In the fall of 1997, the Environmental Protection Agency (EPA) did what many organizations do: It released a strategic plan outlining its mission in terms of broad goals, along with objectives for achieving those goals.
At the same time, the EPA did what few others-- especially in government--do: It ripped apart its budget and rewrote it, aligning every dollar with the performance goals and objectives in the strategic plan.
The result? The EPA's fiscal 1999 budget was the first ever by a federal agency to directly link allocations to strategic goals. Instead of listing expenditures by functional programs and offices, the EPA budget's line items are aligned to such targets as reducing air toxic emissions by 75 percent by 2010. "We had a great strategic plan, but it was not reflected in the annual budget decisions," says Sallyanne Harper, the EPA's CFO until this past January. (Harper is now chief mission support officer of the U.S. General Accounting Office.) The new system, she says, will help the agency allocate its $7 billion annual budget "more effectively and efficiently."
The EPA's efforts were prompted by the 1993 Government Performance and Results Act (GPRA), which mandated 25 cabinet departments and major federal agencies to demonstrate--by comparing results against baselines the agencies would establish--exactly what taxpayers get for their money. Although it's too early to gauge fully the success of the overhaul, since environmental goals are intrinsically long-term, the effort is drawing accolades. The EPA has made the connection between today's money and tomorrow's results "transparent," says Edward Kratzer, an assistant director at the General Accounting Office (GAO), who regularly reviews the EPA budget. Adds John Callahan, CFO of the Department of Health and Human Services, "The EPA is traveling down that road in a very vigorous fashion. Clearly, it is on the cutting edge."
Moving An Iceberg
Implementing the new format meant first undoing a tradition of inertia (see "Baby Steps," July 1996). "In the old days, there was a tendency to 'stovepipe' at the EPA, as well as at other agencies," says Callahan, referring to the way individual programs were often left untouched in agency budgets, year after year. "As long as the books balanced, that was it."
At the EPA, says Harper, who joined the agency in 1987 and was elevated to CFO in 1995, the process was akin to an iceberg. The few attention-getting programs--new or controversial ones--might be examined closely at appropriations time. But, "everything underneath was just moved forward without discussion," she says. Meanwhile, program managers in budgeted programs would simply spend their allocations, reporting back on how many permits were issued, standards written, inspections done, or citations made. Additional funds would be appropriated if the government requested more permits, standards, inspections, or citations.
But starting with the fiscal 1999 budget, which was submitted in 1997, Harper insisted that program managers show where their money was going--not in terms of projects, but in terms of the EPA's newly created strategic plan. That plan, drawn up under the direction of EPA administrator Carol M. Browner, enumerated 10 agency goals --broad aims such as clean air, safe water, and improved waste management. It also broke those goals down into objectives and subobjectives, and presented the agency's strategies for accomplishing them. For example, by 2005, the EPA expects 95 percent of the population to be served by water systems that meet federal standards, compared with 81 percent in 1994.
And to monitor progress toward those goals, Harper created what's known as the planning, budgeting, analysis, and accountability (PBAA) system to oversee how the EPA's 18,000 staffers collect data, track it against strategic goals, and determine the cost- effectiveness of their efforts. The goal, she says, "is to provide program managers and senior policy decision makers with real-time information with which to make good strategic choices." And, ultimately, says Peter D. Robertson, former acting deputy administrator, it allows the agency, for the first time, "to report to the Congress and the public on our programmatic and financial performance in annual increments and over the longer term."
Getting that real-time information, however, meant modifying several of the agency's computer systems. A benchmarking exercise that pitted the EPA's planning, budgeting, and financial operations against nine other federal departments, as well as a group of Fortune 500 companies, showed the agency running an efficient operation everywhere but in its financial systems. Harper agrees: "Our financial system was a money pit."
Shoring up the system, however, meant spending another $4 million to $5 million. A new accountability system had to be developed internally to track environmental results over time and link the data with the budget and finance systems. Those systems, which date back more than 10 years, had to be updated to reflect the new budget format without losing all the historical data.
In addition, the agency's old accounting software was found to be inadequate to handle the PBAA's new cost-accounting method. That method, says Harper, will enable the agency to break down both direct and indirect costs associated with each project, and help show "what it actually costs to achieve results." Unfortunately, the EPA's current accounting software system "is really based on a cost-accumulation system; it just slots things into buckets," she says. The EPA is shopping for a new system, she adds, but the products it has tested don't fit a federal agency's needs.
Quieting The Naysayers
Convincing the EPA program heads and regional directors--as well as the various states that receive 46 percent of the agency's funds--that the new budget fit their needs was another challenge. "It's very hard to do strategic planning when you have multiple constituents," concedes Harper.
The problem, she explains, is that several EPA programs, including water, toxics, and research and development, could compete for funds slated for a single objective--say, cleaner lakes. Consequently, she says, "the major role of the CFO has been to align the competing priorities so that the top managers can make decisions about where they put their resources."
Take the conflict that arose between the centralized environmental programs, such as Superfund, and the 10 regional offices. In most cases, the money flows from the programs to the regional offices, which do the actual work. "As the national program managers were making commitments on what their programs would achieve," says Harper, "it wasn't clear that the regions were going to execute." The regional managers wanted the flexibility to do what they thought was best for their areas, she explains, but that made the program managers look like they couldn't deliver on their promises.
To defuse the situation, Harper brought all of the top people from those programs and regions together at the end of 1999 for a day-and-a- half series of sessions to work out a compromise. They have now put together memoranda of agreement on how to make that process work smoothly.
The other constituents that had to be convinced were the members of the appropriations committee. "The switch to a new structure [for the budget] was absolutely wrenching," says Harper. "Invariably, we had to cross-walk it backward to the old structure for them." Still, the early efforts have impressed those close to the process. "I think they did a really good job" with the 1999 budget, says Frank Cushing, clerk of the House appropriations subcommittee that analyzes and approves the EPA's annual budget. "Every year there will be times when we can't figure out what their budget does because something has moved from being a program to being a goal," he says. "But so far, they've been very responsive and very accommodating."
Not everyone is totally impressed, however. This month, as required by the GPRA, the EPA will issue its report documenting the results of the fiscal 1999 budget against those 357 performance measures. Of the total submitted, however, only 71 were based on true outcomes, such as how many lakes and rivers will be fishable and how many children will have asthma. Those outcomes were derived through a three-year interagency effort. But the majority still track such outputs as number of permits, regulations, or standards.
Consequently, says Kratzer, that first effort lacked sufficient baseline data to allow those results to be verified in the future. In a September 1999 report, the GAO warned of "serious shortcomings in the environmental information needed to manage for results" at the EPA. For example, the EPA has complete data on health effects for only 7 percent of the 3,000 most widely used chemicals. The GAO cited "significant data gaps" in eight problem areas, including pesticides, air toxics, and aquatic ecosystem health.
Harper acknowledges this problem. "It's not going to be a short-term change for [the EPA] to get to the environmental and public-health outcome measures. That's going to take a long time." But others wonder if environmental impact can be judged at all. If Congress appropriates $2 million toward a community's water-treatment plant, says Cushing, "it's difficult to measure how much that contributes to the overall goal" of clean water. "Even though you know you're doing the right thing, you can't measure it at any given time."
There is also an inherent contradiction of long-term planning for an agency that may change its priorities when the country elects a new Administration. Harper expects that "any new Administration will want to review our goals, and it has every right to do so."
In the meantime, before her recent promotion, Harper submitted the EPA's 2001 budget, But, she acknowledges, "we haven't hit the point where it's getting any easier."
The Price of Being Green
The mission of the Environmental Protection Agency is summarized in the following 10 broad, long-term goals, which now form the basis of its operating budget. The agency's 1999 budget of $7.8 billion also included price tags for each goal.
1. Clean air. The air in every American community will be healthy to breathe. ($507 million)
2. Clean, safe water. All Americans will have drinking water that is safe to drink. ($2.8 billion)
3. Safe food. The foods Americans eat will be free from unsafe pesticide residues. ($63 million)
4. Preventing pollution and reducing risk in communities, homes, workplaces, and ecosystems. Pollution prevention and risk- management strategies aimed at cost- effectively eliminating, reducing, or minimizing emissions and contamination will result in cleaner and safer environments in which all Americans can reside, work, and enjoy life. ($259 million)
5. Better waste management, restoration of contaminated waste sites, and emergency response. America's wastes will be stored, treated, and disposed of in ways that prevent harm to people and to the natural environment. ($2.3 billion)
6. Reduction of global and cross-border environmental risks. The U.S. will lead other nations in successful, multilateral efforts to reduce significant risks to human health. ($396 million)
7. Expansion of Americans' right to know about their environment. Easy access to a wealth of information about their local environment will expand citizen involvement. ($159 million)
8. Sound science, improved understanding of environmental risk, and greater innovation to address problems. The EPA will develop the best available science for addressing current and future environmental hazards. ($367 million)
9. A credible deterrent to pollution and greater compliance with the law. The EPA will ensure full compliance with laws intended to protect human health and environment. ($331 million)
10. Effective management. The EPA will establish an infrastructure to set and implement high-quality standards for effective internal management and fiscal responsibility. ($660 million)
The Fine Print
Within each broad strategic goal, the EPA has established several objectives, and even more specific subobjectives, that now form the basis for the agency's budget. Expenditures must now correlate with these intended results.
For example, under Goal 2--clean and safe water--the EPA has listed several objectives. Objective 2.3 reads: "By 2005, pollutant discharges from key point sources and nonpoint- source runoff will be reduced by at least 20 percent from 1992 levels."
Beneath that, the agency has several subobjectives to get to that objective, such as subobjective 2.3.1: "By 2005, annual point source loadings from combined sewer overflows, publicly owned treatment works, and industrial sources will be reduced by 30 percent from 1992 levels."
The strategic architecture does not dictate how the agency should accomplish these targets, leaving it to the policy makers--with the CFO's guidance--to choose the most cost- effective means.