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July 1, 1999

Mr. Chairman and Members of the Subcommittee:

I am Sallyanne Harper, Chief Financial Officer of the Environmental Protection Agency (EPA). Let me begin by thanking you for the opportunity to appear before the Subcommittee to discuss our efforts at EPA to align planning and budgeting, and to manage for results. I appreciate the Subcommittee's interest in these reforms, and I hope that EPA's experience will help illustrate the benefits and challenges of performance budgeting. We were gratified to learn that GAO has described EPA's efforts to connect resources and results as "positive and significant," and we are committed to building on our early successes in the future.


As you know, GAO has pointed out a number of areas where EPA is in the vanguard of agencies engaged in establishing performance budgeting systems. We are very proud to have been the first agency to succeed in fully integrating our budget request with our Annual Performance Plan. Some background information may help to explain the progress we have made so far. EPA has benefitted substantially from the structure, visibility, and credibility provided by the Government Performance and Results Act (GPRA). This legislation supports the integration of several key management processes in ways that are complementary to some of the Agency's own approaches. In 1995, Administrator Carol Browner commissioned an internal task force of senior managers to examine and recommend improvements in EPA's planning, budgeting, and accountability processes. This task force recommended that these processes needed to be more closely integrated in order to obtain better environmental results for the American people, as well as to improve the way we do business. The task force also recognized some organizational barriers to this integration, and further recommended that planning, budgeting, and accountability functions be restructured into the newly-created Office of the Chief Financial Officer. It has been a unique and exciting challenge for me to oversee the development of EPA's planning, budgeting, and accountability functions into a single process, focusing on environmental outcomes and sound management of public resources.


The basis for many of EPA's performance budgeting accomplishments to date is our Strategic Plan, which was submitted to Congress in September 1997 in compliance with GPRA. The Strategic Plan is the result of many months of intensive deliberation across the Agency, aided by the views of our partners and stakeholders and coordinated by my office. It outlines our best assessment of the results we would like our work to have achieved in five years' time. The Plan is structured around a framework, or "architecture," of 10 long-term strategic goals that point to the accomplishment of our mission: to protect human health and to safeguard the natural environment-air, water, and land-upon which life depends. Each strategic goal is supported by a range of objectives representing major steps toward goal achievement. The strength of this architecture lies in its inclusiveness, which earns it a broad consensus of support across the Agency. Although EPA figures among the smaller agencies in terms of resources, our mandates are many, complex, and interrelated. To have captured the variety of our responsibilities within a relatively simple architecture was a real achievement and did much to pave the way for subsequent efforts, including the linking of planning with budgeting.

With the Strategic Plan architecture in place, EPA was able to take its first steps towards budget restructuring. GAO's report identifies some challenges that have beset performance budgeting initiatives in the past, including instances where agencies began by layering new budget formats on existing ones. The results of such efforts-and I am sure you have seen some-were cumbersome documents that tended to shed little light on the connections between resources and results. Agencies had many years' experience invested in the use of program elements in budgeting, and it was very difficult to begin working with a structure based on outcomes, rather than outputs. EPA opted for maximum clarity in its new budget structure, no mean feat given our multiple-account structure, which combines operating accounts with trust funds, and our new goal architecture. Consistent with GPRA requirements, we implemented changes in the FY 1999 budget development cycle that promoted a focus on our long-term environmental goals and identified FY 1999 activities as incremental steps towards them. These incremental steps were embodied in the annual performance goals and measures that made up our first Annual Performance Plan under GPRA. EPA's FY 1999 budget request marked the Agency's first effort to align its resource request completely with its performance goals and objectives. In other words, EPA specified what it intended to accomplish in FY 1999 with the requested resources-at a level of specificity we had never attained in the past.

GAO noted that EPA was one of only 2 agencies to link planning structure and budget accounts, and one of only 3 agencies that made substantial changes to program activity structures within their budgets. Building on that first success, we are equally proud of our FY 2000 request. EPA has made considerable progress in linking annual budgets and annual goals to the longer-term environmental results outlined in our Strategic Plan. I think the groundwork we have laid over the past few years will prove invaluable for developing future budget requests in a similar manner, focusing on the achievement of results that are meaningful to the public.

The organizational structure of the Office of the Chief Financial Officer also facilitated the next logical steps in promoting performance budgeting. As CFO, I am, of course, responsible for the integrity of EPA's financial systems and services, and I am pleased to tell you that our audited financial statements for FY 1997 received-for the first time in the Agency's history-an unqualified, or "clean," opinion. My office assures Agency compliance with all applicable standards for government accounting, including the Federal Accounting Standards Advisory Board (FASAB) standards for managerial cost accounting.

While one side of the performance budgeting coin shows the Agency's intended results for a requested level of resources, the other side must portray actual results obtained for actual resources expended. At EPA, we take pride in our role as stewards of the environment while embracing our responsibilities with respect to the public trust. We must be able to demonstrate accurately the full costs of our efforts in environmental and public health protection so that we can connect sound financial information with the results of our work.

Our plan was to modify EPA's financial structures to reflect the same 10-goal architecture, with its long-term objectives, that we had already applied to planning and budgeting. We were fortunate to have made certain modifications in past years that allowed for the accommodation of new information related to the architecture, enabling us to capture costs on a goal-by-goal, objective-by-objective, basis. Still, this was a massive undertaking, involving intensive outreach to the resource management community throughout the Agency, development and dissemination of substantial new guidance, and anticipation of management needs for financial information. We are very pleased to report that EPA succeeded in putting the necessary financial structure and processes in place to support cost accounting in time for initial implementation in FY 1999. This first year's results will be instructive to all of us, and we expect to enhance our ability to assess the full costs of our efforts in future years.

EPA also acknowledges the need to refine our results information along with our cost information, so that we can discuss both with comparable precision. To that end, we are working very hard to improve the goals and measures through which we focus on annual results. We want to be sure to aim for outcomes that support the highest environmental quality for all, and to make clear the connections between what we accomplish in a single year, and what we hope to accomplish in the longer term. One effort that promises continued progress is EPA's work with our state partners in environmental protection. Through the National Environmental Performance Partnership System (NEPPS), EPA and the states set out in 1995 to improve our combined ability to protect public health and the environment and to reinvent our working relationship by fostering better joint State-EPA priority setting, focusing scarce resources on highest priorities, and tailoring the amount and type of EPA oversight to individual states' performance. The primary goal of NEPPS was, and is, to improve environmental results. NEPPS has also set the stage for intensive consultations with the states on how environmental results should be measured, and what set of "core performance measures" (CPMs) would reflect results more effectively. Consistent with those ongoing consultations and our commitment to minimize state and industry reporting burden, EPA's Annual Performance Plans under GPRA contain no new state reporting requirements that were not already negotiated as part of the development of the CPMs. They do contain, however, all measures that we have negotiated with the states and that are appropriate to measurement of annual progress. In short, the NEPPS and GPRA processes reinforce each other. We believe the work we are doing with the states in this area will help to sharpen our focus on meaningful and measurable improvements in environmental quality across the country.

Having reached the third-quarter mark in our first year of implementing an Annual Performance Plan under GPRA, we are now looking towards the point when we will summarize the year's accomplishments in our first Annual Performance Report, which we will submit to Congress in March 2000. This Report represents in many ways the culmination of the efforts I have described. EPA closes the planning-budgeting-accountability loop with an accountability process for performance reporting. This process is in place and is supported by a system that follows, once again, EPA's strategic architecture of goals and objectives. Our approach to accountability has been fully informed by consultation across the Agency and with our partners, and our Annual Performance Report for FY 1999 will reflect the ideas of that extended group. Moreover, the information we develop through our accountability process will be a principal input to future planning and budgeting cycles, ensuring that we plan with a purpose: to select the best routes towards our goals and objectives, addressing any management weaknesses or mid-course corrections as the need arises. I believe EPA is well positioned for the work we will need to do in coming years to tell the story of environmental protection in this country and demonstrate to the public the good value that our programs represent.


Performance budgeting has also presented EPA with some real challenges, and we are committed to meeting them. I would like to outline for you briefly some of the most important ones.

First of all, we acknowledge that EPA has yet to complete a full year's experience within the structures we have created under GPRA. While we are optimistic about the approaches we have selected, we are learning as we go along and will not have the best perspective on our work until we have completed a full cycle of planning, budgeting, and accountability. In some respects, we are evaluating our efforts on a real-time basis and attempting to fine-tune when feasible. Some frustration with the pace of change may be inevitable, as we strive for smoother transitions, better integration of other processes, and consensus on the most effective and efficient ways to implement new processes.

Second, it is clear that environmental results are the product of an extended network of actors, within which EPA serves as leader, monitor, advisor, resource provider, co-regulator, and guide. Revising the architecture on which all of our performance budgeting efforts are based and developing more realistic and useful performance measures will require the commitment and collaboration of all EPA partners and stakeholders. We are eager to continue the work we have begun with states, tribes, local government, other federal agencies, environmental associations, industry groups, and the Congress and OMB to set a good course for the future of environmental and public health protection. The task ahead of us is, nonetheless, formidable, especially as EPA learns to achieve a workable balance among our many roles.

Third, EPA needs to meet the information challenge in order to succeed in performance budgeting. We know that the performance information we collect must be results-oriented, credible, and useful; it needs to support measurement of progress towards our strategic goals and objectives. The range of information we use is as important as its consistency and accuracy. GAO correctly points out the challenges that agencies face in using program evaluation and other techniques to ensure the validity and reliability of performance data. By establishing a new information office that brings together major Agency functions for data collection and data access, EPA expects to resolve some of the most pressing problems in a coordinated way over the next several years.

Fourth, our experience tells us that significant changes in the environment often become manifest only over long periods of time. The results of EPA's efforts, in concert with those of our partners, may not be clearly distinguishable as annual outcomes in the environment. We have taken on the challenge of turning our sights from outputs to outcomes, but we continue to find that the incremental effects of our work are very difficult to describe as the outcome of a single year's efforts. We are confident that EPA's work today makes possible the environmental quality that we will all enjoy in years to come. What we must do is find ways to measure the impact of today's actions on tomorrow's environment.

Finally, EPA needs to think through the connections we establish between costs and results. To translate the use of Agency resources into measurable results is a multi-faceted challenge, since a given year's outcomes are the result of several years' efforts, and for certain resources, the ultimate results will not be apparent for some time. Another problem that is particular to EPA is the difficulty we will have in establishing how funding from other levels of government contributes to environmental results. In addition to EPA's grant support of state, tribal, and local environmental programs, agencies across the country also dedicate their own resources to this work. The issue of ascribing certain results to specific funding sources is vexing and unlikely to be easily resolved.


In closing, I would like to reaffirm EPA's support for performance budgeting and the full range of GPRA activities that support it. My colleagues at all levels at EPA join me in our collective commitment to a clean environment, and we affirm that the Agency's mission can only be accomplished through fiscal responsibility and good management. We are pleased to be recognized for our successes thus far and hope that our experiences can be helpful to colleagues across the government, as we all strive to serve the public effectively and efficiently. We count on your continued support as we tackle the challenges that I have described to you, as well as other challenges that are bound to appear along the way. Thank you for the opportunity to discuss these important issues with you today.


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