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Environmental legislation and the costs of compliance.

Columbus, Ohio, estimates that complying with current federal and state government environmental requirements will cost the city $1.6 billion between 1991 and the year 2000. A study of the annual burden for each of 13 programs shows exactly where and how much the antipollution and clean-up regulations impact the city budget.

A study completed by city officials in Columbus, Ohio, has raised disturbing questions concerning the cost of environmental compliance and the way in which environmental standards are derived. Environmental Legislation: The Increasing Costs of Regulatory Compliance to the City of Columbus, released in May 1991, examines the number of state and federal government environmental mandates affecting the city, the changing nature of environmental mandates and the increasingly aggressive enforcement mechanisms being established by the U.S. Environmental Protection Agency. It reports that the price to the city for complying with current federal and state government environmental requirements is estimated to be more than 1.6 billion during the next nine years. According to the study, much of this money will go to comply with environmental standards that are based on "perceived" rather than measurable health risks.

Among the report's findings are: * There has been a change in federal and

state legislative policy that is having a

significant impact on local government.

More than 75 new federal and state

environmental mandates were implemented

from 1988-1991; prior to 1988,

less than 40 were in effect. Exhibit I

illustrates the steep rise in newly imposed

mandates during the late 1980's. * Additional federal and state mandates

are being passed with little or no

accompanying funding, despite the fact

that their passage places increasing

burdens on local government. For

Columbus and other cities, this means

that an increasing percentage of local

budgets must be allocated for environmental

compliance, leaving fewer funds

for traditional government services and

allowing city leaders less freedom in

budgeting. * The study estimated that 10.6 percent of

the city's 1991 budget, or $62 million,

was spent for environmental compliance

on the regulations studied. In 1995, the

study estimated, this total will rise to

$107 million, or 18.3 percent of the city

budget. Environmental compliance costs

for the years 1996-2000 will average

$135 million annually, or 23.1 percent

of the total budget, according to the

study. * The federal government is actively

pursuing compliance with federal

mandates. The U.S. Environmental

Protection Agency (EPA) has undertaken

an aggressive enforcement policy, this is

illustrated by the fact that 1990

accounted for 25 percent of all fines ever

levied by the EPA. In one recent

enforcement adjudication, the city of

San Diego was fined $500,000, made to

pay $2.5 million into a water

conservation program and forced to

spend $2.5 billion for secondary sewage

treatment capacity. Efforts to improve

compliance have been further

strengthened by recently enacted laws

giving private citizens the right to take

direct enforcement action aainst

violators of environmental regulation.

A Shudder and a Study

The Columbus study grew out of discussions on required environmental clean-up costs for a particular city site, as mandated by the Resource Conservation and Recovery Act (RCRA). While the city officials' most immediate concern was solving the RCRA site clean-up question, they knew that there were other pressing environmental needs that were going to cost the city significantly, and they set about gathering preliminary data. When they reported at a mayor's cabinet meeting that the figure initially estimated to be about $2 million would most likely be closer to $65 million, a little shudder went through the cabinet members.

The outcome was the establishment of a committee to determine costs for compliance with all applicable environmental laws. The Environmental Law Review Committee, formed in February 1991, consisted of representatives from the Health Department, Office of Management and Budget, City Attorney's Office, Public Service Department, Planning Department, Water Department, Sewerage and Drainage Department, Public Safety Department, Refuse Collection Division, and Recreation and Parks Department. A former city finance director, who was working for a prominent local law firm, was named as the Columbus City Council representative.

The committee was given five distinct charges: 1) identifying all known federal environmental legislation affecting the city; 2) identifying all known state environmental legislation affecting the city; 3) determining the yearly costs to the city of these federal and state laws and regulations; 4) determining the total cost to the city over a determined time span; and, 5) developing recommendations to improve the city's ability to adequately cope with the federal and state environmental legislation affecting the city.

During the four months of the study, committee members identified the potential costs to their departments resulting from applicable environmental legislation. They pinpointed 14 environmental laws or areas requiring substantial compliance dollars as the result of continued passage of new amendments and regulations. In addition to RCRA, these included the Emergency Planning and Community Right to Know Act; the Clean Water Act; the Clean Air Act; the Safe Drinking Water Act; Federal Rivers and Harbors Act; Federal Insecticide, Fungicide and Rodenticide Act; Toxic Substances Control Act; the Occupational Health and Safety Program; and regulations dealing with underground storage tanks, municipal solid waste management, solid waste landfill explosive gas monitoring, infectious waste and asbestos in city buildings.

It rapidly became apparent that the total price tag would be staggering. Committee members' initial "guesstimates" of $200 or $300 million very quickly grew to $500 million and continued racheting upward as the data accumulated. The committee calculated a cumulative price of $1 billion in 1991 dollars through the year 2000, a figure that is not adjusted for inflation. The more likely figure of $1.6 billion assumes a 7 percent annual inflation rate, which is not unusual for items falling within the "environmental" category. The $1.6 billion total was thought to be too low, as well, due to the fact that there were more than 600 new regulatory rules in various stages of development which the study had not addressed. Exhibit 2 presents the committee's projections of annual and cumulative costs for each of the mandate areas. It also calculates the percentage of the total city budget that these mandated costs would consume each year and over the nine-year period.

Who Will Pay the Bill?

Approximately 82 percent of the total cumulative costs identified fall within enterprise funds, with most of the monies going toward complying with the Clean Water Act and Safe Drinking Water Act. The good news, for city officials, is that these costs will be recovered through rate adjustments; the bad news is for the consumers, who will find their rates rising sharply in the future.

Exhibit 2 also identifies the projected costs that fall within non-enterprise finds; the vast majority of these will be needed to comply with solid waste disposal mandates. Significant expenditures also will be needed to comply with RCRA mandates.

What this means to individual Columbus citizens is that they can expect to pay substantially more in fees and/or tax dollars as a direct result of environmental mandates. The report points out that the cost per Columbus household for this purpose could increase from approximately $200 in 1991 to greater than $850 in the year 2000, under the 7 percent growth scenario, or to about $650 at a 4 percent growth rate, as shown in Exhibit 3.

Committee members found that rising compliance costs do not seem to be scientifically tied to significant health benefits. In the report's words:

Determining the benefit is not a simple

matter. . . . It appears that both on a

national and state level accurate and

reliable data might be available on

how to measure specific pollution

levels of a particular substance, but

unfortunately there does not appear to

be adequate information to evaluate

the impact of the pollution standards

as they relate to health data. This has

led to standards being established

based upon obtaining a particular level

of exposure and a "perceived" risk to

an individual or an exposed species of

animal. In such cases, the established

exposure levels are set at very conservative

levels which in turn usually

require a substantial outlay of financial

resources to obtain compliance.

When the accurate data is not available

to adequately measure specific

exposures to a targeted population, it

is impossible to ... [evaluate] the

impact of the regulated substance on

the exposed subjects. This then leads

to the third major question that is

consistently asked of regulatory

agencies, "What is the impact of this

substance on the public?" Because they

are not able to answer this question,

the legislators take the conservative

route and adopt a minimal exposure

limit. Unfortunately, in most cases the

new lower limit is set at a level that

substantially increases the cost to

obtain compliance.

Because of these problems, the legislative

process is oriented more to

public pressure and special interest

groups instead of to a risk or science-based

system.

As an example, Columbus' assistant health commissioner, who served as working chairman of the committee, points to atrizine, a corn herbicide. The Clean Water Act mandates that the level of atrazine in the city's drinking water be reduced to a level of less than three parts per billion (ppb)-the equivalent of one-half of an aspirin tablet in a 16,000 gallon railroad car. It would take an individual drinking one-half gallon of water per day 88 years to reach the three parts per billion level. Even then, that individual would suffer no proven adverse health effects because the EPA's three ppb level represents a safety factor of 1,000. And the cost to Columbus to achieve this standard? In order to meet the permitted atrazine level, the city will need $16 million of capital expenditures in 1992 and require annual operating costs of approximately $2.4 million.

The EPA does not dispute the contention that environmental compliance costs will be increasing. The agency has itself estimated some of the these costs as part of the regulatory process. However, in many cases, its estimates have proven to be grossly understated. One such example is the EPA's estimate of National Pollution Discharge Elimination System (NPDES) permit application costs. The EPA's estimate, published in the November 16, 1990, Federal Register, is that an average permit application for a large municipality would cost $76,681 and require 4,534 hours to prepare. The actual low bid for the City of Columbus for this work totaled $1.8 million, with an estimated completion time of 17,784 hours.

What to Do?

To address the difficulties resulting from these increasing mandates, the Columbus Environmental Law Review Committee proposed a number of recommendations in five categories: city coordination, education, legislative action, prevention and data gathering. The recommendation relating to city coordination calls for the mayor to establish a standing committee on environmental mandates to address the following areas: * costs and financial: determining the

continuing costs and how such costs are

to be financed; * legislation: coordinating city activities on

the timely response to proposed and

developing environmental legislation; * education: to insure that accurate

information is distributed to the general

public and decision makers about the

impact of the environmental mandates in

a manner which can be understood; * compliance: to insure that the City of

Columbus complies with all appropriate

environmental mandates; and * enforcement: to coordinate any potential

or real enforcement action into a

centralized committee to insure

consistent response to all city action.

The education recommendation maintains the city should establish an education program on the impact of costs and benefits of mandated and proposed environmental legislation/rules: * to show the general public what benefit

will be received for the dollars spent on

environmental mandates and to inform

the public of city efforts to prevent

environmental costs and hazards; * to show legislators, rule makers and

political leaders the real health benefits

gained from mandates or proposed

environmental legislation and to inform

them of city efforts to comply with

environmental mandates; and * to give department and division

administrators information on which to

base decisions affected by environmental

mandates.

The report calls for the city to take an active role in the state and federal legislative and rule making processes affecting environmental issues, recommending that the city: * develop policies to promote coalition

building by city agencies that are

affected by environmental issues; * encourage network development through

technical and professional associations; * establish ongoing working relationships

with legislators at both federal and state

levels through agency contacts and/or

the employment of a lobbyist; and * allocate resources to effectively analyze,

evaluate and comment as apropriate on

proposed federal and state rules.

Concerning prevention, the committee recommends that the city implement programs to minimize the adverse impacts of improper waste disposal activities and insure proper procedures in acquiring new land and buildings. The study asserts the city should provide adequate levels of training to all employees, as appropriate, concerning environmental regulations and compliance with these regulations. It also recommends that the city not acquire any land or easements without first having an environmental audit completed on the site.

Recommendations concerning data gathering maintain that the city must support research that generates data used in the development of environmental regulations and should maintain a centralized clearinghouse for regulatory information. Specifically, the city should: * actively support and participate in data

gathering research with professional,

academic and government entities at the

national, state and local level; * identify and use databases, publications,

reports, etc., that provide regulatory and

other scientific/environmental

information; and, * develop a centralized repository to

receive and disseminate regulatory

information.

A Mushrooming Issue

The study's recommendations were strongly supported by the city administration; the mayor took a very active role in spreading the study's message and moved to immediately implement a number of recommendations, specifically those relating to environmental coordination and education. The new administration which took office January 1, 1992, continues the progress outlined in the report.

Since the study's publication in May 1991, Columbus has become a lead player in an emerging urban controversy pitting the federal bureaucracy against the right of local governments to maintain budgetary control, a mushrooming national issue. City staff receive five to 10 calls per week from other public officials nationwide inquiring about the report and its findings. The 400 original copies of the study were quickly distributed and a second run of 1,000 was recently completed. The findings have been presented to the major editorial boards in Ohio, to national and state officials, and featured at a host of conferences of local, state and national government organizations.

Although future local costs of compliance are cause for concern to Columbus officials, equally important is the message that federal and state governments can mandate a certain course of action without providing the necessary funding. The public has not generally been aware of the problem because mandate costs have traditionally been hidden as expenditures which are seen simply as obligations addressed through general tax or fee payments. However, Columbus officials feel it is inevitable that public awareness will increase as more and more of these mandates are passed down to the local level and the fiscal stress on America's cities worsens. Publication of their study, they say, is the first important step in this process.

AN ENVIRONMENTAL SERVICE FEE?

The City of Columbus' assistant health commissioner, having served as working chairman of the Environmental Law Review Committee, concludes that this system of federal and state government unfunded mandates is at the crux of the problem of Columbus' skyrocketing costs of environmental compliance. "There will be no fundamental changes until accountability is restored to the process," he claims.

To do this, he advocates establishment of an environmental service fee, which would link environmental mandates to required expenditures. Such a fee would force the public to understand exactly what it is paying for. Ultimately as costs continue to rise and pressure mounts for some type of relief, he says, elected officials would re-examine the cost-benefit equation as a valid criteria in debating whether to establish more stringent environmental standards. He recognizes the difficulties in getting local officials to establish a system which results in added costs to their constituents, but he does not think they have a choice.
COPYRIGHT 1992 Government Finance Officers Association
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:includes related article; compliance to Environmental Protection Agency regulations will cost Columbus, Ohio $1.6 billion until the year 2000
Author:Hicks, Richard C.
Publication:Government Finance Review
Date:Apr 1, 1992
Words:2685
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