Superfund: Better Financial Assurances and More Effective	 
Implementation of Institutional Controls Are Needed to Protect	 
the Public (15-JUN-06, GAO-06-900T).				 
                                                                 
Under the Environmental Protection Agency's (EPA) Superfund	 
program, parties responsible for pollution bear the cost of	 
cleaning it up. However, these parties sometimes no longer exist,
leaving the problem for others, typically the federal government,
to address. Furthermore, many sites' cleanup remedies leave some 
waste in place, relying on institutional controls--legal or	 
administrative restrictions on land or water use--to limit the	 
public's exposure. GAO was asked to summarize the findings of its
August 2005 report, Environmental Liabilities: EPA Should Do More
to Ensure that Liable Parties Meet Their Cleanup Obligations	 
(GAO-05-658) and its January 2005 report, Hazardous Waste Sites: 
Improved Effectiveness of Controls at Sites Could Better Protect 
the Public (GAO-05-163). GAO's statement addresses the actions	 
EPA could take to better ensure that parties meet their cleanup  
obligations and the long-term effectiveness of institutional	 
controls in protecting the public. GAO's reports recommended,	 
among other things, that EPA (1) implement a financial assurance 
mandate for businesses handling hazardous substances; (2) enhance
its oversight and enforcement of existing financial assurances	 
and authorities; (3) ensure that the frequency and scope of	 
monitoring of controls sufficiently maintain their effectiveness;
and (4) ensure that information on controls reported in new	 
tracking systems accurately reflects actual conditions. 	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-900T					        
    ACCNO:   A55840						        
  TITLE:     Superfund: Better Financial Assurances and More Effective
Implementation of Institutional Controls Are Needed to Protect	 
the Public							 
     DATE:   06/15/2006 
  SUBJECT:   Environmental monitoring				 
	     Environmental cleanups				 
	     Environmental law					 
	     Hazardous substances				 
	     Hazardous waste sites				 
	     Regulatory agencies				 
	     Liability (legal)					 
	     Waste disposal					 
	     Waste management					 
	     Land management					 
	     Internal controls					 
	     Pollution control					 
	     Pollution monitoring				 
	     Superfund Program					 

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GAO-06-900T

     

     * Summary
     * Background
     * EPA Should Do More to Ensure That Liable Parties Meet Their
     * Improved Effectiveness of Controls at Superfund Sites Could
     * GAO Contact and Staff Acknowledgments
          * Order by Mail or Phone

Testimony

Before the Subcommittee on Superfund and Waste Management, Committee on
Environment and Public Works, U.S. Senate

United States Government Accountability Office

GAO

For Release on Delivery Expected at 9:30 a.m. EDT

Thursday, June 15, 2006

SUPERFUND

Better Financial Assurances and More Effective Implementation of
Institutional Controls Are Needed to Protect the Public

Statement for the Record by John B. Stephenson, Director Natural Resources
and Environment

GAO-06-900T

Mr. Chairman and Members of the Subcommittee:

We are pleased to have the opportunity to present the results of our
recent work on the Environmental Protection Agency's (EPA) Superfund
Program and, in particular, with regard to environmental liability issues
and controls at sites where contamination remains in place after
remediation. To protect the public's health, the Congress passed the
Comprehensive Environmental Response, Compensation, and Liability Act
(CERCLA) of 1980, which established the Superfund program to clean up the
most seriously contaminated hazardous waste sites in the nation. CERCLA
requires that parties statutorily responsible for pollution bear the cost
of cleaning up contaminated sites. In many cases, liable parties have met
their cleanup responsibilities. However, parties responsible for cleaning
up some Superfund sites include businesses that no longer exist, having
been liquidated through bankruptcy or otherwise dissolved. Under these
circumstances, companies that caused environmental contamination have left
the problem for others, typically the government, to address. In addition,
at many of the sites addressed under Superfund, EPA has selected cleanup
remedies that leave at least some waste in place because the agency
believes it is impossible, impractical, or too costly to clean up the
contaminated property so that it can be used without restriction. Cleanups
at such sites often rely on institutional controls-legal or administrative
restrictions on the use of land or water at the site-to limit the public's
exposure to residual contamination.

This statement, which is based on two recent reports on hazardous waste
cleanup,1 addresses (1) actions EPA could take to better ensure that
bankrupt and other financially distressed businesses meet their cleanup
obligations and (2) the long-term effectiveness of institutional controls
in protecting the public against residual contamination left in place at
hazardous waste sites, including Superfund sites.

                                    Summary

In August 2005, we reported that EPA faces significant challenges in
seeking to hold businesses responsible for their environmental cleanup
obligations. These challenges often stem from the differing goals of
environmental laws, which hold polluting businesses liable for cleanup
costs and other laws that, in some cases, allow businesses to limit or
avoid responsibility for these liabilities. For example, businesses can
legally organize or restructure in ways that can limit their future
expenditures for cleanups. They can do this by separating their assets
from their liabilities using subsidiaries, for example. While many such
actions are legal, transferring assets to limit liability may be
prohibited under certain circumstances. Such cases, however, are difficult
for EPA to identify and for the Justice Department to prosecute
successfully. Notwithstanding these challenges, EPA could better ensure
that bankrupt and other financially distressed businesses meet their
cleanup obligations by making greater use of existing authorities. For
example, EPA has not implemented a 1980 statutory mandate under Superfund
to require businesses handling hazardous substances to demonstrate their
ability to pay for potential environmental cleanups-that is, to provide
financial assurances. Also, EPA has done little to ensure that businesses
comply with the agency's existing financial assurance requirements in
cleanup agreements and orders. Moreover, greater use of other existing
authorities-such as tax offsets, which allow the government to redirect
tax refunds it owes businesses to agencies with claims against them-could
produce additional payments for cleanups from financially distressed
businesses. Therefore, our report recommended, among other things, that
EPA (1) implement the financial assurance mandate for businesses handling
hazardous substances and (2) enhance its oversight and enforcement of
existing financial assurances and authorities. EPA generally agreed with
many of the recommendations, stating its intent to further evaluate some
of them.

1GAO, Environmental Liabilities: EPA Should Do More to Ensure That Liable
Parties Meet Their Cleanup Obligations, GAO-05-658 (Washington, D.C.: Aug.
17, 2005), and GAO, Hazardous Waste Sites: Improved Effectiveness of
Controls at Sites Could Better Protect the Public, GAO-05-163 (Washington,
D.C.: Jan. 28, 2005).

Furthermore, in January 2005, we reported that EPA faces a number of
challenges in ensuring the long-term effectiveness of institutional
controls at Superfund sites. For example, institutional controls were
applied at most of the Superfund sites we examined during our review where
waste was left in place after cleanup. However, documentation of remedy
decisions often did not discuss certain factors called for in EPA's
guidance. Relying on institutional controls as a major component of a
site's remedy without carefully considering all key factors-particularly
whether controls can be implemented in a reliable and enforceable
manner-could jeopardize the effectiveness of the remedy. In addition, EPA
faces challenges in ensuring that institutional controls are adequately
implemented, monitored, and enforced. For example, EPA's monitoring of
Superfund sites where cleanup has been completed but residual
contamination remains often does not include verification that
institutional controls are in place. At the time of our review, EPA had
recently begun implementing an institutional controls tracking system for
its Superfund program to improve the agency's ability to ensure the
long-term effectiveness of institutional controls. However, the tracking
system being implemented included data that were essentially derived from
file reviews. These data may or may not reflect institutional controls as
actually implemented, leaving in question whether the public is adequately
protected from health and environmental risks. To ensure the long-term
effectiveness of institutional controls, our report recommended, among
other things, that EPA ensure that (1) in selecting controls, sufficient
consideration was given to all key factors; (2) the frequency and scope of
monitoring efforts are sufficient to maintain the effectiveness of
controls; and (3) the information on controls reported in a new tracking
system accurately reflects actual conditions. EPA generally agreed with
GAO's recommendations.

                                   Background

Under the Superfund program, EPA may compel parties statutorily
responsible for contaminated sites to clean them up or to reimburse EPA
for its cleanup costs. In some cases, however, parties responsible for the
contamination cannot be identified or the parties do not have sufficient
financial resources to perform or pay for the entire cleanup. In the
latter case, EPA often settles environmental claims with businesses for
less than the cleanup costs if paying for the cleanup would present "undue
financial hardship," such as depriving a business of ordinary and
necessary assets or resulting in an inability to pay for ordinary and
necessary business expenses. Furthermore, when parties file for bankruptcy
protection, EPA's recovery of cleanup costs may be reduced or eliminated,
particularly when there are few other parties with cleanup liabilities at
the Superfund site.

In implementing the Superfund program, EPA uses risk management
approaches, such as requiring that certain responsible parties-generally
businesses-provide the agency with evidence of their ability to pay their
expected future cleanup costs because the cleanups often take many years
and the financial position of liable businesses can change during that
time. Financial assurances are meant to assure EPA that the businesses
will have the money to finish the cleanups in the future. Thus, when
negotiating Superfund cleanup agreements with EPA, businesses generally
agree to provide financial assurances aimed at demonstrating their ability
to meet the requirements of the agreements. These financial assurances
include bank letters of credit, trust funds, and, under certain
conditions, guarantees that businesses or their parent corporations have
the financial wherewithal to meet the obligations.

Institutional controls can be a critical component of the cleanup process
at Superfund sites and may be used to ensure short-term protection of
human health and the environment during the cleanup process itself as well
as long-term protection once cleanup activities at the site are complete.
EPA defines institutional controls as "non-engineered instruments such as
administrative and/or legal controls that minimize the potential for human
exposure to contamination by limiting land or resource use." In December
2002, EPA issued draft guidance setting out, among other things, the key
factors to be considered when evaluating and selecting institutional
controls at Superfund sites and responsibilities for implementing,
monitoring, and enforcing institutional controls at these sites. Under
this guidance, EPA generally-although not always-requires that
institutional controls be put in place at Superfund sites where total
cleanup is not practical or feasible. If deemed necessary, these controls
may be combined with engineering controls-such as capping or fencing-to
limit exposure to residual site contamination. For example, the remedy
selected for a hazardous waste landfill may include engineering controls,
such as placing a protective layer, or "cap" made of clay or synthetic
materials, over the contamination and also institutional controls to
prohibit any digging that might breach this protective layer and expose
site contaminants.

EPA Should Do More to Ensure That Liable Parties Meet Their Cleanup Obligations

While more than 231,000 businesses operating in the United States filed
for bankruptcy in fiscal years 1998 through 2003, the extent to which
these businesses had environmental liabilities is not known because
neither the federal government nor other sources collect this information.
Information on bankrupt businesses with federal environmental liabilities
is limited to data on the bankruptcy cases that the Justice Department has
pursued in court on behalf of EPA. In that regard, the Justice Department
initiated 136 such cases from 1998 through 2003.

In seeking to hold liable businesses responsible for their environmental
cleanup obligations, EPA faces significant challenges that often stem from
the differing goals of environmental laws that hold polluting businesses
liable for cleanup costs and other laws that, in some cases, allow
businesses to limit or avoid responsibility for these liabilities. For
example, businesses can legally organize or restructure in ways that can
limit their future expenditures for cleanups by, for example, separating
their assets from their liabilities using subsidiaries. While many such
actions are legal, transferring assets to limit liability may be
prohibited under certain circumstances. However, such cases are difficult
for EPA to identify and for the Justice Department to prosecute
successfully. In addition, bankruptcy law presents a number of challenges
to EPA's ability to hold parties responsible for their cleanup
obligations, challenges that are largely related to the law's intent to
give debtors a fresh start. Moreover, by the time a business files for
bankruptcy, it may have few, if any, assets remaining to distribute among
creditors. The bankruptcy process also poses procedural and informational
challenges for EPA. For example, EPA lacks timely, complete, and reliable
information on the thousands of businesses filing for bankruptcy each
year.

Notwithstanding these challenges, we found that EPA could better ensure
that bankrupt and other financially distressed businesses meet their
cleanup obligations by making greater use of existing authorities. For
example, EPA has not implemented a 1980 statutory mandate under Superfund
to require businesses handling hazardous substances to demonstrate their
ability to pay for potential environmental cleanups-that is, to provide
financial assurances. EPA has cited competing priorities and lack of funds
as reasons for not implementing this mandate, but its inaction has exposed
the Superfund program and U.S. taxpayers to potentially enormous cleanup
costs at gold, lead, and other mining sites and at other industrial
operations, such as metal-plating businesses. Also, EPA has done little to
ensure that businesses comply with its existing financial assurance
requirements in cleanup agreements and orders. Greater oversight and
enforcement of financial assurances would better guarantee that cleanup
funds will be available if needed. Also, greater use of other existing
authorities-such as tax offsets, which allow the government to redirect
tax refunds it owes businesses to agencies with claims against them-could
produce additional payments for cleanups from financially distressed
businesses.

We made a total of nine recommendations in our August 2005 report intended
to help EPA in five areas: (1) closing gaps in financial assurance
coverage that expose the government to significant financial risk for
costly environmental cleanups; (2) ensuring that the financial assurances
EPA requires under the Superfund program provide sufficient funds for
cleanups in the event liable parties do not fulfill their environmental
obligations; (3) ensuring that EPA holds liable parties responsible for
their cleanup obligations to the maximum extent practicable; (4) ensuring
that EPA identifies relevant bankruptcy filings to pursue and bankruptcy
actions to monitor; and (5) more clearly identifying some actions needed
to better protect the government's interest. We specifically recommended
that EPA (1) implement the financial assurance mandate for businesses
handling hazardous substances and (2) enhance its oversight and
enforcement of existing financial assurances and authorities. EPA
generally agreed with many of our recommendations and said that the agency
will further evaluate others.

 Improved Effectiveness of Controls at Superfund Sites Could Better Protect the
                                     Public

Institutional controls were applied at most of the Superfund sites we
examined where waste was left in place after cleanup, but documentation of
remedy decisions often did not discuss key factors called for in EPA's
guidance. For example, while documents usually discussed the controls'
objectives, in many cases, they did not adequately address when the
controls should be implemented, how long they would be needed, or who
would be responsible for monitoring or enforcing them. According to EPA,
the documents' incomplete discussion of the key factors suggests that site
managers may not have given them adequate consideration. Relying on
institutional controls as a major component of a site's remedy without
carefully considering all of the key factors-particularly whether the
controls can be implemented in a reliable and enforceable manner-could
jeopardize the effectiveness of the remedy.

EPA faces challenges in ensuring that institutional controls are
adequately implemented, monitored, and enforced. Institutional controls at
the Superfund sites we reviewed, for example, were often not implemented
before the cleanup was completed, as EPA requires. EPA officials indicated
that this may have occurred because, over time, site managers may have
inadvertently overlooked the need to implement the controls. EPA's
monitoring of Superfund sites where cleanup has been completed but
residual contamination remains often does not include verification that
institutional controls are in place. In addition, EPA may have
difficulties ensuring that the terms of institutional controls can be
enforced at some Superfund sites: that is, some controls are informational
in nature and do not legally limit or restrict use of the property, and,
in some cases, state laws may limit the options available to enforce
institutional controls.

In our January 2005 report, we found that EPA had begun implementing an
institutional control tracking system for its Superfund program in order
to improve its ability to ensure the long-term effectiveness of
institutional controls. The agency, however, faced significant obstacles
in implementing this system. The institutional control tracking system
being implemented tracked only minimal information on the institutional
controls. Moreover, as configured, the system did not include information
on long-term monitoring or enforcement of the controls. In addition, the
tracking system being implemented included data that were essentially
derived from file reviews. These data may or may not reflect institutional
controls as actually implemented, leaving in question whether the public
is adequately protected from health and environmental risks. While EPA had
plans to improve the data quality for the Superfund tracking
system-ensuring that the data accurately reflected institutional controls
as implemented and adding information on monitoring and enforcement-the
first step, data verification, could take 5 years to complete.

In order to ensure the long-term effectiveness of institutional controls,
our January 2005 report recommended that EPA: (1) clarify agency guidance
on institutional controls to help EPA site managers and other decision
makers understand in what cases institutional controls are or are not
necessary at sites where contamination remains in place after cleanup; (2)
ensure that, in selecting institutional controls, adequate consideration
is given to their objectives; the specific control mechanisms to be used;
the timing of implementation and duration; and the parties responsible for
implementing, monitoring, and enforcing them; (3) ensure that the
frequency and scope of monitoring at deleted Superfund sites where
contamination has been left in place are sufficient to maintain the
protectiveness of any institutional controls at these sites; and (4)
ensure that the information on institutional controls reported in the
Superfund tracking system accurately reflects actual conditions and not
just what is called for in site decision documents. EPA agreed with the
recommendations in the report and provided information on the agency's
plans and activities to address them.

                     GAO Contact and Staff Acknowledgments

For further information on this statement, please contact John B.
Stephenson at (202) 512-3841 or [email protected] . Individuals who made
key contributions to this statement include Christine Fishkin, Richard P.
Johnson, Jerry Laudermilk, Les Mahagen, Vincent P. Price, Nico Sloss, and
Susan Swearingen.

(360733)

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Highlights of GAO-06-900T , a testimony before the Subcommittee on
Superfund and Waste Management, Committee on Environment and Public Works,
U.S. Senate

June 15, 2006

SUPERFUND

Better Financial Assurances and More Effective Implementation of
Institutional Controls Are Needed to Protect the Public

Under the Environmental Protection Agency's (EPA) Superfund program,
parties responsible for pollution bear the cost of cleaning it up.
However, these parties sometimes no longer exist, leaving the problem for
others, typically the federal government, to address. Furthermore, many
sites' cleanup remedies leave some waste in place, relying on
institutional controls-legal or administrative restrictions on land or
water use-to limit the public's exposure.

GAO was asked to summarize the findings of its August 2005 report,
Environmental Liabilities: EPA Should Do More to Ensure that Liable
Parties Meet Their Cleanup Obligations (GAO-05-658) and its January 2005
report, Hazardous Waste Sites: Improved Effectiveness of Controls at Sites
Could Better Protect the Public (GAO-05-163). GAO's statement addresses
the actions EPA could take to better ensure that parties meet their
cleanup obligations and the long-term effectiveness of institutional
controls in protecting the public. GAO's reports recommended, among other
things, that EPA (1) implement a financial assurance mandate for
businesses handling hazardous substances; (2) enhance its oversight and
enforcement of existing financial assurances and authorities; (3) ensure
that the frequency and scope of monitoring of controls sufficiently
maintain their effectiveness; and (4) ensure that information on controls
reported in new tracking systems accurately reflects actual conditions.

EPA faces significant challenges in seeking to hold businesses responsible
for their environmental cleanup obligations. These challenges often stem
from the differing goals of environmental laws, which hold polluting
businesses liable for cleanup costs and other laws which, in some cases,
allow businesses to limit or avoid responsibility for these liabilities.
For example, businesses can legally organize or restructure in ways that
can limit their future expenditures for cleanups. They can do this by
separating their assets from their liabilities using subsidiaries, for
example. While many such actions are legal, transferring assets to limit
liability may be prohibited under certain circumstances. Such cases,
however, are difficult for EPA to identify and for the Justice Department
to prosecute successfully. Notwithstanding these challenges, EPA could
better ensure that bankrupt and other financially distressed businesses
meet their cleanup obligations by making greater use of existing
authorities. For example, EPA has not implemented a 1980 statutory mandate
under Superfund to require businesses handling hazardous substances to
demonstrate their ability to pay for potential environmental cleanups-that
is, to provide financial assurances. Also, EPA has done little to ensure
that businesses comply with the agency's existing financial assurance
requirements in cleanup agreements and orders. Moreover, greater use of
other existing authorities-such as tax offsets, which allow the government
to redirect tax refunds it owes businesses to agencies with claims against
them-could produce additional payments for cleanups from financially
distressed businesses.

EPA also faces a number of challenges in ensuring the long-term
effectiveness of institutional controls-legal or administrative
restrictions on land or resource use to protect against exposure to
residual contamination-at Superfund sites. Institutional controls were
applied at most of the Superfund sites GAO examined where waste was left
in place after cleanup. However, documentation of remedy decisions often
did not discuss certain factors called for in EPA's guidance. Relying on
institutional controls as a major component of a site's remedy without
carefully considering all key factors-particularly whether controls can be
implemented in a reliable and enforceable manner-could jeopardize the
remedy's effectiveness. In addition, EPA faces challenges in ensuring that
institutional controls are adequately implemented, monitored, and
enforced. For example, EPA often does not verify that institutional
controls are in place at Superfund sites where cleanup has been completed
but residual contamination remains. At the time of GAO's review, EPA had
begun implementing a tracking system to improve the agency's ability to
ensure the long-term effectiveness of institutional controls in the
Superfund program. However, the tracking system being implemented included
data that were essentially derived from file reviews. These data may or
may not reflect institutional controls as actually implemented, leaving in
question whether the public is adequately protected from health and
environmental risks
*** End of document. ***