which a single  permit contains 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 are to cover the cost of  the
state  air pollution control program.  EPA provides guidance and assistance to those states and tribes developing and
                                  EPA's FY 1998 Annual Financial Statements
                                                                                                       Page 13

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implementing permit programs.  In FY 1998, EPA issued periodic monitoring guidance to aid state and local permitting
authorities in evaluating whether each facility's air operating permit contained sufficient monitoring to assure compliance
with regulations developed to meet CAA requirements; a Fugitive Emissions policy; and guidance on tracking Regional
Office Federal Operating Permit Program Costs.  A cross-agency workgroup completed work on the Indian Country Part
71 final rule.

    The Agency pursues protection of human health and the environment in Indian country equal to that provided in state
and local territories. The actions undertaken, in 1998, include working with tribes to assess air quality conditions in Indian
country, and providing technical and financial support for the development of  tribal capacity to address potential problems.
A significant component of this capacity building is a training program, developed through a cooperative agreement with
Northern Arizona University, that prepares tribal environmental professionals to take on the responsibility of air quality
management in Indian country. In addition, EPA is  drafting guidance documents to encourage tribes to develop their own
tribal air programs. To support federal implementation of the CAA in Indian country in the interim, EPA began developing
a number of regulatory tools, including a federal permitting rule to regulate construction and modifications of minor sources
of air pollution in Indian country.

    The Acid Rain Program, in Title IV,  is a market-based incentive program for reducing annual sulfur dioxide (SO2)
emissions by ten million tons from 1980 levels (a 40% reduction).  Title IV, along with efforts under Titles I and II,  also will
reduce nitrogen oxide (NOX) emissions by over two million tons below 1980 levels. The Agency already has achieved
significant SO2 emission reductions of nearly five million tons of SO2 annually from 1980 levels. These reductions were
achieved by the 263 units affected by Phase I of the innovative market-based program that provides affected sources with
flexibility in meeting required emission reductions at least cost (both to industry and government). The program features
tradeable SO2 allowances composed of one ton units.  It ensures accurate and verifiable measurement of  emissions, and a
cap on total SO2 emissions.  The Acid Rain Program is  a model for market-based efforts to control pollutants here and
abroad. For example, the states in the Ozone Transport Region (OTR) have asked EPA to help develop  and administer a
NOX emissions trading program for large combustion sources in the OTR. EPA offers a similar program to assist states in
meeting their summertime NOX emission budgets developed in the recent NOX SIP call.

    To restore the stratospheric ozone layer, EPA focuses on four areas: domestic and international phase-out of ozone-
depleting chemicals (chlorofluorocarbons [CFCs], halons, and methyl chloroform), implementation of limitations on other
ozone depleters (hydrofluorocarbons [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 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 without 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.
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% reduction in carbon dioxide emissions) while
preserving utility and comfort features and emitting very low levels of 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, moisture and mold, environmental tobacco smoke, and
emissions from building and consumer products)  and works through partner organizations to create awareness and to
influence consumer and institutional behavior.

    Three program laboratories supported the Air Program.  The labs carried out a broad range of policy, regulatory, and
compliance functions needed to implement the CAA and fuel economy statutes.  In addition,  they provided technical
understanding related to Agency responsibilities under the Indoor Radon Abatement and the CAA.
Page 14                            EPA's FY 1998 Annual Financial Statements

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                          Research and Development Program Description

    The Air Research and Development Program supports the development of air criteria and standards, as well as public
policy decisions required for EPA to implement the CAA. The components of this program in F Y 1998 included Air Toxics
Research, Criteria Air Pollutants Research, and Global Change Research.

    Air Toxics Research was conducted to address risks associated with major sources of hazardous air pollutants and their
presence in the urban environment, address air toxics deposition to Great Waters, address the environmental risk to human
health associated with indoor air pollution, and support motor vehicle emission characterization for exposure assessments.

    The Criteria Air Pollutants Research Program supported EPA in its mandatory review of the NAAQS for ambient
exposures to certain widespread air pollutants.  The research pertained to the effects, exposure, risk assessment and risk
management aspects of two major criteria air pollutants:  particulate matter (PM) and
tropospheric ozone.
    The Global Change Research Program supported the Agency by providing research
into the magnitude, timing, and regional patterns of climate change.  As part of the effort to
further understand global climate change, research was aimed at reducing uncertainties
associated with ecosystem vulnerabilities to climate change and related impacts, such as the
possible spread of waterbome diseases from changing climate patterns.

                  Enforcement and Compliance Assurance Program Description

    The Stationary Source Enforcement and Compliance Assurance Program supports a national air  enforcement and
compliance assurance program.  In FY 1998, Air Enforcement and Compliance Assurance Program priorities included
implementation of the Title V operating permit program,  carrying out the Title III hazardous air pollutant programs,
enforcing the CFC program, evaluation of synthetic minor permits, and enforcement of the New Source Review/Prevention
of Significant Deterioration (NSR/PSD) program.

    There also is a national enforcement and compliance program for mobile sources. In F Y 1998, the program continued
to focus on all the  Title II  statutory provisions under its responsibility for fuels, vehicles and engine compliance with
applicable federal requirements. While maintaining a federal presence in all statutory areas remained a priority for the
program, there was one major compliance/enforcement action that dominated for much of the year which involved nearly
industry-wide noncompliance by the manufacturers of heavy duty diesel engines.  The emissions consequence of this
noncompliance was enormous.  Initial resolution of that action will occur in early F Y 1999 although oversight will continue
for several years.

Future Enforcement Trends

    In FY 1999 and FY 2000, EPA will continue its commitment to maintaining a strong compliance and enforcement
presence.  In addition, EPA will continue to support compliance assistance activities to educate state and local permitting
authorities on new requirements, educate and provide technical assistance to aid industries in achieving compliance, and
target enforcement actions to deter noncompliance. EPA regions also will continue to implement strategies for addressing
multi-state and multi-program violators and for corporate-wide patterns of noncompliance. Specific Agency enforcement
and compliance priorities for FY 1999 and FY 2000 include Title V permits, synthetic minors, air toxics, CFC program
enforcement,  and NSR/PSD enforcement.  In addition,  air compliance and enforcement activities will concentrate on
industries  in the following  sectors: coal-fired utilities, petroleum refineries, wood product facilities, and pulp and paper
facilities.

    In F Y 1999 and F Y 2000, the mobile source program will continue its range of compliance and enforcement activities
under Title II of the Act.  In addition to the early implementation and oversight of the agreements in the actions discussed
above, there will continue  to be a focus on the actual compliance of vehicles and engines with applicable emissions


                                 EPA's FY 1998 Annual Financial Statements                           Page 15

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standards.  In addition to the existing vehicles and engines currently regulated, a new range of engines not previously
regulated will be subject to emissions requirements and will be monitored closely over the next few years.  These include
lawn and garden machinery, marine and construction engines and locomotives.  More stringent standards also will apply for
existing motor vehicles and motor vehicle engines.  With regard to motor vehicle fuels, the program will be monitoring
industry closely for compliance with the new complex model requirements under the federal reformulated gasoline program
utilizing sources of industry compliance data not previously scrutinized.  The program also  will review foreign refiner
baseline petitions received pursuant to the World Trade Organization ruling and EPA's subsequently revised regulations,
work with other agency offices in the development of an enforceable gasoline sulfur program to meet the new Tier 2 vehicle
emissions requirements, and  continue to enforce the gasoline and diesel fuel requirements through its nationwide program
of downstream fuels inspections and refinery audits.

                                   Highlights and Accomplishments
    The Air Program regularly tracks real world accomplishments.
FY 1998 highlights include:

Environmental Results/Reduced Health Risks

4   Through the combined efforts of EPA and the states, 62 (22 in F Y
    1998) of the original 100 ozone (smog) classified areas have been
    redesignated to attainment or revoked (met original standard)
    ensuring an additional 7.9 million people in FY 1998 now breathe
    clean air.  Additionally, nine of the 43 carbon monoxide non-
    attainment areas have been redesignated, providing healthier air
    in F Y 1998 for nine million people.
    AIR Program Obligations - FY 98
       Total Obligations - $910 Million
 Air Pollution Control
                "
                 12.9%
                      Air Quality Stds.
State/Local
  Assistance
     15.7%
                              N18.6%R&D

                                iforcement
                                5.0%
          o/7o    i        ,.20-7% .  „
Air Quality Mgt.      L4.7%  Atrnospheno Programs
              Trends Monitoring
            6 7%
  Air Quality Mgt.
4   Under the Acid Rain Program, S02 emissions from the 263 Phase
    I units have been reduced dramatically to 4.8 million tons, or 32% below the 1996 allowable emission limit of 7.1
    million tons. The S02 reduction by these sources from their 1980 baseline level (9.4 million tons) is about 4.6 million
    tons (48%). In addition, NOxmass emissions, from sources affected by Title IV, decreased by about  180,000 tons from
    1995 to 1996, despite the increase in fuel utilization.

4   The over 2,700 participants in EPA's Energy Star Buildings and Green Lights Partnership have prevented the emission
    of 1.8 million metric tons of carbon equivalent (mmtce) during the past year, which is equivalent to taking over 1.4
    million cars off the road.  In FY 1998, these program partners also saved over $580 million on their energy bills.

4   As part of EPA's contribution to the Partnership for a New Generation of Vehicles, EPA has demonstrated preliminary
    results of fuel economy better than 60 miles per gallon (MPG).

4   As a result of the Radon Program, 70% of the public is aware of the health risks from radon and ten million homes have
    been  tested.  About 1.5 million homes have reduced radon levels either through mitigation efforts or use  of radon-
    resistant construction techniques.

4   We have reached millions of people with the message of preventing involuntary exposure to Environmental Tobacco
    Smoke (ETS) and 83% of Americans know that ETS is harmful.

New Approaches

4   In October 1997, EPA provided  eastern states with proposed targets for reducing the emissions that create smog
    problems throughout the eastern United States.  The new strategy was developed cooperatively with the members of
    the Ozone Transport Assessment Group (OTAG), 37 states and the District of Columbia. The final NOX SIP call was
Page 16
                                  EPA's FY 1998 Annual Financial Statements

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    signed by the Administrator on September 24, 1998.  It sets individual reduction targets for NOX reductions for 22
    eastern states ranging from a few percent to about half compared with projected emission levels in the year 2007.

4   EPA stakeholders such as the Environmental Council of the States (EGOS), the National Governors Association (NGA),
    the State and Territorial Air Pollution Program Administrators ( STAPPA), and the Association of Local Air Pollution
    Control Officials (ALAPCO) continue to be integral partners as we develop innovative ways to address environmental
    problems.  In addition, the Federal Advisory Committee Act (FACA) process was used extensively in FY 1998 to gain
    stakeholder input and acceptance of rulemakings and implementation processes.

4   EPA began approaching its air toxics program with a different strategy by gradually changing its emphasis from specific
    source category emission reductions to a health risk orientation. This new risk-based strategy will center on identifying
    the human health risks associated with  individual toxic substances and establishing priorities for reducing those risks.

4   EPA continues to work with industry, state, and local representatives to collect information on emissions and controls
    used  by sources to determine what MACT would be if it were based on this information.  EPA,  state and local
    representatives, industry and environmentalists then determine if the information at hand is sufficient or if there is
    additional information needed. If the information is sufficient a Presumptive MACT is determined.  On  a limited basis,
    state and local partners can take the lead to complete a MACT standard which EPA subsequently approves or through
    a cooperative process EPA provides leaders in the development of a standard with one or more partners providing
    assistance.

4   EPA also undertook another effort to simplify and streamline the MACT standard development process by developing
    procedures for generic MACT  rules.  The generic rule specifies MACT floor control levels for a broad range of
    pollutant scenarios thus establishing generic MACT groups into which individual source categories would be placed.
    Using these innovative approaches, EPA has initiated over 20 partnerships in FY 1998 to collaborate in MACT
    standard development.

4   EPA  solicited comments on two aspects of the New Source Review (NSR) Reform rulemaking:  an alternative for
    determining the applicability of NSR to modifications under NSR and Prevention of Significant Deterioration (PSD);
    and review of plant-wide applicability limits  (PALs).  In addition, EPA issued the NSR Transitional Strategy Concept
    paper, guidance on interim implementation for PM2 5, a potential to emit guidance (for major sources with the potential
    to emit large amounts of pollutants), and guidance on crediting MACT reductions for NSR netting and offsets were all
    issued.

4   The Plain English regulation writing program  continued.  Three MACT rules and a guide to Title V  Operating Permits
    were  put  into "Plain English" format. Teams working on rules took the Plain English course  so that they could
    immediately apply the techniques.

Rulemakings/Standard Setting

4   This year, EPA proposed 14 MACT standards and promulgated five MACTs. The MACT standards, once they are
    all implemented, are expected to reduce air toxic emissions by 13 % from  1993 levels.

4   The Tribal Authority Rule implements the requirements of Section 301 (d) of the CAA that authorize the Administrator
    of EPA to treat tribes  in a manner similar  to states. The rule identifies those provisions of the CAA for which it is
    appropriate to treat tribes as states, establishes eligibility requirements for tribes to be treated as states, and lays out
    procedures for approving tribal air programs.  The rule was promulgated on February 12, 1998 and became effective
    on March 16,  1998.

4   The Office of Mobile Sources finalized  13 rules during FY 1998 and proposed an additional nine new rules dealing with
    areas such as emissions standards, fuel and fuel additives, and on-board diagnostic devices.  Some notable examples
    are listed below:
                                  EPA's FY 1998 Annual Financial Statements                           Page 17

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    •   Final Rulemaking (FRM) (April 16, 1998) - Emission Standards for Locomotives and Locomotive Engines. This
        rule marks the first time in the history of the CAA that regulations are established to control emissions from
        locomotive engines.

    •   Advanced Notice of Proposed Rulemaking (ANPRM) (May 22,1998) - Control of Emissions of Air Pollution from
        New Compression Ignition (CI) Marine Engines at or Above 37 Kilowatts.

    •   FRM (May 4, 1998) - Inspection and Maintenance (IM) Program Requirement—On-Board Diagnostic Checks:
        Amendment to the Final Rule.

    •   FRM (December 31,  1997) - Regulation of Fuels  and Fuel Additives:  Modifications to  Standards  and
        Requirements for Reformulated and Conventional Gasoline.

Clean Air Program Implementation

4   Work on enhancement of the air toxics infrastructure continued, including the completion of the national inventory for
    40 urban Hazardous Air Pollutants (HAPs) to support the Urban Area Source Project. In addition, air toxics monitoring
    and emission inventory guidance for FY 1999 for regions and
    states was developed and communicated.  A baseline inventory
    for MACT Emission Reduction Tracking was compiled.

4   EPA continued transition to the  new and revised  Ozone &
    Particulate  Matter  Standards.   The Office of Air  Quality
    Planning and Standards   (OAQPS)  finalized  the  ozone
    revocation  notice and proposed  a second notice.   Interim
    Implementation Guidance was issued for the states to implement
    the one-hour ozone standard and the pre-existing PM10 NAAQS
    in order to make the transition to the new eight-hour ozone
    standard and the new PM25 standard.   Of the 52 NAAQS
    implementation actions  in the matrix of implementation actions
    (not all scheduled for FY  1998 completion),  25 have been
    issued  and 6 have been proposed, working cooperatively with
    EPA regional offices, the state and local air agencies, and the
    stakeholder  community.  Examples of guidance developed
    include: guidance on attainment demonstrations for particulate
    matter and ozone, judging compliance with the new ozone
    standard, and data handling guidance for both the new ozone and particulate matter standards.

Education/Outreach/Information Sh aring

4   EPA's Radon Public  Service Announcement campaign reached several million people this year.  In addition, hotlines
    for radon and Indoor Air Quality (IAQ) fielded 125,000 calls  and distributed over one million informational brochures
    this year.

4   EPA's Office of Air and Radiation (OAR) has extensive information on its activities on the World Wide Web.  The
    homepages for OAR  and its program offices deal with issues that affect the quality of air including indoor and outdoor
    air quality,  stationary  and mobile sources of air  pollution, radon, acid rain, stratospheric ozone depletion,  global
    warming and pollution prevention.  These web pages (see table below) and associated links contain  a wealth of
    information of value for those affected directly by EPA regulations and EPA's partners as well as the general public.
Page 18
                                 EPA's FY 1998 Annual Financial Statements

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                                      Office Webpage
Address
                                 OAR Main Homepage
              Office of Air Quality Planning and Standards
              Office of Atmospheric Programs: Acid Rain
                                       Ozone Depletion
                                       Global Warming
            Office of Radiation and Indoor Air: Indoor Air
                                             Radiation
                               Office of Mobile Sources
http://www.epa.gov/oar/oarhome.html
http://www.epa.gov/oar/oaqps
http://www.epa.gov/acidrain/ardhome.html
http: //www. epa. gov/ozone
http: //www. ep a. gov/glob al warming
http ://www. epa. gov/iaq
http://www.epa.gov/radiation
http://www.epa.gov/OMSWWW/omshome.htm
Strengthening Air Research and Regulatory Programs

4   EPA's National Vehicle and Fuels Emissions Laboratory (NVFEL) continued to upgrade its equipment and other testing
    capabilities as part of a multi-year update program.  This program is aimed at assuring that the NVFEL keeps up to date
    with the rapidly changing testing technology associated with changed emissions, emissions control technology, and its
    mission focus aimed at assuring in-use compliance with emission standards and advancing the state of the art for
    emissions reduction.

4   EPA's analysis of Southern Oxidant Study (SOS) data from 1995 programs in the Nashville, Tennessee Region resulted
    in methods to measure and model ozone and its precursors. This research resulted in the publication of 31 journal
    articles, and provided observation-based methods to be used in planning FY 2000-2001 State Implementation Plans
    (SIPs). SIPs are required to carry out the new NAAQS for ozone.

4   EPA released Models-3, the next generation of  atmospheric chemistry models, with meteorological and emissions
    modules, to the public in June 1998.  It is the first air quality modeling system to simulate the dynamics of different
    pollutants simultaneously. In addition, it will provide environmental managers greater speed and flexibility in finding
    solutions to environmental problems.

4   The Agency  identified and will continue to study in detail a hypothesis related to the role of transition metals in
    producing reactive oxygen species that produce oxidative stress and an inflammatory response, leading in turn to
    cardiopulmonary stress and, potentially, sudden death.  The identification of biologically plausible hypotheses will
    improve confidence in the 2002 review of the NAAQS for particulate matter, leading to an improved basis for risk
    assessment and management of particulate matter.

4   EPA completed risk assessments for beryllium, chromium, bentazon, and acetonitrile.

4   In December  1997, EPA released an eight-volume report to Congress that evaluates the impacts of air emissions of
    mercury on human health and the environment.

*   The Agency published The Carcinogenic Effects of Benzene: An Update (EPA/600/P-97/001F) in April 1998.

4   EPA delivered the draft Health Risk Assessment Document for Diesel Engine Emissions to the Science Advisory Board
    and held a public review meeting on the document in May  1998.

4   As part of the U.S. Global Change Research Program's National Assessment of "The Potential Consequences of
    Climate Change and Climate Variability on the United States," the Agency held regional workshops as a first step in
    conducting a regional assessment.  The EPA held  a Gulf Coast Workshop in Baton Rouge, LA in February 1998, a
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    Great Lakes Workshop in Ann Arbor, MI in May 1998, and a "problem formulation" workshop at Penn State University
    in June 1998 to begin the Mid-Atlantic Regional Assessment.

Enforcement and Compliance Assurance Program Performance Measures

    The enforcement and compliance assurance program deters noncompliance by maintaining levels of field presence and
enforcement actions, particularly in high risk areas and/or where populations are disproportionately exposed.  The program
used the following performance measures for assessing their success in FY 1998:
Kev Performance Measures
Mobile Sources Inspections
Stationary Source Inspections
Stationary Source Civil Referrals
Stationary Sources APO Complaints
Stationary Sources Compliance Orders
1998 Goal
2,250 Inspections
2, 100 Inspections
70 Case Referrals
90 APO Complaints
155 Compliance Orders
1998 Actual
2,665 Inspections
2,722 Inspections
113 Case Referrals
156 APO Complaints
273 Compliance Orders
        (Note: APO is Administrative Penalty Order.)

Diesel Engine Industry Enforcement

    EPA and the Department of Justice settled with seven heavy duty engine diesel manufacturers in what is the largest
Clean Air Act enforcement action in history.  The manufacturers were charged with violating the Clean Air Act by installing
devices that defeat emission controls in an estimated 1.3 million engines.  In addition, the manufacturers, which comprise
95 percent of the U.S. heavy duty diesel engine market — will spend more than one billion dollars and will pay an $83.4
million civil penally to settle charges that they illegally poured millions of tons of pollution into the air.
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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 (CAA) Amendments of 1990; the Waste
Isolation Pilot Plant Land Withdrawal Act of 1992; Robert T. Stafford Disaster Relief and Emergency Assistance Act of
1998; Title XIV of the National Defense Authorization Act of 1996 (Nunn-Lugar II); 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 laws authorize a wide range
of regulatory, assessment, assistance, and research activities.

                                    Radiation Program  Description

    The Radiation Program helps carry out the major environmental goal of Better Waste Management and Restoration
of Abandoned Waste Sites. EPA's Radiation Program has two main objectives:

4   Reducing adverse health effects and environmental impacts from radiation exposure through a program of standards
    and guidelines.

4   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 cleanup and waste management standards, and
responds to radiological emergencies.

    Two program laboratories supported the Radiation Program by providing technical understanding related to Agency
responsibilities under the Indoor Radon  Abatement Act, the Waste Isolation Pilot Plant Land Withdrawal Act, the Energy
Policy Act, and the Atomic Energy Act.

                                  Highlights and Accomplishments

    Highlights and accomplishments of this program in FY 1998 include the following:
    EPA certified that the Department of Energy's (DOE)  Waste
    Isolation Pilot Plant (WIPP) in Carlsbad, NM, is a safe disposal
    site for defense-related nuclear waste and meets health-based
    environmental protection standards  that will  protect  public
    health and the environment.

    EPA conducted three inspections of DOE waste generator sites
    to comply with the conditions of the  WIPP certification in
    preparation for shipment to WIPP.

    The Agency currently is developing environmental radiation
    protection standards for the disposal of radioactive wastes at
    Yucca Mountain, NV, a potential site for a geologic repository
    for spent nuclear fuel and high-level radioactive waste.
 RADIATION Program Obligations - FY 98
      Total Obligations - $47.9 Million
Program Implementation
          3.8%


 Waste   20.3%
 Isolation Pilot Plant
   Im plementation
                     Radiation Criteria, Standards
                     40.9%       & Guidelines
         34.9%
Radiation Environmental Impact
           Assessment
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    As part of its ongoing radiological and emergency response program, EPA maintained its unique capability to respond
    to radiological events through participation in national and international exercises. EPA also provided radiation
    emergency response and counter-terrorism training courses for states and EPA regional offices.  EPA conducted a Post-
    Emergency Response Recovery Conference which attracted over 300 participants from the U.S. and other nations.

    EPA in partnership with other federal agencies published a  site assessment manual,  Multi-Agency Radiation Survey
    and Site Investigation Manual (MARS SIM), and conducted training for federal and state employees involved in the
    cleanup of radioactively contaminated sites.

    EPA published Draft Federal Guidance Technical Report No. 13 (Part 1) which provides consistency in assessments
    by federal agencies and others of the risks to health from radiation. This helps ensure that such assessments are based
    on sound scientific information.

    In conjunction with the Conference of Radiation  Control Program Directors,
    managers of the state radiation protection programs, EPA developed a program
    for the  safe disposal of lost or abandoned industrial sources  of radioactive
    materials to mitigate the potential detrimental health effects.

    EPA participated in the successful launch of the plutonium-bearing Saturn Probe.
    EPA staff supported DOE's Advance Launch Support Group to prepare for the
    possibility of an accident and an EPA staff member served as a Senior Official
    at the Launch Support Center assisting the operation from the EPA perspective.

    Office of Radiation  and Indoor Air's (ORIA's)  National Air  and Radiation
    Environmental Laboratory  (NAREL)    provided analytical  support  to 16
    Superfund  sites  via over  4,000 site clean-up  and radiological  analyses.
    Approximately 70% were  independent analyses  and 30% were for quality assurance.  Approximately 80% were
    radiological and 20% dealt with mixed waste. This work was done for EPA's Regions 2, 4, 5, 8, 9, and 10.
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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 ground water resources. Safe drinking water is essential to human
health.  Contaminated drinking water can cause illness and even death as was the case in Milwaukee in 1993 as well as more
recent occurrences in Las Vegas, NV; Austin, TX ; and Alpine, WY.  Furthermore, contaminated drinking water poses a
special risk to such populations as children and people with compromised immune systems. 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 further amended Title XIV of the Public Health Service Act (commonly known as the "Safe
Drinking Water Act").

                                Drinking Water Program Description

    The responsibility for ensuring that 240 million Americans have safe drinking water rests with EPA and the states as
mandated by the Safe Drinking Water Act (SDWA) and its 1996 Amendments.  To carry out its portion of the responsibility,
EPA must work with the states and tribes to provide protection for drinking water during each phase of the drinking water
cycle — the raw source water, the water treatment plant, and the pipes that deliver the finished water from the  treatment plant
to the tap.

    The 1996 SDWA Amendments improve the ability of states, water suppliers, and EPA to prepare for  future drinking
water safely challenges and assure sustained availability of safe drinking water.  The Amendments center around four major
areas of change:

    1)  improving the way that EPA sets drinking water safely standards and develops regulations that are based on good
        science and data, prioritization of effort, sound risk assessment, and effective risk management;

    2)  establishing new prevention approaches, including provisions for operator certification, capacity development, and
        source water protection;

    3)  providing better information to consumers, including consumer confidence/"right-to-know" reports; and

    4)  expanding funding for states and communities through the Drinking Water State Revolving Fund (DWSRF).

In addition, the 1996 Amendments increase the states' flexibility to focus on public health-based priorities and make better
use of resources, recognize the problems facing small systems and establish appropriate cost-effective approaches for such
systems, and emphasize the role of stakeholders and partnerships as a key aspect of an effective national drinking water
program.

                                    Research  Program Description

    The occurrences of waterborne disease outbreaks demonstrate that drinking water supplies are still vulnerable to
contamination. Drinking water research evaluates the effects of the pathogenic bacteria, parasites, and viruses that can cause
serious illness and death. The SDWA Amendments of 1996 mandate that the EPA identify and regulate contaminants which
may threaten human health. Among these contaminants are by-products formed during disinfection (disinfection by-products
[DBFs]) by chlorination or alternative practices.  Drinking water research also focuses on  determining what levels of
exposure to arsenic in drinking water are dangerous to human health.
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    Several detailed health effects studies have been initiated to determine the overall human risk from exposure to
waterbome pathogens, DBFs, and arsenic, as well as the ability to reduce any determined danger through effective risk
management. These studies are critical in order to promulgate regulations that provide citizens with clean and safe drinking
water.

                  Enforcement and Compliance Assurance Program Description

    EPA is committed to a strong compliance and enforcement presence to ensure that drinking water supplies meet SDWA
requirements and that underground injection practices are conducted in accord with applicable regulations to ensure the
safely of underground sources of drinking water. In FY 1998, in the Public Water System Supervision (PWSS) Program,
EPA continued to enforce the SDWA requirements and national primary drinking water regulations, with priority given to
the Surface Water Treatment Rule (SWTR), total coliform, and lead and copper regulations. In the Underground Injection
Control (UIC) Program, EPA enforced against all classes of wells, giving priority to those situations where there was
endangerment  or potential endangerment of groundwater.  In addition, EPA worked to implement the 1996 SDWA
amendments, including developing and promulgating the variance and exemption regulation by the statutory deadline of
August 1998,  and developing with the states and other stakeholders the first National Public Water System (PWS)
Compliance Report.

                                   Highlights and Accomplishments
                                                               DRINKING WATER Obligations - FY 98
                                                                     Total Obligations - $335.7 Million
                                                                Water Criteria, Standards
                                                                & Guidelines
                                                                        34.5% /
  6%
                                                                                                    R&D
                                                                 State Program  27.9%
                                                                     Resource Assistance
  Enforcement
  4.2%
11.9%
Ground Water
Protection
    InFY 1998, EPA continued its many implementation activities
related to the 1996 SDWA Amendments. The partnership process,
which the  Agency  instituted in 1997, with its drinking water
program stakeholders is considered a model within the Agency and
the federal government and has been strengthened and expanded.
EPA  held  over  60 formal stakeholder meetings  on regulatory
development issues for specific contaminants, including unregulated
contaminants, as well as on the science and data needed to support
the regulation of these contaminants. For Stage 1 Disinfection By-
Products  (DBFs)  and the  Interim  Enhanced  Surface  Water
Treatment (IESWT) rules that will be promulgated by November
1998, the Agency  held both informational and public comment
meetings on the final drafts.  Moreover, a safewater web site has
been created and provides to drinking water stakeholders the single
best source of information about drinking water rules.  In addition,
two new stakeholder workgroups have been created under the auspices of the National Drinking Water Advisory Council.
One has been established to focus on Class V underground injection wells/source water protection and one that will help
us implement the right-to-know provisions of SDWA.

    In the  second year of its implementation,  the  Agency  has strengthened the  scientific  underpinnings for its
statutorily-required rulemaking by conducting studies focusing on health risks to sensitive subpopulations, such as children.
EPA also developed risk assessment methodologies applicable to infants, children,  pregnant and lactating women, and
individuals with chronic disease as consumers of drinking water. In addition, EPA has continued to be successful in meeting
all of its statutory deadlines. The Agency completed the following activities:

    1)  published the Contaminant Candidate List (CCL), the basis for which regulatory determinations on at least five
        contaminants will be made by August 6, 2001, as mandated by the 1996 SDWA amendments;

    2)  collaborated with the Centers for Disease Control and Prevention and issued studies on waterbome disease
        occurrence;
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                                 EPA's FY 1998 Annual Financial Statements

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    3)  promulgated the consumer confidence report regulations that require public water systems to issue an annual right-
        to-know report to all their customers (these reports must contain information on the source of public water systems'
supply, the level of detected contaminants,  data on the health effects of contaminants found above the drinking water
standard, as well as information on unregulated contaminants in the water supply);
                                                           Safe and Unsafe Disposal of Industrial Waste

                                                                   J
    4)  issued the variances and exemptions rule;

    5)  published operator certification requirements;

    6)  provided Public Water System (PWS) definitions
        guidance;

    7)  disseminated  information  to  assist  states  in
        developing affordability criteria;

    8)  reviewed existing monitoring requirements;

    9)  circulated guidance on capacity development;

   10)  published the annual national compliance report;
        and

   11)   issued a small system technologies list.

    Furthermore, the Agency completed the supporting risk
analyses for promulgation of the  Stage  1  DBF  and the
IESWT rules, published Notices of Data Availability in the
Federal Register, and promulgated these rules in November
1998, as stipulated by the 1996 SDWA amendments.  The
Agency completed supporting risk and risk-reduction benefit
analyses for radon levels in drinking water.

    All FY 1997 DWSRFs, which totaled over $1.2 billion,
were awarded to the 50 states and Puerto Rico before the
September  30, 1998  deadline  for these  funds to be
committed/obligated. In addition, 30  awards were made in
FY 1998 using FY 1998 funds.

    The first  state source  water  assessment  program
(SWAP) was approved in September 1998  (six months
before  the   deadline  for  state  submittal)  after  EPA
successfully negotiated revisions with  State of Kentucky
officials. SWAPs are the centerpiece of the 1996 SDWA
Amendment's preventive focus. They give states and communities the tools they need to prevent contamination in the source
of the drinking water supply, and thus comprise one of the multiple barriers to drinking water contamination, along with
treatment.  Source water assessments identify the source(s) of a community's drinking water and the potential threats to
which a source is susceptible.

    The preamble and regulatory language for the proposed Class V underground injection control (UIC) rule was published
in July  1998, meeting its court-imposed deadline. Also, final drinking water primacy regulations were promulgated in April
1998.
                                                                                Unsafe disposal of waste
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Drinking Water Research

    EPA's research and development program increased the Agency's understanding of environmental processes and our
capability to assess environmental risks - not only to human health, but also to ecosystems. This research supported EPA
efforts to identify the most important sources of risk to human health and the environment, and thereby guides priorities,
policies, development of environmental regulations, and deployment of resources. In addition, Agency research endeavored
to provide the understanding and technologies needed to detect, abate, and avoid environmental problems. In the future,
environmental problems will be dealt with using those features of the current system that have proven effective and by
designing and testing fundamentally new tools and approaches that utilize the latest advances in scientific knowledge and
technology.

4   EPA developed methods for two disinfection by-products classes, aldehydes and bromates, culturable viruses and
    Cryptosporidium, and investigated the occurrence of Mycobacterium  in drinking  water to assess the risk due to
    exposure.

4   EPA issued a report on the evaluation of membrane technology to control oocysts. The data indicate that this type of
    technology has the potential to control Cryptosporidium oocysts.

4   EPA issued a report on Meta-Analysis of Epidemiologic Studies on Cancer and Chlorinated Drinking Water which will
    be used in support of the development of the Regulatory Impact Analysis (RIA) for addressing the costs and benefits
    of Stage I of the DBF Rule.  This report provides information on the appropriateness of using these published studies
    as the basis for a risk assessment when analyzed via a meta-analysis method.

Drinking Water Enforcement Performance Measures

    The enforcement and compliance assurance program deters and reduces noncompliance and achieves environmental
and human health improvements by maintaining a strong, timely and active enforcement presence. EPA directs enforcement
actions  to maximize compliance and address human health problems.  Specific measures include noncompliance rates,
measurement of average length of time for violators to return to compliance or enter enforceable agreements, and the number
of administrative, civil, and criminal judicial actions.  The data for some of these measures  is reported in the Water Quality
Enforcement Performance Measures section. (See page33.)

    These measures count the number of enforcement actions in the  drinking water program and also measure how
successful compliance and enforcement programs have been by looking at the length of time for significant noncompliers
to return to compliance or have an enforcement action taken against them.  Addressing significant noncompliers constitutes
a major portion  of the base program.  Moreover, dealing with priority regulations (SWTR, total coliform, and lead and
copper) will result in improvements to human health as these  contaminants have the greatest potential for direct health
effects.

                                             Future Trends

    With its partners, EPA will continue to implement the 1996 SDWA Amendments. Requirements that will be met in
FY 1999, in accordance with statutory deadlines are:

4   Promulgate Stage I Disinfectants and Disinfection By-Products and Interim Enhanced Surface Water Treatment rules.

4   Publish health risk reduction benefits and cost analysis for potential radon standards.

4   Propose radon standard.

*   Publish Final Class V UIC rule.
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4   Publish unregulated contaminant monitoring rule.

4   Establish National Occurrence Database.  Solicit recommendations for inclusion of additional contaminants.

4   Publish guidelines specifying minimum standards for certification and recertification of operators .

4   Complete UIC study on remaining Class V wells.

4   Determine if states have legal authorities or other means in place to ensure new system capacity.

4   Complete sulfate study with the Centers for Disease Control (CDC) to establish a reliable dose-response relationship.

>  Evaluate state ground water protection programs.

    In addition, the Agency will continue to focus on Right-to-Know activities. This includes working with water systems
to develop consumer confidence reports, developing tools to increase consumer knowledge of drinking water issues, and
proposal of revisions to the Public Notification Rule. Also, the Agency will implement various components of the data
reliability action plan to address data quality issues in the Safe Drinking Water Information System (SDWIS) and ensure
that SDWIS provides the best source of national compliance information on the supply of drinking water to all Americans.

    EPA will continue its commitment to maintaining a strong compliance and enforcement presence. Agency priorities
for F Y 1999 and FY 2000 include compliance assistance/enforcement for the microbial and lead/copper regulations, follow-
up on the recommendations in the Compliance Report, SDWIS support and implementation (critical for compliance analysis
and for measuring progress in meeting environmental and public health goals), implementation of SDWA Amendments of
1996, and compliance monitoring/enforcement against owners and operators of Class V wells.  In addition, the compliance
and  enforcement program  will  develop   compliance  and enforcement strategies  and implement  appropriate
compliance/enforcement activities for the regulations promulgated in FY 1998, the Consumer Confidence Rule, and the FY
1999 Interim Enhanced SWTR  and Disinfection By-Products rules.
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                                     WATER QUALITY
    Since the passage of the Clean Water Act (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, more than six billion pounds of toxic industrial pollution are still being discharged annually into our rivers,
lakes and streams.  The National Water Quality Inventory 1996 Report to Congress indicates that 16% of assessed rivers
and streams and 35% of assessed lake acres are not safe for fish consumption; 20% of assessed rivers and streams and 25%
of lake acres are not safe for recreational activities (e.g, swimming); and 16% of assessed rivers and streams and 8% of lake
acres are not meeting drinking water uses. While this is a dramatic improvement over conditions thirty years  ago, much work
remains before we meet our long-term goal of clean and safe water for all Americans.

    The Water Quality Program is mandated by the CWA, as amended.  Major amendments to the CWA were enacted in
the Water Quality Act of 1987. This 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 in the Great Lakes Critical Programs Act (GLCPA); Water Resources Development Act (WRDA); the Marine
Protection, Research and Sanctuaries Act (MPRSA); the Shore Protection Act (SPA); the Marine Plastics Pollution Research
and Control Act (MPPRCA); and the Coastal Zone Act Reauthorization Amendments (CZARA).

                                  Water Quality 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, including oceans, which are the ultimate receiving waters for all 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, construction sites, and atmospheric deposition of
pollutants — will be addressed. This is critical since nonpoint source pollution has become the Nation's  most significant
remaining water quality problem.

    EPA's Water Quality Program faces three main challenges:  improving the quality of our surface water, protecting
groundwater resources, and reducing wetlands loss. First, the Agency  seeks to prevent surface water pollution, control
pollution sources, and restore degraded areas. Second, the Agency must protect groundwater from pollution and help the
public better understand the ways to prevent the groundwater from becoming polluted. Finally, EPA is seeking to continue
the trend toward reduced wetlands loss, with the long-term goal of ultimately realizing a net gain in wetland acreage through
efforts to create new wetlands and protect, improve, and better understand wetlands conditions.

                                    Research 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 by providing technical assistance to EPA regulatory
programs, states, and municipalities. The goal of the program is to minimize environmental 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,  wetlands, contaminated
sediments,  aquatic ecocriteria, nonpoint sources, habitat/biodiversity, wastewater, and sludge. This requires improving
analytical methods for quantifying pollutants. EPA's Ecosystem Protection Research Program also contributes to these
efforts by focusing on areas such as  measuring and reporting on surface water quality,  including research on the further
development of ecological and biological criteria; improved designs for monitoring surface water quality; new indicators
to assist in diagnosing degraded streams, rivers and estuaries;  and better measures of condition to report on success.
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                  Enforcement and Compliance Assurance Program Description

    In F Y 1998, EPA promoted a comprehensive watershed approach to water quality compliance and enforcement. The
Water Quality Enforcement and compliance assurance program ensures compliance with permits issued under National
Pollutant Discharge Elimination System (NPDES) as well as taking actions for discharges into U.S. waters without a permit.
In FY 1998, EPA targeted its resources on wet weather discharges (e.g., sanitary sewer overflows, combined  sewer
overflows, and stormwater).  In addition, EPA focused attention on the development and implementation of the Concentrated
Animal Feeding Operations (CAFO) Compliance Assurance Implementation Plan and participated in the development of
the draft Unified Strategy for Animal Feeding Operations (AFO). These areas pose substantial risks to human health and
the environment. Moreover, the program emphasizes the importance of identifying significant noncompliers and taking an
appropriate enforcement action or returning them to compliance in a timely manner.

                                  Highlights and Accomplishments
    The Agency continued to place a heavy emphasis in F Y 1998 on
expanding efforts to promote  understanding of the condition of
aquatic resources in geographic terms — on a watershed basis.  The
President's Clean Water Action Plan, announced in February 1998,
calls for more than  100 specific key actions by EPA and by many
other federal agencies with either water quality responsibilities or
activities that have an impact on water quality.  These key actions
cover most aspects of the water program at EPA. The Action Plan
mobilizes federal, state, and local agencies to achieve the Nation's
clean water goals through the watershed approach; brings a sharp
focus to the  critical actions  that  are  required; and  establishes
deadlines for meeting these commitments over the next several years.
WATER QUALITY Obligations - FY 98
     Total Obligations - $789.4 Million

 Grants Assistance Prog.     Engineering & Analysis
                         _5.4%  Grants Prog.
                                       Mgt.
                                6.8%
                                    R&D

                                6.7%
                                 Enforcement
     40.6%
Strategies
Implementation
                         22.9%
              Water Quality Monitoring
                & Analysis
    The Action Plan  calls upon  states and tribes  to  work  in
cooperation with federal, interstate, and local agencies, watershed-based organizations, and the public to identify watersheds
most in need of restoration and to develop watershed restoration action strategies.  In June, EPA, U.S. Department of
Agriculture (USDA), and other federal agencies developed a framework to assist states and tribes in preparing their
watershed assessments. States were encouraged to draw from existing water quality data in assessing overall watershed
conditions. Forty-six states and territories and 44 tribes submitted draft Unified Watershed Assessments (UWAs) on August
1.  After receiving feedback from an interagency workgroup and the public, 54 states/territories and the District of Columbia
as well as 13 tribes submitted final UWAs as of October 9. A key next step will be to map the results of these UWAs.

    In support of these efforts, the Agency strengthened the Watershed Academy to provide training for watershed managers
and others implementing the watershed approach.  The Academy includes training courses, state facilitations in which the
Academy assists states and tribes in reorienting their programs to implement watershed approaches, an information transfer
series, and a web site. In FY 1998, the Watershed Academy also developed numerous Internet distance learning training
modules to serve those who cannot attend the live courses.

    EPA completed a number of efforts to provide to states and tribes improved tools with which to carry out their water
quality  standards programs. The Agency published guidance documents on a methodology for deriving ambient water
quality criteria for the protection of human health and completed water quality criteria documents for four chemicals of
concern — Ammonia-revision, 1,3-Bichloropropne (1,3-BCP), Hexachlorobutadiene (HCBD), and Acrylonitrile.  EPA
published a National Strategy for the Development of Regional Nutrient Criteria and began to assist  states and tribes in
adopting numeric nutrient criteria in their water quality standards.  The Agency also published a national Contaminated
Sediment Management  Strategy and submitted the National Sediment Inventory to the Congress.

    The Agency reviewed and approved state and tribal standards submissions and provided guidance, technical  assistance,
and training to states and tribes.  In FY 1998, EPA promulgated federal water quality standards for two states, Alabama and
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California. Due to state action, EPA was able to  withdraw the federal human health criteria for arsenic in the State of
Alaska. EPA enhanced its user-friendly geographic information system, BASINS, with additional geo-referenced data and
released a sediment quality modeling package to enable states, tribes, and local agencies to conduct watershed-based
environmental assessments.  Training and on-line user support services, including a BASINS web site, further increased
access to and use of the model.  The Agency also began design of a nationwide survey to identify the presence and extent
of persistent bioaccumulative toxics in fish tissue.

    EPA continued its efforts to look at the future direction of the water quality criteria and standards program by publishing
an Advance Notice of Proposed Rulemaking (ANPRM) to  consider revisions to the existing water quality  standards
regulations. The ANPRM seeks feedback on changes that would allow states and tribes to tailor their own regulations to
local conditions and to address biological health  as well as human health in developing solutions to water quality problems.
EPA conducted two of three large public meetings to encourage public dialogue and nationwide consistency in water quality
standards programs.

     EPA launched a new program to support states, tribes, and local communities in assessing water quality at bathing
beaches.  The Beaches Environmental Assessment, Closure, and Health (BEACH) Program, designed ultimately to reduce
exposure to microbial contamination at bathing beaches, will assist states and local governments to better monitor and inform
the public of risks associated with exposure to contaminated waters at beaches. EPA made information on specific beaches
available on the  BEACH Watch web site that includes beach monitoring and closure information for the public to use in
assessing risks that selected beaches may pose.

    The Total Maximum Daily Load (TMDL) Program is authorized by Section 303(d) of the CWA. Section 303(d)
requires states to identify and list waters for which existing pollution controls are not stringent enough to achieve state water
quality standards, and to establish TMDLs for  these waterbodies. A TMDL  specifies the amount of a particular pollutant
that may be present in a waterbody such that water quality standards still are attained or maintained, and allocates allowable
pollutant  loads among sources, thus providing the basis for taking actions needed to restore impaired waterbodies. During
FY 1998, the TMDL Federal Advisory Committee Act (FACA) committee completed its deliberations and submitted a final
report to the EPA Administrator containing over  100 recommendations for improving the effectiveness and efficiency of the
TMDL program.

    Also during  FY 1998, EPA initiated efforts  to propose revisions to the current TMDL program regulations and
guidance. EPA will consider the TMDL FACA committee recommendations  as it develops these proposed revisions.  The
proposed regulatory revisions are scheduled for publication in the Federal Register in the Spring of 1999.  Consistent with
the  current TMDL program regulations, states were required to submit lists  of impaired and threatened waters to EPA in
April 1998. As of the end of the fiscal year, most states had submitted final lists to EPA for review and approval/disapproval
action; other states were in the process of developing final  lists for submission to EPA.  The EPA Regions, in consultation
with Headquarters, are carefully reviewing the final state  lists and making appropriate approval/disapproval decisions.
    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, to support
monitoring programs, and to 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.

    The Agency continued to improve and update the Index of Watershed Indicators
(IWI), a major project intended to facilitate decision-making within the watershed
protection framework. IWI configures existing information from multiple sources to
display the condition and vulnerability of the Nation's 2,111 watersheds. Many of the original 15 indicators have been
updated with more recent data. Additionally, new candidate indicators dealing with living resources (e.g., biological integrity
and terrestrial condition), ground water, and air deposition have been added to the redesigned web site.  IWI is available
on Surf Your Watershed, an Internet community-based information system for organizing, locating, and sharing water quality
information critical for understanding problems and developing solutions.

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    The team tasked with development of a new generation STORET, the Nation's primary water quality data storage and
retrieval system, rolled out Version 1.0 of the production system on September 3, 1998.  Since the release, approximately
300 copies of the system have been distributed. The system is available for either the desktop or a Local Area Network
(LAN) application. EPA initiated a training program for using the new system.

    EPA is placing increased emphasis on protecting ocean and coastal waters.  The Agency was a key participant in the
National Oceans Conference, held in June 1998 in recognition of the International Year of the Ocean.  At the conference the
President made numerous commitments that will involve EPA action, including efforts to protect coral reefs, improve beach
and coastal water quality, ready our ports for expanded use in the 21st century, and develop recommendations for a federal
ocean policy.

    The Agency also worked on several fronts  to build partnerships to more effectively protect  and restore coastal
ecosystems. The Partners for Smart Growth Conference succeeded in bringing developers, local government officials, and
financiers together to discuss how growth and development can complement environmental protection efforts and can create
more liveable communities. EPA and the National Oceanic and Atmospheric Administration (NOAA) held a meeting with
state coastal program managers and National Estuary Program directors to discuss common issues such as habitat loss and
nutrient over-enrichment. EPA has been working with NOAA and other federal agencies to provide technical assistance
to states responding to and mitigating the impacts of toxic Pfiesteria outbreaks and other harmful algal blooms. A national
contingency plan has been prepared to provide emergency federal response to Pfiesteria outbreaks and other harmful algal
blooms in cases where state response capabilities are exceeded. Our National Estuary Program is one of the Water Quality
Program's foremost community-based,  stakeholder-oriented efforts, with 17  programs successfully  implementing their
Comprehensive Conservation and Management Plans.

    The Water Program continued to examine the effects of air deposition of chemicals, heavy metals, nutrients, and other
pollutants in the Nation's surface waters.  EPA's goal is to characterize and manage air deposition effects on downwind
waters by building upon ongoing programs, primarily under the Clean Air Act (CAA) and the C WA.  Studies have confirmed
the need for more stringent air controls by demonstrating residual benefits to water quality. The Office of Water (OW) Air
Deposition Initiative partnered with the Office of Air and Radiation (OAR) to ensure the effective use of CAA tools to
protect water quality by incorporating water quality benefits and issues into air regulations and policy. In 1998, this included
analysis of the benefits to certain water bodies as a result of the NOx State Implementation Plan (SIP) Call rule issued by
OAR. The partnership also has expanded, with more joint meetings held and being planned for the future. In addition, the
Initiative has launched an effort to pilot the development of a TMDL under the CWA that considers the air loadings of
mercury to the impaired water body.

    The Agency continued its approach to protecting the environment from urban wet weather pollution  sources. Following
the Phase I Storm Water rule covering industries and  large municipalities, EPA published a proposed rule to regulate smaller
municipalities and construction storm water sources.  This rule  was based on detailed discussion with the Urban Wet
Weather Flows Federal Advisory Committee, other outside stakeholders, and internal EPA stakeholders. In addition, EPA
continued to work with  stakeholders on  ways to incorporate controls on combined sewer overflows,  sanitary sewer
overflows, and storm water into a watershed approach, in order to  better control those sources.  This approach recognizes
the need for flexibility in implementing any controls that go beyond a minimum set of technology-based controls, identifies
the relative roles of government in implementing a watershed approach, and recognizes that monitoring on a watershed basis
is an important focus of the effort.

    As part of the effort to reduce nutrient loadings, the Agency began to more actively  address issues related to animal
agriculture.  EPA published a draft "Strategy for Addressing Environmental and Public Health Impacts  from Animal Feeding
Operations."  This draft strategy delineates EPA's short-term and long-term efforts  to comprehensively  address the
environmental and public health problems associated with animal feeding operations. Later in the year, EPA and the USDA
published a draft "Unified National Strategy for Animal Feeding Operations."  The draft strategy is one of more than 100
actions President Clinton directed as part of the Clean Water Action Plan, and proposes a variety of voluntary and regulatory
approaches for minimizing environmental threats posed by animal agriculture.  EPA also participated in dialogues with
representatives of the poultry and hog production industry, state agricultural and environmental agencies, local communities
and USDA to find ways to improve environmental controls applicable to poultry and hog production.

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    The Agency  also conducted training in its permitting programs.  EPA continued its partnership with the Water
Environment Federation to present wastewater pretreatment training in five cities. EPA also continued providing the basic
NPDES permit writers course, which was offered more frequently and to a much wider audience due to agreements with
the Department of the Navy and Department of Energy.  EPA also funded eight whole effluent toxicity training courses
through a cooperative agreement with the Society for Environmental Toxicology and Chemistry.

    The Agency continued its reinvention of the NPDES permitting program. EPA published a rule to streamline the State
Sewage Sludge Management regulations. EPA also published a notice requesting proposals for pretreatment pilot programs
based on environmental results, and received eight applications.  Within the Metal Finishing sector of the Common Sense
Initiative (CSI), EPA developed training videos that focus on program implementation, inspections, and sampling; developed
innovative measures to increase environmental compliance; and addressed innovative ways to decrease reporting burden.

    In FY  1998, the Water Program completed "modernization" of the Clean Water  Needs Survey  which is the
government's primary gauge of national wastewater infrastructure needs. The survey will now facilitate the collection of
information on a watershed and estuary basis including needs for Publicly Owned Treatment Works to control traditional
"point" source pollution, and needs for control of storm water and "nonpoint" source pollution such as agricultural runoff.
The survey will now link to other agency databases such as "STORET," and will enable states to more holistically assess
their water quality pollution control needs and prioritize them.

    The Water Program also issued guidelines for water conservation plans for water conservation systems. States may
require water systems to submit a water conservation plan consistent with these guidelines as a condition of receiving a loan
from the Drinking Water State Revolving Fund (DWSRF).

     The Water Program developed an agreement with the states on a major new direction in the national Nonpoint Source
(NFS)  program. The states agreed to review and upgrade their NFS programs to assure that they address critical elements,
while EPA committed to streamlining and refocusing the grants issuance and reporting process to maximize efficiency.
    EPA continued to carry out the Administration's commitment to protect and manage the
Nation's wetland resources during FY 1998.  As part of the President's Plan to make the
federal wetlands program more flexible, fair, and effective, EPA worked with the U.S. Army
Corps of Engineers and other agencies to develop appropriate revisions to the Section 404
Nationwide Permit program.  EPA also continued to spearhead the interagency  development
of a new Agricultural Wetlands Memorandum of Agreement, to provide farmers with clear and
reliable wetland determinations for CWA and Food Security Act purposes. The Inland Testing
Manual was issued, which is used to evaluate proposed discharges of dredged material. The
Agency is working to implement the wetlands and  water provisions of the Transportation
Equity Act for the 21st Century (TEA-21).  A study of locally sponsored wetlands mitigation
banks was undertaken in order to provide technical assistance to local governments.  The
Agency continued to promote development of the hydrogeomorphic approach for assessing wetland functions.  As part of
our wetlands restoration commitments under the Clean Water Action Plan, the Agency initiated the Five Star Restoration
Program to provide challenge grants, facilitate technology/information transfer and partner collaboration, and support peer-
to-peer communication programs in an effort to promote community-based wetland and restoration projects.

Water Quality Research

    The Water Quality Research Program increased understanding of landscape characteristics and ecosystem structure
and function, and supported EPA efforts to reduce uncertainty surrounding the effects of chemical, biological, and physical
stressors on aquatic ecosystems. In addition, this research endeavored to develop diagnostic tools to evaluate the exposures
to toxic constituents of wet weather flows,  and develop and validate effective watershed management strategies for
controlling these flows.  Water quality research also sought to develop and provide effective beach  evaluation tools necessary
to make timely and informed decisions on beach advisories and closures.  One goal of EPA's water quality research is to
develop and release the Multimedia Integrated Modeling System (MIMS), a common software framework for computation
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of nutrient, toxics, pesticides, sediments, and pathogen loadings into surface waters for determination of TMDLs including
alternative management solutions.

4   EPA developed a rapid response measure for recreational water quality.  Typically, it takes 48 hours to estimate whether
    recreational water is contaminated with gastrointestinal bacteria. If contamination is present, this time period carries
    a high risk for illness, especially for children. The Agency developed a method that only takes 24 hours, thereby cutting
    the time at risk in half.

4   EPA published the Landscape Atlas of the mid-Atlantic region.  The Atlas ranks 125 watersheds based on patterns of
    land cover and land use.

4   EPA published reports on Big Darby Watershed (located in central Ohio) - Phase 1 Analysis and Problem Formulation.
    Specific case studies developed for Big Darby will have application for other watersheds and regional  assessments of
    ecological impacts. This information will provide data and methods for conducting regional ecological risk assessments
    and setting risk management options.

Water Quality Enforcement Performance Measures

    The enforcement and compliance assurance program deters and reduces noncompliance and achieves environmental
and human health improvements by maintaining a strong, timely  and active enforcement presence. EPA directs enforcement
actions to maximize compliance and address human health problems.   Specific measures include noncompliance rates,
measurement of average length of time for violators to return to compliance or enter enforceable agreements, number of
administrative, civil, and criminal judicial actions.

    These measures count the number of enforcement  actions and the number of  inspections  in the  Water Quality
Enforcement and Compliance Assurance Program and also measure how successful compliance and enforcement programs
are by looking at the length of time for significant noncompliers to return to compliance or have an enforcement action taken.
Addressing significant noncompliers  is a major portion of the base program.  Moreover, dealing with priority areas (wet
weather, CAFOs) will result in improvements to human health and the environment as these sources are some of the most
significant uncontrolled water quality areas.

    The program used the following  performance measures for assessing their success in FY 1998:
Key Performance Measures
NPDES Inspections
UIC/PWSS Inspections
C WA Section 313 Inspections
NPDES Civil Referrals
UIC/PWSS Civil Referrals
NPDES APO Complaints
UIC/PWSS APO Complaints
NPDES Compliance Orders
UIC/PWSS Compliance Orders
Wetlands Compliance Orders
1998 Goal
2,400 Inspections
5,700 Inspections
600 Inspections
50 Case Referrals
20 Case Referrals
150 APO Complaints
60 APO Complaints
505 Compliance Orders
300 Compliance Orders
40 Compliance Orders
1998 Actual
2,135 Inspections
7,760 Inspections
500 Inspections
53 Case Referrals
14 Case Referrals
227 APO Complaints
65 APO Complaints
770 Compliance Orders
287 Compliance Orders
74 Compliance Orders
        (Note: APO is Administrative Penalty Order.)
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                                               Future Trends

    The Water Quality Program will continue to build on the approaches described in the Clean Water Action Plan.  New
resources provided in 1999 for Plan support will be available to implement watershed restoration action strategies targeted
to watersheds not meeting clean water and other natural resource goals.  Watershed strategies will be developed for priority
watersheds to invest new spending in appropriate and cost-effective projects. A key source of funding for action strategy
implementation will be the CWA Section 319 nonpoint source state grant program. EPA will work with states to upgrade
their nonpoint source pollution control programs to ensure effective use of the funds.

    EPA and many other federal agencies are conducting critical research which will help us understand the human health
and environmental effects ofPfiesteria outbreaks and the environmental factors (nitrogen, phosphorous, and other factors)
which contribute to Pfiesteria outbreaks.  Further reducing the levels of nitrogen and phosphorous in our Nation's waters
is imperative in order to prevent risks to human health, as well as the associated environmental degradation and economic
impacts, caused by Pfiesteria outbreaks and other harmful algal blooms (HABs).  EPA will continue to work with states and
tribes to collect data and develop site-specific  control strategies for nutrients, which will result in control of these HAB
outbreaks.

    The Agency will continue its longstanding trend toward common sense, place-based approaches that build on the solid
foundation for the basic water programs. In keeping with the commitments in the Clean Water Action Plan, EPA will work
with stakeholders to assure that water quality standards  and fish consumption advisory programs are implemented
consistently across the country. In particular, we will revise existing water quality criteria and encourage states and tribes
to adopt and implement biocriteria that enhance acquatic life.

    EPA will  continue to assist  stakeholders in incorporating  a risk-based approach, investigate newly-identified
environmental problems, and provide increased support for tribal water quality programs.  The Agency will also issue
guidance and informational materials to provide the public and responsible officials with accurate up-to-date information
about the risks, especially to children, from consuming contaminated fish and exposure to contaminated recreational waters.

    The Administration and both houses of Congress support the development of a National Ocean Policy — a coherent,
comprehensive, and long-range national policy regarding the exploration, protection,  and use of ocean and coastal resources.
Implementation of activities stemming from the National  Oceans Conference will continue.  In addition, the Agency is
developing a Coastal Watershed Protection Strategy to more effectively protect  and restore coastal ecosystems by transferring
the lessons learned and experiences from the National Estuary Program to other coastal watersheds. We intend to work with
regions and states to encourage the use of Comprehensive Conservation and Management Plans as Clean Water Action Plan
Watershed Restoration Action Strategies, and to target our resources and  activities to the needs identified by coastal states.
Interagency coastal monitoring and coastal research strategies will also be developed, consistent with the Clean Water Action
Plan.

    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.  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.

    EPA will continue its  commitment to maintaining a strong compliance and enforcement presence. Priority areas for
FY 1999 and FY  2000 include implementation of the  enforcement  commitments in the Clean Water Action Plan.
Specifically, EPA will focus additional resources on wet weather discharges (CSOs, SSOs, and stormwater) as well as on
implementing the CAFO Compliance Assurance Implementation Plan and the draft national Unified AFO Strategy.  EPA
will continue to emphasize a strong base enforcement program focusing on conducting inspections and taking timely and
appropriate action against significant noncompliers.
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                                TOXIC SUBSTANCES
    The Toxic Substances Program, administered by the Office of Pollution Prevention and Toxics (OPPT), is responsible
for environmental programs carried out under six major statutes. The Toxic Substances Control Act (TSCA) is designed
to protect human health and the environment from risks associated with the manufacture, processing, distribution, use, or
disposal of toxic chemical substances.  Title X of the Residential Lead-based Paint Hazard Reduction Act of 1992, now
codified as Section IV of TSCA, requires EPA to provide a comprehensive national approach to dealing with lead-based
paint in the Nation's housing stock. The Pollution Prevention Act of 1990 (PPA) encourages cooperative efforts between
EPA and the private and public sectors to prevent toxic chemical pollution.  Section 313 of Title III of the Emergency
Planning and Community Right-to-Know Act of 1986 (EPCRA) requires facilities that emit certain toxic materials to report
those emissions to EPA and requires EPA to collect and provide the data to the public. The Asbestos Hazard Emergency
Response Act (AHERA) requires inspection for and abatement of asbestos in  all public and private schools, and directs EPA
to examine asbestos exposure issues in public and commercial buildings. Finally, the Asbestos School Hazard Abatement
Act (ASHAA) authorizes EPA to provide loans or grants to local education agencies to conduct asbestos abatement projects
in public and private school buildings.

    A key feature of the Toxic  Substances Program is the concept of pollution prevention.  Preventing pollutants from
entering the environment, as compared to costly risk management and remediation efforts that deal with pollutants already
in the environment, has provided society with an effective, cost-conscious  approach to protecting public and environmental
health.  The pollution prevention program concentrates on eliminating or reducing the use of toxic substances in chemical
manufacturing processes and reducing other downstream uses of such chemicals. In cooperation with various stakeholders,
OPPT proposes or develops strategies incorporating market incentives, technological innovation, and other assistance to
help the adoption of pollution prevention practices. However, to be most effective, the pollution prevention ethic must be
applied voluntarily by industry, business, and consumers.

    Toxic Substances Program objectives  involve identifying chemicals that may be harmful  to human  health or the
environment, preventing these chemicals from reaching the marketplace, and the  mitigating harmful effects of toxic
chemicals already present in commerce.  The Toxic Substances Program strives to accomplish this without impeding or
creating unnecessary barriers to technological innovation. The traditional regulatory approaches of the core TSCA programs
(i.e., the New and Existing Chemicals programs) to managing chemical  risks are increasingly being complemented by
voluntary compliance and market based programs emphasizing pollution prevention as the strategy of first choice.  Chemical
testing and scientific analysis, used to gain knowledge about the environmental and health effects of toxic chemicals, promote
sound chemical assessment and management.

    Within the context of the  Government Performance and Results Act (GPRA), the Toxic Substances Program is
organized around three of the  Agency's primary  environmental  goals: Preventing Pollution and Reducing Risk in
Communities, Homes, Workplaces and Ecosystems; Reduction of Global and Cross-Border Environmental Risks; and
Expansion of Americans' Right to Know About Their Environment. The principal programs found under these three goals
are described below.

                               Toxic Substances Program Description

Preventing Pollution and Reducing Risk in Communities. Homes. Workplaces and Ecosystems

    Key areas under this goal are the New and Existing Chemicals Programs, the Lead Program, National Chemicals
Program (e.g., asbestos, polychlorinated biphenyls [PCBs], and dioxin), and the Pollution Prevention Program.

    The New Chemicals Program, which includes biotechnology-based applications, identifies  and manages the risk of
new chemicals entering the market place. Manufacturers must submit a premanufacture notice (PMN) to EPA for evaluation
before new chemical substances and biotechnology products can be manufactured commercially.  EPA may prohibit or
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restrict the  commercial manufacture  and use of the chemical or request  additional
information from the manufacturer if it determines the chemical or product may present
unreasonable risks to human health or the environment. There are several exemptions to
the PMN process, including those for low volume production quantities and polymers.
EPA collects fees up to $2,500 ($100 for small businesses) for each PMN submission,
generating annual revenues of about $2 million which are deposited into the General Fund
of the U.S. Treasury.

    The Existing Chemicals Program identifies risks associated with the approximately
70,000 chemicals currently in commerce, assesses alternative chemicals, and identifies
pollution prevention opportunities through the screening of chemicals, groups of similar
chemicals (clusters), processes and use patterns.  The program emphasizes both voluntary
agreements with industry and, if necessary, regulatory approaches to mitigate risk.
    Serious health effects can result from exposure to lead contamination in paint, dust, soil and drinking water. The Lead
Program seeks to reduce lead exposure, especially for children, and to identify the most serious exposure sources.  The Lead
Program addresses past, current and new uses of lead and educates the public about the dangers of lead exposure.  The
Agency is responsible for administering over 30 mandates contained in the Lead-Based Paint Hazard Reduction Act of 1992
("Title X").

    The National Chemicals Program concentrates on risk management activities for asbestos, PCBs, dioxin, and other toxic
chemicals  of national concern  and impact.  Asbestos and other hazardous fibers  are commonly found as indoor air
contaminants. The National Chemicals program supports the development and implementation of asbestos control and
management programs by the federal, state, and local governments and the private sectors. PCB efforts work to reduce the
risks from PCB contaminants in residential, school, and workplace settings.  The program regulates PCB use in electrical
equipment and other products; directs appropriate clean-up of spills, leaks and other releases of PCBs to the environment;
and approves permits for facilities for the storage and disposal of PCB wastes. The program ensures PCBs are managed
in an environmentally sound manner while they are in use and requires the safe disposal of PCBs.  OPPT continues to
address the health and environmental hazards of  and exposures to dioxin, a toxic chemical that accumulates in the
environment.

Reduction of Global and Cross-Border Environmental Risks
    Pollution has no respect for political boundaries and many risks to human health
and the environment in the U.S. originate outside our borders. Chemicals that are
persistent, toxic, and bioaccumulative and that pose threats to human health and the
environment are of particular concern  to  OPPT  when  these  chemicals cross
international borders. OPPT is actively involved in an international cooperative effort
to harmonize test guidelines, i.e., coordinating and standardizing methods for testing
chemicals and  chemical substances to assess hazard or toxicity.  Test guideline
harmonization reduces the burden on domestic chemical companies of repetitive or
duplicative testing requirements and expands the universe of toxic chemicals for which
testing information is available.  Harmonization also encourages international information exchange and mutual international
acceptance of test data. OPPT also contributes to international efforts to establish emissions inventories, generically termed
pollutant release and transfer registries (PRTRs), similar to EPA's Toxic Release Inventory (TRI).

Expansion of Americans' Right to Know About Their Environment

    An essential component of a comprehensive national approach to environmental protection is the full participation by
the American  public in environmental priority-setting, risk reduction and remediation,  and  short- and  long-term
environmental planning.  Informed citizens are better equipped to consider the relative severity of environmental risks, the
opportunities for prevention or remediation, and the trade-offs and uncertainties that accompany many environmental
decisions.
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    The TRI  administered by OPPT, provides the public with valuable information about chemical releases in their
communities. Mandated by Section 313 of EPCRA, the TRI program collects and provides the public with information
annually about releases of certain toxic chemicals at manufacturing and federal facilities.  Section 6607 of PPA expanded
the type of pollution prevention information included in TRI reports. OPPT makes TRI information available to the public
in various formats, including via the Internet.

                                    Research Program Description

    Toxic substances research provides an understanding of basic mechanisms and processes that are useful to regulatory
program analysts in the interpretation of data submitted by industry in response to TSCA regarding risks arising from the
manufacture, processing, distribution, and use or disposal of new or existing chemical substances. In addition, research
efforts as part of the Children's Agenda focused on assessing children's health risks from exposure to toxic chemicals and
other toxic substances. The products of these research efforts are intended  to support human and environmental risk
assessments, which are the basis for implementation of these laws. Toxic substances research was carried out in such areas
as ecosystems protection, human exposure, health effects, and health risk assessment methods.  The information developed
from application of these methods will significantly improve our understanding of the extent of human exposure to specific
toxic substances. The Agency will incorporate these methods into its battery of testing guidelines under which industry will
be required to submit data to the Agency on toxic substances as regulated under TSCA.

                 Enforcement and Compliance Assurance Program Description

    The Toxic Substances Enforcement and Compliance Assurance Program conducts compliance monitoring inspections,
with emphasis on asbestos worker protection and high-risk PCB's. EPCRA has emphasized data quality.  EPA also is
promoting compliance and enforcement  of  Section 1018 of TSCA, the lead-based paint notification and disclosure
requirements.

    EPA's grant support to states' toxic substances program emphasizes meeting  asbestos worker protection safety
standards and PCB standards, and managing state lead risk reduction and abatement programs. In F Y 1998, states continued
to conduct compliance monitoring inspections on toxic substances requirements. During  1998, EPA emphasized continuing
partnerships with the states to foster comprehensive toxic substances enforcement authorities at the state level.

    EPA will continue its commitment to maintaining a strong compliance and enforcement presence in the core TSCA
program and  other programs under  TSCA.   Agency priorities for FY  1999 and FY 2000 include  compliance
assistance/enforcement for lead based paint (including the Real Estate Notification  and Disclosure Rule and the lead
abatement, certification, and training requirements in TSCA Sections 402/404/406) and commencement of the national PCB
phase-out initiative. This PCB initiative targets facilities voluntarily removing PCB containing transformers and capacitors.
The TSCA Enforcement and Compliance Assurance Program will continue to use EPA incentive policies to increase the
number of facilities that self-police and self-correct environmental problems.

    The EPCRA Program targets inspections  and enforcement actions at companies with data quality and data reporting
violations.  The program also conducts compliance inspections to detect companies and federal facilities that have failed to
report toxic chemical emissions. Executive Order  12856 authorizes EPA to conduct reviews and inspections to monitor
compliance with EPCRA Sections 301 and 313 at federal facilities. Agency priorities for F Y  1999 and F Y 2000 will include
targeting sector or "priority pollutants", inspecting and enforcing for violations of TRI  data quality, and leading a national
enforcement initiative for high risk chemicals of concern or priority sectors for the Community Right to Know, EPCRA
Sections 311 and 312.  The EPCRA Enforcement and Compliance Assurance Program  will continue to use EPA incentive
policies to increase the number of facilities that self-police and self-correct environmental problems.
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                                  Highlights and Accomplishments
                                                               TOXIC SUBSTANCES Obligations - FY 98
                                                                     Total Obligations - $175.7 Million


                                                                  Toxic Substances Strategies
                                                                       50.3%
                                                                                 27.5%
                                                                       Emergency Planning & Community
                                                                             Right to Know
Preventing Pollution and Reducing Risk in Communities.
Homes. Workplaces and Ecosystems

    During FY 1998,  OPPT received 1,553 TSCA Section 5
notices,  including  PMNs,  low-volume  exemptions  and  test
marketing exemptions.  The number of notices received is about
10% greater than in recent years.  OPPT's scientific staff continued
to develop assessment tools, collect data, and issue guidance for the
New Chemicals and Biotechnology Program.

    The Existing Chemicals Program continued initial chemical
screening to determine the potential human health and environmental
effects posed by chemicals currently in commerce. Additionally, the
program examined  control options, conducted  detailed  risk
management reviews, and implemented risk control measures where appropriate. OPPT continued its chemical testing
activities as part of the overall Existing Chemicals Program, concentrating both on chemicals designated by the Interagency
Testing Committee (ITC) and also on multi-chemical rules identified through non-ITC sources. The continued use of multi-
chemical test rulemaking resulted in an acceleration of the number 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 continues to play a major international role in the accumulation of test data for high production volume chemicals.
An important new and developing component of this program is the Community Right to Know concept.  In this area, EPA
seeks to find ways to share its broad knowledge of chemical toxicity and exposure with citizens and communities, fostering
better public understanding of environmental risk and facilitating well-informed local decisions on environmental quality
and protection.

    The Lead Program made important progress in the development of lead regulations during F Y 1998. OPPT published
the final TSCA Section 406(b) rule, involving lead abatement activities in housing renovation; promulgated the renovation
information rule; and developed a rule establishing the fee charged by EPA to accredit training providers and to certify  lead-
based paint professionals.   OPPT also proposed a rule under TSCA Section 403 establishing regulatory standards for
identifying lead-based paint hazards, lead-contaminated dust, and lead-contaminated soil; and forwarded to the Office of
Management and Budget for review a proposed rule under TSCA Section 402 establishing management and disposal
standards for lead-based paint debris. The Lead Program also published an important new resource document for parents
concerned about lead and their children entitled Lead In Your Home: A Parent's Reference Guide.

    In F Y 1998, OPPT published a final rule on PCB disposal. OPPT continued to assist the states in improving their
asbestos accreditation programs, as required under the AHERA, and completed evaluations of awarded ASHAA loan and
grant projects.

    OPPT continued its dioxin assessment activities in FY 1998.  Assessment findings support scientific evidence that
dioxin is a major environmental pollutant although OPPT still has insufficient knowledge of dioxin sources, transport, and
exposure to support sound policy and program development.  OPPT continued its cross-media efforts  to characterize human
exposure to, and sources of, dioxin through a variety of surveys, studies, and tests to determine the level of dioxin exposure
in the United States. OPPT completed and  published the results of surveys for dioxin in milk and food, and implemented
the first phase of a national monitoring network to detect dioxin in ambient air.

Reduction of Global and Cross-Border Environmental Risks

    In FY 1998, OPPT continued its involvement in negotiations to complete a legally binding protocol for the elimination
and/or control of specified persistent organic pollutants.  These negotiations are being conducted under the auspices of the
United Nations Economic Commission for Europe (UNECE) Convention on Long-Range Transboundary Air Pollution.
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OPPT similarly participated in the process of completing a legally binding convention, known as Prior Informed Consent,
that will delineate requirements for the export and import of selected banned or restricted chemicals. Serving as a major
source of scientific expertise and review in updating guidelines, OPPT continued its close cooperation with other federal
agencies and the Organization for Economic Cooperation and Development  (OECD) in test guideline harmonization
activities.  OPPT also provided financial and technical assistance to support the development of PRTRs.

Expansion of Americans' Right to Know About Their Environment

    The original TRI reporting requirements were limited to the manufacturing sector, and included approximately 320
chemicals and chemical categories.  The list of chemicals subject to TRI  reporting has more than doubled since 1986 to
600-plus chemicals, with over 31,000 facilities now submitting annual TRI reports. This total includes federal facilities that
became subject to TRI reporting under Executive Order 12856. Reporting facilities submitted a total of 101,145 TRI reports
in FY 1998.

    An important accomplishment for the TRI program in F Y 1998 was the development of a rule to add certain persistent
bioaccumulative toxics (PBTs) to the TRI reporting list. In addition, the TRI program lowered reporting thresholds for new
PBTs, as well as for PBTs already on the reporting list.  Work is underway to expand TRI reporting requirements to
additional industries, specifically the oil and gas industries, and airports.  Other key activities in FY 1998 included
conducting public outreach meetings on the use of TRI reporting forms and developing new industry sector technical
guidance manuals to assist the regulated community. OPPT continues to review comments received during 1997 as a result
of an Advance Notice of Proposed Rulemaking on the possible expansion  of the types of data collected under TRI to
determine whether to collect materials  accounting data,  worker exposure information and data on toxic  chemicals in
products.

    Also in F Y 1998, OPPT produced the annual national TRI data release, which included expanded data analyses. OPPT
information management activities concentrated on data quality, public data access, and expansion of the use of TRI data
by state and local governments, other EPA offices, private industry, and the general public.  OPPT continues to develop tools
to facilitate public access to, and the use of, chemical information and strives to put in place improved technology which will
ease the reporting burden on industry for submitting TRI reports.

    Within the overall framework of the Right to Know goal, OPPT actively promotes the concept of community-based
environmental programs (CBEP).   CBEP  is a community-based  approach  to environmental protection and economic
development in which environmental issues are addressed from the perspective of the local neighborhood.  CBEP fosters
consideration of a detailed level of information often missed when policy is made at national or state levels, incorporating
the community's knowledge and thereby making it possible to address effects on the local environment from multiple
sources. CBEP empowers local communities to take the lead in addressing environmental issues while utilizing government
as a source of information and technical assistance. Building consensus at the local level unites the community around
voluntary pollution prevention efforts that may go beyond statutory requirements.

Reducing Exposure through Human Health Protection Research

    EPA's research and development program increased the Agency's understanding of environmental processes and our
capability to assess environmental risks - not only to human health, but also to ecosystems.  This research supported EPA
efforts to identify the most important sources of risk to human health and the environment, and thereby guide priorities,
policies, development of environmental regulations, and deployment of resources. In addition, Agency research sought to
provide the understanding and technologies needed to detect, abate, and avoid environmental problems.  In the future,
environmental problems will be dealt with using those features of the current  system that have proven effective and by
designing and testing fundamentally new tools and approaches that utilize the latest advances in scientific knowledge and
technology.

4   EPA continued to develop and evaluate biologically based dose response (BBDR) models to describe the underlying
    mechanisms of toxicity and to facilitate extrapolation from animal studies. These models will foster improved estimation
    of human risks from exposure to compounds such as methanol, dibromochloromethane, arsenic, acrylamide, and dioxin.

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4   EPA published the Exposure Factors Handbook (paper copy). The Internet version was available in April 1998.  The
    Exposure Factors Handbook is the primary reference in the Agency for information on factors used in exposure
    assessment relating to human characteristics and behaviors.

4   EPA performed research that will lead to the development of improved testing guidelines for predicting the human
    health effects of prenatal and perinatal exposures to toxic substances. Improved testing guidelines and health effects
    methods and models will enhance the Agency's ability to characterize toxic effects in children.

4   EPA continued research that provides data needed to develop and further define models that predict the human health
    outcome of exposures to toxicants, including pesticides and industrial chemicals.  These models are used by the Agency
    to screen and prioritize new and existing chemicals and toxic substances for further regulatory action.

Enforcing  Toxic Substances andEPCRA Laws

4   In FY 1998, EPA Headquarters issued 15 administrative complaints to companies for TSCA violations.  Two of the
    complaints were for penalties of over $1 million. Also, approximately 700 compliance inspections were conducted
    under the EPCRA Enforcement and Compliance Assurance Program and compliance assistance outreach was provided
    to chemical facilities that use, manufacture or process potentially harmful chemicals.

4   The enforcement and compliance assurance program deters noncompliance by maintaining levels of field presence and
    enforcement actions, particularly in high risk areas and/or where populations are disproportionately exposed.  The
    program used the following performance measures for assessing their success in FY 1998:
Key Performance Measures
Toxic APO Complaints
TSCA Inspections
State Toxics Inspections
Toxics Civil Referrals
EPCRA Civil Referrals
EPCRA APO Complaints
EPCRA Compliance Orders
1998 Goal
185 APO Complaints
1,100 Inspections
1 ,000 Inspections
2 Case Referrals
10 Case Referrals
200 APO Complaints
3 Compliance Orders
1998 Actual
21 4 APO Complaints
1 ,542 Inspections
1,136 Inspections
0 Case Referrals
1 1 Case Referrals
233 APO Complaints
4 Compliance Orders
        (Note: APO is Administrative Penalty Order.)
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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. 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 minimize the generation of waste, ensure adequate and safe management practices
from generation to disposal of wastes, and prevent and detect leakage from underground storage tanks.

                                    CEPPO Program Description

    Title III of the  Superfund Amendments and Reauthorization Act (SARA) of 1986, also known as the Emergency
Planning and Community Right-to-Know Act (EPCRA), 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) of 1990
accidental release provisions require facility owner/operators to prepare risk management plans to prevent, detect, and
respond to chemical accidents. These CAA provisions also mandate the investigation of major chemical accidents to assess
root causes.
                                                                                                 ..

                                                                                     **
                                                                  CEPPO works to prevent accidents like this.
    Public awareness of the potential danger of accidental releases
of hazardous substances has increased over the years as serious
chemical accidents have occurred around the world. In response to
public concern about chemical accidents, in 1986, EPA integrated
its  Chemical  Accident  Prevention  and  Chemical Emergency
Preparedness programs into the Chemical Emergency Preparedness
and  Prevention Office  (CEPPO).   CEPPO is responsible  for
implementing Title III  of SARA, as well as Section 112(r) of the
CAA.

    Title III requires states to establish State Emergency Response
Commissions (SERCs) and Local Emergency Planning Committees
(LEPCs) to develop emergency response plans for each community.
Title III also requires chemical facilities to provide information on
hazardous chemicals to the public.

    Section 112(r) of the CAA requires facilities that produce, process, handle or store certain hazardous substances to
prepare and submit risk management plans (RMPs) to EPA by June 1999.  The RMPs will contain very specific information
on the risks of chemicals in communities. CEPPO has established a strategy to provide facilities with the information needed
to meet the Section 112(r) requirements and ensure public access to useful information about chemical risks.

                                       VST Program Description

    The goal of the Underground Storage Tank (UST) Program is to prevent, detect, and address leaks from underground
storage tanks containing petroleum and hazardous substances. 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); improve  implementation and enforcement
performance; develop effective state corrective action programs; and 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.
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                                      RCRA Program Description

    The Agency continues to refine program strategies to direct both private and public resources towards the greatest
environmental risk in all areas of the program, including corrective action stabilization and permit work. Additionally, the
RCRA program will continue ongoing efforts to develop risk-management standards for hazardous waste.

    Large and small businesses and manufacturers annually generate approximately 270 million tons of hazardous waste,
including wastewater, and more than 7.6 billion tons of industrial non-hazardous waste.  The U.S. generates about 210
million tons of municipal solid waste per year, or 4.3 pounds per person per day. Without proper management and disposal,
hazardous, non-hazardous industrial, and municipal solid wastes pose short- and long-term environmental and human health
hazards.

    EPA's Office of Solid Waste (OSW) continues to direct its resources to address the greatest environmental and human
health risks.  In this regard, the RCRA Program seeks to correlate the stringency of waste management and disposal
standards with the degree of risk posed by individual wastes. Regulatory improvements include more tailored and flexible
standards and reduced reporting burden on industry while still targeting priority sites. For example, the proposed combustion
rule will reduce amounts of priority contaminants, such as heavy metals and dioxins, that enter the air when hazardous wastes
are burned. Permitting and corrective action increasingly  are risk-based.  The permit program is developing streamlined
procedures for  regulating  lower risk facilities,  and  the corrective action program continues its strong commitment to
addressing highest risk releases first.  OSW also is working with states to develop comprehensive guidance on the proper
management of non-hazardous industrial solid wastes.

                                     Research  Program Description

    The Agency's research objective seeks to reduce uncertainties in the risk analyses used in environmental management
decisions.  In the RCRA Program, research was targeted at reducing uncertainties in exposure estimates and providing
technical assistance to regional and headquarters scientists.

    The primary functions of Waste Risk characterization research are predicting the fate and transport of hazardous waste
constituents and estimating exposure. Special emphasis will be placed on providing technical support.

                  Enforcement and Compliance Assurance Program Description

    In support to EPA's goals of reducing noncompliance in priority areas of the program, EPA continues its commitment
to maintaining a strong compliance monitoring and enforcement program with a particular emphasis on demonstrated
patterns of national noncompliance by particular companies or industrial sectors. EPA uses its audit and small business
policies to provide incentives to businesses to bring their facilities into  compliance as well as supporting compliance
assistance  activities to educate small businesses on achieving compliance.

    In support of the Agency's goal to prevent waste and harmful chemical releases, EPA continues to use all available tools
to ensure that facilities managing hazardous waste and other hazardous chemicals (including hazardous waste combustion
and recycling facilities)  are operated safely  and in compliance with all applicable requirements. The enforcement and
compliance assurance program continues to use enforcement and compliance tools to ensure that federal, state, and locally
owned facilities that store, treat, and/or dispose of hazardous wastes are in compliance with federal  environmental laws.  The
enforcement and compliance assurance program continues to work with states to enhance their inspection and enforcement
activities and to develop voluntary compliance programs.  In addition, we will provide resources to tribal governments to
assist in building their capability to enforce solid waste regulations.
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                                  Highlights and Accomplishments
    CEPPO

Worked to Ensure Access to Chemical Risk Information

    CEPPO  has  continued  developing  computer  systems  to
facilitate collection and provision of RMP information to the public.
"RMP* Info"  is  a central  database of RMP  information.
"RMP*Submit" is a user-friendly system designed for industry to
submit its RMPs.  In  FY  1998, the beta version  of the RMP*
systems was available for review and comment. Also, definitions
and design documents for RMP*Info and RMP*Submit were
completed. At the 1998  Hazardous Materials  Spills Conference, the
prototype of the RMP*Info and RMP*Submit were demonstrated
along with RMP*Comp. RMP*Comp is an electronic tool used to
perform the off-site consequence analysis required under the Risk
Management Program rule.

Facilitated Implementation of RMPs by Industry
 HAZARDOUS WASTE Obligations - FY 98
      Total Obligations - $413.7 Million
Financial Assist
      14.6%
         26.3%
 Mgt. Strategies
   Implementation
               Waste Mgt. Regulations,
                         Guidelines & Policies
                  __ _0,
            6.9%

              Enforcement
           16.7%

     5.6%
Emergency Planning/Community
     Right to Know
    The RMP Implementation Workgroup continued its role of reviewing and commenting on tools currently available to
assist industry in developing RMPs and developing recommendations for additional tools needed to implement the RMP
program. In FY 1998, CEPPO, working with appropriate stakeholders, published and distributed RMP Implementation
Guidance to assist states implement the RMP program. CEPPO also completed over 100 outreach and technical assistance
workshops to states, LEPCs, and industry to assist them in understanding and implementing the RMP program. As a result
of this and other CEPPO efforts with the  states, a total of 15 states agreed to implement the RMP program.  CEPPO also
worked with states and industry associations to developed industry guidance and five model RMPs to assist industry in
meeting Section 112(r) requirements.  CEPPO also published and distributed a factsheet on Funding Sources for RMP
implementation.

Provided Information Resources to the Public

    In FY  1998, CEPPO approved grants to  34 states to implement RMP programs and integrate preparedness and
prevention activities at the state and local level.  CEPPO also is revising their web page to ensure that SERCs, LEPCs, and
other stakeholders have easy and continuous access to EPA's emergency planning and accident-risk information. CEPPO
also developed and posted on the web site, an RMP matrix to explain existing and planned tools. Additionally, CEPPO
provided hardcopies of emergency planning and accident risk information directly to those SERCs and LEPCs that do not
have access to the Internet. EPA distributed Computer Aided Management of Emergency Operations (CAMEO) to SERCs
and LEPCs, through a cooperative agreement with the George Washington University. CAMEO assists SERCs and LEPCs
to organize the information collected under community right-to-know regulations and coordinate activities. A survey of
CAMEO users found that 70% of the SERCs and LEPCs are using the system and find it very beneficial and efficient in
meeting their needs.  The survey also determined that many of the non-users intend to implement  CAMEO when they have
the proper hardware and training.

Established and Conducted EPA/OSHA Accident Investigation Activities

    In F Y 1998, CEPPO completed and issued four final chemical accident investigation reports:  Napp; Pennzoil; Powell -
Duffryn; and Shell Surpass Chemical. In addition, CEPPO published and distributed chemical alerts for ammonium nitrate
and ammonia refrigeration based on information discovered from EPA/OSHA accident investigations.
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    Also, in FY 1998, the Chemical Accident Investigation Board was established.  Since that time, CEPPO has been
working closely with the Board to establish appropriate roles and responsibilities and exchange expertise and lessons
learned.

Prepared State and Local Governments for Counter-Terrorism

    Recent legislation (Nunn-Lugar II) authorized the federal government to assist state and local governments to address
potential terrorist incidents that may involve weapons of mass destruction (i.e. nuclear, biological, and chemical). EPA,
through the leadership of CEPPO, has been recognized as one of the six federal agencies to design and implement this newly
created Counter-Terrorism program in the United States. Additionally, CEPPO and the Defense Department visited 21 cities
to determine their training needs to respond to such incidents and established a program to provide that training. These
federal agencies also provided training to 31 cities as well as completed chemical weapons table-top exercises in 30 cities,
chemical weapons functional exercises in five cities, and biological weapons table-top exercises in ten cities. CEPPO also
chairs and manages an Anti-Terrorism Strategy Workgroup, utilizing the Agency's National Incident Coordination Team,
which developed an Agency Anti-Terrorism Strategy and leveraged resources across  Office of Solid Waste and Emergency
Response (OSWER) and the Agency to ensure the overall success of the program using existing agency emergency planning
and response structures (National Response System) for implementation.

    VST

Assisting State UST Programs

    The Office of Underground Storage Tanks (OUST) is working with states to ensure
that all owners and operators of USTs comply with EPA requirements as  quickly as
possible. EPA's goal is to prevent and detect releases of petroleum products and certain
hazardous substances from USTs to the environment. In order to achieve this goal, one
of EPA's  objectives  has  been  and will  continue  to  be to  ensure  that UST
owners/operators comply with the requirements to close, upgrade, or replace older tanks
as of December 1998. As of the end of FY 1998, approximately 55% of UST systems
were  equipped to meet  EPA/State 1998 requirements  for spill containment, overfill
prevention, and corrosion protection.

    States have the primary responsibility for ensuring that UST facilities (except those
in Indian country) are brought into compliance. EPA provides several kinds of technical
and financial support to state UST programs.  In FY 1998, OUST:

4   Provided more than 270,000 documents in both printed and electronic form to help educate  UST owners and operators
    (the OUST web site generated an average of 2,000 hits per month);

4   Conducted UST inspection and enforcement initiatives j ointly with states, and provided technical materials and training
    programs to help state inspectors assess compliance with requirements for leak detection  and corrosion protection;

4   Developed an EPA enforcement strategy and worked with states to develop state-specific enforcement plans;

4   Worked with states to assess the validity of third-party evaluations of leak detection methods;

4   Supported information exchange among states;

4   Helped states explore and use alternatives to traditional inspection programs; and

4   Provided financial support to states through UST state grants and supported improvements to state programs including
    inspection and enforcement, data collection and management, and staff development and training.
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    EPA has been working with states over the past several years to reduce cleanups yet to be completed. The Agency
helped states streamline their corrective action processes; educated state staff about appropriate uses of innovative cleanup
technologies; and provided technical manuals, computer software, and other tools and training. In F Y 1998, the Agency
continued its efforts to help states design and implement risk-based corrective action (RBCA) programs.  As of October
1998, 14 states were implementing RBCA programs and 27 were designing such programs.  For the 14 states that are
implementing RBCA programs, EPA's focus is to assist in the refinement and documentation of the corrective action
process, as well as to assist the states in streamlining their corrective action programs.  EPA also is assisting the 27 states
in the design phase of their corrective action programs. A public-private partnership involving EPA, states, the American
Society for Testing and Materials, and six petroleum industry sponsors provides most of the training and implementation
assistance to states. The six companies have contributed significant financial and technical resources to the undertaking.

    EPA is working with five states to establish RBCA performance measures. Pilot projects began in 1998. EPA and
these five states have established pre-RBCA baselines and RBCA performance measures.  EPA will analyze each program
after one or two years to measure the extent to which RBCA improves their performance.

Helping UST Owners and Operators Comply with the 1998 Deadline

    As of December 22,1998, USTs installed before December 22, 1998 that do not comply with EPA technical standards
aimed at  preventing releases must be upgraded, replaced, or closed. In 1998, the EPA Administrator confirmed that the
Agency would not extend this deadline.

    Throughout FY 1998, OUST continued its efforts to educate UST owners and operators about the December 1998
deadline.  OUST provided compliance assistance materials in response to requests, and conducted mass mailings to trade
associations that serve UST owners and operators.  OUST also prepared letters from the OUST Director to state governors
as well as owners and operators to remind them of the 1998 deadline and to emphasize that it will not be extended.

    In May 1998, EPA regions and states conducted inspections to confirm compliance with  existing release detection
requirements, and to remind owners and operators about the 1998 requirements.  In August 1998, EPA, after consultation
with the states, publicly issued its enforcement strategy for the 1998 deadline.

Indian Country

    EPA has the primary responsibility for implementation of the UST program in Indian country.   In FY  1998, EPA
regional offices continued to educate owners and operators about the UST requirements, conduct inspection and enforcement
activities, and maintain a database of information on USTs located  in Indian country.  OUST continued to use demonstration
grants under RCRA Section 8001  to help tribes develop the capability to administer UST programs.

    RCRA

    OSW works to achieve two of the Agency goals as outlined in the new Strategic Plan: better waste management and
pollution prevention.  Measuring environmental progress achieved in the RCRA Program has been the primary focus of
OSW's strategic planning effort. OSW's FY 1998 accomplishments substantially advanced EPA's efforts to achieve these
two goals.

Targeting Risk

    The  corrective action program supports the waste management goal by cleaning up releases of waste from active
hazardous  waste facilities, reducing current exposure risks to people and to the environment.  In FY 1998, the program
continued  to stabilize (prevent from further contamination) releases at high-priority sites.   By the end of FY 1998,
stabilizations  were implemented at 704 sites or units;  human exposures were controlled at 290 sites or units; and
groundwater releases were controlled at 234 sites or units.  Further, the corrective action program sponsored a substantial
number of RCRA's community-based environmental projects. Regulatory and policy efforts in F Y 1998 centered on a final


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Hazardous Waste Identification Rule for Media, a final Post Closure rule; and examination by EPA and stakeholders of ways
to streamline corrective action procedures.

    OSW targets the control of contamination from hazardous and non-hazardous industrial waste management facilities
by defining the pollutants and  the appropriate management and disposal standards. Furthering the goal of better waste
management means establishing standards based on multipathway risk assessment.  Multipathway risk assessment considers
not only pollutants and their environmental and health impacts, but also the amount of the pollutants, risk of exposure, and
specific industry practices.  OSW has been working with the Office of Research and Development (ORD) to develop a multi-
media/multiple pathway model to characterize human and ecological health risks of exposure to hazardous constituents.  In
FY 1998, OSW and ORD completed the analytical strategy for the Hazardous Waste Identification Rule (HWIR) rulemaking
effort and initiated the multi-faceted peer review steps for the model and its application. The model is an integral part of the
HWIR, a major reinvention effort intended to exempt low-risk wastes from RCRA regulation.

    The Air Characteristics Study is anew  area of risk analysis for the RCRA Program, addressing the questions of whether
some industrial wastes should  be classified as hazardous because of risks posed by their air emissions. Other efforts to
improve the Agency's understanding of risk include RCRA's portion of the initiative to improve the Integrated Risk
Information System (IRIS) database and an exploration of mercury treatment standards  and alternatives to the Land Disposal
Restrictions (LDR) program.

Significant FY 1998 Rulemakings

    In FY 1998, the RCRA Program promulgated several key environmentally protective rulemakings, including the final
rule on the management of used oil and the completion of Phase IV of the LDR which addressed treatment standards for
newly identified toxicity characteristic metal wastes and formerly exempt mineral processing wastes. The Post Closure rule
will provide flexibility to EPA and authorized states by eliminating the requirement to obtain a permit for the post-closure
period and allowing the use of other available authorities to address post-closure needs.

    Under the Hazardous Minimization and Combustion Strategy, EPA is working on two rulemakings that will address
hazardous waste combustion in incinerators, boilers, and industrial furnaces and also will address the risks posed by indirect
exposure to dioxins, furans, and toxic metals.  To reduce burden on the regulated industry, both of these rules will be
promulgated under both the Clean Air Act and RCRA. In 1998, significant progress  was made on the Phase I combustion
rule; this rule will be finalized in  1999.  The proposed rule provides for public involvement and allows for extensions of the
compliance  period to promote  the use of cost-effective pollution prevention technologies.  The proposal also exempted
waste-derived fuels from RCRA, an example of regulatory reinvention

    OSW provided several Notices of Data Availability (NOD As) that provide public access to information and analysis
being used  in ongoing development of regulatory alternatives.   OSW also issued rules in 1998 addressing regulatory
alternatives under the definition of Solid Waste for the petroleum listings and for the primary metal processing industry. The
RCRA Program participated in a number of important Common Sense Initiatives in support of EPA efforts to make
complying with environmental requirements a more holistic process for a particular industry or business. Examples of these
efforts include the successful completion of an agreement on Cathode Ray Tube recycling and the issuance of a proposed
rule on extended generator storage limits for metal-finishers who employ pollution prevention techniques.

Increased Safety. Flexibility. Efficiency

    The RCRA Program is working to have approved controls in place at 95% of the hazardous waste facilities by 2005.
A total of 992 operating hazardous waste permits were issued by the end of September  1998 out of a universe of 1,480
operating facilities.  OSW, EPA regions, and states are continuing to work together to enter additional activities and ensure
accuracy in these numbers. The pace of ongoing permitting efforts will be enhanced by improvements to the permit process.
In F Y 1998, the focus was on the development of Standardized Permits, as recommended by the Permits Improvement Team,
as well as participation in Project XL proposals.
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    For facilities that produce industrial non-hazardous waste, pollution controls will be based on voluntary guidance rather
than permits. OSW is writing the voluntary guidance in partnership with states, based on input from stakeholders including
industry, environmental groups, and tribes. In FY 1998, OSW also focused on individual chapters and development of a
CD-ROM that will be used as one of the electronic means of distribution, along with the Internet.  Electronic distribution
will allow industry easy  access to  the tools and reference  materials associated with the guidance that will  streamline
implementation.  These voluntary guidelines are expected to be issued in FY 1999 and will address a range of issues,
including groundwater contamination, air emissions, and alternatives to waste disposal.

    The Municipal Waste Landfill Permit Program is administered by the states, with a target of 100% of facilities having
approved controls in place by 2005. OSW also promulgated the Flexibility Rule for Small Municipal Solid Waste Landfills,
which will assist the states in implementing landfill controls. The majority of the Agency's efforts in the Municipal Solid
Waste Program, as well as some work under the Hazardous Waste Program, contribute to the pollution prevention goal and
center on source reduction and recycling. The RCRA Program continued its support for the Jobs Through Recycling
program, issuing $1.4 million in grants to regional and local  organizations to build markets for reusables and recyclables.
The Waste Wise program continued its effort to build innovative voluntary partnerships to assist and encourage  businesses
in taking cost-effective action to reduce solid waste.  Waste Wise successfully expanded in F Y 1997 to include states and
local governments. Currently, Waste Wise has over 800 partners plus an additional 60 endorser organizations which promote
the program to their members.  In the program's fourth year, Waste Wise partners prevented 816,000 tons of waste and
recycled nearly 6.9 million tons, in addition to saving many millions of dollars through their solid waste reduction efforts.

    The Hazardous Waste Minimization Program  saw a significant accomplishment in FY 1997 when  the Waste
Minimization Prioritization Tool (WMPT) was made available for public  and industry  use.  This software tool assists
interested businesses in ranking chemicals to establish priorities for waste minimization programs according to persistence,
bioaccumulation andtoxicity. During FY 1998, OSW worked with EPA regions and states to provide technical assistance
in working with the WMPT. Encouraging and assisting voluntary waste minimization programs, as well as those established
as part of permitting, is the main vehicle for achieving the program's target of a 50% reduction in the most persistent,
bioaccumulative, and toxic chemicals in hazardous waste streams by 2005. A draft list of the RCRA Waste Minimization
Persistent, Bioaccumulative and Toxic (PBT) Chemical List will be issued in early FY 1999.

    The Waste Information Needs initiative is another major reinvention effort that seeks to streamline and screen the data
collected by the states and EPA for purposes of hazardous waste program management. In FY 1998, significant progress
was made on migrating two major databases (Resource Conservation and Recovery Information System [RCRIS] and
Biennial Reporting Systems [BRS]) from Focus to Oracle. The majority of this work was done in-house.  Additionally, the
first program area under Waste Information Needs (WDSTt/rNFORMED completed its data gathering and analysis. EPA will
issue the final report in the first quarter of FY 1999.  This report will identify  data elements needed for planning and
evaluation and will include recommendations  for business process improvements.  Other information  management
accomplishments include redesigning the permitting program accomplishments report to make the report easier to read and
more  useful, deciding to privatize the BRS implementer software, and developing a prototype of WEB software.

    Research

Reducing Uncertainties Through Waste Risk Characterization Research

4   EPA produced research results, models,  and  reports on  innovative surface-based geophysical characterization
    technologies  for predicting location and migration of contaminants.   These new technologies permit more rapid,
    accurate, cost-effective characterizations and subsequent cleanups of waste sites.

4   The Agency provides technical support to regional permit writers and risk assessors through the Combustion Technical
    Assistance Center (CTAC).

4   EPA's Hazardous Waste Identification Rule (HWIR) research teams have  developed  a number of draft products,
    including a research plan,  assessment strategy,  technology design document, modeling components  (for  an open
    architectural, object-oriented, multimedia modeling system framework — FRAMES),  and several volumes of the

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    15-volume set describing the HWIR-FRAMES Technology Software System. These products are intended to develop
    a systems approach to modeling and data management in order to facilitate the consistent and scientifically credible
    assessment of multimedia-based human and ecological exposure to chemical stressors.

    Enforcement

Enforcement Performance Measures

    The enforcement and compliance assurance program deters noncompliance by maintaining levels of field presence and
enforcement actions, particularly in high risk areas and/or where populations are disproportionately exposed. The program
used the following performance measures for assessing their success in FY 1998:
Key Performance Measures
RCRA Inspections
RCRA Civil Referrals
RCRA APO Complaints
RCRA Compliance Orders
1998 Goal
1,100 Inspections
12 Case Referrals
64 APO Complaints
20 Compliance Orders
1998 Actual
2,659 Inspections
49 Case Referrals
1 55 APO Complaints
49 Compliance Orders
        (Note: APO is Administrative Penalty Order.)

    EPA will continue its commitment to maintaining a strong compliance and enforcement presence.  In F Y 1999, we will
conduct over 1,100 inspections, bring over 64 administrative penalty actions, and refer at least 12 actions to the Department
of Justice for filing in federal district court.  We also expect to issue at least 20 administrative orders designed to abate
conditions that may present an imminent and substantial endangerment to human health and the environment.  In addition,
the Hazardous Waste Enforcement and Compliance Assurance Program will make significant contributions to the Agency's
goal of obtaining 75 self-disclosed violations from targeted programs and 330 overall voluntary disclosures.

    Agency priorities for FY 1999 compliance assistance, monitoring and enforcement activities include facilities generating
hazardous waste in priority sectors and community-based areas, combustion/fuel blenders, volatile organic air emissions
from RCRA regulated facilities, and RCRA Subtitle I facilities (Underground Storage Tanks).
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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.

                                   Superfund Program Description

    The Superfund Program was enacted  on December 11,1980 to address public health and environmental threats from
spills of hazardous materials and from abandoned hazardous waste sites. It established a comprehensive program to identify
and clean up these spills and sites.

    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 (PRPs) to respond and conduct site cleanups. When this is not possible because an agreement
cannot be reached or because of an emergency, EPA may use the Trust Fund dollars to address and clean up hazardous waste
sites.
    Cleaning up a Superfund site is often a multi-stage and multi-year process.  In
fact, it takes seven to ten years after site discovery to start cleanup at the average
site.  Superfund site cleanup includes 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, EPA has started more than
3,600 short-term removal actions at 3,167 non-NPL sites (238 actions at 191
non-NPL sites in FY 1998 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 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 removal  or remedial program authority. An example of an
early action is implementing interim controls to contain/stabilize a plume of contamination in groundwater.

    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 between $ 12 and $ 13 million per site.  Because of the high cost
of construction and limited Superfund resources, EPA's Superfund Enforcement and compliance assurance program
emphasizes compelling 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 approximately 72% of new remedial actions at NPL sites.
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    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.

                         Superfund Federal Facilities Program Description

    Across the country, thousands of federal facilities are contaminated with  hazardous waste,  unexploded ordnance,
radioactive waste, fuels and a variety of other toxic contaminants.  These facilities include many different types of sites, such
as abandoned mines, nuclear weapons production plants,  fuel distribution areas, and landfills. The Superfund Federal
Facilities Response Program is responsible for providing oversight of Superfund environmental restoration work at federal
facilities on the NPL. At the end of FY 1998, there were 162 proposed and final federal facility NPL sites.


                                   Brownfields Program Description

    Through its Brownfields Program, EPA's Outreach and Special Projects Staff (OSPS) promotes cleanup and
redevelopment of abandoned and contaminated industrial and commercial properties (Brownfields).  Across the country
Brownfields sites plague virtually every community in the Nation. The Administration believes strongly that environmental
protection and economic progress are inextricably linked, and has designed a comprehensive program based on community
empowerment and strong partnerships among  all stakeholders.

    The initial Brownfields Action Agenda outlined four key areas for returning Brownfields to productive reuse:

    1) awarding Brownfields Assessment Demonstration Pilots,
    2) building partnerships and expanding outreach,
    3) clarifying liability and cleanup issues, and
    4) fostering local workforce development and job training initiatives.

    In addition to these four key areas, EPA's new Action Agenda for FY 1998 and FY 1999 continues to focus on
partnerships between EPA and fifteen other federal agencies.  These partnerships are designed to leverage resources from
nonprofit and private organizations, and eliminate duplicative efforts at the local level. EPA has established partnerships
with nonprofit groups, such as the Trust for Public Land and the U.S. Conference of Mayors, and with private organizations,
such as the Heinz Endowments and the James T. Irvine Foundation. These partnerships will further identify, strengthen, and
improve the commitments EPA and its colleagues can make to Brownfields communities across the country.  Sixteen
Showcase Communities were selected to serve as models of Brownfields success as a result of these partnerships in FY
1998. In addition, 11 job training pilots were selected to enhance workforce development in Brownfields communities.

                                    Research Program Description

    Improved assessments of the potential threats to  human  health  posed by  each waste site is a goal prescribed by
Superfund.  Superfund research attempts to  improve our understanding of the underlying science of exposure, risk
assessment, and remediation. Risk management techniques are utilized to focus on the remediation of both surface and
subsurface contaminated soils, sludge, sediments, and groundwater.

    The focus of Waste Management and Site Remediation research is groundwater treatment, bioremediation, and the
Superfund Innovative Technology Evaluation (SITE) Program.  These efforts involve fundamental  research to understand
the processes that influence soil and groundwater contaminants, the initiation of development and testing of new remediation
methods, and process evaluation research to evaluate the cost-effectiveness of full-scale remediation technologies.
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                  Enforcement and Compliance Assurance Program Description

    The Superfund Enforcement and Compliance Assurance Program seeks to maximize PRP participation in conducting
and/or funding response actions while working to assure fair treatment for all PRPs. PRPs are financing approximately 72%
of new remedial actions at NPL sites, thereby conserving the Superfund Trust Fund for sites at which there are no liable,
viable responsible parties.

    Nationally, the Superfund Enforcement and Compliance Assurance Program is implementing a series of reforms to
improve Superfund by increasing enforcement fairness and reducing transaction costs. These reforms include compensating
settlors for a portion of the orphan share at a site; reducing PRP oversight, where appropriate; settling with small volume
contributors of waste; and using special accounts which ensure that settlement funds will be dedicated to specific sites.
                                   Highlights and Accomplishments
Financial Perspective
    At  the end of  FY  1998,  the  Trust Fund reflected  an
unappropriated balance of $2.1 billion.  In FY  1998,  Congress
appropriated $1.5 billion for the Superfund Program.  Superfund
Response Program disbursements through FY 1998 total $16 billion.
Parties responsible  for  contaminating  Superfund NPL sites are
conducting and paying for more of the cleanup work at their sites,
reserving the Trust Fund resources for those sites where parties are
unable to contribute.  Approximately 72% of new remedial actions
are now financed by PRPs.  The Agency's goal is to  maintain or
                                      increase  that  level  of
         Superfund Obligations
         by Location - FY 1998
                                     participation.
                                                                   SUPERFUND Obligations - FY 98
                                                                    Total Direct Obligations - $1.5 Billion
                                                                    Hazardous Substance Response
                                                                                    5.6%
                                                                Hazardous Substance Response -
                                                                      Interagency
                                                                                                3.8% R&D
    8.9%
  Management
8.7%  & Support
Enforcement
                                          Much of the operational responsibility for direct Superfund activities resides
                                      in the EPA Regions. The chart depicts FY 1998 obligations broken out by
                                      Regions, Headquarters (HQ)-OSWER, and HQ-A11 Others.

                                          The line chart depicts Superfund financial trends from FY 1993 through FY
                                      1998.  The appropriation line reflects new obligational authority only and does
                                      not    include   prior   year
                                      carryover of appropriations.
                                      Appropriations for Superfund,
                                                                    Millions of $
                                      as    specified    in    the
appropriating language, are No-Year Appropriations which are available
for obligation without fiscal year limitation.  They remain available until
expended, rescinded,  or otherwise  withdrawn.   In FY  1998,  EPA
processed almost $1.5 billion in direct obligations (against appropriated
funds) and $72 million in reimbursable obligations.

    Superfund

    As  part  of measuring the  impact of site  cleanup efforts,  EPA
established Environmental Indicators for the Superfund Program to
document its progress in protecting people and the environment. These
indicators serve to describe  the condition of the environment before,
during and after cleanup.  There are three indicators:  A, B, and C.  Indicator A, Populations Protected, measures the
program's efforts to protect people and the environment from immediate threats. The indicator measures the number of sites
                                                                           Superfund Financial Trends
                                                                                       FY96
                                                                                                       FY98
                                                                               FY95
                                                                                               FY97
                                 EPA's FY 1998 Annual Financial Statements
                                                                                                     Page 51

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and people served by the following actions at NPL and non-NPL sites:  site security, populations relocated, alternate water
supplied, and immediate actions (removals).  Indicator B, Progress Toward Cleanup, measures the program's incremental
progress to clean up sites and to address persistent threats. The indicator measures sites where cleanup goals as listed in
the ROD have been fully, or partially achieved; sites with direct contact threats addressed; and possible site candidates for
partial deletions.  Indicator C,  Cleanup Technologies Applied, measures the program's efforts to apply  appropriate or
innovative treatment and containment technologies to clean up sites. The indicator measures the following at NPL and non-
NPL sites technology counts, organized by treatment and containment, and volumes of wastes handled as a result of using
these technologies.  By combining the level of goal attainment with the volume of waste handled, the public can achieve a
better sense on the  extent of work that needs to be done to make them safe from pollution at the site.

    These Environmental Indicators show that in FY 1998 EPA continued making progress in hazardous waste cleanup.
Data gathered through June 1998 shows  that Superfund continues to fulfill its environmental 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.  By the end
of FY 1998, more than nine times that number, 568  non-federal facility sites, have been  completed. There were 84
non-federal facility construction completions in FY 1998. In addition, assessment and cleanup is now underway at 663 sites
on the NPL.

    The Superfund Program addresses both immediate threats to populations living near hazardous waste sites as well as
long-term cleanup actions at these  sites.  To address immediate threats, short-term (removal) actions often are taken to
control critical situations and ensure the safely of communities until long-term (remedial) actions can remove or permanently
clean up hazardous contamination.  The critical actions that Superfund takes to protect public health are:

4   Emergency removals of contaminated materials or media;
4   Permanent and temporary alternative  drinking water supplies;
4   Permanent and temporary population  relocation;
4   Institutional controls (deed restrictions, restrictions on fishing); and
4   Site security (including fences and guards) to restrict access to the site.

    The Superfund Program has conducted response actions (remedial or removal) at 3,019 non-NPL sites to  ensure the
safely of the surrounding community from critical emergencies caused by hazardous waste.  Since inception of the  Superfund
Program in  1980, EPA has achieved all cleanup goals for all media (groundwater, soil, surface water, etc) at 179 sites.  In
addition, the Agency has achieved all cleanup goals for at least one medium at 165 sites.  Sites where all cleanup goals for
all media have been achieved are candidates for deletion from the NPL.  At some sites, remediation of specific media is fully
completed before cleanup for the entire  site is finished.  When a medium at a site requires no further cleanup activity, the
site is a candidate for partial deletion.

    Through June 1998, the Superfund Program has supplied over 350,000 people  at NPL and non-NPL  sites with
alternative water supplies in order to protect them from contaminated groundwater and surface water.  Over 14,300 people
at NPL and non-NPL sites have been relocated in instances where contamination posed the most severe immediate threats.

    To prohibit certain types of land uses at sites, institutional controls such as deed and fishing restrictions,  have been
implemented at over 800 NPL sites.  Site security measures, such as fencing and guards, to restrict access have been
implemented at over 560 NPL sites.

        Through June 1998, the Superfund program has cleaned over 132 million cubic  yards of hazardous soil, solid
waste, and sediment and over 341 billion gallons of hazardous waste liquid-based waste, groundwater, and  surface water.

    Each year the program has increased the total number of Superfund sites that had their cleanup goals met through
remediation activities. In the last seven years, the total number of NPL sites achieving all cleanup goals for at least one area
of contamination has more than tripled.  A great deal has been learned about the nature and extent of contamination, the risk
to  human health and the environment, and the technologies necessary to reduce the risks.  With further development of

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initiatives such as innovative technologies and presumptive remedies, the Superfund Program can make even greater strides
in meeting the challenges of the future.

    The direct beneficiaries of Superfund cleanups are those people living in the vicinity of the cleanup 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.

    During FY 1998, the Superfund Program spent approximately $6.5 million to respond to ongoing efforts to address
methyl parathion misuse.  This supplements past expenditures of $65 million spent in F Y 1997 in Mississippi and Louisiana,
and $19.1 million spent for the Lorain County, OH, and Detroit, MI, responses during F Y 1994/95.  EPA does not anticipate
spending any resources on remediation in FY 1999. EPA is planning outreach and communication programs with pesticide
applicators, the agricultural community, and residential and small business communities.  For 1999, EPA is requesting $1
million for EPA regions to implement a multimedia initiative focusing  on these issues.  The regions will enlist the
cooperation of manufacturers, distributors, producers, and state certification officials.

    The Superfund Program is working to ensure the most efficient, most protective response within limited resources. EPA
continued its effort to protect human health and the environment through both the second and third rounds of Administrative
Reforms.  There were many noteworthy Administrative Reform achievements in FY 1998 which include:

    1)  archiving over 30,900 CERCLIS sites;
    2)  issuing notices of intent to delete clean parcels at one site and deleting clean parcels at  11 sites;
    3)  establishing Community Advisory Groups (CAGs)  at 43 sites;
    4)  publishing CAG Guidance/Reference sheet in English and Spanish;
    5)  issuing final guidance on implementing the risk sharing initiative;
    6)  signing Memorandum of Agreement (MOA) for State/EPA cooperation with 11 states under the Voluntary Cleanup
        Program;
    7)  signing agreements with 12 states under the Integrated Federal/State/Tribal Site Management Program;
    8)  issuing annual progress  report for the National Remedy Review Board;
    9)  issuing Technical Approach to Risk Assessment for planning, reporting, and reviewing risk assessments;
    10)  issuing final guidance on lead regulator for federal facilities;
    11)  conducting ongoing public  outreach and mediation training; and
    12)  issuing final report documenting obstacles in awarding and utilizing Superfund resources for the State/Tribal
        Superfund Block Funding. Class regulatory deviations have been requested to fully implement this reform.  Twelve
        pilots are underway.

The successes realized throughout Superfund during F Y 1998 place the Agency in a uniquely positive position to achieve
and expand Superfund accomplishments in FY 1999.

    To meet the requirements of the  Government Performance and Results Act (GPRA)  of 1993, the Superfund Program
established 11  goals to assess performance  in its major program areas: response, enforcement, federal facilities,  and
Brownfields redevelopment.  The  goals will enable the program to align planning, budgeting, and accountability functions
for better management for environmental outcomes.

Performance Measures

    Under the Superfund Response Program's sub-objective Respond to Superfund Hazardous Waste Sites, by 2005, EPA
and its state, tribal, and federal partners will reduce the risks that Superfund sites pose to public health and the environment
by:  completing construction at a total of 1,200 NPL sites; conducting  2,400 additional removal actions; determining if
Superfund cleanup is needed at 85% of the sites entered into the Superfund site data base (CERCLIS); maximizing PRP
participation in conducting/funding response actions; and meeting statutory  deadlines for federal facility  activities. EPA will
collaborate with states and Indian tribes to enhance the federal, state, and tribal Superfund program, reduce overlap among
the  programs, and leverage  public and private resources to promote  cost-effective, efficient cleanups of Superfund sites.

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Under this sub-objective, three key performance measures were developed which are measurable and quantifiable.  The
performance measures are:

4   Site Assessment: The number of final Superfund site assessment decisions to:  place a site on the NPL; defer a site to
    another federal program, state, or tribe for action under their legal authority; take no further remedial action at a site
    based on current information; or aggregate a site into an existing NPL site.  In FY 1998, the Superfund Response
    program made 471 site assessment decisions.

4   Removal:  The number of removal response action starts per year.  In FY 1998, the Superfund Response program
    conducted 286 removal response actions.

4   Construction Completions:   The number of construction completions per year (this represents all program
    accomplishments, including federal facilities). InFY 1998,  the Superfund Response Program achieved 87 construction
    completions for a total of 585.

    The purpose of this section of the financial statements is to relate program performance to Trust Fund expenditures.
Since the funds used to clean up federal facility sites do not come from the Trust Fund, accomplishments attributable to
EPA's Federal Facilities Program have been excluded from this section.

    OSWER has used the following five performance measures for assessing the success of the Superfund Program during
FY 1998.

    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. Note that in Cleanup/Response 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.

    Cleanup/Response Measure 1:  Number of non-federal sites on the NPL where EPA has started the first
cleanup or investigation compared to the total number of non-federal sites on the NPL.

    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 1998, EPA started the first cleanup or investigation at nine sites. Cumulative performance to date is
1,181 cleanups or investigations begun compared to 1,265 non-federal NPL sites.

    The number of cleanups started to decline inFY 1991, 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 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.

    Cleanup/Response 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 EPA has started a removal action.

    Results: In FY 1998, EPA began cleanup actions at 191 non-NPL sites,  bringing the total number of sites addressed
through such actions since program inception to 3,167 non-NPL sites.


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    Cleanup/Response Measure 3:  The number of non-federal sites on the NPL where EPA made a decision about
how to proceed with the cleanup of at least a significant portion of the site compared to the total number of non-
federal 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 documentation 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: EPA made cleanup decisions for 26 sites in FY 1998, resulting in a total to date of 1,049 sites of the 1,265
non-federal sites on the NPL.

    Cleanup/Response Measure 4:  Number of non-federal sites on the NPL where EPA completed remedial action
for at least a significant portion of the site compared to the total number of non-federal 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.

    As indicated above, a site may have more than one remedial  action.

    Results:  In FY 1998, 32 sites (or significant portions  thereof)  progressed through the Remedial Action cleanup
phase.  This brings the total number of such sites to 502 of the 1,265 non-federal sites on the NPL.

    Cleanup/Response Measure 5:  The number of non-federal sites on the NPL where cleanup construction is
completed compared to the total number of non-federal sites on the NPL.

    This measure counts the sites for which EPA has declared cleanup construction complete.  Sites  qualify for construction
completion when:

4   any necessary physical construction is complete whether or not final cleanup levels or other requirements have been
    achieved,

4   EPA determines that the response  action does not involve construction, or

4   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 1998, EPA  completed cleanup at 84  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 568 sites
with cleanup construction completed of the 1,265 non-federal sites on the NPL.

    OEC A has used the following five enforcement/cost recovery performance measures for assessing the success of the
Superfund Enforcement and compliance assurance program during FY 1998.

    Enforcement:  InFY 1998,EPA's enforcement and compliance assurance program continued  seeking settlement with
those parties potentially responsible for contaminating Superfund sites and pursuing recovery of monies EPA expended from
the Trust Fund.
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    Under the Enforcement Program's sub-objective, EPA will continue to maximize the participation of potentially
responsible parties in conducting/funding response actions at Superfund  sites while  promoting fairness  during the
enforcement process.   Based on the urgency of the situation and/or the capabilities of the PRPs, EPA will optimize PRP
removals.  More than 70% of the long-term cleanup actions are now financed by PRPs, and EPA's goal is to maintain or
increase that level of participation. EPA will do this through orphan share compensation, de minimis settlements, cash-out,
mixed funding, mixed work, alternative dispute resolution, ability-to-pay settlements, PRP oversight, and interest bearing
special accounts where applicable. At sites where EPA decides to issue unilateral administrative orders (UAOs), EPA will
issue, or document non-issuance of UAOs, to  100 percent of non-settling parties (except UAOs for time critical or
emergency removal actions). In addition, EPA will address cost recovery at 100 percent of all NPL and non-NPL sites with
total past costs equal to or greater than $200,000 which need to be addressed prior to the expiration of the Statute of
Limitations (SOL). Under this subobjective the following performance measures were developed which are measurable and
quantifiable:

4   Maintain 70% PRP participation in the long-term cleanup actions:  In  FY1998, approximately 72% of new remedial
    action starts at NPL sites were initiated by potentially responsible parties.

*   Orphan Share Offers: In FY 1998, EPA made offers at all eligible RD/RA and removal sites.

4   De Minimis Settlements: In FY 1998, EPA negotiated 34 de minimis settlements to resolve the potential liability of
    over 2,200 small parties.

4   Cost Recovery: Address cost recovery at all SOL sites with total past costs > S200K.  In FY 1998, EPA addressed all
    of the FY 1998 SOL cases  (where past costs exceeded $200,000) prior to the expiration of the SOL.

4   Prospective Purchaser Agreement Requests Assessed:  EPA signed 24 Prospective Purchaser Agreements in FY 1998.

    The Superfund Enforcement Program used the following five enforcement/cost recovery performance measures for
assessing the success of the program during FY 1998.

    Cleanup/Enforcement Measure 1:  The number of enforcement actions taken at NPL sites to have 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 administrative 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.

    Results: During FY 1998, 110 enforcement actions for site study and cleanup were taken at 88 sites on the NPL.  63
of these actions were settlements for RD/RA  (37 consent decrees referred to the Department of Justice  (DOJ) and 26
unilateral administrative orders in compliance).

    Since the  inception of the Superfund Program, PRPs have committed to  conduct site response at 856 sites (68%) of
the 1,265 non-federal facility sites on the NPL, with an estimated cumulative value of over $11.6 billion. In FY 1998,
PRPs committed to conduct response work at 88 (7%) of the 1,265NPL sites, with an estimated value of approximately
$694 million.

    Cleanup/Enforcement Measure 2: The total value of cost recovery settlements and judicial actions achieved.


    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 only can recover money that has been spent. A significant

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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 1998, EPA has  achieved settlement for approximately $2.4 billion with $230 million of this
amount achieved in FY 1998 and is seeking an additional $1.8 billion in ongoing cost recovery actions.

    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 1998, the number of cost recovery cases  addressed was  194 with a total value of $378 million.  EPA addressed all of
the FY 1998 SOL cases (where past costs exceeded $200,000) prior to the expiration of the SOL.

    Cleanup/Enforcement Measure 3: The amount of money EPA has collected from PRPs compared to the total
amount achieved in cost recovery settlements and judicial actions.

    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 1998, the Agency collected approximately $320 million in cost recovery and reached settlements for
the recovery of $230 million.  Since the inception of the program, the Agency has collected approximately $2.1 billion
in cost recoveries. This represents approximately 87% of the total value of cost recovery settlements (approximately $2.4
billion) reached by the program to-date.

    Cleanup/Enforcement Measure 4:  The estimated amount of money  PRPs have committed legally to site
cleanup  compared to the total amount of funds  obligated by the Superfund Enforcement  and Compliance
Assurance 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 1998, the Agency reached settlements with PRPs valued at over $1 billion ($806 million in response
settlements and $230 million  in cost recovery settlements) for NPL and non-NPL sites.  EPA 's FY 1998 enforcement
obligations (including DOJ obligations) were $173.5 million. The resulting ratio of approximately 6 to 1 indicates that
PRPs have committed approximately $6for 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 $15.5 billion
($13.1 billion in response  settlements and $2.4 billion in cost recovery settlements) for NPL and non-NPL sites. EPA 's


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enforcement obligations over this period were approximately $2.3 billion.  The resulting ratio of approximately 7 to 1
indicates that PRPs have committed $ 7 for every dollar obligated for Superfund enforcement.

    Cleanup/Enforcement Measure 5: The number of de minimis settlements, potential value of these settlements,
and the estimated number of settlors.

    EPA continues to seek enforcement fairness by entering into de_ minimis settlements 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 de_ 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 de_ 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 ade
minimis settlement. Although the amount a de_ 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 de_ minimis party)
and a premium payment.

    This measure counts the total number of administrative and judicial settlements reached with PRPs that qualify as de_
minimis settlors under Section 122(g) of SARA. This measure also counts the potential value of these settlements and the
estimated number of settlors.

    Results: In FY1998, the Agency achieved 34 de minimis settlements valued at approximately $60 million with over
2,200 de_ minimis settlors at 26 sites.  Through FY 1998, the Agency achieved over 400 de minimis settlements with over
18,000 settlors.

    Superfund Federal Facilities

    In FY 1998, there were 162 NPL federal facilities.  The program started 31 Remedial  Investigation and Feasibility
Studies, signed 81 Records of Decision, started 60 Remedial Actions, completed 68 Remedial Actions, started 47 Removals,
and completed 46 Removals. By the end of FY 1998, 17 federal facilities achieved site construction completions.

    Brownfields

Brownfields Pilots are Encouraging Redevelopment Through Site Assessment

    The Brownfields Assessment Demonstration Pilots form a major component of the Brownfields Action Agenda. EPA
increased the number of site assessment pilots to a total of 227 at the end of FY 1998.  Grantees may use up to $200,000
for site characterization,  site assessment, and site inventory work.  These activities help communities determine if a property
is contaminated  and the extent of the contamination.

Brownfields Revolving Loan Fund Pilots Boost Cleanup

     The Brownfields  Revolving Loan Fund (BRLF) Pilots enable eligible states, cities, towns, counties, territories, and
Indian tribes to  capitalize revolving loan funds to safely cleanup and sustainably reuse Brownfields.  In FY 1997, EPA
awarded 23 demonstration pilots to Brownfields site assessment demonstration pilot "graduates."  In FY 1998, EPA was
restricted from signing cooperative agreements to capitalize BRLFs. This restriction has been lifted for FY 1999.

Brownfields National Partnership Leverages Resources

4  The Brownfields National Partnership represents a $300 million investment in Brownfields  communities including more
    than 100 commitments from more than 15 federal agencies.  This Partnership will help  communities cleanup and
    redevelop up to 5,000 properties by leveraging $5 billion in public funds to attract $28 billion in private investment.
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4   The Centerpiece of the Brownfields National Partnership was the selection of 16 Brownfields Showcase Communities
    in FY 1998.  Showcase Communities serve as national models to demonstrate successful public-private partnerships
    in support of the Brownfields Program.

4   Federal resources include additional Brownfields pilots from EPA; redevelopment funds from Housing and Urban
    Development (HUD) and Economic Development Administration (EDA); job training efforts by Labor, Health and
    Human Services (HHS), Education, and Veterans Affairs.

Supported Department of Treasury's Efforts on Brownfields Tax Incentive

    This three-year tax incentive plan will reduce the cost of cleaning up thousands of contaminated, abandoned sites in
economically distressed areas. It is anticipated that this $1.5 billion tax incentive will leverage more than $6 billion in
privately funded cleanups at an estimated  14,000 Brownfields sites.

Local Job Training Efforts Support Brownfields Pilot Communities

    Through its cooperative agreement with EPA, the Hazardous Materials Training Institute conducted workshops on how
to implement environmental training programs in over 20 community colleges located near Brownfields pilot sites as of the
end of FY 1997.  These workshops enable local communities to participate in the cleanup process. In FY 1998, EPA
selected 11 job training pilots which are designed to enhance workforce development in Brownfields communities.

Released Draft Voluntary Cleanup Guidance

    To  encourage partnerships  with states and tribes, EPA issues draft guidance to promote state voluntary cleanup
programs. The draft guidance sets out baseline criteria that EPA will use to evaluate state voluntary cleanup programs. In
FY 1998, EPA funded cooperative agreements with approximately 45 states to support new and existing state voluntary
cleanup programs.

Sponsored Sixth Annual EPA Teachers Institute at Morgan State University

    Experts taught over 40 teachers from across the U.S. how to be effective community advocates. These teachers live
or teach  near contaminated property in minority or disadvantaged neighborhoods, representing over 20 Superfund and
Brownfields sites.

Building Tribal Capacity

    In FY 1998, EPA  funded a cooperative agreement with the  Tribal Association on Solid Waste and Emergency
Response.  The Association uses the funds to build tribal capacity and assist tribes in establishing and managing their
environmental programs.  Furthermore, EPA continued to provide technical and financial assistance to the four tribal
integrated waste pilots, and selected six tribal applications for Brownfields assessments.

Brownfields Success Stories

    In Emeryville, CA, $644 million in private investment has been leveraged so far, while 10,600 jobs are expected to be
created over the next five years. Local tax coffers have increased by  $6.4 million as a result of their Brownfields Pilot and
other public and private activities.

    Dallas, TX, enjoys new prosperity, thanks in part to its Brownfields efforts. Private investment has increased $43.5
million through $8.4 million leveraged by the public sector.  Tax base improvements reflect a $32 million increase, with
163 jobs created so far  and 700 jobs total anticipated. Sports figure Larry Johnson donated $1 million to create a youth
activity center on a Brownfields site in his old neighborhood.
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     Bridgeport, CT, a community devastated by high unemployment and a lack of economic vitality, is turning itself around
with the help of its EPA Brownfields demonstration pilot and other state and federal agencies.  At this very early stage in
its cleanup and redevelopment process, Bridgeport has already attracted $15 million in private investment and $133 million
in public investment. This investment has created 400 jobs and led to a $250 thousand increase in the tax base.

    Research

Improving Science Through Waste Management and Site Remediation Research

4   EPA completed the SITE Annual Report and submitted it to Congress in September 1998. This report is required in
    the SARA legislation, which authorizes the SITE Program.

4   The Agency and its external research partners completed a draft project report that covers performance aspects of
    RCRA-compliant waste containment facilities, focusing on hydraulic containment, physical stability, and long-term
    performance, and will be published under EPA title in 1999.

Reducing Uncertainties Through Waste/Site/Risk Characterization Research

4   The Agency developed research results and reports on how to evaluate the toxicological properties of complex mixtures
    of contaminants, along with an upgrade of the Exposure Factors Handbook.  These references will provide up-to-date
    scientific data on key characteristics of potentially exposed populations.

4   EPA produced research results on innovative geophysical characterization technologies for determining subsurface
    structure and location of contaminants, especially non-aqueous phase liquids (NAPLs).  These new technologies permit
    more rapid and cost-effective characterizations and subsequent cleanups of Superfund and other hazardous waste sites.

    Enforcement

    Parties responsible for contaminating Superfund sites continue to conduct and pay the cost of cleanup, preserving the
Trust Fund monies for those sites where parties are unable to contribute.  While implementing previous Administrative
Reforms, EPA continues to improve the Superfund Enforcement and Compliance Assurance Program.

Policy for Municipality and Municipal Solid Waste  CERCLA Settlements at  NPL Co-Disposal Sites
(February 5, 1998)

    This document states EPA's continued policy of not generally identifying generators and transporters of municipal solid
waste (MSW)  as potentially responsible parties at NPL sites.  In recognition of the strong public interest in reducing
contribution litigation, however, the policy identifies a settlement methodology for MSW generators and transporters who
seek to resolve with the U.S. their CERCLA liability, thereby protecting themselves from third party litigation.  In addition,
the MSW policy identifies a presumptive settlement range for municipal owners and operators of co-disposal sites on the
NPL who desire to settle their Superfund liability.  This policy is intended to reduce transaction costs,  including those
associated with third party litigation, and to encourage global settlements at sites.

Memorandum of Understanding among the Environmental Protection Agency. United States  Coast Guard.
Department of Commerce. Department of the Interior. Department of Agriculture. Department of Defense.
Department of Energy, and Department of Justice Concerning the Exercise of Authority under Section 106
of the Comprehensive Environmental Response. Compensation, and Liability Act  (February 10, 1998)

    In addition to EPA and the Coast Guard, other federal agencies have significant responsibilities and substantial programs
for responding, or requiring others to respond, to releases and threatened releases of hazardous substances.  Such agencies
include the Departments of Agriculture, Commerce, Defense, Energy, and Interior ("Federal Resource Managers").  The


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Federal Resource Managers have been delegated the authority under Section 106 of CERCL A to issue administrative orders
or seek judicial relief with respect to a release or threatened release of a hazardous substance affecting either natural
resources under a Federal Resource Manager's trusteeship, or a vessel or facility subject to the Federal Resource Manager's
jurisdiction, custody, or control.  Federal Resource Managers are required to obtain EPA or the Coast Guard's concurrence
before each use of Section 106 authority. Federal Resource Managers also are prohibited from using this authority at any
vessel or facility where EPA or the Coast Guard is the lead federal agency for the conduct or oversight of a response action.
This Memorandum of Understanding is intended to ensure that the signatories exercise their authority in a cooperative and
integrated fashion, and in a manner to ensure  interagency coordination that enhances efficiency and effectiveness.

Fact Sheet: Using Supplemental Environmental Projects to Facilitate Brownfields Redevelopment (Issued
September 1998)

    In April 1998, EPA issued the final "Supplemental Environmental Projects (SEPs) Policy."  In that policy, EPA
encourages the use of SEPs in the settlement of environmental enforcement actions.  In September EPA issued a fact sheet,
entitled "Using Supplemental Environmental Projects to Facilitate Brownfields Redevelopment," to address specifically the
use of SEPs at Brownfields. The fact sheet explains how the legal requirements identified in the SEP Policy relate to SEPs
performed at Brownfields, and describes the two  categories  of SEPs that are  appropriate for use at Brownfields:
environmental quality assessments and environmental restoration. The fact sheet includes an analysis of two hypothetical
projects submitted for Brownfield sites.

Guidance on  Administrative  Response  Cost  Settlements under Section  122 (h)  of CERCLA and
Administrative Cashout Settlements with  Peripheral Parties  under  Section  122 (h) of CERCLA and
Attorney General Authority  (March 24, 1998)

    EPA and the Department of Justice (DOJ) jointly  issued  the CERCLA §122(h) guidance and five model settlement
documents. The guidance announces a new type of expedited "cashout" settlement for "peripheral parties." Peripheral
parties are those parties who, although not technically de minimis or de micromis, are not the focus of CERCLA enforcement
activities. They include ability to pay parties, parties for whom unresolved CERCLA liability is an "extreme burden," and
other parties as defined on a case-by-case basis. For qualifying "peripheral parties," a "cashout" settlement that resolves
the settlor's liability at the site is possible under the terms outlined in the guidance. The guidance and model agreements
offer the possibility of increasing the efficacy and consistency of CERCLA administrative settlements nationally.

Guidance for Implementing Superfund Reform Initiative 9a: Risk Sharing  (March 24, 1998)

    Estimates of the eventual cost of cleaning up the  Nation's hazardous waste sites highlight the need to support the
development of more cost-effective cleanup technologies. PRPs are sometimes reluctant to implement new technologies
due to concerns about having to "pay twice" if the innovative approach fails to achieve the required levels of cleanup. As
part of the Superfund Reform Initiatives, EPA's guidance identifies a program designed to  share the risk of using selected
innovative technologies.  The purposes of this initiative are:  1) to encourage the demonstration and use of innovative
technologies with the potential to lower costs and/or improve performance at a particular site and at other Superfund sites,
and to document these early applications to assist future selection of response actions; 2) to support developers of promising
technologies, especially small businesses, by enhancing contracting opportunities with PRPs; and 3) to encourage PRPs to
assume  a more active role in the development of new technologies for site remediation.

Superfund Oversight Billing

    Under Superfund, the Agency is required to monitor the cleanup of hazardous waste sites by responsible parties. Any
oversight costs incurred by the Agency are recoverable from the responsible parties. In F Y 1998, the Agency made billing
of oversight a priority.  EPA implemented actions to improve  the management and timeliness of oversight billings and to
become  current in oversight billings by the end of the fiscal year. The Office of Site Remediation Enforcement (OSRE) and
the Office of the Comptroller (OC) developed a methodology to resolve this issue and to improve oversight billing efficiency.
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                                           OIL SPILLS
    EPA's Oil Program is administered by the Office of Solid Waste and Emergency Response (OSWER) and uses the Oil
Spill Liability Trust Fund (OSLTF) to finance the cost of cleaning up spills and damages in cases where the responsible party
cannot or will not pay for the cleanup. 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 Program.  Support for
enforcement activities is provided by EPA's Office of Enforcement and Compliance Assurance (OECA).

                                        Oil Program Description

    The goal of the Oil Program, which is authorized by the Clean Water Act (CWA) and has been in effect for over twenty
years, is to protect public health and the environment from hazards associated with a discharge or substantial threat of a
discharge of oil or hazardous substances into navigable waters, adjoining shorelines, and exclusive economic zones of the
United States.  The program was strengthened by  the Oil Pollution Act of 1990 (OPA) which was passed in response to
increasing frequency and severity of accidental oil discharges into the environment, such as the Ashland Tank Collapse and
the Exxon-Valdez spill.
                                                                                  Wisconsin Fire — Oil Spill
    Under the CWA and OP A, EPA protects inland waterways through oil spill
prevention, preparedness, response, and enforcement activities associated with about
450,000 non-transportation-related oil  storage facilities.  These facilities, which
range from hospitals and apartment complexes storing heating oil to large tank farms,
include any oil storage facility with a single aboveground storage tank larger than 660
gallons, total  aboveground storage capacity greater  than  1,320  gallons, or
underground storage greater than 42,000 gallons.

    The Oil Program establishes requirements to prevent and  prepare for spills at
oil storage facilities subject to its  regulations, and respond to all spills to inland
waterways.  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); the Oil Pollution Prevention regulation or Spill
Prevention, Control and Countermeasures (SPCC) regulation (40 CFR Part 112); and the Facility Response Plan (FRP)
regulation.

    All regulated oil storage facilities must prepare SPCC plans. In addition,  certain high-risk oil storage facilities must
prepare Facility Response Plans (FRPs) to 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.  In the event of a spill, the National Contingency Plan (NCP) is the Nation's blueprint
for the federal response to releases  of oil and hazardous substances.  Both the revised NCP and FRP regulations were
published  in the Federal Register in mid-summer 1994.

    The OPA also requires area committees (comprised of state,  local and federal officials) to develop Area Contingency
Plans (ACPs). These plans detail the responsibilities of those parties involved in planning the response process, describe
unique geographical features of the area covered, and identify available response equipment and its location.

    Current Oil Program prevention efforts focus on continued implementation of SPCC regulations. Preparedness efforts
focus on periodic review of FRPs and on development of ACPs. Response efforts  include monitoring or responding to all
spills within the inland waterways.

    Headquarters efforts include strengthening the response infrastructure and policy and program guidance development
for preventing harmful releases of oil and  other petroleum products; improving nationwide capability to respond to threats
of discharge of oil or other petroleum products; improving nationwide capability for containment and removal of releases

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that occur in navigable waters; coordinating with other federal agencies on Facility Response Plan (FRP) requirements,
review, and approval; minimizing the resulting environmental damage from releases; and fully utilizing enforcement authority
to compel responsible parties to clean up spills, 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 FRP process, chiefly through the development of
approval criteria for the responsible parties.

    A major component of the regions'  work is monitoring, directing, or performing oil spill cleanups.  In addition to
responding to oil spills, the EPA regions conduct oil storage facility inspections to ensure compliance with the SPCC
regulations. EPA inspects hundreds of these facilities each year, including site visits and/or plan reviews. EPA regions also
conduct periodic equipment inspections and unannounced area drills. The regions take administrative actions against facility
operators for failure to comply with SPCC and FRP 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. EPA regions also assist
the Federal Emergency Management Agency (FEMA) 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, state or local responders, or the responsible party (RP). People living near
regulated facilities benefit from the increased safely measures incorporated into the FRPs which quicken response time for
spills and lessen the resulting environmental damage done by a spill.

                                    Research 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 EPA to periodically revise the NCP and its annexes.

                  Enforcement and  Compliance Assurance Program Description

    The Oil Spills Enforcement and Compliance Assurance Program's primary focus is petroleum storage facilities that fail
to comply with oil pollution SPCC regulations and facility response plan requirements as well as those facilities which had
a spill of oil or hazardous materials.  The  Agency's enforcement and compliance assurance program provides national
guidance and direction in implementing enforcement, regulations,  and strategies for civil,  administrative, and criminal
enforcement responses, including cost recovery and inspection issues; spill prevention penally policies, and enforcement
and compliance agreements with the U.S. Coast Guard. The program brings civil judicial enforcement case referrals and
administrative actions against facilities for failure to comply with oil pollution SPCC regulations and with FRP regulations.
The program also  provides assistance to help facilities comply with these regulations.

    The  enforcement and compliance assurance program will  continue to maintain a strong presence. Since this is a
federally run program, EPA will emphasize enforcement of the SPCC regulations and will work with the regions to
streamline processes, where possible, for  taking enforcement actions.  In addition, EPA will develop an enforcement
management system for CWA Section 311 violations. This system will set out the appropriate enforcement actions and
timeframes.  This  infrastructure improvement will make this program more consistent with the other programs under the
CWA.
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                                   Highlights and Accomplishments
Financial Perspective

     Since the beginning of the Oil Spill Trust Fund's existence
through FY  1998, Congress has appropriated a total of $125.2
million to the Agency.  In FY 1998, EPA received a budget authority
of $15 million to implement the Oil Pollution Prevention Program.
In  FY  1998, the Agency processed  $16.4 million  in direct
obligations  (against  appropriated  funds) and $25.4 million  in
reimbursable obligations for oil spill response activities and $16
million in net disbursements.

Performance Measures
OIL SPILLS RESPONSE Obligations - FY 98
     Total Direct Obligations - S16.4 Million

 Environmental Emergency
    Resp. & Prevention
    79.0%
    R&D
7.5%
  Support
3.8% Services
     Since  last year, EPA has introduced  a new  Oil  Program
measure, "Facilities Brought Into Compliance", to reflect more
accurately program accomplishments as required by the Government Performance and Results Act (GPRA).

     Measure 1: FRP Reviews, SPCC Inspections, and Facilities Brought into Compliance

     To ensure continued compliance with the OPA 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.

     Facilitites brought into Compliance is  a new measure, this is a transition year, but it will include verification of SPCC
compliance by the facility  as a result of the EPA interaction either through enforcement action or compliance assistance and
outreach.

     Results:  About 150 facilities received FRP approval in FY 1998, and a few additional facilities were identified or
received approval since then. In FY 1998, EPA conducted about 750 reviews of Facility Response Plans. EPA regulates
about 450,000facilities under the SPCC regulation.  In FY 1998, EPA inspected about 1,060 SPCC-regulated facilities.
Over 300 facilities were brought into compliance in FY 1998.

     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 cleanup actions done by state or local responders, or the RP.   EPA monitors a cleanup when another party such
as a state or local government, or the RP responds to the spill to ensure adequate cleanup takes place.

     Results:  127 oil spills cleanups were started in FY 1998 using OPA funds.  EPA monitored 165 responsible-party
oil spill cleanups  in FY 1998. Since program inception through FY 1998, 418 oil spills have been cleaned up using OP A
funds.  For that same period, EPA monitored 1,487 responsible-party cleanups.

     Measure 3: Administrative Actions  and Judicial Penalty  Enforcement Actions for spill violations and
prevention regulation violations.
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    This measure counts the number of administrative and judicial enforcement actions resulting from prohibited spills and
violations of the regulations of the C WA as amended by OPA.  These two actions account for a significant portion of the
resources used in the Oil Program and indicate significant achievements in compliance.  An administrative 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: 84 administrative cases were filed and 16judicial enforcement actions were referred to the DOJ in FY 1998.

Improving Science Through Waste Management and Site Remediation Research

    The Agency continued efforts on the evaluation of screening tests for oil spill chemical countermeasures, including
dispersant agents.  This was used towards improving the protocols, thereby assuring better oil spill response decisions.
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          LEAKING  UNDERGROUND STORAGE  TANK
     Subtitle I of the Resource Conservation and Recovery Act of 1984 (RCRA) established a State-EPA program to
prevent, detect, and clean up leaks from underground storage tanks (USTs). EPA estimates
that there are about 900,000 regulated USTs buried at about 300,000 sites nationwide.
Regulated USTs contain petroleum products (except heating oil for on-premise consumption)
or potentially hazardous substances. Leaking underground storage tanks (LUSTs) can cause
contamination of soil and groundwater, endangering human health and the  environment.
LUSTs may also ignite or explode.

    In 1986, to support LUST cleanup programs, Congress established the LUST Trust
Fund, financed by  a 0.1 cent tax on each gallon of motor fuel sold in the  U.S.  Taxing
authority for the Trust Fund expired December 31, 1995, but Congress reinstated it on
October 1,1997, with a new expiration date of March 31, 2005. As of the end of FY 1998,
the Trust Fund had accumulated about $1.8 billion in taxes and interest (on unappropriated
funds). Congress establishes the amount of the Fund that EPA may use by issuing annual
and supplemental appropriations. Through FY 1998, the Congress appropriated $730.8
million to EPA, 87% of which was provided to the states. At the end of F Y 1998, the Trust
Fund  reflected a balance  of  $1.2 billion, a portion  of  which is available  for future
Congressional appropriation.

                                    LUST Program Description

    EPA supports state programs through cooperative agreements funded by the LUST Trust Fund. States use LUST Trust
Fund dollars largely to administer their corrective action programs, oversee cleanups by  responsible parties, and undertake
necessary enforcement actions. States also may use the Trust Fund money to pay  for cleanups in cases where a responsible
party cannot be found or is unwilling or unable to pay for a cleanup.  Such cases have accounted for less than 1 % of all LUST
releases.

                                   Research 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 Superfund 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 subsurface 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
Storage Tanks, EPA regions, state and local agencies, and practicing professionals implementing the LUST Program. This
effort includes providing scientific expertise on low-cost approaches for the assessment of site contamination and evaluation
of remedial technologies.

                 Enforcement and Compliance Assurance Program Description

    The LUST Enforcement and Compliance Assurance Program continues to target responsible parties to finance or
conduct corrective  actions. Agency  staff provides assistance to state personnel to enhance voluntary compliance with
corrective actions and financial responsibility requirements.
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                                 Highlights and Accomplishments
Financial Perspective
                                                                     LUST Obligations - FY 98
                                                                    Total Obligations - $65 Million

                                                               Guidelines & Implementation
                                                                 95.4%
                                                                                               R&D
                                                                                            1.0%
                                                                                            a7%Enforce-
                                                                                             2.9%   ment
                                                                                           Management
                                                                                              & Support
    In FY 1998, EPA obligated approximately  $65 million to
implement the LUST Program.  The Office of Solid Waste and
Emergency Response (OSWER) supported the LUST Program by
obligating $62.1  million, while approximately $2.9 million was
obligated by non-OSWER offices in Headquarters and the Regions.
Responsible parties conducted nearly all of the cleanups with state
oversight.

Protecting Human Health and the Environment Through
Cleanups

    Under the supervision of state or local agencies (or EPA in
Indian country),  UST owners and operators undertake nearly all
corrective action.  EPA's performance goal for the LUST cleanup
program is to ensure that UST releases are detected and cleaned up promptly and cost effectively to protect human health
and the environment.

    Progress in the LUST Program is measured by comparing the number of cleanups initiated and cleanups completed to
the number of confirmed releases.  Cumulatively, through FY 1998, there were 371,387 confirmed releases; 314,965
cleanups initiated; and 203,247 cleanups completed.

    ForFY 1998, EPA's performance goals were to initiate 24,000 cleanups and complete 20,000 cleanups. During FY
1998, 29,614 LUST releases were confirmed; 22,519 cleanups were initiated; and 24,950 cleanups were completed.

Indian Country

    Through FY 1998, the cumulative total of LUST  activity on Indian lands came to 1,024 confirmed releases, 767
cleanups initiated,  and 427 cleanups completed. EPA anticipates that it will take several more years to clean up all known
and undiscovered releases in Indian country.  In collaboration with tribes, EPA is developing a risk-based corrective action
(RBCA) process for LUST sites in Indian country.

Improving Science Through Waste Management and Site Remediation Research

    EPA provided recommendations on improvements to the risk-based corrective action (RBCA) approach to remediation
option selection.   These recommendations helped to insure optimal  application of  available LUST corrective action
remediation alternatives.
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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, FJrug and Cosmetic Act (FFDC A), the Pesticides Program administers
the Revolving Fund for Certification and Other Services  (Tolerance Fund) and the Pesticides Reregistration and Expedited
Processing Fund (FIFRA Fund).

                                    Tolerance 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 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 health risks posed by eating foods that have been  treated with pesticides in accordance with label directions.

    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 $3,725 to $65,600 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 2.45% in 1998.

    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 are deposited in the
FIFRA Fund.

                            Pesticide Reregistration 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. The current goal for the completion of reregistration is 2002.

    Congress authorized the collection of two kinds of  fees 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 through 1998, approximately 14% of maintenance fees collected, up to $2 million each year, were used

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for the expedited processing of old chemical and amended registration applications.  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 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
tolerances to be reassessed as part of the reregistration program.  Tolerance fees received will be deposited 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 major phases of reregistration:

4   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.

4   Phase 2 - Declaration of Intent and Identification of Studies.  Registrants notify EPA if they intend to reregister and
    identify missing studies. Completed in F Y 1990.

4   Phase 3 - Summarization of Studies. Registrants submit required existing studies.  Completed in FY 1991.

4   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.

4   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 defining whether uses of a pesticide active ingredient
    are eligible or ineligible for reregistration.  The registrant complies with  the RED by submitting 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.

                                     Research Program Description

    Pesticides research focused on providing scientifically valid, cost effective methods for evaluating risks associated with
pesticide use, manufacture, and  release into the environment.  These research efforts included studying the effects of
environmental stressors on human health and ecosystems, measuring the exposure of children to pesticides, elucidating the
mechanisms of neurotoxicity, and assessing the immunotoxicity and reproductive toxicity risks presented by pesticides.   The
information developed from application of these methods will significantly improve our understanding of the extent of human
exposure to specific pesticides. The Agency will incorporate these methods into its battery of testing guidelines under which
industry will be required to submit data to the Agency on pesticides as regulated under FIFRA. In addition, efforts included
research on agricultural and residential exposure and effects, with particular emphasis on research in support of the
Children's Agenda, which included efforts to  assess children's risk from exposure to pesticides  and other toxins, and
research on the special susceptibilities of infants and children from exposure to pesticides. The products of these  research
efforts are intended to support human and environmental risk assessments.

                  Enforcement and Compliance Assurance Program Description

    The Pesticides Enforcement and Compliance Assurance Program focuses on problems relating to urban pesticide
misuse, ineffective antimicrobial products, food safely, adverse effects, and pesticide worker safely protection.  The
enforcement and compliance assurance program provides compliance assistance to the regulated community  through
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seminars, guidance documents, brochures, and other forms of communication to ensure knowledge of and compliance with
environmental laws.

    EPA's grant support to states' pesticides programs emphasizes pesticide worker protection standards, high risk pesticide
activities including antimicrobials, pesticide misuse in urban areas, and the misapplication of structural pesticides. In F Y
1998, states continued to conduct compliance monitoring inspections on core pesticides requirements.

    EPA will continue its commitment to maintaining a strong compliance and enforcement presence. Agency priorities
for F Y 1999 and F Y 2000 include enforcement for products making illegal public health claims, including unregistered and
ineffective products, such as ineffective hospital disinfectants; enforcement of worker protection standards, including
inspecting and enforcing against misuse violations  and labeling requirements violations; and continued focus on urban
pesticides control and enforcement.

                                   Highlights and Accomplishments
                                                                     PESTICIDES Obligations - FY 98
                                                                        Total Obligations - $262.1 Million
                                                                  Generic Chemical Review
                                                                        47.0%
                                                                                24.6%
                                                                   Registration, Special
                                                                     Registration, & Tolerances
      R&D
  15.2%

   Enforcement
   3.1%
  10.1%
Program
  Im plementation
 Tolerance Performance Measures

     Tolerance fees collected in FY 1998 were approximately $1.6
 million and obligations were $2.5 million.

     Measure:  Tolerance re-evaluations.

     Results:  In FY 1998, EPA set 258 tolerances and exemptions
from tolerance.  Of these, 240 were for conventional pesticides, 16
 were for biopesticides, and 2 were for antimicrobial pesticides.  In
 FY 1998, 1,646 tolerances were re-evaluated, of which 821 were
 revoked,  486 reassessed  as part of  reregistration,  and 339
 reassessed for registration actions.1  FQPA requires  that EPA
 reassess within ten years over 9,700 tolerances to ensure that the
 tolerances meet the federal safety standard  of a reasonable
 certainty of no harm.  In developing the reassessment schedule, EPA is placing apriority on pesticides that appear to pose
 the greatest potential risk to the public (these include  organophosphate, carbamates, probable and possible human
 carcinogens, organochlorine pesticides,  and high-hazard inert ingredients).

 Reregistration (FIFRA) Financial Perspective

     During FY 1998, the Agency's obligations charged against the  FIFRA Fund for the cost of the reregistration and
 expedited processing programs were almost $18.2 million and 202 workyears. Of these amounts, the Office of Pesticide
 Programs obligated $16.8 million of this cost and funded the 202 workyears.

     Appropriated funds are  used in addition to FIFRA revolving  funds.  In FY 1998, approximately $19.1 million in
 appropriated funds were obligated for reregistration and expedited processing program activities. The unobligated balance
 in the Fund at the end of FY 1998 was $15.5 million.  This is a decrease of $500,000 compared to the FY 1997 year-end
 balance of $16 million.

     The Fund has two types of receipts: fee collections and  interest earned on investments. Of the $17.2 million in FY 1998
 receipts, approximately 96% were fee collections. The fee collections are slightly more in FY 1998 compared to FY 1997.
          A tolerance is considered scientifically reassessed and counted the day a RED or other decision document is
signed, and in most cases when there is a revocation, the day the final rule is signed.   A final FR notice to implement
698 of the 821 tolerance revocations was published in FY 1999 (October 26, 1998).
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Reregistration Program (FIFRA) Performance Measures

    The following measures support the program's strategic goals of Food Safety and Safer Pesticides as contained in the
FY 1998 President's budget.

    Measure 1: Number of Reregistration Eligibility Documents (REDs) completed.

    Results:  The number of Reregistration Eligibility Decisions (REDs) completed was 13, a decrease  of 10 from FY
1997 when 23  were completed.  This decrease is the result of adapting the reregis (ration and tolerance reassessment
process to the more stringent requirements realized with the passing of the FQPA.  There are approximately 382 chemical
cases (representing 3,822 chemicals), of which 184 REDs have been completed.

    Measure 2:  Number of products reregistered,  canceled, or amended.  Approximately 19,000 products are
subject to reregistration. Many products, however, contain more than one active ingredient. Since products are
reassessed separately for each active ingredient, EPA will conduct approximately 38,000 product reviews.

    Results:  FY 1998, 221 products were reregistered2, 53 were amended and 337 were cancelled.  The combined 611
decisions were achieved versus a target of 750. In addition, 135 products were forwarded to the EPA Office of Compliance
Monitoring for suspension.  The cumulative totals at the end of FY 1998 were 2,020 products cancelled3, 109 products
amended, and 1,152 products reregistered.

Reducing Exposure through Human Health Protection Research

4   EPA completed analysis of data from the National Human Activity Patterns Survey (NHAPS). NHAPS addresses a vital
    human exposure research need by providing comprehensive activity and location information on a national level.  In
    addition to providing robust data, NHAPS will be  especially valuable to exposure modelers who previously had to rely
    on assumed exposure scenarios rather than on distributions of reported data.

4   EPA completed the National Human Exposure Assessment Survey (NHEXAS)
    pilot scale multipathway studies. These studies measured human exposures to
    multiple chemicals, and human exposures from multiple pathways and media, for
    representative population samples.  These studies provide unique information on
    the ranges of actual exposures in the general population for use as benchmarks for
    site-specific investigations and for health risk assessments.

4   The Agency completed a peer-reviewed protocol for the Agricultural Health Study.
    A series of statistical design analyses were performed and a draft revised protocol
    was developed for internal review.  From this study, farmer-applicators will be
    selected for exposure measurements and to determine the most significant exposure factors resulting from pesticides
    handling  and application practices. Spouse and child biomarker measurements will be performed to measure the extent
    to which these practices result in exposure to applicator family members.
          Product reregistrations include federally registered products and special local needs registrations issued by
states pursuant to Section 24(c) of FIFRA.

         A product cancellation is reported as a 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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4   EPA assembled children's activity  pattern data for incorporation into the first generation exposure model.  The
    Consolidated Human Activity Database (CHAD) provides consistent, comprehensive, and quality-assured activity data,
    facilitating assessments by providing more than 17,000 person-days of activity to modelers in an easy-to-use format. This
    data will be used to support the effort to reduce the risks to children's health caused by exposure to environmental toxics.

4   EPA continued to develop and evaluate biologically based dose response (BBDR) models to describe the underlying
    mechanisms of toxicity and to facilitate extrapolation from animal studies.  These models will foster improved estimation
    of human risks from exposure to compounds such as methanol, dibromochloromethane, arsenic, acrylamide, and dioxin.

4   The Agency's research on biomarkers resulted in the validation of the use of single strand DNA breaks as a marker for
    oxidant exposure, use of mutation spectra from short-term tests for common mechanisms, development of markers of
    toxicity for use  in  low dose effects, and development of a consistent approach  for measuring cholinesterase.
    Development of biomarkers provides validation of exposure and also provides for a more biologically defensible
    approach to quantifying risk of cancer and non-cancer health effects.

Pesticides Enforcement Performance Measures

    The enforcement and compliance assurance program deters noncompliance by maintaining levels of field presence and
enforcement actions, particularly in high risk areas and/or where populations are disproportionately exposed. In FY 1998,
EPA Headquarters issued 14 administrative penally complaints for FIFRA violations, including several  for violations of
labeling for making false public health claims. The program used the following performance measures for assessing their
success in FY 1998:
Key Performance Measures
FIFRA APO Complaints
FIFRA Inspections
FIFRA Civil Referrals
FIFRA Compliance Orders
1998 Goal
80 APO Complaints
125 Inspections
3 Case Referrals
10 Compliance Orders
1998 Actual

187 APO Complaints
237 Inspections
4 Case Referrals
1 8 Compliance Orders
                 (Note:  APO is Administrative Penalty Order.)
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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 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. This fund is designed to
provide federal financial assistance to the states, localities, and Indian tribes to protect the Nation's drinking water resources.
The DWSRF provides capitalization grants to state and tribal governments, funding low-interest loans for local drinking water
systems that need to install or improve their drinking water treatment facilities.  The fund is also used for source water
protection, operator certification, and other priority  activities.

                                         Program Description

    Water Infrastructure Financing consists of the following: 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 Fund (SRF) Programs provide federal financial
assistance to states, localities, and Indian tribes to protect the Nation's water resources by providing funds for the construction
of wastewater treatment and drinking water facilities. 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 (e.g., Boston Harbor and New Orleans), 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 — low-income communities located within 100 kilometers of the border, which are generally unincorporated
and lack basic services (i.e., safe drinking water, wastewater treatment facilities). The goal of this program is to reduce the
incidence of waterborne diseases along the Mexican border and in the U.S. Colonias.

                                  Highlights and Accomplishments

    In FY 1998, the Agency obligated $2.8 billion for Water Infrastructure Financing. Under the CWSRF Program, EPA
provides grants or "seed money" to all 50 states and 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. 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.  Through 1998 , EPA has invested approximately $15 billion to
capitalize  the 51 CWSRFs.  As of June 30, 1998, states reported they had issued 6,806 loans worth $22.9 billion for
wastewater, storm water, combined sewer overflow, and nonpoint source projects.  This includes approximately 800 loans
to communities with populations of more than 100,000. In addition, states have issued approximately 6,000 loans to medium
and small communities.

    A major benefit for municipalities and other loan recipients is the substantial financial savings they 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% of the total project
costs over a similar loan at 7.5 %. The SRF Program's primary mission is to promote water quality. Aside from the financial
savings, loan recipients realize significant environmental benefits, including protection of public health and conservation of
local watersheds.

    The Safe Drinking Water Act (SDWA) Amendments of 1996 (Public Law 104-182) authorize a DWSRF to assist public
water systems to finance the cost of infrastructure needed to achieve or maintain compliance with SDWA requirements and

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protect public health.  Section 1452 authorizes the Administrator of EPA to award capitalization grants to states, which in
turn can provide low cost loans and other types of assistance to eligible systems.

    In addition to authorizing the infrastructure fund, the SDWA Amendments also place strong emphasis on preventing
contamination problems through source water protection and enhanced water systems management.  That emphasis transforms
the previous law from a largely after-the-fact regulatory oriented program into a statute that can provide for the sustainable
use of water. Central to this emphasis is the development of state prevention programs,  including source water protection,
capacity development and operator certification. States may use a portion of their capitalization grants to fund these eligible
activities.  The success of these activities will act to safeguard the DWSRF funds that are provided for improving system
compliance and public health protection and help determine whether the new law's potential as a preventive environmental
statute is realized.

    The DWSRF program will help ensure that the nation's drinking water supplies remain safe and affordable, that drinking
water systems that receive funding will be properly operated and maintained, and that permanent institutions will exist in each
state to provide financial support for drinking water needs for many years to come.  Congress has placed particular emphasis
on assisting smaller drinking water systems and those serving less affluent populations by providing greater funding flexibility
for these systems under the DWSRF, to ensure that these systems have adequate technical, managerial, and financial resources
to come into or maintain compliance and provide safe water.

    All FY 1997 DWSRF monies, which totaled over $1.2 billion, were awarded to the 50 states and Puerto Rico before the
September 30,1998 deadline for these funds to be committed/obligated. In addition, 30 awards were made in FY 1998 using
FY 1998 funds.
    Special Infrastructure projects were appropriated $393 million in FY 1998, including
$253  million for Special Infrastructure Needs, $15 million for Rural and Alaskan Native
Villages, $50 million for Colonias, and $75 million for the Mexican Border.  The Agency
has developed and issued guidance on how to award the $253 million in Special
Infrastructure Needs funding for the 68 special projects authorized by the Department of
Veterans  Affairs,  Housing  and  Urban Development, and  Independent  Agencies
Appropriations Act of 1998, and awarded grants for  approximately half of the projects by
the end of the fiscal year.
    To support wastewater infrastructure development on Indian Lands, the Agency
allocated an additional $12 million to the Border Region for tribal water and wastewater
projects along the Mexican border for a total of $22 million. In addition, EPA continues to use Indian Health Services (IHS)
as a primary mechanism of field level support for many Indian Lands projects.

                                               Future Trends

    To further the Agency' s goal of providing an economical source of capital for the states to address their environmental
problems, EPA proposes continued capitalization of the CWSRF at a level that will enable states to finance $2 billion annually
in loan activity for several more decades.  This level of funding helps to ensure that a long-term , low-cost source of financing
is available to meet the $139.5 billion in wastewater infrastructure needs that have been documented throughout the United
States.

    EPA will continue to encourage states to expand the availability of their CWSRF for a broader array of water quality
infrastructure projects. EPA also will 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 continue to work
with the Council of State Community Development Agencies and other federal agencies to facilitate the use of the CWSRF
by small communities.
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    Serious public health problems due to water contamination and communicable waterbome diseases continue to be
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./Mexican Border Plan and North American Free Trade Agreement
(NAFTA) through wastewater treatment projects along the U.S./Mexican Border.  In cooperation with the NAFTA Border
Environment Cooperation Commission (BECC), EPA will help set priorities for funding wastewater infrastructure projects
along the Border.  In addition, EPA is working to provide the final appropriations provided in F Y  1998 to the State of Texas
to help finance wastewater projects in U.S. Colonias communities.  EPA also will 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.

    In addition, EPA proposes continued capitalization of the DWSRF at a level that will enable states to finance $500
million annually in loan activity over the long term. This level of funding helps to ensure that a long-term, low-cost source
of financing is available to meet the $138 billion in drinking water infrastructure needs that have been documented throughout
the United States.
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    MESSAGE FROM THE  CHIEF FINANCIAL OFFICER
       I am pleased to present the Agency's Annual Financial Statements for Fiscal Year (FY)
1998. All of us in the Office of the Chief Financial Officer (OCFO) share the Administrator's pride
in announcing the unqualified opinion that we received for the second year in a row from the
Inspector General on our Agency-wide financial statements.  These Statements provide Agency
managers, the Congress and other interested parties with information to assess the financial
condition of EPA's operating programs.

       The Agency's financial statements are submitted in accordance with the requirements of the
Chief Financial Officers Act of 1990 (CFO Act) and the Government Management Reform Act of
1994 (GMRA). The CFO Act was enacted to bring about improvements in Federal agency
accounting systems, financial management activities and internal controls.  In recent years, EPA
has made great progress toward attaining the goals of the Act.  GMRA expanded the scope of the
annual financial statements,  and EPA now prepares annual financial statements for all of its
operating programs.  In the preparation of the financial statements, EPA also followed
supplementary guidance issued by the Office of Management and Budget (OMB) and by the
Federal Accounting Standards Advisory Board (FASAB).

       Our financial statements have a new look this year and include additional information to
further assist the Congress and other interested parties in understanding the financial position of
the  Agency's operating programs.  These changes were made to meet FASAB's  Statement of
Federal Financial Accounting Standard Number 7  (SFFAS 7). "Accountingfor Revenue and Other
Financing Sources" and Statement of Federal Financial Accounting Standard Number 4 (SFFAS
4}  "Managerial Cost Accounting Concepts and Standards for the Federal Government. " The
Statement of Operations has been replaced by two new statements, the  Statement of Net Cost and
the  Statement of Changes in Net Position. We have also prepared three new required statements -
the  Statement of Custodial Activity, the Statement of Budgetary Resources and the Statement of
Financing. The financial statement schedules are separated between Superfund and all other
Agency funds.

       The statements, including the Overview and the accompanying audit report from EPA's
Inspector General, also assist the Agency in identifying where improved information systems,
management controls and accountability are needed. The accompanying CFO Analysis provides
the  highlights both of the Inspector General's report and opinion and of the actions we have taken
to address issues raised by the Inspector General.

       In our FY 1997 Annual Financial Statements, I identified a number of resource
management initiatives that we planned to focus on during fiscal year 1998. I am very pleased
with the progress we have made in those areas.  For example, we restructured EPA's budget along
the  lines of Agency goals and objectives, consistent with the  GPRA, rather than by function and
media.  Consistent with the  restructured budget, we implemented cost accounting to better support
our GPRA initiative to better link budgeting, planning and accountability.  During FY 1998 we
began modifications to our key financial  systems to meet Y2K requirements, to meet GPRA


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are:
requirements and our new budget structure and to better support the financial management of
EPA's programs overall.  Those modifications have since been implemented for our core financial
management and accounting software as well as for our personnel and payroll system. We also
made preparations to implement the new GSA Travel and Purchase Cards, which staff throughout
the Agency rely on to efficiently carry out their duties. The new Card program is now in place.

       Among our major initiatives and ongoing projects to improve financial management in EPA


       •      Performing analyses and developing plans to move our financial and payroll systems
              to later generation software and hardware platforms;

       •      Further automating and streamlining a number of administrative processes, such as
              travel;

       •      Further enhancing cost accounting capabilities to meet the needs of managers and
              others.

       •      Continuing to improve the quality, content and presentation of the Annual
              Performance Plan;

       •      Continuing to assure that we are carrying out the fiduciary responsibilities of the
              Agency effectively, efficiently and in a manner consistent with statutory
              requirements;

       •      Developing solid performance information and data to monitor and assess our
              annual performance; and

       •      Revising our policies and procedures to incorporate changes required by new
              legislation and central agency directives.

       We will continue to identify other ways to improve financial management functions in EPA.
A strong financial management program is one of the underpinnings of the Agency's ability to
carry out its  statutorily directed activities effectively and ensures that the taxpayers' dollars are
used as efficiently as possible to carry out our mission.

       The preparation of the financial statements and supplementary material has been a
collaborative effort between my office, the Office of the Inspector General and the Agency's
Program and Administrative Offices.  I want to thank everyone who worked so very hard to
prepare these financial statements over the past several months.
                                                Sallyanne Harper
                                                Chief Financial Officer
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             Chief Financial Officer's Analysis  of the
               FY 1998  Audited  Financial  Statements
INTRODUCTION

       The Chief Financial Officers Act of 1990 (CFO Act), as amended by the Government Management
Reform Act of 1994 (GMRA), requires EPA to prepare agency-wide financial statements.  The Agency has
categorized its appropriations for presentation in the FY 1998 financial statements as follows:

•      Hazardous Substance Superfund Trust Fund (Superfund), and
•      All Other Appropriations (All Others)


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 for correcting problems;
•      Impediments to correcting problems; and
•      Progress in correcting previously identified problems.

HIGHLIGHTS OF EPA'S SIGNIFICANT PROGRAM INFORMATION

       In FY 1998, EPA received a $7.6 billion appropriation and 17,975 workyears. During FY 1998, the
Agency began advancing the environmental commitments made by the President and began implementing new
environmental and public health standards. For example, EPA accelerated Superfund cleanups of hazardous waste
sites, and expanded  Brownfields redevelopment efforts under the Brownfields Redevelopment Initiative. The
Agency improved access to information about pollution in local communities consistent with its commitment to
the public's right-to-know about toxic and hazardous chemicals in their neighborhoods.   EPA increased
assessments of health risks to children who may be vulnerable to the effects of toxic substances.  The Agency
assisted in the revitalization of urban areas, applied new research tools to the state of the environment, and ensured
the safety of the Nation's water and food supplies.  Also, EPA continued to promote environmental justice and
urban environmental quality; improve Federal environmental management; empower states, tribes, communities,
and the university research community; and develop a more dynamic enforcement program to enhance compliance,
regulatory, and voluntary activities.

       EPA is proud of the advancements and the many accomplishments attained by its program offices during
FY 1998. Key accomplishments achieved during the year are highlighted below:

4      In October 1997, EPA provided eastern states with proposed targets for reducing the emissions that create
       smog problems throughout the eastern United States.  The new strategy was developed cooperatively with
       the members  of the Ozone Transport Assessment Group (OTAG),  37  states, and the District of
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        Columbia.  The final NOX SIP call was signed by the Administrator on September 24, 1998. It sets
        individual reduction targets for NOX reductions for 22 eastern states ranging from a few percent to about
        half compared with projected emission levels in the year 2007.

4       Over 2,700 participants in EPA's Energy Star Buildings and Green Lights Partnership have prevented
        the emission of 1.8 million  metric tons of carbon equivalent (mmtce) during the past year, which is
        equivalent to taking over 1.4 million cars off the road. In FY 1998, these program partners also saved
        over $580 million on their energy bills.

4       As part of EPA's contribution to the Partnership for a New Generation of Vehicles, EPA has
        demonstrated preliminary results of fuel economy better than 60  miles  per  gallon (MPG).  The
        inventiveness of the program has resulted in the awarding of nine patents to it, with several more pending.

+       EPA certified that the Department of Energy's (DOE) Waste Isolation Pilot Plant (WIPP) in Carlsbad,
        NM, is a safe disposal site  for defense-related nuclear waste and meets health-based environmental
        protection standards that will protect public health and the environment.

4       The President's Clean  Water Action Plan was announced on February 19, 1998.  The Plan calls for more
        than 100 specific key actions by EPA and by many other federal agencies with either water quality
        responsibilities or activities that impact water quality.  The Action Plan mobilizes federal, state, and local
        agencies to achieve the Nation's clean water goals through the watershed approach; brings a sharp focus
        to the critical actions that are required; and establishes deadlines for meeting these commitments over the
        next several years.

4       EPA published a draft Strategy for Addressing Environmental and Public Health Impacts from Animal
        Feeding Operations on March 19, 1998.  The draft strategy delineates EPA's short-term and long-term
        efforts to comprehensively address the environmental and public health problems associated with animal
        feeding operations. In  September 1998, EPA and the USDA published a draft Unified National Strategy
       for Animal Feeding Operations. The draft strategy is one of more than 100 actions President Clinton
        directed as part of the Clean Water Action Plan, and proposes a variety of voluntary and regulatory
        approaches for minimizing environmental threats posed by animal agriculture. EPA also participated in
        dialogues  with representatives of the  poultry and hog production industry, state agricultural and
        environmental agencies, local communities and USDA to find ways to improve environmental controls
        applicable to poultry and hog production in an effort to curb nutrient loadings.

4       The Agency promulgated the consumer confidence report regulations that require public water systems
        to issue an annual right-to-know report to all their customers (these reports must contain information on
        the source of public water systems' supply, the level of detected contaminants, data on the health effects
        of contaminants found  above the  drinking  water  standard,  as  well as information on unregulated
        contaminants in the water supply).

4       The Pesticides program registered 14 safer pesticides and biopesticides, as well as 13 conventional
        pesticides.  In addition, 258 tolerances and exemptions from tolerances were set, and 1,646 tolerances
        were re-evaluated under the new FQPA requirements.

4       The Endocrine Disrupter Screening and Testing Advisory committee completed its analysis and published
        a final report. The Agency is working to implement the recommendations and science guidelines as it
        develops the new endocrine disrupter program.

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The Toxics program issued a proposed rule establishing standards for identifying hazards from lead-based
paint, lead-contaminated dust, and lead-contaminated soil.  A final rule for PCB disposal provides
significant burden reduction for industry.

In December 1997, EPA released the Mercury Study Report to Congress, an eight-volume report
mandated by the Clean Air Act Amendments of 1990 to evaluate the magnitude of the mercury problem.
A multi-year effort, the Report provides an assessment of US mercury emissions by source, a full
scientific  assessment of how these emissions might affect human health and the environment, and the
availability  and cost of technologies to control mercury emissions.  The Report affirms EPA's 1995
guidance on safe levels of mercury.

In May 1998, EPA published the final Guidelines for Ecological Risk Assessment. The Guidelines were
developed over the past nine years to  increase consistency and improve the quality of ecological risk
assessments within EPA and ultimately will contribute to risk management decisions that better protect
the environment. In addition, EPA published the final Guidelines for Neurotoxicity Risk Assessment.
The guidelines are the Agency's  first statement on setting principles to guide EPA scientists in evaluating
environmental contaminants that may pose neurotoxic risks and are intended to develop a sound scientific
basis and promote consistency  in conducting neurotoxicity risk assessments. By improving the quality
and consistency of EPA risk assessments, EPA anticipates that the guidelines ultimately will contribute
to risk management decisions that better protect public health.

In April 1998, EPA published an  update to a national Inventory of Sources of Dioxin.  The inventory
provides  a  technically sound  and  reliable basis for determining trends  in dioxin releases to the
environment from man-made  sources over time.  The inventory  can be used  to observe actual
improvements in reducing dioxin releases from sources, provides a reliable basis for ranking sources
based on annual dioxin releases into the environment, and identifies sources that may need to be tested
for emissions or require regulatory action.

In July  1998, the Office of Research  and Development developed a computer software tool entitled
Program for Assisting the Replacement of Industrial Solvents (PARIS) to further the goal of pollution
prevention by providing direct assistance to designers, producers, and end-users  of solvents.  This
software will allow these individuals to evaluate both the effectiveness and the environmental impacts of
various solvent substitutes, and will provide a tool to develop custom solvents that meet specific industrial
needs.

EPA and the Department of Justice  settled with seven heavy duty engine diesel manufacturers in what is
the largest Clean Air Act enforcement action in history. The manufacturers were charged with violating
the Clean Air Act by installing devices that defeat emission controls in an estimated 1.3 million engines.
In addition, the manufacturers, which comprise 95 percent of the U.S.  heavy duty diesel engine market,
will spend more than one billion dollars and will pay an $83.4 million civil penalty to settle charges that
they illegally poured millions of tons of pollution into the air.

The Enforcement program completed the pilot phase of the Sector Facility Indexing Project (SFIP).  The
SFIP is a pilot project that makes it easier for the public to  access a wide range  of environmental
information about regulated facilities. In the past, these records, although public, were very difficult for
government and public users to access because they were spread across  many different databases. Under
SFIP, the Agency has integrated this information so that it can be viewed in one place, and can be used

                        EPA's FY 1998 Annual Financial Statements                          Page 83

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        to better understand overall facility environmental records. SFIP, in its current pilot stage, will allow EPA
        to gauge the level of public interest in examining records regarding government oversight of regulated
        facilities, facility compliance with environmental laws, and the overall pollutant releases that are reported.
        SFIP currently contains records for five industry sectors that consist of a total of 653 facilities.  The
        Agency publicly released the SFIP data on May 1,1998, via the Internet. In addition to releasing the data
        electronically, EPA has also made available in September, 1998, a hard copy report of SFIP for those who
        do not have ready access to the Internet. In FY 1999, the Agency will evaluate the SFIP to determine
        future directions of the project.

4       The  Superfund Enforcement Program seeks to maximize Potentially Responsible  Party  (PRP)
        participation in conducting and/or funding response actions while working to assure fair treatment of all
        PRPs. Potentially Responsible Parties are financing approximately 72% of new remedial actions at
        National Priority List (NPL) sites, thereby, conserving Trust Fund resources for sites at which there are
        no liable, viable responsible parties.  Since the inception of the Superfund Program, PRPs have committed
        to conduct site response at 856 of the 1,265 non-Federal facility sites on the NPL, with an estimated
        cumulative value of $11.6 billion of which approximately $694 million of this amount was achieved in
        FY 1998. EPA has achieved cost recovery settlements of approximately $2.4 billion with $230 million
        of this amount achieved in FY 1998.  Over the life of the Superfund program, the Agency has reached
        settlements with an estimated value of approximately $15.5 billion ($13.1 billion in response settlements
        and $2.4 billion in cost recovery) for NPL and non-NPL sites.  EPA's enforcement obligations over this
        period were approximately $2.3 billion.  The resulting ratio of approximately 7 to 1 indicates that PRPs
        have committed $7 for every dollar obligated for Superfund enforcement.

4       EPA's Resource Conservation and Recovery Act Corrective Action Program supports the Agency's waste
        management goal by cleaning up releases of waste from active hazardous waste facilities, reducing current
        exposure risks  to people and to the environment.  In FY 1998, stabilizations to prevent further
        contamination were implemented at 704 sites or units; human exposures were controlled at 290 sites or
        units; and groundwater releases were  controlled at 234 sites or units.

4       The Superfund Program continues to emphasize cleanup as a means of protecting local populations and
        sensitive environments from the effects of uncontrolled releases. FY 1998 accomplishments include:
        achieving 87 construction completions for a cumulative total of 585; conducting 286 removal response
        actions; and making 471 site assessment decisions.

4       Through  its  Brownfields Program, EPA  promotes cleanup and redevelopment of abandoned and
        contaminated industrial  and commercial properties (i.e., "brownfields").  As part of the Brownfields
        Program, EPA uses Federal grants and loans to leverage other Federal funds and private investment to
        clean up and redevelop brownfields. In FY 1998, EPA increased the number of site assessment pilots to
        a total of 227.

4       In FY 1998, EPA's Oil Program continued to focus its prevention efforts on periodic reviews of Facility
        Response Plans (FRPs), and continued to  implement Spill Prevention Control and Countermeasures
        (SPCC) regulations. In FY 1998, EPA reviewed about 750 FRPs, inspected about 1,060 SPCC-regulated
        facilities, and brought over 300 facilities into SPCC compliance.

4       Progress in the LUST Program is measured by comparing the number of cleanups initiated and cleanups
        completed to the number of confirmed releases. Cumulatively, through FY 1998, there were 371,387
        confirmed releases; 314,965 cleanups initiated; and 203,247 cleanups completed. For FY  1998, EPA's

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       performance goals were to initiate 24,000 cleanups and complete 20,000 cleanups. During FY 1998,
       29,614 LUST releases were confirmed; 22,519 cleanups were initiated;  and 24,950 cleanups were
       completed.

SUMMARY OF A UDITORS REPORT AND OPINIONS

       The Agency prepared the following FY 1998 Financial Statements: Statement of Financial Position,
Statement of Changes in Net Position, Statement of Net Cost, Statement of Budgetary Resources, Statement of
Financing, and the Statement of Custodial Activity.  The OIG found that the Agency's FY 1998 financial
statements were fairly presented, i.e., all of these statements received an unqualified opinion.  Further, the OIG
reported that they did not identify any material discrepancies between the Overview and the financial statements.

REPORT ON INTERNAL CONTROLS

        The OIG identified as a material weakness the Agency's submission of the FY 1998 financial statements
after OMB's March 1, 1999, deadline for submitting these statements. The OIG attributed the delay to the Office
of the Chief Financial Officer's (OCFO) difficulties in obtaining information from other Agency and external
offices and problems in implementing the new financial standards and OMB reporting requirements.

       We disagree with the position that the delayed submission for the financial statements was a material
weakness. Management's goal is to prepare reliable, timely financial statements.  When problems arose during
the audit, the OCFO in collaboration with the OIG, OMB, and GAO decided that it was better to submit financial
statements with unqualified audit opinions after March 1, 1999, rather than to submit unreliable statements on
time.   We are pleased to report that we successfully achieved our reliability objective as evidenced by the
unqualified audit opinions issued on the FY 1998 Financial Statements.

       The primary focus of both audit findings was on making improvements to accomplish our timeliness
objective and we agree with the OIG's recommendations in this regard. As issues were identified in preparing the
FY 1998 financial statements, OCFO and OIG staff worked closely together to resolve the issues as promptly as
possible.  However, there were issues with obtaining information from external sources and with preparing one
statement, the Statement of Budgetary Resources, before March 1, 1999. We have taken steps to address these
specific issues in the future.  Moreover, we have developed a comprehensive strategy for the FY1999 financial
statements, which will facilitate our meeting the  March 1, 2000, deadline. We plan to update our policies and
procedures on preparing financial statements and we are strengthening our coordination and quality control process
to ensure that we meet the Reform Act's deadline for submitting financial statements to OMB.

COMPLIANCE WITH LAWS AND REGULATIONS

Compliance with the Federal Financial Management Improvement Act (FFMIA)

       The OIG states in the report that EPA does not substantially comply with the FFMIA.  The OIG did not
report substantial noncompliances with applicable accounting standards or with the Standard General Ledger at
the  transaction level.  However, the OIG states that the financial management systems under development or
operational had no approved security plans for seven financial or mixed financial systems, and the approved
security plans for the remaining eight systems did not comply with the requirements of OMB Circular A-130,
Management of Federal Information Resources.  In June 1999, the Center for Applied Financial Management,
                              EPA's FY 1998 Annual Financial Statements                         Page 85

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U.S. Department of Treasury reviewed nine of EPA's financial systems for compliance with OMB Circular A-
130, Management of Federal Information Resources and the results of the review indicated that the systems
reviewed were in compliance with OMB Circular A-130's requirements in all material respects.

        The OIG also found EPA not in substantial compliance with the FFMIA requirements because of
weaknesses in the Agency's financial statements process. For the reasons discussed earlier, we disagree with this
finding.  Although the Agency was delayed in submitting those reports to OMB, we do not believe that delay
constitutes a substantial noncompliance.

Other Noncompliance Issues

        The OIG did not find any instances of noncompliance with applicable laws and regulations that would
result in material misstatements to the audited financial statements. However, the OIG did report two issues under
the category of compliance with laws and regulations  that, while not material,  they still considered to be
significant.

        The first concerned Agency practices for recording disbursements against grants funded with more than
one appropriation. In these instances EPA obligates grant funds from different source appropriations in proportion
to the benefit accruing to each appropriation.  However, the Agency may record disbursements against these
obligations on a "first in, first out" basis pending final accounting to the source appropriations. We disagree with
the OIG that this is a significant issue.  The affected grants may be less than 1% of all grants and the Grants
Administration  Division has taken steps to discourage multiple appropriation funded grants in the future.  In
addition, EPA has issued new accounting policy to meet Government Performance and Results Act requirements,
and that policy will address the OIG's concerns for virtually all newly awarded grants.

        The second noncompliance concerned the Agency not meeting the Government Management and Reform
Act's deadline for submission of its financial statements to OMB.  We agree that the report was late, but as noted
earlier, we have developed a plan to meet the deadline for the FY  1999 statements.

IMPEDIMENTS TO CORRECTING PROBLEMS

        We experienced delays in obtaining information from external sources, specifically for the grant accruals
and deferred maintenance.  These delays occurred as we collected needed information from various entities inside
and outside of the Agency. Our current process is cumbersome and imposes a reporting burden that we would like
to avoid in the future. OCFO will meet with the OIG to develop a more efficient methodology for FY  1999.

        OMB had two new significant reporting requirements this year for agencies  to submit: the Statement of
Budgetary Resources and the Statement of Financing. We are implementing a new automated reporting procedure
to reflect budget execution using the Standard General Ledger which will expedite the preparation of the Statement
of Budgetary Resources.

PROGRESS IN CORRECTING PREVIOUSLY IDENTIFIED PROBLEMS

        One of the substantial noncompliance issues from last year's audit concerned the Financial Management
Division's conformance to existing EPA System Life Cycle Management policy on decision papers for Y2K
modifications. We worked with OIG staff to resolve the substantial noncompliance issue within OMB's guidance.
EPA successfully implemented IFMS and EPAYS/TAPP Y2K System requirements.
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        We also made other major improvements in systems this year. We issued Internal Operating Procedures
for managing the IFMS, MARS and CPARS systems.  The purpose of these procedures is to  define the
responsibilities for the management of the operations, maintenance and modification of the Agency's core financial
systems. We also prepared and developed security plans for the IFMS, MARS, and CPARS systems. These plans
substantially comply with applicable requirements.

        In the past the OIG identified a problem with reports on the status of Superfund Receivables.  We
enhanced the reporting system to include the capability of aging accounts receivables based on the collection due
date and have increased our efforts to collect delinquent receivables.

        We appreciate the OIG's assistance during the preparation of the financial statements to resolve the issues
raised during the FY 1998 audit and to improve the presentation of the financial statements. We look forward to
continued cooperation with the OIG as we meet the  challenges of the FY 1999 Financial Statement requirements.
                              EPA's FY 1998 Annual Financial Statements                          Page 87

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     PRINCIPAL
     FINANCIAL
   STATEMENTS
EPA's FY 1998 Annual Financial Statements
                                  Page 89

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                                  CONTENTS
Financial Statements

       Consolidating Statement of Financial Position
       Consolidating Statement of Net Cost
       Consolidating Statement of Changes in Net Position
       Combined Statement of Budgetary Resources
       Combined Statement of Financing
       Statement of Custodial Activity

Notes to Financial Statements

       Note 1.       Summary of Significant Accounting Policies
       Note 2.      Fund Balances with Treasury
       Note 3.      Cash, Foreign Currency and Other Monetary Assets
       Note 4.      Investments
       Note 5.      Accounts Receivable
       Note 6.      Loans Receivable, Net - Non-Federal
       Note 7.      Inventory and Related Property
       Note 8.      Property, Plant and Equipment - Net
       Note 9.      Debt
       Note 10.     Other Liabilities
       Note 11.     Leases
       Note 12.     Federal Employee and Veterans' Benefits
       Note 13.     Unexpended Appropriations
       Note 14.     Amounts Held by Treasury
       Note 15.     Contingencies
       Note 16.     Grant Accrual
       Note 17.     Environmental Cleanup Costs
       Note 18.      Superfund State Credits
       Note 19.      Superfund Preauthoriized Mixed Funding Agreements
       Note 20.     Deferred Maintenance
       Note 21.     Income and Expenses from Other Appropriations
       Note 22.     Working Capital Fund Rebate
       Note 23.     Custodial Non-Exchange Revenues
       Note 24.      Statement of Budgetary Resources
       Note 25.     Adjustments
       Note 26.     Unobligated Balances Available
       Note 27.     Obligated Balance, Net - End of Period
       Note 28.     Difference in Outlays between Statement of Budgetary Resources and SF-133
       Note 29.      Statement of Financing

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       Note 30.      Other Financing Sources

Supplemental Information Requested by OMB

       Supplemental Statement of Budgetary Resources (Unaudited)
       Working Capital Fund Supplemental Statement of Financial Position (Unaudited)
       Working Capital Fund Supplemental Statement of Operations and Changes in Net Position
         (Unaudited)
       Annual Stewardship Information
Page 92                      EPA's F Y 1998 Annual Financial Statements

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EPA Hazardous Substance Superfund Trust Fund and All Other Funds
            Consolidating Statement of Financial Position
                     As of September 30,1998
                      (Dollars in Thousands)

ASSETS
Entity Assets:
Intragovernmental Assets:
Fund Balance with Treasury (Note 2 and Note 3)
Investments (Note 4)
Accounts Receivable, Net (Note 5)
Advances and Prepayments
Total Intragovernmental Assets
Accounts Receivable, Net (Note 5)
Advances and Prepayments
Loans Receivables and Related Foreclosed Property, Net (Note 6)
Cash and Other Monetary Assets (Note 3)
Inventory and Related Property, Net (Note 7)
Marketable Securities Equity (Note 4)
General Property, Plant and Equipment, Net (Note 8)
Total Entity Assets
Total Assets
LIABILITIES
Liabilities Covered by Budgetary Resources:
Intragovernmental Liabilities:
Accounts Payable
Debt (Note 9)
Other (Note 10)
Total Intragovernmental Liabilities
Accounts Payable
Other (Note 10)
Total Liabilities Covered by Budgetary Resources
Liabilities not Covered by Budgetary Resources:
Lease Liabilities (Note 11)
Federal Employee and Veterans' Benefits (Note 12)
Other (Note 10)
Total Liabilities not Covered by Budgetary Resources
Total Liabilities
NET POSITION
Unexpended Appropriations (Note 13)
Cumulative Results of Operations
Total Net Position
Total Liabilities and Net Position
NOTE: The accompanying notes
Superfund
Trust Fund



$ 43,693
5,074,520
53,406
2.448
5.174.067
592,065
—
—
—
—
5,146
6.560
5.777.838
$5.777.838



$ 159,299
—
3.606
162.905
134,252
394.516
691.673

—
5,279
16.618
21.897
713.570

2,805,960
2.258.308
5.064.268
$5.777.838
are an integral
All
Others



$10,227,484
1,191,538
71,880
72.353
11.563.255
99,160
2,088
111,821
4,964
74
—
266.511
12.047.873
$12.047.873



$ 39,569
37,922
8.335
85.826
424,815
198.449
709.090

38,653
21,497
93.539
153.689
862.779

9,827,800
1.357.294
11.185.094
$12.047.873
Combined Intra-agency
Totals Eliminations



$10,271,177 $
6,266,058
125,286
74.801 r2.1811
16.737.322 r2.18n
691,225
2,088
111,821
4,964
74
5,146
273.071
17.825.711 r2.1811
$17.825.711 r$2.181t



$ 198,868 $
37,922
n.941 r2.i8n
248.731 r2.1811
559,067
592.965
1.400.763 r2.18n

38,653
26,776
110.157
175.586 0
1.576.349 r2.18n

12,633,760
3.615.602
16.249.362 0
$17.825.711 r$2.181t
Consolidated
Totals



$10,271,177
6,266,058
125,286
72.620
16.735.141
691,225
2,088
111,821
4,964
74
5,146
273.071
17.823.530
$17.823.530



$ 198,868
37,922
9.760
246.550
559,067
592.965
1.398.582

38,653
26,776
110.157
175.586
1.574.168

12,633,760
3.615.602
16.249.362
$17.823.530
part of these statements.
                EPA's FY 1998 Annual Financial Statements
                                                                     Page 93

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            EPA Hazardous Substance Superfund Trust Fund and All Other Funds
                               Consolidating Statement of Net Cost
                                      As of September 30,1998
                                        (Dollars in Thousands)
                                                 Superfund       All      Combined   Intra-agency  Consolidated
                                                 Trust Fund     Others      Totals     Eliminations      Totals
COSTS:
   Intragovernmental
   With the Public
   Expenses from Other Appropriations (Note 21)
   Expenses of the Trust Fund Incurred by Treasury (Note 14)

  Total
$ 429,357
1,071,029
5,542
35
$ 346,182
5,249,111
(5,542)
(125)
$ 775,539
6,320,140
0
(90)
$ ... $ 775,539
(265,699) 6,054,441
0
(90)
                                                   1.505.963
                                                              5.589.626
                                                                          7.095.589
                                                                                                  6.829.890
   Less:
   Income from Other Appropriations (Note 21)
   Earned Revenues

  Total

   Net Program Costs
5,542
538.903
544.445
961.518
(5,542)
157.054
151.512
5.438.114
0
695.957
695.957
6.399.632
      0
 680.258

 680.258

6.149.632
DEFERRED MAINTENANCE (Note 20)
NET COST OF OPERATIONS
                      NOTE: The accompanying notes are an integral part of these statements.
Page 94
                                EPA's FY 1998 Annual Financial Statements

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EPA Hazardous Substance Superfund Trust Fund and All Other Funds
Consolidating Statement of Changes inNet Position
As of September 30, 1998
(Dollars in Thousands)
Superfund All Combined Intra-agency Consolidated
Trust Fund Others Totals Eliminations Totals
Net Cost of Operations
Financing Sources (Other Than Exchange Revenues):
Appropriations Used
Taxes (and Other Non-Exchange Revenues)
Trust Fund Revenue Collected by Treasury (Note 14)
Turst Fund Income Earned by Treasury (Note 14)
Trust Fund Appropriation Received (Note 14)
Donations (Non-Exchange Revenue)
Imputed Financing
Transfers-In
Other Interest
Other Financing Sources (Note 30)
Net Results of Operations
Prior Period Adjustments
Net Changes in Cumulative Results of Operations
Increase (Decrease) in Unexpended Appropriations
Change in Net Position
Net Position - Beginning of Period
Net Position - End of Period
$ 961.518 $ 5.438.114 $ 6.399.632

1,407,531 5,381,299 6,788,830
81,658 88,515 170,173
5,044 136,213 141,257
291,816 60,935 352,751
250,000 — 250,000
44 44
30,155 161,853 192,008
32 32
1,473 — 1,473
n.623.3931 ri09.50n n.732.8941
(517,234) 281,276 (235,958)
257 28.645 28.902
(516,977) 309,921 (207,056)
r68.2851 752.735 684.450
(585,262) 1,062,656 477,394
5.649.530 10.122.438 15.771.968
$ 5.064.268 $11.185.094 $16.249.362
r$250.0001 $ 6.149.632

6,788,830
170,173
141,257
352,751
(250,000) 0
44
192,008
32
1,473
n.732.8941
0 (235,958)
28.902
0 (207,056)
684.450
0 477,394
15.771.968
$ 	 Q $16.249.362
NOTE: The accompanying notes are an integral part of these statements.
           EPA's FY 1998 Annual Financial Statements
                                                                              Page 95

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           EPA Hazardous Substance Superfund Trust Fund and All Other Funds
                         Combined Statement of Budgetary Resources
                                    As of September 30,1998
                                     (Dollars in Thousands)
                                                       Superfund
                                                       Trust Fund
                  All
                Others
             Combined
               Totals
Budgetary Resources:
Budget Authority
Unobligated Balances - Beginning of Period
Spending Authority from Offsetting Collections
Adjustments (Note 25)
Total Budgetary Resources
$1,421,999
   805,627
  (30,225)
     G751
$6,142,594
 1,948,038
   283,984
  (64.1401
$ 7,564,593
  2,753,665
    253,759
   C64.5151
$10.507.502
Status of Budgetary Resources:
Obligations Incurred
Unobligated Balances - Available (Note 26)
Total, Status of Budgetary Resources
$1,495,558        $6,592,535      $ 8,088,093
   701.468         1.717.941        2.419.409
                                $10.507.502
Outlays:
Obligations Incurred
Less: Spending Authority from Offsetting Collections
    and Adjustments

Obligated Balance, Net - Beginning of Period
Less: Obligated Balance, Net - End of Period (Note 27)
Total Outlays (Note 28)
$1,495,558

   104,403

 2,536,709
 2.550.841
$6,592,535
   257,694
$ 8,088,093
    362,097
 7,950,031        10,486,740
 8.750.289        11.301.130
NOTE:  See Note 24 for reconciliation of the Statement of Budgetary Resources to the Budget of the United States.
                 NOTE: The accompanying notes are an integral part of these statements.
Page 96
                               EPA's FY 1998 Annual Financial Statements

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           EPA Hazardous Substance Superfund Trust Fund and All Other Funds
                                Combined Statement of Financing
                                    As of September 30,1998
                                      (Dollars in Thousands)
                                                   Superfund
                                                   Trust Fund
                  All
                Others
               Combined
                 Totals
Obligations and Nonbudgetary Resources

Obligations Incurred
Less: Spending Authority for Offsetting
  Collections and Adjustments
Financing Imputed for Cost Subsidies
Transfers-In (Out) and Donations
Exchange Revenue Not in the Budget

  Total Obligations as Adjusted and
    Nonbudgetary Resources
$1,495,558

 (104,403)
    30,155

 (434.5001

$  986.810
   6,592,535
$  6.583.516
$  8,088,093
   (257,694)        (362,097)
    161,853          192,008
         76               76
     86.746        (347.7541
$  7.570.326
Resources that Do Not Fund Net Cost of Operations

Decrease (Increase) in Amount of Goods, Services, and
  Benefits Ordered but Not Yet Received or Provided
Costs Capitalized on the Balance Sheet
Loans Receivable
Inventory
Liabilities (If Net Decrease) (Note 29)
Financing Sources that Fund Costs of Prior Periods

  Total Resources that Do Not Fund Net
    Cost of Operations
($ 24,870)
(2,479)
—
...
—
(3.5171
($ 729,505)
(92,995)
12,737
117
(23,853)
(326.3121
($ 754,375)
(95,474)
12,737
117
(23,853)
(329.8291
($ 30.8661
($1.159.8111
($1.190.6771
Costs that Do Not Require Resources

Depreciation and Amortization
Bad Debt Expense (Note 5)
Other Gains and Losses
Loss on Disposition of Assets
Other

  Total Costs that Do Not Require Resources
     2,403
      324
     (9991
     1.728
     21,170
     11,729
         (1)
        392
    (18.8811

     14.409
     23,573
     12,053
         (1)
        392
    (19.8801

     16.137
Financing Sources Yet To Be Provided (Note 29)
     3.846
                       3.846
Net Cost Of Operations
                  5.438.114
                 $  6.399.632
                 NOTE: The accompanying notes are an integral part of these statements.
                               EPA's FY 1998 Annual Financial Statements
                                                                                              Page 97

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          EPA Hazardous Substance Superfund Trust Fund and All Other Funds
                             Statement of Custodial Activity
                               As of September 30,1998
                                 (Dollars in Thousands)
                                                          All Others
Agencv-Wide
Sources of Collections:
Cash Collections (by Type of Tax or Duty)
Interest and Penalties, Net
Other Custodial Revenue
Net Collections
Accural Adjustments
Total Revenue
Disposition of Collections:
Transferred to Others Net of Refunds (by Recipient)
Increase (Decrease) in Amounts To Be Transferred
Retained by the Entity
Total Disposition of Revenue
Net Custodial Activity


($77,184)
74.752
(2,432)
1.063
(1.3691

(12,481)
(92,258)
103.370
(1.3691
$ 0


($77,184)
74.752
(2,432)
1.063
(1.3691

(12,481)
(92,258)
103.370
(1.3691
$ 0
               NOTE: The accompanying notes are an integral part of these statements.
Page 98
                           EPA's FY 1998 Annual Financial Statements

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      EPA Hazardous Substance Superfund Trust Fund 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 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 97-01, 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 pollution control efforts.  The Agency is generally
organized around the media and substances it  regulates — air, water, land, hazardous waste, pesticides and toxic substances.
For F Y 1998 the reporting entities are grouped as Hazardous Substance Superfund  and All Other Funds.

                                    Hazardous Substance Superfund

    In 1980, the Hazardous Substance 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 industry. The Agency allocates funds
from its  appropriation to other Federal  agencies to carry out the Act. Risks to  public 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 process, cleanup activities may 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 1998, construction of cleanup remedies were  completed at a total of 585
NPL sites (includes Federal and non-Federal sites). Superfund includes the Treasury collections and investment activity. The
Superfund Trust Fund is accounted for under Treasury symbol number 8145.

                                            All Other Funds

    All Other Funds include Trust Fund appropriations, General Fund appropriations, Revolving Funds, Special Funds, the
Agency Budgetary Clearing accounts, Deposit Funds, General Fund Receipt accounts, the Environmental Services Special
Fund Receipt Account, the Miscellaneous Contributed Funds Trust Fund, and General Fund appropriations transferred from
other Federal agencies as authorized by the Economy Act of 1932. Trust Fund appropriations are to the Leaking Underground
Storage Tank (LUST) Trust Fund and the Oil Spill Response Trust Fund. General Fund appropriations are to State and Tribal
Assistance Grants (STAG), Science and Technology (S&T), Environmental Programs and Management (EPM), Office of
Inspector General (IG), Buildings and Facilities (B&F), and Payment to the Hazardous Substance Superfund.  General Fund

                                 EPA's F Y 1998 Annual Financial Statements                           Page 99

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appropriations that no longer receive current appropriations but have unexpended authority are the Asbestos Loan Program,
Program and Research Operations (PRO), and Energy, Research and Development. Revolving Funds include the FIFRA
Revolving Fund and Tolerance Revolving Fund which receive no direct appropriations; however, they do collect fees from
public industry as a source of reimbursement for the services provided.   In addition to FIFRA and Tolerance, a Working
Capital Fund (WCF) was established and designated as a franchise fund to provide computer operations support and postage
service  for the Agency. A Special Fund was established to collect the  Exxon Valdez settlement as a result of the Exxon
Valdez oil spill. All Other Funds are as follows:

    The LUST 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 program is financed by  a 0.1 cent a gallon tax on
motor fuels which will expire in 2005, and is accounted for under Treasury  symbol number 8153.

    The Oil Spill Response Trust Fund was authorized by the Oil Pollution Act (OPA) of 1990. The Oil Spill Response
Trust Fund was established in F Y 1993 and monies were appropriated to the Oil Spill Response Trust Fund. The Agency
is responsible for directing, monitoring and providing technical assistance  for major inland oil  spill response activities.  This
involves setting oil prevention and response standards, initiating enforcement actions for compliance with OPA and Spill
Prevention Control and Countermeasure requirements, and directing response actions when appropriate. The Agency carries
out research  to improve response actions to  oil spills including research  on the use of remediation techniques such as
dispersants and bioremediation. Funding of oil spill cleanup actions is provided through the Department of Transportation
under the Oil Spill Liability Trust Fund and reimbursable funding from other Federal agencies.  The Oil Spill Response Trust
Fund is accounted for under Treasury symbol number 8221.

    The State and Tribal Assistance Grants (STAG) appropriation provides funds for environmental programs and
infrastructure assistance including capitalization grants for State revolving funds and performance partnership grants.
Environmental programs and infrastructure supported are Clean and Safe Water; Capitalization  grants for the Drinking Water
State Revolving Funds; Clean Air; Direct grants for Water and Wastewater Infrastructure needs, Partnership grants to meet
Health Standards, Protect Watersheds, Decrease Wetland Loss, and Address Agricultural and Urban Runoff and Storm Water;
Better Waste Management; Preventing Pollution and Reducing Risk in Communities, Homes, Workplaces and Ecosystems;
and Reduction of Global and Cross Border Environmental Risks. STAG is  accounted for under Treasury symbol 0103.

    The Science and Technology (S&T) appropriation finances salaries; travel; science;  technology;  research and
development  activities  including laboratory  and center supplies;  certain operating  expenses; grants;  contracts;
intergovernmental agreements; and purchases of scientific equipment.  These activities provide the scientific basis for the
Agency's regulatory  actions. In FY  1998 Superfund research costs were appropriated in Superfund and transferred to S&T
to allow for proper accounting of the costs.  Scientific and technological activities for environmental  issues include  Clean Air;
Clean and Safe Water; Americans Right to Know About Their Environment; Better Waste Management; Preventing Pollution
and Reducing Risk in Communities,  Homes, Workplaces, and Ecosystems; and Safe Food.  The Science  and Technology
appropriation is accounted for under Treasury symbol 0107.

    The Environmental Programs and Management (EPM) includes funds for salaries, travel, contracts, grants , and
cooperative agreements for pollution abatement, control, and compliance activities and administrative  activities of the
operating programs.  Areas supported from this appropriation include Clean Air; Clean and Safe Water; Preventing Pollution
and Reducing Risk in Communities, Homes, Workplaces, and Ecosystems; Better Waste Management, Restoration of
Contaminated Waste Sites, and Emergency Response; Reduction  of  Global  and Cross Border  Environmental Risks;
Americans' Right to Know About Their Environment; Sound Science, Improved Understanding of Environmental Risk, and
Greater Innovation to Address Environmental Problems; a Credible Deterrent to Pollution and Greater Compliance with the
Law; and Effective Management.  The Environmental Programs and Management appropriation is accounted for under
Treasury symbol 0108.
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    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 includes expenses incurred and reimbursed from the appropriated trust funds being
accounted for under Treasury symbols 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 and
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 Treasury 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 have not been appropriated for this Program since FY1993.  ForFY1993
and F Y1992, the program was 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 disbursed the subsidy to
the Financing fund as loans were made, and disbursed administrative expenses to the providers. The Financing fund received
the subsidy  payment, borrowed from Treasury and disbursed loans and collects the  asbestos loans.  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 F Y 1991 loans, and under Treasury symbol 2917
for pre FY 1992 loans receivable and loan collections.

    The Program and Research Operations appropriation provides 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 FY 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 by the Federal Insecticide, Fungicide and Rodenticide Act Amendments of
1988, as amended by  the Food  Quality Protection Act of  1996.  Fees are paid by industry to offset costs of accelerated
reregistration, expedited processing of pesticides, and establishing tolerances for pesticide chemicals in or on food and animal
feed. 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. Fees are paid by industry for
Federal services of pesticide chemicals in or on food and animal feed. Effective January 2, 1997, fees collected are now being
deposited in the Reregistration and Expedited Processing Revolving Fund (4310).  The fees collected prior to this date are
accounted for under Treasury symbol number 4311.

    The Working Capital Fund (WCF) includes two activities: computer support services and postage. WCF derives
revenue from these activities based upon fee for services.  WCF's customers currently consist solely of Agency program
offices. Accordingly, revenue generated by WCF  and expenses recorded by the program offices for use of such services, along
with the related advances/liabilities, are eliminated on consolidation. The WCF is accounted for under Treasury symbol 4565.

    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.
                                  EPA's FY 1998 Annual Financial Statements                           Page 101

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    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 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 may charge
some administrative costs directly to the fund and charge the remainder of the administrative costs to the All Other Funds in
the Agency-wide appropriations. The administrative costs funded by Agency-wide appropriations for Superfund for F Y 1998
was $5.5 million.   These amounts  are included in the Income from Other Appropriations and Expenses from Other
Appropriations on the Statement of Net Cost.

    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 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 $47.5 million
for FY 1998.

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.

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                                              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 STAG, Buildings and Facilities, and for
Payments to the Hazardous Substance Superfund to be available until expended; adopts annual appropriation for S&T, EPM
and for the Office of the Inspector General to be available for two fiscal years. 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 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 F Y 1998; therefore, there
was no new financing available to the Asbestos Loan Program for FY 1998.

    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.

    Funding of the WCF is provided by fees collected from other Agency appropriations collected to offset costs incurred
for providing the Agency administrative support for computer support and postage.

    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

                                      Superfund and All Other Funds

    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.
                                  EPA's FY 1998 Annual Financial Statements                           Page 103

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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 other Federal agencies, from States for State Cost Share, and from potentially
responsible parties (PRPs) for future costs.  Revenues collected through cost recovery are deposited with the Trust fund at
Treasury.

                                             All Other Funds

    The majority of All Other Funds receive funding needed to support programs through appropriations, which may be used,
within statutory limits, for operating and capital expenditures. Under Credit Reform provisions, the Asbestos Loan Program
received funding through appropriations to support the subsidy cost of loans which may be used within 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, which is now
deposited with the FIFRA Revolving Fund, through fees collected for services provided. The FIFRA Revolving Fund also
receives interest  on invested funds.  The WCF receives revenue through fees collected for services provided to Agency
program offices.  Such revenue is eliminated with related Agency program expenses on Consolidation. The Exxon Valdez
Settlement Fund received funding through reimbursements.

    Appropriations are recognized as Other Financing Sources when earned, i.e., when goods and services have been
rendered without regard to payment of cash.  Other revenues are recognized when earned, i.e., when services have been
rendered.

F. Funds with the Treasury

                                     Superfund and All Other Funds

    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

                                             All Other Funds

    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.

H.  Marketable Equity  Securities

                                                Superfund

    During FY 1993 andFY 1996, the Agency received marketable equity securities, valued at a total $5.1 million, which
are still held, from a company in settlement of Superfund cost recovery actions.  The Agency records marketable securities

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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.

I. Accounts Receivable and Interest Receivable

                                                 Superfund

    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 expensed 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 site 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.

                                              All Other Funds

    The majority of receivables for All Other Funds represent interest receivable for Asbestos and FIFRA and both accounts
receivable and interest receivable to the General Fund of the Treasury.

    A summary of accounts receivable as of September 30, 1998 is contained in Note 5.

J. Loans Receivable

                                              All Other Funds

    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 6. Loans receivable resulting from obligations on or before September 30,
1991 are reduced by the allowance for 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

                                      Superfund and All Other Funds

    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 1998 approximately  $2.9 billion remained

                                 EPA's FY 1998 Annual Financial Statements                            Page 105

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in the Treasury managed Superfund Trust Fund and approximately $73.2 million remained in the LUST Trust Fund to meet
the Agency's disbursement needs.

L. Advances and Prepayments

                                      Superfund and All Other Funds

    Advances and prepayments represent funds advanced or prepaid to other entities both internal and external to the Agency
for which a budgetary expenditure has not yet occurred.

M. Property, Plant, and Equipment

                                      Superfund and All Other Funds

    The Fixed Assets Subsystem (FAS) implemented in FY 1997 maintains EPA-held personal and real property records.
The FAS automatically generates depreciation entries monthly based upon the acquisition date. 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.  Prior to implementing FAS, depreciation was taken on a modified straight-line basis over a
period of six years depreciating 10% the first and sixth year, and 20% in years two through five. All EPA-held personal
equipment purchased before the implementation of FAS was assumed to have an estimated useful life of five years. New
acquisitions of EPA-held personal  equipment are depreciated using the straight-line method over the specific assets' useful
lives, ranging from two to 15 years.

    Real property consists of land, buildings, and capital and leasehold improvements.  Real property, other than land,  is
capitalized  when the value is $75 thousand or more.  Land is capitalized regardless of cost.  Buildings are valued at an
estimated original cost basis, and land is valued at fair market value.  Depreciation for real property is calculated using the
straight-line method over the specific assets' useful lives, ranging from 10 to 102 years. Leasehold improvements are
amortized over the lesser of their useful lives or the unexpired lease terms.  In addition to property and improvements not
meeting the capitalization criteria, expenditures for minor alterations, and repairs and maintenance are expensed as incurred.

N. Liabilities

                                      Superfund and All Other Funds

    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 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

                                              All Other Funds

    Borrowing payable to Treasury results 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.
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P. Interest Payable to Treasury

                                             All Other Funds

    The Asbestos Loan Program makes periodic interest payments to Treasury based on its debt to Treasury. At the end of
FY 1998, there was no outstanding interest payable to Treasury since payment was made through September 30.

Q. Annual, Sick and Other Leave

                                     Superfund and All Other Funds

    Annual, sick and other leave is expensed as taken during the fiscal year.  Sick and other leave earned but not taken is not
accrued as a liability. Annual leave earned but not taken as of the end of the fiscal year is accrued as an unfunded liability.
Accrued unfunded annual leave is included in the Statement of Financial Position as a component of "Liabilities not Covered
by Budgetary Resources: Other Governmental Liabilities".  As of September 30,1998 the unfunded annual leave liability for
the Superfund Trust Fund was $16.6 million and for All Other Funds was $78.8. The difference in the year-end accruals for
unfunded annual leave is reported as "Unfunded Expense" in the Statement of Net Cost.

R. Retirement Plan

                                     Superfund and All Other Funds

    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.

    With the issuance of "Accounting for Liabilities of the Federal Government" (SFFAS-5), which was effective for the F Y
1997 financial statements, accounting and reporting standards were established for liabilities relating to the Federal employee
benefit programs (Retirement, Health Benefits and Life Insurance). SFFAS-5 requires that employing agencies recognize
the cost of pensions and other retirement benefits during their employees' active years of service.  SFFAS-5 requires that
the Office of Personnel Management, as administrator of the Civil Service Retirement and Federal Employees Retirement
Systems, the Federal Employees Health Benefits Program, and the Federal Employees Group Life Insurance Program, provide
EPA with the 'Cost Factors' to compute EPA's liability for each program.

Note 2. Fund Balances with Treasury:

    The Treasury  maintains EPA's fund accounts and processes all of EPA's receipts and disbursements.

                                                Entity Assets      Non-Entity Assets                 Total

  Trust Funds:

      Superfund                                      $43,693                $    —              $43,693

      Lust                                              4,203                     —                 4,203

      Oil Spill                                             62                     —                    62
                                 EPA's FY 1998 Annual Financial Statements                          Page 107

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Entity Assets Non-Entity Assets
Revolving Funds:
FIFRA 5,216 —
Tolerance 155 —
Working Capital Fund 41,040 —
Appropriated Funds 10,180,516 —
Other Fund Types (3.7081 —
Total $10.271.177 $ 	 Q
Note 3. Cash, Foreign Currency and Other Monetary Assets:
Total

5,216
155
41,040
10,180,516
(3.708)
$10.271.177

Entity Assets Non-Entity Assets
Cash:
Superfund $ 43,693
All Others 10.227.484
Total Cash $10.271.177
Other Monetary Assets:
All Others $ 4.964
Total Other Monetary Assets $ 4.964
Total Cash and Other Monetary Assets $10.276.141
Note 4. Investments:
Unamortized
Superfund Amortized (Premium) Market Investments,
Cost Method Discount Value Net
Intragovernmental
Securities: $5,295,501 $220,981 $5,074,520 $5,074,520
Governmental
Securities:
UniroyalTech $ 5,146 $ — $ 3,615 $ 3,615
All Others
Intragovernmental
Securities: $1,243,052 $ 51,514 1,191,538 $1,191,538
CERCLA, as amended by SARA, authorizes EPA to recover monies to clean up Superfund sites from

$ —
$ 0
$ —
$ 0
$ 0
Required
Market Value
Disclosure


$3,615


responsible partie
Page 108
                               EPA's FY 1998 Annual Financial Statements

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(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 issuing marketable securities in the reorganized company. The Agency does not intend to exercise ownership
rights related to these securities, and instead will convert these securities to cash as soon as practicable.

Note 5. Accounts Receivable:


                                                                     Superfund                  All Others

  Intergovernmental Assets:

  Accounts & Interest Receivable                                       $   53,406                  $   71,880

  Less: Allowance for Doubtful Accounts                                 	—                  	—


  Governmental Assets:

  Unbilled Accounts Receivable                                         $   80,483                  $        8

  Accounts & Interest Receivable                                          861,225                     166,644

  Less: Allowance for Doubtful Accounts                                 (349.6431                     (67.4921

      Total                                                          $  592.065                  $   99.160

    The agency has incurred bad debts in relation to it's collection efforts for Superfund and All Others as follows:


                                                                     Superfund                  All Others

  Bad Debt Expense                                                  $   146,522                  $   12,035

  Contra Bad Debt Expense                                             (146.1981                        (3061

     Net Bad Debt Expense                                          $       324                  $   11.729

    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 reserve on a percentage basis for those not specifically identified.

Note 6. Loans Receivable, Net - Non-Federal:

    For the Asbestos Loan Program, loans disbursed from obligations made prior to FY 1992 are 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.
                                  EPA's FY 1998 Annual Financial Statements                           Page 109

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                                                    Loans                                 Loans
                                               Receivable,          Allowance         Receivable,
                                              Gross -1998          for 1998 *          Net -1998

Pre-Credit Reform                              $ 76,074            $     —           $  76,074

Post Credit Reform                                56.086             C20.3391             35.747

   Total                                       $132.160            $(20.3391

     *   Allowance for Pre-Credit Reform loans = Allowance for Estimated Uncollectible Loan
        Allowance for Post Credit Reform loans = Allowance for Subsidy Cost (present value)

Subsidy Expenses for Post Credit Reform Loans:

                                                   Interest         Expected         Fee
                                        Total    Differential       Defaults         Offsets

        Current Year's Loans:            $121         $121                $—         $—
        Total Direct Loan Expenses:     $2.731       $2.731               $—         $—

    Other Information: At the end of FY 1998, $4.4 million for loan obligations established after credit reform remained
unpaid and were canceled, because the subsidy appropriated for these loans was also canceled. No expenses were incurred
for subsidy reestimates.

Note 7. Inventory and Related Property:


                                                                                Superfund       All Others

  Operating Materials and Supplies Held for Use in Normal Operations                  $	—        $	74

     Total

Note 8. Property, Plant and Equipment - Net

    Superfund property, plant and equipment, consists 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, EPA-Held and Contractor-Held personal, and capitalized-leased
property.

    Purchases of EPA-Held and Contractor-Held personal property are capitalized if the equipment is valued at $25 thousand
or more and has an estimated useful life of at least two years.  The Agency depreciates EPA-Held personal property using
a straight-line method over the  asset's useful  life ranging from two to 15 years.  Contractor-Held personal properly is
depreciated  over five years using a modified straight-line method.  Real properly, other than land, is capitalized when the value
is $75 thousand or more and is depreciated using the straight-line method over the specific asset's useful life ranging from
10 to 102 years. Leasehold improvements  are amortized over the lesser of their useful lives or the unexpired lease term.

    Late in fiscal 1997, the Agency implemented a new property accounting and accountability system entitled the "Fixed
Assets Subsystem (FAS)". FAS replaced the Personal Property Accountability System (PPAS) and manually-maintained
spreadsheets to account for EPA-held personal and real property respectively. Historical data was converted to the FAS.  In
fiscal 1998, a mass transfer of property was executed to the WCF from other appropriations.
Page 110                         EPA's F Y 1998 Annual Financial Statements

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    The fiscal 1997 ending balances for real property was adjusted because an accounting omission in fiscal 1997 caused
real property to be understated by $435 thousand for the All Others appropriation.  This resulted in an adjustment to property,
plant and equipment for All Others, with a corresponding adjustment to the capital asset component of equity.  There was no
effect to the Statement of Operations and Changes in Net Position.
                            Schedule of Property, Plant, and Equipment by Fund
                                           Superfund
                                            All Others
 EPA-Held Equipment
 Contractor-Held Equipment
 Land and Buildings
 Capital Leases (Note 11)
 Total PP&E

Note 9.  Debt:

 Other Debt - All Others

 Debt to  Treasury
 Classification of Debt:
   Intragovernmental Debt
    Total Debt
Note 10.  Other Liabilities:
Acquisition Accumulated
Value Depreciation
$21,191 $(16,981)
10,179 (7,829)
—
—

Net Book Acquisition Accumulated
Value Value Depreciation
$4,210 $136,372
2,350 48,780
258,367
40,913
$6.560
$(97,462)
(44,240)
(68,142)
(8,077)

Net Book
Value
$38,910
4,540
190,225
32,836
$266.511
Beginning Balance
Net Borrowing
     $	—
Ending Balance
         37:
  Other Liabilities Covered by Budgetary Resources:

  Intragovernmental - All Others
    WCF Advances
    Other
  Total
  Intragovernmental - Superfund
    Other
  Total
                   Non-Current
             Current
                                            $3.606
                                            $3.606
          Total
                                $3.606
                                EPA's FY 1998 Annual Financial Statements
                                                                                                  Page 111

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                                                         Non-Current
                       Current
                    Total
 All Others
    Accrued Funded Payroll & Benefits
    Custodial Liability
    Other Liabilities
 Total
 Superfund
    Cash Out - Non Federal
    Resources Payable to Treasury
    Other
 Total
 Other Liabilities Not Covered by Budgetary Resources:

 All Others
    Contingent Liabilities - Unfunded
    Accrued Clean-up Costs - Unfunded
    Accrued Unfunded Annual Leave
 Total
 Superfund
    Accrued Unfunded Annual Leave
 Total

Note 11.  Leases:
Capital Leases:
Summary of Assets Under Capital Lease:
 Land and Buildings
 Accumulated Amortization
$46,258
129,304
	
$10,254
944
11.689
$56,512
130,248
11.689
$175.562 $22.887 $198.449
$324,622
10,872
13.784
$57,899
2,321
(14.982)
$382,521
13,193
(1.1981
Non-Current
        $335
      74.209
Current
Total
($128)
14,505
4.618
$18.995
$207
14,505
78.827
$93.539
                                         All Others
                                         $40,913
                                           $8,077
    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 based upon either rising operating costs and/or real estate taxes.  The
base operating costs are adjusted annually according to escalators in the Consumer Price Indices published by the Bureau of
Labor Statistics (U.S. Department of Labor).  These leases terminate in fiscal years 2010, 2013 and 2025. The charges are
expended out of the EPM appropriation.  The total future minimum lease payments of the capital leases are listed below.
Page 112
                                 EPA's FY 1998 Annual Financial Statements

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 Future Payments Due:
 Fiscal Year
 1999
 2000
 2001
 2002
 2003
 After 5 Years
All Others
 Total Future Minimum Lease Payments                                                                140,260
 Less: Imputed Interest                                                                              (101.607')
 Net Capital Lease Liability                                                                             38.653
 Liabilities not covered by Budgetary Resources                                                        $ 38.653
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 five direct operating leases for land and buildings housing scientific laboratories and/or computer facilities.
Most of these leases include a base rental charge and escalator clauses based upon either rising operating costs and/or real
estate taxes. The base operating costs are adjusted annually according to escalators in the Consumer Price Indices published
by the Bureau of Labor Statistics (U.S. Department of Labor). Three leases terminate in 2000.  Infiscal 1997 and 1998, EPA
entered into two leases, which terminate in fiscal 2017 and 2003 respectively.  The charges are expended out of the EPM
appropriation.  The total minimum future costs of the  operating leases are listed below.
Fiscal Year
1999
2000
2001
2002
2003
Beyond 2003
Total Future Minimum Lease Payments
Note 12. Federal Employee and

FECA Accrual - Unfunded
FECA Liability - Unfunded
Total

EPA
All Others Superfund
$6,139 $ —
6,109 —
36 —
34 —
34 —
334 —
$12.686 $ -
Veterans ' Benefits:
Superfund
$1,404
3.875
$5.279

's FY 1998 Annual Financial Statements
Total Land & Buildings
$6,139
6,109
36
34
34
334
$12.686

All Others
$6,398
15.099
$21.497

Page 113

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Note 13.  Unexpended Appropriations:
 Unexpended
 Appropriations:

   Unobligated

     Available

     Unavailable

  Undelivered Orders

     Total
 Superfund
$   220,352
  2.585.608
All Others



  1,376,968

    99,362

  8.351.470

  9.827.800
       Total



$  1,597,320

      99,362

  10.937.078

$ 12.633.760
Note 14.  Amounts Held by Treasury:

    Amounts Held by Treasury for Future Appropriations consists of amounts held in trusteeship by the U.S. Department
of Treasury in the "Hazardous Substance Superfund Trust Fund" (Superfund) and the "Leaking Underground Storage Tank
Trust Fund" (LUST).

                                          Superfund (Audited)

    Superfund 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 Superfund Trust Fund as maintained by the U.S. Department of Treasury.  The amounts
contained in these statements have been provided by the Treasury.  Outlays represent appropriations received by EPA's
Superfund Trust Fund, such funds are eliminated on consolidation with the Superfund Trust Fund maintained by Treasury.
 Undistributed Balances:

   Available for Investment

   Unavailable for Investment

 Total Undisbursed Balance

 Investments, Net of Discounts

      Total Assets

 Liabilities & Equity

 Debt

 Equity

      Total Liability and Equity
           Combined


           B       980


           B       980

            5.074.520
                                                                               EPA
            5.075.500
       2.949.665
                            Treasury
                          $      980
      $       —          $      980

       2.949.665            2.124.855
Page 114
                                EPA's FY 1998 Annual Financial Statements

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                                                   Combined
                            EPA
 Treasury
 Receipts
   Crude and Petroleum
   Certain Chemicals
   Corporate Environmental
   Cost Recoveries
   Fines & Penalties
 Total Revenue
 Appropriations Received
 Interest Income
      Total Receipts
 Outlays
   Return of Appropriations
   Transfers to EPA
      Total Outlays
 Net Income
$   (2,604)
      2,413
    79,060
    319,605
      5.044
    403,518
    250,000
    291.816
 $  945.334
                      5       (35)
                      (1.473.1971
                      (1.473.2321
                      :    527.E
;   (2,604)
     2,413
   79,060
  319,605
     5.044
  403,518
  250,000
  291.816
  945.334

       35
 1.473.197
 1.473.232
                                           LUST (Unaudited)
    LUST is supported primarily by a sales tax on motor fuels to clean up LUST waste sites. The following represents LUST
Trust Fund as maintained by the U.S. Department of Treasury. The amounts contained in these statements have been provided
by Treasury and are unaudited.  Outlays represent appropriations received by EPA's LUST Trust Fund, such funds are
eliminated on consolidation with the LUST Trust Fund maintained by Treasury.
                                                   Combined
                            EPA
 Treasury
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
$ 126 $ — $ 126
126 — 126
1.182.039 73.207 1.108.832
$ 1.182.165 $ 73.207 $ 1.108.958
$45 >45
1.182.165 73.207 1.108.958
$ 1.182.165 $ 73.207 $ 1.108.958

                                EPA's FY 1998 Annual Financial Statements
                                                                                                 Page 115

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                                                     Combined                   EPA            Treasury

  Receipts

   Highway TF Tax                                  $   126,232              $      —          $   126,232

   Airport TF Tax                                        11,791                     —               11,791

   Inland TF Tax                                            844                     —                  844

   Gross Revenue                                       138,867                     —              138,867

   Less: Reimbursement to G/F                            (2.654)               	=              (2.654')

  Net Revenue                                           136,213                     —              136,213

  Interest Income                                          60.935               	=              60.935

       Net Receipts                                  $   197.148               $	—          $   197.148

  Outlays

   Treasury Operating Expenses                       $        —               $    125           $       125

   Transfers to EPA                                  	—               (62.7581             (62.7581

        Total Outlays                                 	—               (62.6331             (62.6331

  Net Income
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 Superfund costs incurred for pollution cleanup of specific sites, to include the collection of fines
    and penalties from responsible parties.

    Claims against recipients for improperly spent assistance funds which may be settled by a reduction of future EPA
    funding to the grantee or the provision of additional grantee matching funds.

                                                 Superfund

    Under CERCLA f 106 (a), EPA issues administrative orders that require parties to clean up contaminated sites.  CERCLA
f 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, plus interest. To be eligible for reimbursement, the party must demonstrate either that it was
not a liable party under CERCLA f 107 (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 currently thirteen CERCLA f 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 $54.9 million and $5.3
million, respectively. The Environmental Appeals Board has not yet issued final  decisions on the administrative claims;
therefore a definite estimate of the amount of the contingent loss cannot be made. The  claimants chance of success in these
outstanding cases is characterized as reasonably possible.  The claimants chance of  success in three of the four pending
lawsuits is also reasonably possible. The outcome of the remaining lawsuit is considered as probable for the claimant totaling

Page 116                         EPA's F Y 1998 Annual Financial Statements

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$185 thousand.

    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  f 106(b) of its costs of responding to the order once it has completed the ordered actions.

    EPA is responsible to indemnify response action contractors (CERCLA f 119) for legal costs that will eventually exceed
or have exceeded the deductible specified in the current indemnification agreements.  Such payments by the United States
would be recoverable government response costs.  EPA has only one claim which is considered remote.

    EPA contractors have submitted response action contractor claims.  No claims were material.

                                                 All Others

    There were no material litigation, asserted or unasserted claims or assessments involving all other appropriated funds
of the Agency.

                                              Judgement Fund

    In cases which are paid by the U.S. Treasury Judgement Fund, the Agency must recognize the full cost of a claim
regardless of who is actually paying the claim.  The Agency is involved in various other actions that in the aggregate do not
exceed $1.2 million.  EPA also has one probable claim that is not estimable.

    In addition, EPA is party to certain pending litigation upon which EPA believes it has a reasonable legal position.  No
estimate has been provided for a loss.

    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.  Grant Accrual:

    Grant accruals represent grantee expenses that were not reported to EPA for reimbursement as of September 30, 1998.

    We selected a statistical sample of grant recipients from our grantee universe to use as our basis to calculate our accrual.
We sent confirmation letters to the sample grantees, asking them to provide the amount of unbilled grant expenses as of
September 30,  1998.  We calculated the unbilled grant expense rates. Finally, we used weighted-average rates to compute
the overall unbilled grant expense accruals.

    Superfund               $ 22,867

    All Others               $212,157

Note 17.  Environmental Cleanup Costs:

    EPA has five sites that require clean up  stemming from its activities.  Four of these sites will be paid from the Treasury
Judgement Fund amounting to $206 thousand.  EPA estimates that clean up on the other site will be approximately one
thousand dollars. EPA also holds title to a site in Edison, New Jersey, which was formerly an Army Depot. While EPA did
not cause the contamination, the Agency could potentially be liable for a portion of the clean up costs.  However, it is expected
that the Department of Defense and the General Services Administration will bear all or most of the cost of remediation.
                                  EPA's F Y 1998 Annual Financial Statements                           Page 117

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Future Clean up Cost

    EPA has  nine sites that require future clean up  associated with permanent closure.   The estimated cost will be
approximately $14.5 million.  Since the clean up costs associated with permanent closure are not primarily recovered though
user fees, EPA has elected to recognize the estimated total cleanup cost as a liability upon implementation. EPA could also
be potentially liable for cleanup costs at two GSA-leased sites; however, the amounts are not known.

    Of the $14.5 million, $11.9 million represents the estimated expense to close the current RTF research facility. These
costs will  be incurred  within  the next three years.   The $2.6 million  represents the  future decontamination and
decommissioning costs of EPA's research facilities.

Note 18.  Superfund State Credits:

    Authorizing statutory language for Superfund and related Federal regulations require States to enter into Superfund State
Contracts (SSCs) when EPA assumes the lead for a remedial action in their State.  The SSC defines the State's role in the
remedial action and obtains the State's assurance that they will share in the cost of the remedial action. Under Superfund's
authorizing statutory language, States will provide EPA with a ten percent cost share for remedial action costs incurred at
privately owned or operated sites, and at least fifty percent of all response activities (i.e., removal, remedial planning, remedial
action, and enforcement) at publicly operated sites.  In some cases, States may use EPA approved credits to reduce all or part
of their cost share requirement that would otherwise be paid by the States. Credit is limited to State site-specific expenses
EPA has determined to be reasonable, documented,  direct out-of-pocket expenditures of non-Federal funds for remedial
action.  Once EPA has reviewed and approved a State's claim for credit, the State must first apply the credit at the site where
it was earned.  The State may apply any excess/remaining credit to another site when approved by EPA.  As of September
30, 1998, total outstanding State credits has been estimated at $11 million.

Note 19.  Superfund Preauthorized Mixed Funding Agreements:

    Under  Superfund Preauthorized Mixed Funding Agreements, settling Potentially Responsible Parties (PRPs) agree to
perform response actions at their sites with the understanding that EPA will reimburse the PRPs a percentage of their total
response action costs.  EPA's authority to enter into mixed funding  agreements is provided under Section 11 l(a)(2) of the
Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) of 1980.  Under Section 122(b)(l)
of CERCLA, as amended by the Superfund Amendments and Reauthorization Act (SARA) of 1986, a PRP may assert a claim
against the Superfund Trust Fund for a portion of the costs they incurred while conducting a preauthorized response action
as agreed to under a mixed funding agreement.  As of September 30,  1998, EPA had 12 outstanding preauthorized mixed
funding agreements with obligations totaling $44.5 million.  A liability is not recognized for these amounts until the PRP's
work has been performed and has been approved by  EPA for payment. EPA will not disburse any funds under these
agreements, however, until the PRP's application, claim, and claims adjustment processes have been reviewed and approved
by EPA.

Note 20.  Deferred Maintenance:

    The EPA classifies property, plant,  and  equipment as following:  1) EPA-Held  Equipment,  2) Contractor-Held
Equipment,  3) Land and Buildings, and, 4) Capital Leases. The condition assessment survey method of measuring deferred
maintenance is utilized. The Agency adopts requirements or standards for acceptable operating condition in conformance
with industry practices.

    One deferred maintenance project was identified in the Land  and Buildings category, with an estimated total cost of $325
thousand. This project included repairing and resurfacing weathered and cracked parking lots and driveways.  In addition,
one deferred maintenance project was identified in the EPA-Held Equipment category with an estimated cost of $45 thousand.
Maintenance for gas chromatograph system was postponed until  1999.  No deferred maintenance  was reported for the other
two categories.


Page 118                          EPA's FY 1998 Annual  Financial Statements

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Note 21.  Income and Expenses from other Appropriations:

    The Statement of Net Cost reports program costs that include the full costs of the program outputs and consist of the
direct costs and all other costs that can be directly traced, assigned on a cause and effect basis, or reasonably allocated to
program outputs.

    During FY 1998, 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 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.  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 two Reporting Entities: Superfund 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 expenses.

    As illustrated below, this estimate does not impact the net effect of the Statement of Net Costs.


                                 Income From Other        Expenses From Other
                                     Appropriations              Appropriations               Net Effect

  Superfund                                   $ 5,542                     ($5,542)                     $ 0

  All Others                                   (5,542)                        5,542                       0

Note 22.  Working Capital Fund Rebate:

    The Working Capital Fund's (WCF) net revenue of $111.6 millions is comprised of $3.9 million from postage operations
and $107.7 million from Enterprise Technology Services Division (ETSD). The WCF revenue reflects a $6.7 million rebate
that was included in the September billing cycle. This was the result of an analysis of potential revenue versus projected cost
anticipated through the end of the year.  The rebate was made during FY 1998 as the WCF refined its revenue to meet
appropriation requirements.

Note 23.  Custodial Non-Exchange Revenues:

     EPA uses the accrual basis of accounting for the collection of fines, penalties and miscellaneous receipts.

    Collectability by EPA of the fines and penalties is based on the responsible parties' willingness and ability to pay.


  Fines, Penalties & Miscellaneous Receipts

   Fines, Penalties & Miscellaneous Revenue (EPA)                                                    $92.132

  Accounts Receivable Fines, Penalties & Miscellaneous Receipts

   Accounts Receivable

   Less: Allowance for Doubtful Accounts

   Accounts Receivable (Net)
                                 EPA's F Y 1998 Annual Financial Statements                          Page 119

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Note 24.  Statement of Budgetary Resources:

    A reconciliation of budgetary resources, obligations incurred, and outlays, as presented in the audited Statement of
Budgetary Resources, to amount included in the Budget of the United States Government for the year ended September 30,
1998, is as follows:

                                                                  Budgetary    Obligations
                                                                  Resources       Incurred        Outlays

Audited Superfund Statement of Budgetary Resources                   $2,197,026     $ 1,495,558     $ 1,377,023

 Restatement of Available Authority based on budget controls             (517,910)

 Restatement of Reimbursable Authority                                   1,536

 Recoveries netted with obligations                                      175,925      (175,925)

 Receivables excluded from Statement of Budgetary Resources                   —             —         (2,919)

 Adjustments to Unliquidated Obligations results from audit review               —         41,364

 Other (Note 25)                                                          375         83.917            614

Budget of the United States Government                              $1.856.952     $1.444.914     $1.374.718



Audited All Others Statement of Budgetary Resources                   $8,310,476     $6,592,535     $5,534,583

 Restatement of Available Authority based on budget controls              (83,980)

 Restatement of Reimbursable Authority                                  12,244

 Recoveries netted with obligations                                       48,808       (48,808)

 Receivables excluded from Statement of Budgetary Resources                   —             —        (69,987)

 Adjustments to Unliquidated Obligations results from audit review               —        119,279

 Other (Note 25)                                                        f28D          2.327         f 1.5041

Budget of the United States Government                              $8.287.267     $6.665.333     $5.463.092

Note 25.  Adjustments:

    Includes a $375 thousand difference in Superfund and a $281 thousand difference in All Others.

Note 26.  Unobligated Balances Available:

    The Superfund Trust Fund has an unobligated balance of $701 million in unexpired authority.  All Others has  an
unobligated balance of $1.7 billion which includes $1.6 billion in unexpired authority and $99 million in expired authority.
The unexpired authority is available to be apportioned by the Office of Management and Budget for new obligations at the
beginning of F Y 1999. Unobligated balances of expired authority is not available for new obligations. However, the expired
authority is available for upward adjustments of obligations incurred as of the end of the fiscal year.
Page 120                          EPA's FY 1998 Annual Financial Statements

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Note 2 7.  Obligated Balance, Net - End of Period:

    Undelivered Orders at the end of the period are $2.6 billion for the Superfund Trust Fund and $8.8 billion for All Others.
These amounts include adjustments of $16 million to the Superfund and $216 million to All Others. These adjustments are
primarily for additional grant accruals related to unbilled liabilities at the end of the fiscal year and for deobligations of
Undelivered Orders that are no longer needed.  These adjustments were not included in the Budget of the United States
Government.

Note 28.  Difference in Outlays Between Statement of Budgetary Resources and SF-133:

    Outlays between the Statement of Budgetary Resources and the  SF-133 differ by $2 million for Superfund and $72
million for All Others.  Of the difference, $3 million for Superfund and $70 million for All Others is represented by the
exclusion of refunds receivable from the Obligated Balance, Net Beginning of Period on the Statement of Budgetary
Resources, whereas receivables had been included on the SF - 1 3 3 .  The different presentations result from a change in policy
effective March 1, 1998, wherein receivables are not a budgetary resource until collected.  Other outlay differences of $1
million for Superfund and $2 million for All Others are unidentified.

Note 29.  Statement of Financing:

    Increases in Unfunded Liabilities relate to unfunded annual leave and Federal Employees Compensation Act (FECA)
special benefit fund.  For Superfund, the amount totaled $3.8 million and is reflected in Financing Sources Yet To Be
Provided. For All Others, the amount was $7.9 million, which is included in the total Net Decrease in Liabilities of $23.9
million.

Note 30.  Other Financing Sources:

    Consists primarily of Appropriations to EPA from the Superfund and Lust Trust Funds held at Treasury (Treasury Trust
Funds). Such appropriations are reported as non expenditure transfers on the financial statements of the respective Treasury
Trust Funds.  Upon consolidation with Trust funds held by EPA, the Treasury Trust Fund Appropriation non expenditure
transfers are reported as Other Financing Sources to offset Appropriations Used and Trust Fund revenues.
Treasury Trust Fund Transfers

Other

    Total
Superfund

$1,473,232

   150.161
                                                                                                     Lust

                                                                                                 $  62,633

                                                                                                   46.868
                                 EPA's FY 1998 Annual Financial Statements
                                                                                                   Page 121

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                                EPA Required Supplemental Information
                 Hazardous Substance Superfund Trust Fund and All Other Funds
                    Supplemental Statement of Budgetary Resources (Unaudited)
                                          As of September 30,1998
                                            (Dollars in Thousands)
                                            Environmental                                   Miscellaneous Consolidated
                                             Programs*   Science*                LUST         All         All
	STAG     Management  Technology    FIFRA    Trust Fund     Others	Others
Budgetary Resources:
Budget Authority
Unobligated Balances - Beginning of
  the Period
Spending Authority from Offsetting
    Collections
Adjustments

Total Budgetary Resources

Status of Budgetary Resources:

Obligations Incurred
Unobligated Balances - Available

Total, Status of Budgetary Resources

Outlays:
Obligations Incurred
Less: Spending Authority from
  Offsetting Collections and Adjustments

Obligated Balance, Net - Beginning
  of Period

Less: Obligated Balance, Net - End
  of the Period

Total Outlays
$3,213,125     $1,803,600     $631,000     $

 1,351,061       280,942      131,989      15,928

    17,040        48,651       50,414      18,828
__-----        r2.704t        9.614     	89
    17,040
                                  $65,000     $429,869   $6,142,594
                                    2,542      165,576    1,948,038
                                       6
                                     181
        149,045      283,984
        r71.3201      r64.140t
$3,442,416    $1,884,842     $678,528     $19,344      $64,978     $502,427   $6,592,535
 1.138.810      245.647      144.489      15.501        2.751      170.743    1.717.941
$3,442,416    $1,884,842     $678,528     $19,344      $64,978     $502,427   $6,592,535
74,074       45,485      18,917
187     101,991      257,694
 6,185,434      974,037     411,169       1,493       71,167      306,731    7,950,031


 7.013.753      944.098     517.570       1.517       74.687      198.664    8.750.289

$2.597.057    $1.840.707    $526.642     $  403      $61.271     $508.503   $5.534.583
 Page 122
                                    EPA's FY 1998 Annual Financial Statements

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                          EPA Required Supplemental Information
                                    Working Capital Fund
                  Supplemental Statement of Financial Position (Unaudited)
                                   As of September 30,1998
                                    (Dollars in Thousands)
ASSETS
 Entity Assets:
  Intragovemmental Assets:
  Balance With Treasury
  Avances and Prepayments
$41,040
      1
  Governmental Assets:
  Operating Materials and Supplies, Net
  Avances and Prepayments
  Property and Equipment, Net
  Other Governmental Assets
     13
  Total Assets
LIABILITIES
  Intragovemmental Liabilities:
  Accounts Payable
  Other Intragovemmental Liabilities
5 1,303
 12,962
 Governmental Liabilities:
  Accounts Payable
  Other Governmental Liabilities
 18,316
    719
 Total Liabilities
   .300
NET POSITION
 Balances:
  Paid in Capital
  Cumulative Results of Operations

  Total Net Position

 Total Liabilities and Net Position
                              EPA's FY 1998 Annual Financial Statements
                                                                                          Page 123

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                          EPA Required Supplemental Information
                                   Working Capital Fund
      Supplemental Statement of Operations and Changes in Net Position (Unaudited)
                                  As of September 30,1998
                                    (Dollars in Thousands)
REVENUE AND FINANCING SOURCES
Revenues from Services to the Public
Other Revenues and Financing Sources
Less: Rebate - WCF
Total Revenues and Financing Sources
                                                                                    $ 1 1 8,309
                                                                                       6,584
                                                                                       6.696
                                                                                     118.197
EXPENSES
Program or Operating Expenses
Imputed Expenses
Depreciation and Amortization
Funded Accrued Annual Leave
Loss on Sale of Assets
Total Funded Expenses
                                                                                      98,748
                                                                                       6,584
                                                                                       8,570
                                                                                        135
                                                                                         53.
                                                                                     114.090
 Excess (Shortage) of Revenues and
 Financing Sources Over Total Expenses
NET POSITION
Net Position, Beginning Balance
Excess (Shortage) of Revenues and
 Financing Sources Over Total Expenses
Plus (Minus) Non Operating Changes
                                                                                       4,107
                                                                                       3.798
 Net Position, Ending Balance
Page 124
                             EPA's FY 1998 Annual Financial Statements

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                         EPA Required  Supplemental Information
                               Annual Stewardship Information
                      For the Fiscal Year Ended September 30,1998
INVESTMENT IN THE NA TION'S RESEARCH
AND DEVELOPMENT:

Public and private sector institutions have long been
significant contributors to our nation's environmental and
human health research agenda. EPA's Office of Research
and Development, however, is unique among scientific
institutions in  this country in combining research,
analysis, and the  integration of scientific information
across the full spectrum of health and ecological issues
and across both risk assessment and risk management.
This  broad  scope has  resulted  in  scientific  and
engineering expertise, physical facilities, and equipment
that permit and encourage integrated multimedia and
multidisciplinary research on environmental issues. As
part  of a regulatory  Agency that establishes national
priorities and sets national standards, ORE) research is
conducted to protect human and ecosystem health in a
cost-effective manner and to provide a firm scientific and
technical foundation  for environmental decisions and
standards.

Among the Agency's highest research priorities is  a
program to expand the understanding of near- and long-
term effects of the environment on  children.  Another
priority is the Particulate Matter (PM) research program,
which focuses on review, implementation, and eventual
attainment of the National Ambient Air Quality Standards
(NAAQS). For FY 1998, the full cost of the Agency's
Research  and Development  activities totaled  $561
million. A breakout of the expenses is below (Dollars in
thousands):
    Programmatic Expenses:
    Allocated Expenses:

INVESTMENT    IN
INFRASTRUCTURE:
    $507,828
    $ 53,322

THE    NATION'S
The Agency makes  significant  investments  in the
Nations's drinking water and clean water infrastructure.
The investments are the result of three programs: The
Construction Grant Program which is being phased out,
and two State Revolving Fund programs.

Construction Grants Program:  During the  1970s and
1980s, the Construction Grants Program was a source of
federal funds, providing more than $60 billion of direct
grants for the construction of public wastewater treatment
projects. These projects, which constituted a significant
contribution to the nation's water infrastructure, included
sewage treatment plants, pumping stations, and collection
and intercept sewers, rehabilitation of sewer systems, and
the  control  of  combined  sewer  overflows.    The
construction grants led to the improvement of water
quality in thousands of municipalities nationwide.

Congress set  1990 as the last year that funds would be
appropriated for Construction Grants. Projects funded in
1990 and prior will continue until completion. Beyond
1990,  EPA shifted  the focus of municipal financial
assistance from grants to loans that are provided by State
Revolving Funds.

State Revolving Funds: The Environmental Protection
Agency provides capital, in  the form of capitalization
grants, to state revolving funds which state governments
use  to  make loans  to individuals, businesses,  and
governmental  entities  for the  construction  of water
treatment infrastructure.  When the loans are repaid to the
state revolving fund, the collections are used to finance
new loans for new construction projects.  The capital is
reused by the states and is not returned to the Federal
Government.

The Agency is also appropriated funds to finance the
construction of  infrastructure outside  the  Revolving
Funds.  These are  reported below as Other Infrastructure
Grants.

The Agency's expenses related to investments in the
Nation's Water Infrastructure are outlined below:
                             Construction Grants:
                             Clean Water SRF:
                             Safe Dnnkmg Water SRF:
                             Other Infrastructure Grants:
                             Allocated Expenses:
                                    $  444,817
                                    $1,109,017
                                    $   94,936
                                    $  138,363
                                    $  187,649
                                 EPA's FY 1998 Annual Financial Statements
                                                                                                  Page 125

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STEWARDSHIP LAND

The Agency holds title to certain land and land rights
related to remedial clean-up sites.  The land rights are in
the form of easements to allow access to clean-up sites or
restrict usage of remediated sites. In some instances, the
Agency takes title to the land during remediation, and
returns  it to private ownership upon the completion of
clean-up.

As of 9/30/98, the Agency possesses the following land
and land rights:

Superfund Sites with Easements         22
Superfund Sites with Land acquired      18
HUMAN CAPITAL

Agencies are required to report expenses incurred to train
the public with the intent of increasing or maintaining the
nation's economic productive capacity.  Training, public
awareness, and research fellowships are components of
many of the Agency's  programs,  and are effective in
achieving  the  Agency's mission of protecting public
health and the environment, but the focus is on enhancing
the nation's environmental, not economic, capacity.

Training and Awareness Grants         $39,131
Fellowships                          $11,084
Allocated Expenses                    $ 5,273
Page 126
                                 EPA's FY 1998 Annual Financial Statements

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     OIG'S REPORT
   ON ERA'S FY 1998
FINANCIAL STATEMENTS
  EPA's FY 1998 Annual Financial Statements
                                  Page 127

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Note: This summary is part of Audit Report Number 99B0003 issued by the EPA Office of Inspector
General on September 28, 1999.  Therefore, it contains references to other sections of the report (e.g.,
attachments) which are not included. For a complete copy of the report, please contact:

                            Environmental Protection Agency
                             Office of the Inspector General
                                Financial Audit Division
                                    Mail Code 2422
                                   401 M Street, S.W.
                                    Washington, D.C.

                                Telephone: 202-260-1397
                                FAX:      202-260-1398
                                    Audit Report 99B0003
Page 128                     EPA's FY 1998 Annual Financial Statements

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        INSPECTOR GENERAL'S REPORT  ON EPA'S
            FISCAL 1998 FINANCIAL STATEMENTS
The Administrator
U.S. Environmental Protection Agency:

In accordance with the requirements of the Government Management Reform Act (GMRA), we
audited EPA's fiscal 1998 financial statements. As described in Note 1, these financial statements
were prepared in accordance with provisions of OMB Bulletin 97-01, entitled "Form and Content
of Agency Financial Statements," which is considered a comprehensive basis of accounting other
than generally accepted accounting principles.

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.4  The United 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.

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 EPA's financial statements.  The OIG is organizationally  independent with respect
to all other aspects of the Agency's activities.

EPA's Required Supplemental Information and the Annual  Stewardship  Information are presented
for purposes of additional analysis. We reviewed this information to determine if it was consistent
with the information in the principal financial statements, but our audit was not designed to
express, and we are not expressing an opinion on it.
1 The Leaking Underground Storage Tank Trust Fund is included in the All Other Appropriated Funds column of the financial statements.

                                   Audit Report 99B0003

                          EPA's FY 1998 Annual Financial Statements                     Page 129

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OPINION ON EPA'S FISCAL 1998 FINANCIAL STATEMENTS

In our opinion, the financial statements fairly present the:
  • assets, liabilities, and net position;
  • net costs;
  • changes in net position;
  • budgetary resources;
  • reconciliation of net costs to budgetary obligations; and
  • custodial activity

for the Superfund Trust Fund, All Other Appropriated Funds and the Agency as a whole as of and
for the year ended September 30,  1998, in accordance with the basis of accounting described in
Note 1 to the financial statements.  As described in Note 1, these financial statements were
prepared in accordance with applicable provisions of OMB Bulletin 97-01, "Form and Content of
Agency Financial Statements," as amended November 20,  1998, which is considered a
comprehensive basis of accounting other than generally accepted accounting principles.
OVERVIEW SECTION OF THE FINANCIAL STATEMENTS

We did not identify any material inconsistencies between the information presented in the
Overview and in the financial statements. During this audit, we did not perform sufficient audit
work to express an opinion on the performance information included in the Overview. Our audits
of EPA's programmatic areas have identified weaknesses in the environmental data information
systems used to generate data used for managing the Agency's environmental programs and
presented in the Overview. The Agency has taken steps to enhance data quality, but recognizes
major challenges still exist. The Agency has several initiatives underway to address data quality
and ensure that environmental data systems contain timely and accurate data.

The Overview also contains information on the state of readiness of the Agency's systems to deal
with the Year 2000.  EPA reports that its mission critical financial and mixed financial systems are
already Year 2000 compliant.  The Agency also reports that its core financial systems have
addressed both internal and external data exchanges. EPA has implemented an independent
certification program administered through an interagency agreement with the Department of
Transportation to test all mission critical systems.  To date, the results of independent verification
tests on financial systems have not been formally reported.

In addition, the Agency still needs to address the issue of establishing  required contingency plans
to ensure uninterrupted financial operations in the case of unexpected technical difficulties. All
regional and Headquarters offices are required to develop Continuity of Operations Planning
(COOP) plans. Following completion of individual COOP plans, an overarching Agency plan will
be developed in accordance with Presidential Decision Directive #67 which requires EPA to have

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Page 130                     EPA's FY 1998 Annual Financial Statements

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an Agency plan by October 1999. As a part of this process EPA expects to develop Business
Continuity and Contingency Planning (BCCP) for the Year 2000 program. The Agency's Year
2000 Senior Council has directed that an interdisciplinary team be formed to develop the Year
2000 BCCP that will be an addendum to the overarching COOP Agency plans.

Lastly, the Agency is reassessing its non-mission critical systems, central and local infrastructure,
and buildings and facilities, and will develop remediation plans to address noted weaknesses. EPA
expects to closely monitor progress in these areas and will receive monthly status reports from
various regional  and program offices starting in July 30, 1999.
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, processed, and summarized to permit the preparation of
   reliable principal financial statements in accordance with Federal accounting standards;

  • financial transactions are executed in compliance with applicable laws and regulations; and

  • assets are safeguarded against loss from unauthorized acquisition, 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, noncompliance, 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 98-08, "Audit Requirements for Federal Financial Statements," defines a material
weakness as a situation where internal controls do not reduce to a relatively low level, the risk that
errors, fraud or noncompliance in amounts material to the audited financial statements or Required
Supplemental Stewardship Information 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 identified the following material weaknesses.
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                            EPA's FY 1998 Annual Financial Statements                      Page 131

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Although CFO staff and managers committed to meeting the March 1 deadline for submitting
EPA's audited financial statements to OMB, they were unable to meet the deadline due to
difficulties in obtaining information from other Agency offices and external sources, and problems
in implementing the new financial standards and OMB reporting requirements. In particular, the
Agency encountered significant difficulties in preparing the Statements of Budgetary Resources
and Financing due to weaknesses in the Agency's deobligation process, conversion of accounting
information from EPA's predecessor accounting system, and errors in recording various
accounting transactions.  These issues highlight the need for the Agency to strengthen its
coordination and quality control processes to ensure accurate data is available to prepare the
annual financial  statements and to manage the Agency's program activities on an ongoing basis.
Further improvements in the Agency's deobligation process would result in additional funds
becoming available to be used in support of EPA's environmental programs.

Attachment 1 describes weaknesses in the Agency's financial statement processes in more detail,
including the Agency's ongoing and planned corrective actions and additional corrective actions
we are recommending.

Reportable Conditions

We also identified the following reportable conditions. OMB Bulletin 98-08 defines a reportable
condition as an internal control weakness that could adversely  affect EPA's ability to ensure:
(1) transactions are executed in accordance with applicable laws; (2) assets are safeguarded against
unauthorized acquisition, use, or disposition; and (3) transactions are properly recorded,
processed, and summarized to permit the preparation of reliable financial statements and Required
Supplemental Stewardship Information in accordance with Federal accounting standards.
Attachment 2 describes each of these reportable conditions in more detail.

  •  EPA's regions are not consistently tracking demands for payment made under Comprehensive
Environmental Response, Compensation and Liability Act Section 106 Unilateral Administrative
Orders (UAOs).5 Amounts demanded under UAOs are significant and need to be tracked and
controlled. In three regions, we identified $11 million in demands made under UAOs. Other
regions either had no record of the  amounts demanded under UAOs, or the amounts were not
demanded because the UAOs did not include a provision to request reimbursement of oversight
costs. When  amounts are not tracked in IFMS they cannot be followed up on. Also, the potential
exists for multiple demands to be issued for the identical cost to the same or different parties
resulting in duplicate collections. Tracking the amounts demanded in IFMS would allow the
Agency to maintain better control over the amounts demanded and collected.

  •  During fiscal 1998, the Agency continued its efforts to improve controls in the accounts
receivable area by issuing additional guidance and instructing Financial Management Offices
2 Unilateral Administrative Orders are one of the Agency's primary enforcement tools to compel responsible parties to conduct response actions. The
Agency may demand payment for costs it incurs in overseeing the response actions.

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Page 132                      EPA's FY 1998 Annual Financial Statements

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(FMOs) to conduct quality assurance reviews covering this area. We continued to find some
accounts receivable, including those for oversight costs, that were not timely recorded and billed;
outstanding receivables that were not timely followed up on and written off; and allowances for
doubtful accounts that were not properly computed.  Consequently, some accounts receivable may
not have been correctly valued and timely collected.  These problems were caused primarily by
Offices of Regional Counsel and program offices not timely forwarding documentation to Agency
FMOs, and FMO staff being unsure about the methodology they were to use to compute the
allowance for doubtful accounts.

  • Some Agency project officers were not fulfilling one of their program oversight duties, that of
reviewing invoices for interagency agreements.  In addition, some project officers were not
obtaining and reviewing supporting cost information for amounts billed by other agencies.  The
Agency needs to continue making improvements in this area, so that it can be assured that
payments are only made for costs billed that are valid and allowable under the terms of its
interagency agreements.

  • For a number of years, we have reported on the need for the Agency to make improvements in
accounting for its property. The Agency has taken actions to permanently resolve these issues, and
we commend the Agency for its continuing efforts to correct weaknesses in this area.  The results
of this audit show there are still issues remaining where additional improvements are needed. We
again found property that was not recorded timely or accurately, and property that was capitalized
when it  should have been expensed. In addition, we found weaknesses in the reconciliation of
property information in the Agency's accounting system with information contained in the property
subsystem.  Such weaknesses impact the quality of data available to manage the Agency's
resources and increase the risk of theft, loss or misuse of the property.

  • During fiscal 1998 and prior years, EPA did not properly recognize revenue on its Superfund
State Contracts.  Although significant progress has been made in resolving problems that have
existed in this area, we found a few issues remained, primarily at three of the six FMOs where we
tested these accounts.  Consequently, material adjustments were needed to fairly present the
financial statements. If regional FMOs had been performing analytical reviews of these accounts,
these errors could have been identified and  corrected before becoming an  audit issue.

  • We continue to be unable to assess the  adequacy of the automated internal control structure
for accounting transactions contained in the Agency's Integrated Financial Management System.
During past audits, we reported that the Agency's documentation for the system did not contain
the level of detail necessary to construct tests of automated controls necessary for a financial
statement audit.  Agency management acknowledged that the IFMS data dictionary could be
improved. However, management also believes that data dictionary enhancements would not be
cost effective considering the system's maturity, and concurs with a recent Department of Treasury
review which recommends that the Agency defer development of a detailed data dictionary until it
is ready to transition to a new system.  We will obtain and assess the Treasury review team's

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                           EPA's FY 1998 Annual Financial Statements                      Page 133

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analysis concerning documentation requirements, as a part of our fiscal 1999 financial statement
audit. In addition, we will continue to participate as a consultant on the Agency's workgroup to
replace the payroll system.

In addition to the above reportable conditions resulting from our audit of the Agency's financial
statements, our office completed an audit to determine the adequacy of critical mainframe
operating system software controls. We identified the following weaknesses:

  •    EPA is not maintaining and reviewing Authorized Program Facility (APF) libraries6 in a
       timely manner.  Specifically, we identified libraries that no longer require APF
       authorization. Without effectively managing the contents of the APF, EPA management
       cannot be assured programs running in an authorized state will adhere to system integrity7
       requirements or Agency integrity guidelines.

  •    EPA is not adequately controlling the number of users who have ALTER and/or UPDATE
       access capabilities to APF libraries. Specifically, we identified users that no longer needed
       this type of access to perform their current jobs. Also, we identified user IDs assigned to
       positions and not individuals.  Without effective access controls to the APF, a
       knowledgeable user could circumvent or disable security mechanisms and/or modify
       programs or data files on the computer without leaving an audit trail.

  •    EPA is not maintaining Program Property Tables (PPT) or Exits.  In addition, EPA is using
       nonstandard Supervisor Calls (SVCs).  Full implementation of prior APF-related
       recommendations should resolve these weaknesses. Furthermore, because these
       deficiencies do not significantly put the operating system at risk, we only made suggestions
       for improving the PPT, SVC and EXIT controls.

Our office also conducted follow-up audits of physical and environmental information systems
general controls at a number of EPA regions. The follow-up audits assessed the implementation of
corrective actions to improve physical and environmental controls, thereby ensuring the security
and reliability of regional computer facilities and data.  We also evaluated the adequacy of
approved security plans for regional general support systems. The following matrix summarizes
continuing security concerns:
3 An operating system mechanism for identifying and specifically authorizing programs which are to process in an unrestricted or privileged
instruction mode.

4 System integrity is the ability of the system to protect itself against unauthorized user access to the extent that security controls cannot be
compromised.

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Regional Follow-up Audits: Physical, Environmental, and Disaster Recovery Controls
CRITICAL
SECURITY CONTROLS
1. Independent review of
current security
operations completed.
(OMB A- 130)
2. Security Plan level of
detail was sufficient to
adequately address
required subjects.
(OMB A- 1 30) 8
3. Contingency/disaster
recovery plan existed and
was acceptable.
(OMBA-130, &NIST
guides)
4. Security training was
adequate. (OMB A- 1 30 &
Security Act of 1987)
Region
1
no

no


no
no
Region
2
no

no


no
no
Region
3
yes

no


no
no
Region
4
no

no


no
no
Region
5
yes

no


no
no
Region
9
no

no


no
no
Cincinnati
yes

no


no
no
Although we have issued separate audit memorandums containing our recommendations to correct
these remaining deficiencies, we believe these matters are significant enough to warrant mention in
this report because they relate to the Agency's financial statements.  Specifically, general support
systems, regardless of the regional location, support and help control access to EPA's financial
systems.  If general controls over EPA's regional general support systems are adequate, then these
systems help provide reasonable assurance that the financial data, used to prepare the financial
statements, is sufficiently protected from unauthorized access or abuse.  Conversely, control
deficiencies related to general support systems weaken the first line of defense and reduce the
assurance which can be placed on the integrity of financial data.  We will also report these
continuing weaknesses to the Agency's Director for Information Resources Management.

Comparison of EPA'S FMFIA Report with Our Evaluation of Internal Controls

As required by OMB Bulletin 98-08, we compared EPA's Federal Managers' Financial Integrity
Act (FMFIA or the Integrity  Act) Report with our evaluation of the Agency's internal control
5 A security plan should include the following detailed information:
         •     description of security related controls used by the system,
         •?•    adequacy and effectiveness of those security controls,
         •?•    internal control weaknesses identified,
         •?•    controls planned to correct each identified weakness with milestone dates for their implementation,
          !     compensating controls, and
          !     standard operating procedures for subjects required by OMB A-130.

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systems.  For reporting under FMFIA, material weaknesses are defined differently than they are
defined for financial statement audit purposes. OMB Circular A-123, "Management
Accountability and Control" defines a material weakness under FMFIA as a deficiency that the
Agency head determines to be significant enough to be reported outside the Agency.  OMB
Bulletin 98-08 defines a material weakness for financial statement audit purposes as a weakness in
controls that creates a risk that errors, fraud or noncompliance in amounts material to the financial
statements could occur and not be timely detected.

As a part of the fiscal 1998 Integrity Act process, the Agency reported the following three material
weaknesses that relate to the Agency's financial statements.

       Construction Grants Close Out. Of the more than $50 billion in construction grants
       awarded in the last 20  years, grants totaling $6.3 billion remained to be closed out at the
       end of fiscal 1998. In  1992, EPA designated this area as an Agency weakness and in 1996
       reclassified it as a material weakness due to the concern that lack of Agency-wide attention
       might result in the loss of resources to properly complete the program. In addition, there
       were concerns that millions of dollars in potentially ineligible program costs might not be
       available for reuse on other high priority state clean water projects.  The Agency projects
       that it will close out all construction grants by 2002.

       Grants Close Out and Oversight of Assistance Agreements.  Our audits have shown
       that Agency staff have not adequately managed assistance agreements. Agency project
       files lacked 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 resulted in a significant backlog of assistance agreements to be
       closed out. As of the end of fiscal 1998, EPA reported that it had closed out  16,700 of the
       original 20,000 backlog of grants to be closed.

  •     Information Systems Security Plans.  Our audits have found deficiencies in the
       Agency's information  security planning. Information security programs must  include the
       development and maintenance of information security plans, and a strategy to conduct
       management reviews.  To date, this has not occurred.  At risk, is the possible unauthorized
       access, use, modification or destruction of EPA information resources that could result
       from these vulnerabilities.  The Agency is in the process of implementing corrective action
       strategies. We consider this weakness a Federal Financial Management Improvement Act
       noncompliance. The following section of this report discusses weaknesses in this area as
       they relate to the Agency's financial systems.

As a part of the Agency's Integrity Act process, the Agency did not identify and report material
weaknesses in its financial statement preparation process. Also, the CFO's March  15, 1999,
management representation letter to the GAO, OMB and Treasury, in conjunction with the
Government-wide financial statement audit, did not identify weaknesses in the Agency's financial

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statement preparation process. We believe the lack of identification and reporting of weaknesses
in this area represents a material weakness in the Agency's Integrity Act process.
TESTS OF COMPLIANCE WITH LAWS AND REGULATIONS

We tested compliance with those laws and regulations that could either materially affect the
financial statements or Required Supplemental Stewardship Information, 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.

Federal Financial Management Improvement Act Compliance

As required by the Federal Financial Management Improvement Act (FFMIA), as a part of our
audit, we assessed whether EPA's financial management systems substantially complied with
Federal financial management systems requirements, applicable accounting standards, and the
Standard General Ledger at the transaction level. In planning, performing and reporting on our
tests of compliance, we followed OMB Bulletin 98-08, "Audit Requirements For Federal Financial
Statements."

We found EPA was not in substantial compliance with the FFMIA requirements because of
weaknesses in the Agency's financial statement preparation  process.  In addition, the following
issues related to the Agency's financial management systems that were operational or under
development, caused the Agency to be in substantial noncompliance with FFMIA as of September
30,  1998. Specifically, we found that approved security plans for eight financial or mixed financial
systems did not comply with the requirements of OMB Circular A-130, "Management of Federal
Information Resources," and management had not approved security plans for the remaining seven
financial or mixed systems, as required by OMB Circular A-130. As a result, the Agency does not
have reasonable assurance that existing controls would prevent unauthorized disclosure or
manipulation of data, or the loss of data in the event of a disaster or accidental or intentional
damage. For additional information concerning these security plan issues,  please refer to
Attachment 3.

Other Noncompliance Issues

We also identified the following noncompliance issue that did not cause a material misstatement to
the  financial statements, but is nonetheless significant. EPA is not complying with appropriation

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law when making disbursements for grants funded with more than one appropriation.
Disbursements for these grants are made using the oldest available funding (appropriation) first
which may or may not be the appropriation that benefitted from the work performed. Thus, EPA
is not complying with Title 31 U.S.C. 1301 which requires EPA to match disbursements to the
benefitting appropriation. We have reported on this noncompliance issue in prior financial
statement audit reports.

In addition, as previously noted, the Agency did not meet the Government Management and
Reform Act's March 1 deadline for submission of its audited financial statements to OMB.
PRIOR AUDIT COVERAGE

During previous financial audits, weaknesses that impacted our audit objectives were reported in
the areas of:

  •    recording unbilled Superfund oversight costs,
       accounting for and managing Superfund accounts receivable,
  •    accounting for and controlling property,
       analyzing Agency financial activities,
  •    recording accrued liabilities for grants,
       approving payments for interagency agreements,
  •    identifying, tracking and reporting EPA's environmental liabilities,
       recording revenue for Superfund state contracts,
  •    documenting EPA's Integrated Financial Management System,
       complying with federal financial management system requirements,
  •    accounting for payments for grants funded from multiple appropriations,
       reconciling the components of Superfund net position,
  •    identifying and allocating indirect costs,
       reviewing Agency fees, and
  •    allocating costs to the Superfund Trust Fund.

Attachment 4 summarizes the status of the prior audit report recommendations in each of these
areas. Other sections of this report on internal controls and compliance with laws and regulations
provide additional details on the current status of the Agency's corrective actions.

The Chief Financial  Officer (CFO), as the Agency's Audit Follow-up Official, oversees EPA's
follow-up on audit findings and recommendations, including resolution and implementation of
corrective actions. For these prior audits, final action occurs when the Agency completes
implementation of the corrective actions to remedy weaknesses identified in the audit.
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We acknowledge that many actions and initiatives have been taken to resolve prior financial
statement audit issues. We also recognize that the issues we have reported are complex, and
require extensive, long-term corrective actions and coordination by the CFO with the General
Counsel and with various Assistant Administrators, Regional Administrators and Office Directors
before they can be completely resolved. A number of issues have been unresolved for a number of
years. Our office will continue to work with the CFO in helping them to resolve these issues.
RECOMMENDATIONS

To improve the Agency's financial reporting processes, we are recommending the CFO:

  •     evaluate the current processes for preparing the annual financial statements, update
       procedures to reflect new accounting guidance and standards, and establish quality review
       processes to help ensure the preparation of timely, complete and reliable financial
       statements; and

       develop reports for the annual review of unliquidated obligations which highlight older
       obligations, require responsible officials to justify why unliquidated obligations exist if the
       period of performance has ended, and follow-up to verify that invalid obligations were
       deobligated.

To improve the security over EPA's financial systems, we are recommending the CFO:

  •     develop a remediation plan which — (1) specifies  resources, remedies, and intermediate
       target dates to bring the Agency's financial systems into compliance with applicable
       requirements, and (2)  addresses the critical security controls outlined in this report.

Our report also contains recommendations related to other internal control and compliance issues
we identified during this audit. These recommendations are contained in Attachments 2 and 3 of
our final report and are addressed to the following senior  management officials: Chief Financial
Officer; Assistant Administrator for Enforcement and Compliance Assurance; Director,  Grants
Administration Division; Director, Financial Services Division; Assistant Administrator for
Administration and Resources Management; and the Director, Office of Acquisition Management.
AGENCY COMMENTS AND OUR EVALUATION

In a memorandum dated August 16, 1999, the CFO responded to our draft report. In the
response, she indicated that her office believes some of the issues we identified as material
weaknesses and reportable conditions were not properly categorized. The CFO agreed with many
of the recommendations and indicated corrective actions are planned or ongoing to implement

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these recommendations. The CFO noted her office is committed to continued improvements in
financial management with specific emphasis on improving the process that produces the Agency's
financial statements. Management's goal is to prepare reliable, timely financial statements.  The
CFO appreciated the cooperation from our office over the past several months to resolve the
outstanding issues. With respect to compliance with the Federal Financial Management
Improvement Act, the CFO believes the Agency is in substantial compliance, and steps are being
taken to remedy the deviations with the procedural requirements we noted.  The Agency's
complete response is included as Appendix II to our  final report.

We will continue to support the Agency's efforts to improve its processes for preparing reliable,
timely financial statements. We look forward to working with the Agency to bring about process
improvements in financial  practices, systems and controls for future financial statements. We have
not changed the classification of the reported weaknesses, nor have we changed our conclusion
about the Agency's noncompliance with FFMIA. The rationale for our conclusions is included in
the appropriate sections of our final report.
                RESPONSIBILITIES AND METHODOLOGY


EPA MANAGEMENT RESPONSIBILITIES

EPA's management is responsible for:

       preparing annual financial statements and Required Supplemental Stewardship Information;

       establishing and maintaining a system of internal controls; and

       complying with applicable laws and regulations.

OIG RESPONSIBILITIES

We are responsible  for:

  •     auditing the financial statements to determine if they are free of material misstatements and
       presented fairly in accordance with Federal accounting standards, and

       evaluating related internal controls and testing compliance with applicable provisions of
       laws and regulations.
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AUDIT METHODOLOGY

In order to fulfill our responsibilities, except as described in our opinion on the financial
statements, we:

       examined on a test basis, evidence supporting the amounts and disclosures in the principal
       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, determined whether they had been placed in operation, 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

       gained an understanding of the significant internal control policies and procedures related
       to the Annual Stewardship Information;

  •    tested significant manual controls to determine whether the controls were effective;

  •    evaluated the adequacy of: (1) the general automated data processing control structure for
       backup and disaster recovery, (2) physical and environmental security controls,
       (3) regional security plans, and  (4) the software maintenance processes affecting EPA's
       financial management systems;

       evaluated the adequacy of controls over critical operating systems libraries;

       evaluated the adequacy of security plans and disaster recovery plans  for the Agency's
       financial and mixed financial systems;
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       evaluated the controls over EPA's technical support and maintenance contract for the
       Agency's core financial systems;

  •     evaluated operational controls separate from other compliance reviews, as outlined in our
       multi-year plan to review ADP general controls which was endorsed by General
       Accounting Office representatives;

  •     evaluated the adequacy of the accounts receivable systems documentation for the
       Integrated Financial Management System;

       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;

  •     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;
       and

  •     performed sufficient tests to report whether EPA's financial management systems
       substantially comply with Federal financial management systems requirements, applicable
       accounting standards, and the Standard General Ledger at the transaction level.

Detailed system documentation was not available that would have allowed us to develop an
understanding  of the IFMS automated control structure and to test these  controls.

The information presented in Management's Overview of EPA and EPA Programs is supplemental
information required by OMB Bulletin 97-01, entitled "Form and Content of Agency Financial
Statements." OMB  Bulletin 98-08, "Audit Requirements for Federal Financial Statements,"
requires that we obtain an understanding of the internal controls designed to ensure that data
supporting the measures are properly recorded and accounted for to permit the preparation of
reliable and complete performance information.  Our audit work in the area of performance
measures was limited to comparing the financial information included in the overview with
information contained in the principal financial statements.

Details of Audit Field Work

We selected statistical and non-statistical samples from EPA's detailed accounting records

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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 conducted a physical inventory
of a sample of property items, and we observed the Agency's physical inventory of its property.

Our fieldwork for the audit was performed from May 29,  1998 through July 8, 1999.
Except as previously discussed in this report,  we conducted our audit work in accordance with:
generally accepted auditing standards; the  standards applicable to financial audits contained in the
Government Auditing Standards (1994 Revision), issued by the Comptroller General of the United
States; and OMB Bulletin No. 98-08, as amended January 25, 1999. 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 opinions.
James O. Rauch
Assistant Inspector General for Audit
U.S. Environmental Protection Agency
July 8, 1999
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EPA's FY 1998 Annual Financial Statements
                                                        Page 145

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                                ACRONYMS
ACPs
AFO
AHERA
ALAPCO
AMI
ANPRM
AOC
APGs
APO
ASHAA

BBDR
BCCP
BEACH
BECC
B&F
BRLF
BRS

CAA
CAFO
CAGs
CAMEO
CBEP
CCAP
CCL
CDC
CEPPO
CERCLA
CFCs
CFO Act
CHAD
CI
CIPP
COOP
CSI
CSRS
CTAC
Area Contingency Plans
Animal Feeding Operations
Asbestos Hazard Emergency Response Act
Association of Local Air Pollution Control Officials
Advanced Measurement Initiative
Advanced Notice of Proposed Rulemaking
Administrative Order on Consent
Annual Performance Goals
Administrative Penalty Order
Asbestos School Hazard Abatement Act

Biologically Based Dose Response
Business Continuity and Contingency Planning
Beaches Environmental Assessment, Closure, and Health
Border Environment Cooperation Commission
Buildings and Facilities
Brownfields Revolving Loan Fund
Biennial Reporting Systems

Clean Air Act
Concentrated Animal Feeding Operations
Community Advisory Groups
Computer Aided Management of Emergency Operations
Community Based Environmental Programs
Climate Change Action Plan
Contaminant Candidate List
Centers for Disease Control
Chemical Emergency Preparedness and Prevention Office
Comprehensive Environmental Response, Compensation and Liability Act
Chi orofluorocarb ons
Chief Financial Officers Act of 1990
Consolidated Human Activity Database
Compression Ignition
Critical Infrastructure Protection Plan
Continuity  of Operations Planning
Common Sense Initiative
Civil Service Retirement System
Combustion Technical Assistance Center
                      EPA's FY 1998 Annual Financial Statements
                                                                             Page 147

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CWA
CWSRF
CZARA

DBFs
DCIs
DEIS
DOE
DOJ
DWSRF

ECOS
EDA
EJP
EPA
EPCRA
EPM
ETS
ETSD

FACA
FAS
FASAB
FEMA
FERS
FFDCA
FFMIA
FIFRA
FIFRA 'g
FMFIA
FQPA
FRM
FRP
FWPCA
FY

GLCPA
GMRA
GPRA
GS
GSA
Clean Water Act
Clean Water State Revolving Fund
Coastal Zone Act Reauthorization Amendments

Disinfection By-Products
Data Call-Ins
Draft Environmental Impact Statement
Department of Energy
Department of Justice
Drinking Water State Revolving Fund

Environmental Council of the States
Economic Development Administration
Environmental Justice Program
Environmental Protection Agency
Emergency Planning and Community Right-To-Know Act
Environmental Programs and Management
Environmental Tobacco Smoke
Enterprise Technology Services Division

Federal Advisory Committee Act
Fixed Assets Subsystem
Federal Accounting Standards Advisory Board
Federal Emergency Management Agency
Federal Employees Retirement System
Federal Food, Drug and Cosmetic Act
Federal Financial Management Improvement Act
Federal Insecticide, Fungicide and Rodenticide Act
1988 Amendments to FIFRA
Federal Managers Financial Integrity Act
Food Quality Protection Act
Final Rulemaking
Facility Response Plan
Federal Water Pollution Control Act
Fiscal Year

Great Lakes Critical Protection Act
Government Management Reform Act of 1994
Government Performance and Results Act of 1993
General Schedule
General Services Administration
Page 148
                      EPA's FY 1998 Annual Financial Statements

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HABs
HAPs
HCBD
HCFCs
HHS
HQ
HSWA
HUD
HWIR

IAQ
IDEA
IESWT
IG
IHS
IM
IR-4 Program
IRIS
ITC
IWI

LAN
LDR
LEPCs
LUST

MACT
MAIA
MARS SIM
MIMS
MMTCE
MOA
MPG
MPPRCA
MPRSA
MSW

NAAQS
NAFTA
NAPLs
NAREL
NCP
Harmful Algal Blooms
Hazardous Air Pollutants
Hexachlorobutadiene
Hydrofluorocarbons
Health and Human Services
Headquarters
Hazardous and Solid Waste Amendments
Housing and Urban Development
Hazardous Waste Identification Media and Process Rule

Indoor Air Quality
Integrated Data for Enforcement Analysis
Interim Enhanced Surface Water Treatment
Inspector General (also Office of Inspector General)
Indian Health Services
Inspection and Maintenance
Inter-Regional Research Project Number 4
Integrated Risk Information System
Interagency Testing Committee
Index of Watershed Indicators

Local Area Network
Land Disposal Restrictions
Local Emergency Planning Committees
Leaking Underground Storage Tank

Maximum Achievable Control Technology
Mid Atlantic Integrated Assessment
Multi-Agency Radiation Survey and Site Investigation Manual
Multimedia Integrated Modeling System
Million Metric Tons of Carbon Equivalent
Memorandum of Agreement
Miles Per Gallon
Marine Plastics Pollution Research and Control Act
Marine Protection, Research and Sanctuaries Act
Municipal Solid Waste

National Ambient Air Quality Standards
North American Free Trade Agreement
Non-Aqueous Phase Liquids
National Air and Radiation Environmental Laboratory
National Contingency Plan
                       EPA's FY 1998 Annual Financial Statements
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NEPA
NEPPS
NGA
NHAPS
NHEXAS
NOX
NOAA
NODAs
NPDES
NPL
NPS
NSR
NSR/PSD
NVFEL

OAQPS
OAR
OC
OCFO
OECA
OECD
OERR
OIG
OMB
OPA
OPPT
ORD
OSLTF
OSPS
OSRE
OSW
OSWER
OTAG
OTR
OUST
OW

PALs
PBTs
PCBs
FDD
PM
National Environmental Policy Act
National Environmental Performance Partnership Program
National Governors Association
National Human Activity Patterns Survey
National Human Exposure Assessment Survey
Nitrogen Oxide
National Oceanic and Atmospheric Administration
Notices of Data Availability
National Pollutant Discharge Elimination System
National Priorities List
Nonpoint Source
New Source Review
New Source Review/Prevention of Significant Deterioration
National Vehicle and Fuel Emissions Laboratory

Office of Air Quality Planning and Standards
Office of Air and Radiation
Office of the Comptroller
Office of the Chief Financial Officer
Office of Enforcement and Compliance Assurance
Organization for Economic Cooperation and Development
Office of Emergency and Remedial Response
Office of Inspector General
Office of Management and Budget
Oil Pollution Act
Office of Pollution Prevention and Toxics
Office of Research and Development
Oil Spill Liability Trust Fund
Outreach and Special Projects Staff
Office of Site Remediation Enforcement
Office of Solid Waste
Office of Solid Waste and Emergency Response
Ozone Transport Assessment Group
Ozone Transport Region
Office of Underground Storage Tanks
Office of Water

Plant-wide Applicability Limits
Persistent Bioaccumulative Toxics
Polychlorinated Biphenyls
Presidential Decision Directive
Particulate Matter
Page 150
                       EPA's FY 1998 Annual Financial Statements

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PM2 5              Fine Particulate Matter
PM10               Coarse Particulate Matter
PMN              Premanufacture Notice
PPA               Pollution Prevention Act
PP&E              Property, Plant and Equipment
PPAS              Personal Property Accountability System
PPGs              Performance Partnership Grants
PRO               Program and Research Operations
PRPs              Potentially Responsible Parties
PRTRs             Pollutant Release and Transfer Registries
PSD               Prevention of Significant Deterioration
PWS               Public Water System
PWSS              Public Water System Supervision

RBCA             Risk-Based Corrective Action
RCRA             Resource Conservation and Recovery Act
RCRIS             Resource Conservation and Recovery Information System
RD/RA             Remedial Design and Remedial Actions
RED               Reregi strati on Eligibility Decision
RIA               Regulatory Impact Analysis
ROD               Record of Decision
RMPs              Risk Management Plans
RP                Responsible Party

SARA             Superfund Amendments and Reauthorization Act
SDWA             Safe Drinking Water Act
SDWIS             Safe Drinking Water Information System
SEPs               Supplemental Environmental Projects
SERCs             State Emergency Response Commissions
SFFAS             Statement of Federal Financial Accounting Standard
SFIP               Sector Facility Indexing Project
SIPs               State Implementation Plans
SITE              Superfund Innovative Technology Evaluation
SPA               Shore Protection Act
SO2               Sulfur Dioxide
SOL               Statute of Limitation
SOS               Southern Oxidant Study
SPA               Shore Protection Act
SPCC              Spill Prevention  Control and Countermeasures
SRF               State Revolving Fund
SSCs              Superfund State  Contracts
S&T               Science and Technology
                       EPA's FY 1998 Annual Financial Statements                  Page 151

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STAPPA
STAG
SWAP
SWTR

TEA-21
TMDL
TRI
TSCA
State and Territorial Air Pollution Program Administrators
State and Tribal Assistance Grants
Source Water Assessment Program
Source Water Treatment Rule

Transportation Equity Act for the 21st Century
Total Maximum Daily Load
Toxic Release Inventory
Toxic Substances Control Act
UAOs
UIC
UNECE
USDA
UST
UWAs

WCF
WIN
WIPP
WMPT
WRDA

Y2K

1,3-BCP
Unilateral Administrative Orders
Underground Injection Control
United Nations Economic Commission for Europe
U.S. Department of Agriculture
Underground Storage Tank
Unified Watershed Assessments

Working Capital Fund
Waste Information Needs
Waste Isolation Pilot Plant
Waste Management Prioritization Tool
Water Resources Development Act

Year 2000

1,3-Bichloropropne
Page 152
                       EPA's FY 1998 Annual Financial Statements

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    For more information, contact:

   Financial Management Division
U.S. Environmental Protection Agency
      401 M Street, SW (2733R)
       Washington, DC 20460
   EPA's FY 1998 Annual Financial Statements             Page 153

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