The environment.

The Clinton administration hopes to simplify environmental regulation by giving states a new kind of block grant for "performance partnerships" as well as more say in what to do.

"Cleaner, cheaper, smarter" is the new catch phrase at the Environmental Protection Agency (EPA) as the Clinton administration redefines the role of the agency and the states in national policy.

Starting as soon as October, the president wants the EPA to give states the option of helping to set environmental priorities and changing the way grants ($680 million this year) are spent.

From the perspective of state legislatures, one of the most significant proposals is EPA's suggestion that states may combine two or more environmental grants into one block of federal money for states to use in solving environmental problems.

This would be a dramatic change from the current practice by which agreements between the EPA, its 10 regional offices and state environmental, health and agricultural agencies focus on specific problems - air or water pollution, solid waste, toxic waste, pesticicles and clean drinking water - instead of looking at the "big picture" of cleaning up a state's environment.

Under the White House proposal, states could receive federal funds as "performance partnership" grants. EPA Administrator Carol Browner says that three principles should guide the new state and federal partnership for environmental protection:

* A clear commitment to shared goals and objective assessment of environmental risks.

* Greater flexibility and use of common sense in meeting goals.

* A move away from the pollutant-by-pollutant, crisis-by-crisis approach to dealing with environmental problems toward setting comprehensive statewide environmental priorities.

"By working together, we will be able to find answers to tough questions and arrive at solutions never before thought possible," Browner says. And those solutions should be "cleaner for the environment, cheaper for the taxpayer and industry, and smarter for the future of this country."

The Clinton administration plans to seek authority from Congress to award performance partnership grants to states and Indian tribes in FY 1996 beginning this October. It hopes the new grant system will better coordinate environmental activities that are fragmented throughout various statutes, regulations and programs. The system should also serve to focus resources on top environmental priorities set by each state and tribe.

Using money that would otherwise be allocated to single environmental problems, grants would be given to states that emphasize results in battling pollution problems. The EPA would require states to show how they will meet environmental objectives and requirements. (EPA critics have long accused the agency of "nit-picking" and "bean counting" in its reliance on such things as the number of enforcement actions or permits rather than results.)

States will have to volunteer for performance partnership grants and could choose to combine several related grants, such as five water grants into one. Or states could opt to combine selected EPA grants into one or more performance partnerships covering all water, air, solid waste and hazardous waste programs.

One big advantage to states would be reduced administrative costs and less duplication. The number of application forms and work plans required would be limited, alleviating the separate tracking of expenditures necessary under multiple grant programs. Much of the time spent negotiating the details of the grant would be decreased by consolidating programs. Another advantage would be the flexibility to target state and federal resources to the needs that state officials, not the feds, identify.

Along with the advantages will come some new problems. Even with more federal money, conflict is sure to flare among environmental, health and agricultural agencies when states attempt to set their own spending priorities. State air and water pollution programs now get the largest share of EPA funding, and their supporters will resist any plan that gives them less. Priorities will not be easy for governors and legislators to set. An unanswered question is how all the detailed requirements Congress has put into past environmental legislation will be changed to allow for state flexibility. This will be the key issue when Congress considers performance partnership legislation.

GOVERNORS FIRST?

In the current drafts of proposed legislation that the Clinton administration has not yet sent to Congress, the flexible grants would be applied for and operated through the governor's office. But in the long ran, assertive state legislatures can be major players in setting environmental agendas. At least 36 legislatures have a role in appropriating federal funds. This will allow concerned lawmakers to work with governors and plan statewide priorities for environmental spending.

Under the current grant system - which evolved through 16 federal laws drafted by more than 70 separate congressional committees and subcommittees - environmental problems are handled piecemeal. The EPA often prescribes specific measures to deal with each problem - like air or water pollution - and mandates strict compliance deadlines. States are too often told, for example, exactly how they must design sewage treatment plants or what kind of centralized vehicle inspection and maintenance program they must have by a certain date to control air pollution.

Governors have played a small part in firming up these agreements. And legislatures have not, typically, been involved. One of the reasons is budgetary: State agencies include agreed-upon federal environmental funds in their budgets and then present them to the legislature as a done deal.

At that point, state legislative committees and individual lawmakers often become sideline critics, complaining about federal mandates long after programs have been budgeted and established. With few exceptions, legislators have spent little time developing environmental policy tied to issues covered by federal law.

ESTABLISHING LEGISLATIVE CLOUT

But the last few years have seen a slow movement toward a stronger legislative role in state environmental management. Massachusetts, New Jersey, New York and Minnesota were among the first to pass laws encouraging industries to stop generating pollutants in the first place, helping avoid expensive waste management disposal and clean-up liabilities. Colorado, Indiana, Kentucky and Oregon are among states that now allow industries to do "environmental audits" - voluntary programs permitting a business to identify and report emissions without fear of being penalized for producing excessive amounts.

And the New York Legislature became more environmentally active by ordering a comprehensive study of the state Department of Environmental Conservation by the Rockefeller institute. Legislators asked researchers to concentrate on the department's role, funding, structure and effectiveness.

Shelley Metzenbaum, an associate EPA administrator, believes that, inevitably, future environmental priorities will be set in most states by the federal government, the governor and the legislature working together.

WHAT TO WATCH FOR

No matter what is decided nationally, one thing is certain: State relationships with the federal government will change and the roles state legislatures play will be markedly different.

One state experience provides useful insight. A few years ago, Connecticut was able to put all of its federal and state public health programs under one block grant - much like what is being proposed for environmental funding. There, citizen comment is a vital part of the block grant program. Under the Department of Public Health and Addiction Services, an advisory committee of local constituencies recommends where money should be spent. Should more money be allocated to programs for lead-based paint removal? Or asbestos removal? Or to contain toxic wastes? The recommendations then go to the General Assembly's Public Health Committee, and public hearings are held to involve citizens. The General Assembly acts on the committee's recommendations. The process is considered a big success in Connecticut, public participation is high and new priorities have been identified.

IF CHANGES ARE MADE ...

State officials are waiting to see how Congress will react to EPA's proposals. And some policymakers are concerned that a Republican Congress may not accept Clinton's recommendations. They fear that a congressional proposal will not provide the money nor the analytical tools states need to make tough environmental choices. Another concern is that Congress could remove EPA's enforcement role, limiting the agency to monitoring environmental quality across the country and collecting information on health effects and other data on pollution problems.

As debate simmers on the federal level, proposals will probably surface that include plans that:

* Reduce total funding. Even though President Clinton has proposed increased environmental funding for states in FY 1996, state legislators worry that Congress will assume funding can be cut without reducing program effectiveness.

* Set congressional specifications on what EPA priorities shall be, thus limiting state options under any performance partnership agreements.

* Delay statutory deadlines that states are now required to meet and introduce new detailed state requirements such as risk assessment and cost/benefit analysis.

* Decide performance measures (such as the number of industries adopting pollution prevention initiatives) and environmental indicators (like measurable improvements in air quality) that states will be asked to use. How EPA will measure overall effectiveness of federally funded state programs must also be determined. Clinton's plan calls for EPA and states to determine these measures together.

* Set limits - either by EPA or Congress - on state flexibility as well as decide the nature and extent of EPA oversight compared with the current grant programs.

* Change the role of the 10 regional EPA offices when states take on more responsibility. Heavily involved now in inspections and enforcement actions, the offices could become more "customer friendly" by emphasizing assistance over policing. Over the long term, a legitimate question may be whether the offices should continue to function at existing staff levels if states take on more environmental management responsibilities.

Assuming that Congress acts quickly, states will be entering this brave new world starting Oct. 1.

RELATED ARTICLE: LOOKING AT RISKS AND COSTS

States should keep an eye on an initiative working its way through Congress that would require the Environmental Protection Agency (EPA) to use risk assessment and cost/benefit analysis to set priorities for environmental regulation and funding.

Under proposed legislation, major regulatory decisions would be based on how much a rule would cost to implement compared to how much it might benefit the environment.

Difficulties abound, however, in the use of risk assessment and cost/benefit studies as analytical tools for setting environmental priorities. Quantitative measures of environmental quality are difficult to agree on, data are often suspect and value judgments of considerable complexity must be arrived at.

EPA presently uses cost/benefit analysis in many of its decisions, but it is likely that many current EPA regulations would not meet the strict and often rigid criteria that some of the proposed legislation would require.

If this legislation passes in any form, states will probably want some flexibility to delay federal environmental deadlines while discrepancies can be worked out.

A few states are looking at risk assessment and cost/benefit analysis. Mississippi lawmakers passed legislation to require the Department of Environmental Quality to include risk analysis in the state's environmental plan. New Jersey now requires the Department of Environmental Protection and Energy to assess the costs and benefits of some new regulations.

Ohio, Indiana, Alaska, Missouri and Colorado among others are looking at various ways to increase the role of risk assessment when setting environmental policy. One road block is the high cost of carrying out the analysis.

RELATED ARTICLE: WANT TO VOLUNTEER?

Performance partnerships will be launched by states volunteering to participate. With the next federal fiscal year fast approaching, EPA anticipates that only a few governors will sign up for what will essentially be pilot programs to start on Oct. 1.

North Dakota, New Hampshire and Massachusetts are already participating in a similar pilot program. North Dakota, which has the largest grant, has combined nine programs into one and is finding it a time saver. There was one grant to write instead of nine, and only a single grant to negotiate through the EPA regional office. Accounting has also been simplified because there is only one pot of money to administer.

RELATED ARTICLE: 'RADICAL CHANGE' MAY BE NEEDED

The quest for a cleaner environment can continue in a "more intelligent and effective way," contends a new study of the Environmental Protection Agency (EPA), "but to do so both Congress and the [EPA] should change - in some cases radically - the way they do business."

The study, "Setting Priorities, Getting Results: A New Direction for EPA," was ordered by Congress, conducted by the National Academy of Public Administration (NAPA) and released in April.

NAPA concludes that there will be a slackening of environmental progress unless there are profound changes in EPA's structures and laws.

EPA and Congress need to give states and local governments more responsibility and more authority to make decisions, according to the report.

"Those states that are capable and willing to take over functions from the federal government should have full operational responsibility," the report states. "In these cases, EPA should stay out of the way with no second-guessing."

EPA should maintain "extensive oversight" in states incapable or unwilling to assume responsibility for environmental planning and regulation, it added.

NAPA also suggests that EPA "put its own house in order" by redesigning and improving management to help track activities, evaluate programs and manage staff. It recommends that the agency reorganize its major programs so that they work together instead of separately.

The report blames "overly prescriptive statutes" for pulling EPA in too many directions and urges Congress to stop "micro-managing" the agency.

George Hagevik specializes in pollution prevention and toxics in NCSL's Denver office.