Statement of
Jan Paul Acton
Assistant Director
Natural Resources and Commerce Division
Congressional Budget Office

Comprehensive Environmental Response,
Compensation, and Liability Act

Subcommittee on Superfund,
Waste Control, and Risk Assessment
Committee on Environment and Public Works
United States Senate

April 27, 1995

Mr. Chairman, Senator Lautenberg, and Members of the Subcommittee, I am pleased to participate in your review of the Superfund program. The Congressional Budget Office (CBO) has previously explored many aspects of the Superfund program for this Committee and others. My testimony today, however, will focus on the likely effects of repealing the retroactive feature of Superfund's liability system.

Proposals to eliminate cleanup liability for legal activities that contributed to a Superfund problem before a certain cutoff date can take many specific forms. To illustrate the set of possibilities, CBO analyzed two alternative cutoff dates: January 1,1987, as used in some recent reform proposals, and January 1, 1981, based on the December 1980 passage of the Superfund law. We also considered the implications of whether to reimburse liable parties for the costs of cleanup work they conducted under agreements with the Environmental Protection Agency (EPA). One policy would reimburse liable parties for ongoing costs incurred under existing agreements, but not for money spent before the change in the liability system. A second alternative would reimburse neither ongoing nor past costs; a third would reimburse both.

Proponents of a cutoff date for Superfund liability want to eliminate the perceived unfairness of retroactivity and to reduce or eliminate the "transaction costs" of funding cleanup through a liability-based system. The main trade-off implied in their proposals is the loss of cleanup funding from the liable parties. Making up for that loss would require some combination of cost savings, increased federal spending, and reductions in the pace of cleanup.

The desirability of such a trade-off hinges in part on the size of the various effects. CBO's analysis leads us to the following observations and estimates:

• The liability faced by Superfund's "potentially responsible parties" (PRPs) arises mostly from actions that occurred before 1981 and almost entirely from actions before 1987. Using the best information available about today's sites, CBO estimates that 70 percent of all Superfund liability could arise from pre-1981 activities and 95 percent from pre-1987 activities.
  
  
• Transaction costs currently represent an estimated 27 percent of all federal and private Superfund spending. The effect on those costs of a liability cutoff for legal activities at Superfund sites would depend not only on the cutoff date but also on the extent of illegal activities, which may be a factor at one-third to one-half of nonfederal sites. Under favorable conditions, with liability repealed through 1986 and little investigation or litigation about the legality of past actions, transaction costs would fall dramatically--perhaps by $1 billion per year. Alternatively, with a 1981 cutoff date and frequent questions of legality, transaction costs would fall much less or even increase.
  
  
• Whereas any savings in transaction costs would accrue primarily to the private sector, the government would face increased costs because of the shift in responsibility for cleanup. Given that the cleanup plans EPA issues for each site tend to underestimate actual costs, that shift could amount to $1.6 billion annually for a 1987 cutoff or $1.3 billion for a 1981 cutoff. By contrast, the 1995 appropriation for Superfund was $1.4 billion. Such sharp reductions in PRP liabilities would make Superfund largely or almost entirely a public works program.
  
  
• The issue of reimbursement for past or ongoing PRP costs poses difficult policy choices. On the one hand, not providing reimbursement may be seen by some PRPs as inequitable and may encourage individuals to defer complying with future laws and regulations. On the other hand, providing reimbursement would require establishing criteria for acceptable documentation and reimbursable costs, and could add as much as $13.5 billion in federal outlays for a 1987 cutoff or $9.9 billion for a 1981 cutoff.

The rest of this statement reviews Superfund's current liability system and discusses the basis for the estimates just mentioned.

This document is available in its entirety in PDF.