Chairman GLENN. Speak for yourself, Senator. [Laughter.] Senator LEVIN. Oh, you are talking about the House of Representatives.

Mr. SWAIN. My memory fails me as to where that provision originated, Senator, but I can say that it was not in this Committee. So they wanted to sort of give the flavor of judicial review, but not really very much and-

Senator LEVIN. I want to get to your position. Are you saying that if the allege inadequate administration of the law, that that should be the subject of judicial review, or only the total failure.

Mr. SWAIN. No, I would phrase it in terms of where somebody challenges the adequacy of the compliance. In other words, that might be either a certification or a very superficial analysis, where the analysis ought to be greater.

Senator LEVIN. It is very broad judicial review clause that you are recommending, and I just wanted to make sure I got it. It is not just the total failure, but it is the adequacy.

Mr. SWAIN. Senator, I am very sensitive to the importance or writing a rule with some sort of predictable scale. I am not intending to advocate a very broad standard, but I would advocate something a little bit broader than outright failure of any compliance, and I would be happy to work with anybody to work out a proper approach to that.

Senator LEVIN. Thank you.

Thank you, Mr. Chairman.

Chairman GLENN. I ought to turn all this over to my learned lawyer friend, Senator Levin here, but let me ask a question in this area anyway.

It would seem to me that there is a difficulty with asking for judicial review and at the same time acknowledging that we have a great lack of information available on local governments. I am not sure how a system of judicial review works if we are judging Reg Flex analyses which, by your own admission, would be extremely difficult to carry out.

That is the reason I made my remark before about this being a lawyers' full employment act. If we added judicial review, judges and the courts would be adjudicating all sorts of things or lawyers litigating all sorts of things on which we have very little datauntil that is, we develop a better body of facts on what the local governments' capabilities and situations are.

Are there any other ways that you might suggest in which we could augment this information on local governments which would make strict compliance with the Regulatory Flexobility Act more realistic, short of the judicial approach?

Mr. SWAIN. I am not suggesting, Senator, that the judicial approach is the only approach, as has been stated by Mr. Morgenstern and all other witnesses. The law works pretty well now, and I think it could be improved in some ways. Certainly short of changing the statute, one of the ways would be development of more information about how rules affect small towns. That seems to me to be developed in two ways.

One is the way Mr. Morgenstern has already stated, that EPA on its own has done sectral analysis of, among other sectors, the impact of rules on local government. The other way is to address

the complaints that bubble up from the trade groups, such as when a trade group comes in and says if you regulate landfills in such a way as you are proposing, it will cost us "X" amount of money. Frankly, good rule-making results from a combination of both of those ways of developing information.

Chairman GLENN. Dr. Morgenstern, do you look forward to having judicial review enacted?

Mr. MORGENSTERN. Mr. Chairman, the EPA does not support a judicial review. We believe this would cause unnecessary confusion and compromise our resources. The statutes under which EPA regulates already explicitly deal with how costs should be considered and these determinations are already subject to judicial review. Requiring any further analysis would be the redundant and cause the agency loss of time or would potentially conflict with requirements of other statutes.

Chairman GLENN. Thank you, gentlemen. We may wish to submit more questions for the record from members who are not here this morning. We had a slight disagreement in that last particular area, and we will end this panel on that note.

Thank you very much. We look forward to getting an early reply to any questions we submit to you.

Mr. SWAIN. Thank you, Mr. Chairman.

Mr. MORGENSTERN. Thank you.

Chairman GLENN. Our last set of witnesses this morning is led by Elliot Schwartz, Acting Assistant Director for the Natural Resources and Commerce Division, Congressional Budget Office.

Mr. Schwartz, we appreciate your patience in bearing with us this morning. It has been a rather long hearing, and because of other commitments we had to get started late, at 10 o'clock, so we appreciate your bearing with us.

If you would introduce your cohorts with you, we would appreciate it.

TESTIMONY OF ELLIOT SCHWARTZ, ACTING ASSISTANT DIRECTOR FOR NATURAL RESOURCES AND COMMERCE DIVISION, CONGRESSIONAL BUDGET OFFICE,1 ACCOMPANIED BY ROGER DOWER, CHIEF, ENERGY AND ENVIRONMENT GROUP, AND FRANCES SUSSMAN, STAFF MEMBER

Mr. SCHWARTZ. Thank you, Mr. Chairman.

I would like to introduce my colleagues. On my left is Roger Dower, Chief of our Energy and Environment Group, and on my right is Dr. Frances Sussman, author of the staff working paper that we are releasing today. With your permission, I would like to have that paper included in the record.2

Chairman GLENN. The paper will be included in the record in its entirety.

Mr. SCHWARTZ. Thank you, Mr. Chairman.

I am pleased to appear before this Committee to report on work in progress by the Congressional Budget Office on environmental federalism. Programs to protect the environment are increasingly shared by Federal, State and local governments.

1 See p. 350 for Mr. Schwartz' prepared statement.

2 See p. 503.

At every governmental level, constraints exist on the resources that can be devoted to both existing and emerging problems. My testimony today highlights some of the trends in environmental federalism and reviews some specific criteria that may help guide the Congress in making decisions concerning the role of governments in environmental protection.

My remarks, as I said, summarize the staff working paper prepared at the request of the Committee.

As others have testified, the relationship between Federal, State and local governments in the field of environmental protection has changed profoundly over the last 30 years.

If I can turn to the topic of program responsibility, most States now run their own air program under the Clean Air Act, and 39 States run permit programs as required by the Clean Water Act. More than 40 States administer all or part of hazardous waste programs under the Resource Conservation and Recovery Act. The role of the Federal Government has shifted to maintaining a strong role in enforcement, to overseeing and approving State plans, and to providing technical guidance and funds for research.

In the newer environmental programs, States are responsible for initiating many of the regulatory actions for control of toxic pollutants in the air, both outside and inside homes, for protecting groundwater quality and quantity, and for limiting nonpoint-source pollution of surface waters.

This evolution of program responsibility is reflected in the funding for environmental programs. While total environmental programs budgets for Federal and State Governments combined have increased in recent years, the mix of Federal and State funds has changed.

Compared to 10 years ago, EPA's operating budget for the major air, water, and hazardous and solid waste programs has declined in real terms that is calculated in constant 1987 dollars from a peak of $1.1 billion to around $800 million. Federal grants to States have also decreased by almost half, from almost $500 million in 1979 to around $250 million in 1987.

Meanwhile, estimated State expenditures in these areas, excluding money from Federal grants, rose from around $200 million in 1982 to over $400 million in 1986. Thus, States are funding a growing portion of the Nation's environmental programs. In 1982, EPA program grants to States covered approximately half of total State expenditures on air and water quality and three-quarters of State hazardous and solid waste management costs. By 1986, the Federal portion had dropped slightly for air quality and had declined to one-third for water quality programs and to 40 percent for waste management.

These changes in program and funding responsibility have not come without costs. As we have heard this morning, many States and municipalities complain that they are overburdened by their new responsibilites and are or will be unable to raise the necessary revenues to continue to manage and enforce existing programs or develop new ones.

The roles for Federal, State and local governments in environmental protection have not yet been fully defined. Governmental roles in the more mature air and water programs continue to

evolve. Newer environmental programs present an even cleaner slate for defining governmental roles. The ultimate assignment of responsibility for environmental protection among different levels of government will determine, in large part, the types of programs that are developed, the effectiveness of these programs, and the level of environmental quality achieved.

To assist the Congress in determining what is the most appropriate division of effort among the different levels of government, our working paper reviews a set of broad economic guidelines. These guidelines argue for a division that promotes levels of protection and types of programs that are efficient and also equitable.

By efficiency, we mean that a program should balance benefits and costs, that benefits should be achieved at the lowest cost possible, and that benefits should accrue to the people and groups who place the most value on them. By equity, we mean a fair distribution of benefits and costs.

For example, equity may imply that the costs of environmental programs should be borne by those with responsibility for the problems to the extent that they are able to do so. Equity also implies that the benefits of environmental programs should be evenly distributed among different groups.

In general, the level of government best suited to running environmental programs is the level that is best able to assess costs and benefits accurately and to act on that assessment to produce environmental programs that are both efficient and equitable. Levels of government typically vary in their abilities to do this.

Smaller units of government tend to be closer to the environmental problem and to the persons and firms affected. As such, they may have better information on local circumstances and thus be able to assess costs and benefits more accurately. If so, they may be able to provide programs that better address specific local problems and circumstances. Smaller units of government may also have an advantage in terms of flexibility and the ability to provide more innovative solutions to environmental problems. These same characteristics may also enable lower levels of government to be more responsive to equity concerns.

Larger units of government, on the other hand, may be able to provide more efficient and equitable environmental protection under certain circumstances. If a substantial number of people and firms receiving benefits or incurring costs under a program are located outside the boundary of a jurisdiction, it is less likely that the local government will take into account the preferences of these groups and accurately assess the level and distribution of the costs and benefits.

In addition, some activities require substantial amounts of technical information. Small governmental units may not be willing to incur the costs of developing or acquiring this information. Finally, a program may have economies of scale in administration or construction, as in issuing permits or building wastewater treatment plants. If so, then larger government units may be better able to capture these economies and provide lower-cost service.

The degree to which these guidelines will give preference to one level of government over another depends on the specific program activity and environmental problem. Consider, for example, the

task of setting standards. Variations in local standards allow flexibility in responding to unique regional circumstances, and allow the adoption of environmental quality levels that reflect local benefits and costs. On the other hand, uniform national standards provide a minimum standard of health for everyone, and thus may be justifiable on other than efficiency grounds.

As another example, it is often assumed that the governmental unit responsible for daily implementation of a program is in the best position to develop the most appropriate methods for funding it. This may not always be equitable and efficient. The costs of program management and compliance imposed by Federal regulations may be substantial at the State and local levels.

The burden of complying with these regulations may also be unevenly or unfairly distributed among jurisdictions; if so, then additional Federal support may be justified on the basis of equity and as a mechanism for persuading State, and local governments to comply with national regulations.

That, Mr. Chairman, ends my testimony. Thank you very much. Chairman GLENN. Thank you very much. We appreciate the report and the work that has been done on it; it will be included in the record in its entirety. We appreciate your response to our request to do the report for the Committee.

Would you use the criteria you laid out in the second half of your testimony and the report, to evaluate the allocation of the responsibility you described in the first half? In other words, how efficient and equitable is our current distribution of responsibility for environmental programs?

Mr. SCHWARTZ. I am afraid that is a difficult task and one which we have yet to fully finish. That really is the topic of the next part of our study which we will be doing for you.

Chairman GLENN. Let me put it a little differently. I was sitting here speculating that one of the questions we should send to all the witnesses this morning and ask for their comment on is a bottom line threshold question. The actual environmental cleanup and protection is the bottom line. We want to clean up the environment today, and we want to protect it for the future. This is our overall objective.

Now, has the policy of transferring Federal responsibilities back to State and local governments made the cleanup and protection of the environment more difficult, or has it enhanced achieving that objective? What is you opinion?

Mr. SCHWARTZ. As you were talking, I was thinking about the testimony this morning about the leaking underground storage tanks. I think that may be an area where the costs at the local level are very high. I have no way of measuring the benefits myself, but as an economist I would want to look at what the relationship between the benefits of protecting the environment through these kinds of measures of having liability insurance, double lining on tanks and so on, is compared to the cumulative costs of all the people who have to do that.

Mr. DOWER. I might add that your questions is quite broad and intensive, looking across the whole list of environmental problems. I think there are clear successes in certain areas, where the delegation process has worked to the advantage of the environment. I