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The environmental crisis: why is cleanup taking so long?

The environmental crisis has ingrained itself into the public consciousness to such an extent that terms such as hazardous waste, acid rain and toxic substances have become part of people's daily vocabulary. Along with this increased awareness has come not only a heightened interest in cleaning up polluted areas but a sense of frustration that billions of tax dollars have cleaned up a relatively small number of Superfund sites.

While the Environmental Protection Agency has identified all the toxic waste sites in the country, it has become overwhelmed by the task of naming the many potentially responsible parties (PRPs). As cleanup costs can be high, the named PRPs want other PRPs identified before costs are assessed. This impasse has brought the cleanup process to a grinding halt, since the high volume of litigation raises costs and delays results. Despite the fact that these disparate issues are valid, the public is no longer willing to tolerate further delay.

However, there is hope. One way to break the litigation logjam is through a financing mechanism known as the periodic payment settlement. Borrowed from the casualty insurance industry, this technique could bring together the EPA and PRPs in negotiated settlements to end litigation and begin cleanup. A Look Back The Comprehensive Environmental Response, Compensation and Liability Act of 1980 (Superfund) earmarked $1.8 billion to identify and ensure the cleanup of hazardous waste sites. In 1986, $8.5 billion of additional funding was allocated through the Superfund Amendments and Reauthorization Act. While the federal government has already spent nearly $10 billion to identify and prioritize hazardous waste sites across the country, explore cleanup methodologies and, in extreme cases, provide the initial funds for cleanup, only a handful of the sites have been cleaned up. Of the approximately 1,200 polluted sites on the National Priority List and the 32,000 potential sites in the EPA's data base, fewer than 50 sites have been completed.

The main reason cleanup takes so long lies in Superfund's "make the polluter pay" principle, which seems logical in theory but does not work in practice. Less obvious reasons have to do with past practices. The EPA, for example, has had difficulty identifying polluters because records are difficult to locate and those found are often incomplete and inaccurate. In addition, many sites were polluted more than 30 years ago when dumping chemicals into the ground was not illegal.

New and evolving technologies have also extended the time it takes to clean up Superfund sites. Experts often disagree on which cleanup method is best for a site. Many times they cannot even agree on the extent of damage at a site, making it significantly more difficult to determine how much the polluter should pay.

The problems of identifying polluters and allocating costs are compounded by another important feature of Superfund litigation: the legal doctrine known as strict, joint and several liability, which holds that one polluter can be held liable for the total cost of cleanup if others cannot be identified or cannot pay. On the plus side, this principle ensures that taxpayers do not make up the difference in the cleanup cost. However, it also pits the EPA, which relies on the U.S. Department of justice for enforcment, against PRPS, which respond by hiring their own lawyers. The result is a predictable mass of litigation that delays the entire cleanup effort and empowers the EPA with the ability to put major corporations permanently out of business.

One might expect PRPs to band together, but that does not occur in many Superfund cases. The process of identifying PRPs shows how the system actually works. Taking Superfund law at face value, it would seem that the burden of locating the potential polluters at a given site would fall on the EPA. Actually, the agency only identifies PRPs based on their ability to pay, leaving them to identify other PRPs. Since under the doctrine of strict liability the deep-pocket PRP could be liable for the whole cleanup tab, it attempts to delay the EPA in an effort to find other PRPs. When found, those PRPs then hire their own lawyers to defend their interests, and the cycle continues.

There are often as many as 100 PRPs to one Superfund site. Ultimately, they will have to reach an agreement with the EPA on the scope of the problem, the appropriate remediation technique and the total cost. But with so many parties, so much technical uncertainty, such extremely high stakes and a pervading atmosphere of "every man for himself," the situation has become unmanageable.

These complexities and high stakes have also driven wedges between governmental entities that might otherwise have worked together in cleanup efforts. Such is the case with the United Chrome Superfund site in Corvallis, OR.

From 1956 to 1984 the city leased an industrial site to United Chrome, a manufacturer of chrome plating. However, not until 1974 did the state's Department of Environmental Quality (DEQ) suspect chromium contamination at the site and begin monitoring the disposal process at the plant, which consisted of depositing wastes in a pit outside the plant. Three years later, city inspectors discovered chromium in the surface water of the plant and reported their findings to the DEQ. Intermittent testing continued for several more years as DEQ inspectors noted further surface-water contamination.

In 1983 the EPA made a list of PRPs for Superfund sites in Oregon; heading that list was United Chrome. In 1983 and 1984, the EPA twice notified United Chrome that the company violated state and federal waste-handling standards and assessed civil penalties. While the company continued to operate and work with the EPA to improve its manufacturing and disposal methods, the EPA drilled several deep wells to determine the extent of the contamination.

In 1984 United Chrome filed for bankruptcy. According to city officials, the EPA assured the city that the company was solely responsible for the pollution. However, in 1987 the EPA notified Corvallis that it might be held responsible for financing the cleanup.

Marianne Shank, assistant city manager of Corvallis, remembers city officials' anger and surprise when the EPA targeted the city for the cleanup. "It was clear the city had not done its homework," she says. "We took the EPA at its word. .."We are both government agencies working for the same goals, but Superfund forced us to take sides against each other."

After the EPA named the city responsible, negotiations ensued during the next two years between both sides over legal and procedural requirements. To make matters worse, the EPA brought in the Department of Justice to enforce its position. "The Department of justice was brought in as the heavy," Ms. Shank says. "It was as if the EPA was saying, 'If you don't get this done, the DOJ is going to slap you with a federal lawsuit.' We found it odd that the DOJ was involved in the process for so long."

While the city negotiated with the EPA, the owner of United Chrome died and his son started a new company at a different site in a city-owned industrial park. According to Ms. Shank, "There was no evidence that the EPA was doing anything to go after United Chrome, and we became the deep pocket. We were under the misconception that Congress did not intend to put municipalities at risk. Instead, we found out that both the federal EPA and the state DEQ were treating us as an industrial private sector."

The city reacted by hiring lawyers to keep it from paying an unfair distribution of the liability. "We have filed lawsuits against United Chrome and a number of smaller PRPs and lawsuits against insurance companies. We also filed a suit against anyone who ever did business with United Chrome-there were at least 300 individual companies. In the meantime, the lawsuits run approximately $150,000 annually for legal costs," Ms. Shank says.

To cover these legal expenses, as well as $500,000 annual cleanup costs, the city has raised its utility customers' rates 40 percent in the past two years, according to Ms. Shank, who estimates cleanup costs will run $7 million to $10 million. In addition, there is no indication as to how long cleanup will take, as that depends on technological innovations and EPA approval.

The citizens of Corvallis learned a painful lesson about the high cost of cleaning up Superfund sites. A PRP's efforts to reduce litigation and delay by negotiating more settlements are continually frustrated by the dynamics of the situation. A PRP might be willing to pay $10 million today if it knew it would be released from future liability at the site. Uncertain as to whether the current problems comprise all the contamination at the site, the EPA is unwilling to grant such a full and final release. In fact, it does not have to as it can order the site cleaned, then sue the PRP for cost recovery.

Periodic payments, which have been used by casualty insurers to settle personal injury claims, is one way of solving the problem. The primary benefits of the approach are reduced cost to the defendant, greater negotiating latitude for both parties and strong financial guarantees to the recipient. Just as it sounds, a periodic payment settlement allows the PRP to make a series of payments over time as opposed to a lump sum payment. Since actual cleanup expenditures may stretch over many years, not all the money is needed at once.

By allowing the PRPs to make deferred payments that match the cleanup expenditures, the EPA helps bring down the total cost of settlement. In practice, the PRPs do not actually make multiple payments. Instead, once the schedule has been decided, they purchase an annuity contract from a major life insurer which guarantees payment to the EPA. This allows the PRPs to eliminate the long-term obligations from their balance sheet and ensures that the EPA will get its money regardless of the future business fortunes of the PRP.

The flexibility of periodic payments offers almost unlimited creativity in devising solutions to seemingly hopeless situations. Trusts can be created to address specific situations and provide safety valves for all parties. For example, in cases in which a PRP fears overfunding and the EPA fears underfunding a site cleanup, they can execute a reversionary trust where the PRP agrees to pay more money but only for a specific use spelled out in the trust. Unused funds would revert back to the PRP.

When honest differences of opinion exist over remediation techniques, the EPA could allow the PRP to try the least costly approach but set specific cleanup measurement targets it must meet. However, it must still fully fund the cost of the more expensive approach advocated by the EPA. If the cheaper method achieves the targets, the extra money would revert back to the PRP. If missed, the money would be used to fund the additional work required. Aside from the cost savings, financial security and flexibility, this approach focuses the ongoing dialogue among the parties on possible solutions as opposed to well-known obstacles.

No matter which approach is adopted, cleaning up the environment will take time, money and commitment. The problem must be understood historically and technically and then approached bravely and creatively. The citizens of Corvallis are not alone in their uncertainty, but they are responsibly facing the reality of the situation. The periodic payment approach may offer communities like theirs the chance to gain control of their liability and their destiny. Kathleen E. Flood is vice president and Henry I. Strong is president of JMW Settlements Inc. in Washington, DC.
COPYRIGHT 1991 Risk Management Society Publishing, Inc.
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Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Author:Strong, Henry L.; Flood, Kathleen E.
Publication:Risk Management
Date:Aug 1, 1991
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