Clinton Proposals Will Rejig Superfund

Business wants some of its court costs and lawyers' fees in Superfund litigation diverted to speeding up the actual cleanup of toxic sites

TOM ROBINSON has a multimillion-dollar liability hanging over his head.

Mr. Robinson heads a small chemical company, Nyacol Products Inc. (NPI), which is on the Environmental Protection Agency's list of ``potentially responsible parties'' for a Superfund site in Ashland, Mass.

That means NPI may be held liable for at least part of the cleanup of the site, which by the EPA's rough estimates, could total $87 million when finished.

NPI is not even accused of contributing to the pollution of the land it operates on, the Nyanza Chemical Waste Dump Site, which was already tainted with heavy metals and volatile organic compounds. Pollution has seeped from the site into the Sudbury River and contaminated the riverbed and fish.

Robinson's dilemma is hardly unique. Across the country, thousands of companies and individuals claiming innocence are tapped as ``potentially responsible parties'' in the 13-year-old Superfund program, which aims to clean up the nation's worst hazardous-waste sites.

In NPI's case, it is potentially liable for the cleanup because when the company was formed, it took on the liability of predecessor companies that are accused of dumping toxic chemicals there, says Johanna Jerison, the EPA's site attorney. She adds that the EPA is investigating whether NPI itself dumped any hazardous wastes.

When government-sanctioned mediation is completed, allocating who owes what, NPI is likely to wind up with some of the cleanup bill. In theory, that could total millions of dollars, but Robinson says the government will factor in NPI's ability to pay.

``But it doesn't mean we'll pay it!'' says Robinson, whose company employs 33 people. ``We're in a no-win situation. Do you just pay to get out of it or do you go to court to fight it, which also costs money?''

For all businesses implicated in Superfund, the program's tough liability rules have had an unmistakable impact on their profit line. Not only can cleanup costs run into the millions of dollars, but also result in years' worth of lawyers' and consultants' fees.

Business also pays for Superfund through taxes that go into a federal trust fund that pays up front for some cleanups. The EPA then seeks reimbursement from the liable parties, when they can be found. The fund collects $1.7 billion a year through petroleum excise taxes, chemical feedstock taxes, a corporate environmental tax, and other fees.

Superfund's cost to business also hits in less direct ways. Large companies with multiple Superfund liabilities have officials who deal with nothing but Superfund. For a small firm, involvement in even one site can pose an enormous distraction to a business-owner or president.

In addition, banks are reluctant to extend credit to companies that face environmental liability, out of concern that they could take on the liability themselves. Without credit, companies cannot get the capital to expand. This, in turn, inhibits job creation, especially in the small-business sector, where most new jobs are being created.

At NPI, Robinson says he has not tried to get any more capital from banks as long as the Superfund cloud has been hanging over the firm.

The stigma of status as a Superfund site also hurts business in a surrounding area. In Ashland, real estate prices plummeted when Nyanza was put on the national priorities list in 1983. Superfund liability has pushed between six and eight already shaky businesses into bankruptcy, an EPA source says.

Does all this mean Superfund is a bad idea? Hardly. American society, through its legislators, has voted to clean up the hazardous-waste sites seen as serious threats to human health and the environment. The problem comes in figuring out who picks up the tab, arriving at sensible cleanup standards, and achieving efficiency without sacrificing quality.

In a report on Superfund, Melinda Warren, assistant director of the Center for the Study of American Business at Washington University in St. Louis, cites a number of factors ``tugging on the reins of economic growth'' in the United States. These include heightened foreign competition, cutbacks in defense, and expanding domestic regulations.

``There is little doubt ... that Superfund deserves a measure of the blame for the slow growth in the American economy,'' Ms. Warren writes. She notes that no other country has a toxic-waste cleanup program that places so much liability on businesses, hurting competitiveness. The tough liability standards lead companies to sue, which adds high lawyers' and consultants' fees to their costs.

Other analysts argue that the costs of Superfund are not as big as they seem, when considered in the context of the national economy and compared with the costs of other environmental programs.

``The cost to most sectors of the economy is not that large, save the potential costs to the property casualty insurance sector,'' said Katherine Probst, a fellow at the environmental think tank Resources for the Future, in congressional testimony last November.

``This is not to take away from the fact that the costs of Superfund to an individual company may be devastating,'' she said. ``However, I think it is important to make clear that, in some ways, we are spending a tremendous amount of time debating the financial implications of a relatively small program.''

In Superfund's first 12 years, the federal government spent $7.7 billion, while the private sector spent roughly $6.3 billion on the program. In contrast, the gross domestic product of the US is more than $6 trillion. Still, the big picture on Superfund provides little comfort to business.

But change is under way.

Congress is gearing up to renew - and in the process reform - the Superfund program, whose funding expires Oct. 1, 1995. For months, reports and reform proposals have been flooding out of industry and interest groups, ranging from the Chemical Manufacturers Association to the National Association for the Advancement of Colored People (NAACP).

One point is already clear: No one is satisfied with a program that has boosted income for some lawyers but completed cleanup of relatively few sites. By September 1993, 217 of the 1,289 sites on the national priorities list had seen completion of construction work related to cleanup. Through January, 56 sites had been completely cleaned up.

At press time, the Clinton administration was preparing legislation to overhaul the program. Features include a new system of arbitration for allocation of responsibility for cleanups, designed to reduce litigation and settle liability questions more quickly and a new trust fund that insurers would pay into to relieve their Superfund liability.

Features also include greater community involvement in cleanup decisions; national standards defining how clean is ``clean;'' and remedies to correlate to how a site will be used in the future.

On the downside for business, the administration is proposing only modest changes in its strict, retroactive, and ``joint and several'' liability system. In short, companies will still be liable for dumping that was legal at the time and took place before Superfund was enacted.

``Joint and several'' liability, which holds that one responsible party can be charged with the entire cost of a cleanup no matter how small its involvement in a site, will be modified. A party that submits to arbitration will pay only for its allocation, while parties that decline arbitration will be held liable for the remaining portion.

Maintaining Superfund's ``polluter pays'' principle is essential, EPA sources and key congressional Democrats say. The federal government cannot afford the whole tab for a program that the Congressional Budget Office (CBO) estimates will cost $75 billion from fiscal year 1993 onward. Key Democrats in Congress have made clear that they will not turn Superfund into a public-works program, as has been proposed by the NAACP and the insurance giant AIG. Such a move would require hefty new taxes.

Key legislators, like Sen. Max Baucus (D) of Montana, chairman of the Senate Committee on Environment and Public Works, say that making polluters pay has deterred pollution immeasurably.

From its inception, Superfund has been dogged by complaints that it is not fair. But, says Ms. Probst of Resources for the Future, ``there probably is no `fair' Superfund financing scheme.... Each of the liability schemes introduces a new element of unfairness.'' If retroactive liability were eliminated, for example, companies that have swallowed hard and paid for cleanups would cry foul and likely launch a new flood of litigation.

Another common complaint against Superfund is its high ``transaction costs'' - fees paid to lawyers and consultants. President Clinton's most famous line about Superfund is, in fact, a slight exaggeration. In his address to Congress last February, he said: ``I'd like to use that Superfund to clean up pollution for a change, and not just pay lawyers.''

In reality, transaction costs account for about 24 percent of the costs connected with a site, according to a new CBO study. This percentage will likely hold in the future, the study says.

The insurance industry has fought hardest against Superfund liability. A 1992 RAND Corporation study found that 88 percent of insurer expenditures on Superfund between 1986 and 1989 was for transaction costs, demonstrating that insurers have paid out relatively little for actual cleanups. Ultimately, that figure could be about 70 percent, according to a more recent RAND study, since lawyers and consultants are more involved at the front end of the process.

Transaction costs can also be especially devastating to small firms that tend not to have in-house counsel and whose finances are less able to absorb such costs. The latest RAND study found that, of companies held liable in Superfund sites, those with annual revenues of more than $100 million reported transaction costs of about 20 percent of Superfund-related costs, while those with revenues under $100 million averaged 60 percent.

Already, certain points of consensus are emerging as disparate interests - business, government, communities, and environmentalists - begin to consider Superfund reform. One is an agreement that cleanup standards reflect the future use of a site. Another is a consensus toward more public input in selecting a remedy.

Though some businesspeople feel that the EPA ``has it in'' for them, Congress and the EPA have sought to ease the burden on business.

Since 1986, the EPA has entered into ``de minimis'' settlements with contributors of small amounts of waste to sites so as to end their Superfund liability early (and thereby save on lawyers' fees). Another form of this, called ``de micromis'' settlements, was introduced last July. The EPA has also begun an acceleration program for Superfund that would allow cleanups to go faster.

The key to Superfund reform, administration officials say, is to balance the interests of business, environmentalists, and communities.

``We as a society have some important decisions to make,'' says a veteran EPA official. ``The chemical industry complains that we're using unreal risk assumptions. But if you talk to environmentalists, they'll tell you we have to overcompensate because of unknown risks.''

The administration faces a tough balancing act indeed.

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