Superfund: EPA Has Opportunities to Increase Recoveries of Costs (Letter
Report, 09/28/94, GAO/RCED-94-196).

The Environmental Protection Agency's (EPA) efforts to force responsible
parties to clean up hazardous waste sites have been successful. In
fiscal year 1993, EPA entered into settlements with responsible parties
for cleanups valued at $910 million. However, the agency's attempts to
recover costs from responsible parties when it has already cleaned up a
site have not been as productive. EPA has reached agreements with
responsible parties to recover only $1.2 billion of the $8.7 billion it
spent on the Superfund program through fiscal year 1993. Several factors
account for EPA's low rate of cost recovery. First, EPA has defined
recoverable indirect costs narrowly, thus excluding from its recovery
efforts $2.9 billion of the money it spent. Second, EPA has not set
goals for taking prompt action on cost recovery cases or for recovering
a specified percentage of its costs. In addition, EPA has not developed
information that would lead to better program management, such as data
on cost recovery efforts and negotiation results. In addition, to
recovering a larger portion of its costs, EPA could charge higher
interest rates on the costs it recovers if the law were changed. EPA is
now losing millions of dollars annually because of caps on the interest
that EPA can charge.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-94-196
     TITLE:  Superfund: EPA Has Opportunities to Increase Recoveries of 
             Costs
      DATE:  09/28/94
   SUBJECT:  Environmental policies
             Management information systems
             Data collection operations
             Government collections
             Interest rates
             Environmental monitoring
             Waste management
             Debt collection
             Hazardous substances
             Liability (legal)
IDENTIFIER:  Superfund Program
             EPA National Priorities List
             
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Cover
================================================================ COVER


Report to Congressional Requesters

September 1994

SUPERFUND - EPA HAS OPPORTUNITIES
TO INCREASE RECOVERIES OF COSTS

GAO/RCED-94-196

EPA's Recovery of Superfund Costs


Abbreviations
=============================================================== ABBREV

  CERCLA - Comprehensive Environmental Response, Compensation, and
     Liability Act
  EPA - Environmental Protection Agency
  FMFIA - Federal Managers' Financial Integrity Act
  GAO - General Accounting Office
  NPL - National Priorities List
  OIG - Office of Inspector General
  OMB - Office of Management and Budget
  RD/RA - remedial design and remedial action
  RI/FS - remedial investigation and feasibility study

Letter
=============================================================== LETTER


B-257063

September 28, 1994

The Honorable John D.  Dingell
Chairman, Committee on Energy
 and Commerce
House of Representatives

The Honorable Al Swift
Chairman, Subcommittee on
 Transportation and Hazardous
 Materials
Committee on Energy and Commerce
House of Representatives

The Congressional Budget Office has projected that Superfund--the
Environmental Protection Agency's (EPA) program to clean up the
country's worst hazardous waste sites--could need $75 billion to
clean up a total of 4,500 Superfund sites.\1 So far, the Congress has
authorized $15.2 billion for the Superfund program.  The
Comprehensive Environmental Response, Compensation, and Liability Act
(CERCLA) gives EPA two ways to supplement federal funding for
cleanups.  First, EPA can attempt to compel the parties that
contaminated Superfund sites (responsible parties) to clean them up. 
Second, EPA can recover the costs it has incurred to clean up sites
from the parties that contributed to contaminating them.  The success
of these efforts will largely determine EPA's costs for the Superfund
program. 

In light of concerns about funding for Superfund and in anticipation
of a comprehensive reauthorization of the program, you asked us to
(1) provide information on EPA's settlement and cost recovery
programs and (2) identify the factors that inhibit EPA from
recovering its costs.  In addition, you asked us to provide
historical data on settlements and cost recoveries, which are
included in appendixes I and II. 


--------------------
\1 The Total Costs of Cleaning Up Nonfederal Superfund Sites,
Congressional Budget Office (Washington, D.C.:  Jan.  1994).  The $75
billion is in discounted present-worth dollars. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

EPA's efforts to compel responsible parties to clean up hazardous
waste sites have been successful.  In fiscal year 1993, EPA entered
into settlements with responsible parties for cleanups valued at $910
million.  These settlements include 80 percent of the long-term
cleanups started that year.  However, EPA's efforts to recover costs
from responsible parties when the agency has cleaned up a site have
not been as productive.  EPA has reached agreements with responsible
parties to recover only $1.2 billion of the $8.7 billion it expended
on the Superfund program through fiscal year 1993. 

Several factors account for EPA's low rate of cost recovery.  First,
EPA has defined recoverable indirect costs narrowly, thus excluding
from its recovery efforts $2.9 billion, or one-third of the $8.7
billion it spent.  The excluded indirect costs include costs for
research and development and for the preliminary work to assess
whether a site should be included in the Superfund program.  Although
EPA has been considering broadening its definition of recoverable
indirect costs since 1988 and proposed a rule to accomplish this in
August 1992, the agency has not set a date for adopting a final rule. 

Second, EPA has not established goals for taking timely action on
cost recovery cases or for recovering a specified percentage of its
costs.  In addition, EPA has not developed information that would
help it better manage the program, such as data on cost recovery
efforts and on the results of negotiations.  Such data would be
useful in tracking progress and identifying areas needing
improvement. 

In addition to recovering a greater portion of its costs, EPA could
charge higher interest rates on the costs it recovers if certain
provisions of CERCLA were modified.  EPA is currently losing millions
of dollars annually because CERCLA limits the interest that EPA can
charge. 


   BACKGROUND
------------------------------------------------------------ Letter :2

CERCLA authorizes EPA to either enter into settlements with
responsible parties to clean up sites or recover its cleanup costs
from the parties.  EPA first attempts to reach agreements with the
responsible parties under which these parties will conduct a cleanup. 
If settlements are not reached, EPA can conduct the cleanup, using
Superfund money, and take enforcement action against the responsible
parties to recover its costs.  While CERCLA makes responsible parties
liable for cleanup costs, it does not specifically identify which
costs are recoverable. 

As appropriate, EPA cleans up contamination at sites through either a
removal or a remedial action, or a combination of both.  Removal
actions are usually short-term cleanup actions taken when an
immediate response is required to address the release or threatened
release of a hazardous substance.  Remedial actions are long-term
actions that remove threats to public health, welfare, or the
environment.  EPA considers that its removal costs should be
recovered when it completes the removal.  EPA considers remedial
costs recoverable when it initiates the construction of the cleanup
remedy at the site. 

Under CERCLA's statute of limitations provisions, EPA must generally
file suits to recover costs within 3 years after it completes a
removal or within 6 years after it starts a remedial action.  If EPA
undertakes both removal and remedial actions at the same site, it may
have up to 9 years after the start of the removal to begin action to
recover the costs. 

In past reports,\2 we disclosed deficiencies in EPA's cost recovery
and settlement programs.  We noted the low rate of recovery and the
low priority EPA gave to the cost recovery program.  This low
priority resulted in (1) a backlog of cost recovery cases, (2) a lack
of adequate staffing for the cost recovery program, and (3) an
inadequate information tracking system for measuring the program's
progress. 


--------------------
\2 Superfund:  More Settlement Authority and EPA Controls Could
Increase Cost Recovery (GAO/RCED-91-144, July 18, 1991) and
Superfund:  A More Vigorous and Better Managed Enforcement Program Is
Needed (GAO/RCED-90-22, Dec.  14, 1989). 


   SETTLEMENTS FOR CLEANUPS HAVE
   INCREASED, BUT EPA'S CUMULATIVE
   COST RECOVERY RATE REMAINS LOW
------------------------------------------------------------ Letter :3

EPA has been successful in its efforts to compel responsible parties
to clean up hazardous waste sites.  As shown in figure 1, the
estimated value of settlements with responsible parties rose from
$207.5 million in fiscal year 1987 to more than $1.5 billion in
fiscal year 1992.  According to EPA, the decline in the value of
cleanup settlements in fiscal year 1993--to $910 million--resulted
largely from a decrease in the average cleanup costs for sites for
which settlements were reached. 

   Figure 1:  Estimated Dollar
   Value of Settlements, Fiscal
   Years 1987-93

   (See figure in printed
   edition.)

Source:  GAO's illustration based on EPA's data. 

EPA estimated that during fiscal year 1993, responsible parties
initiated nearly 80 percent of the long-term cleanups at sites on its
National Priorities List (NPL).\3

EPA attributes the success of its settlement program to its
"Enforcement First" initiative, a policy it began in 1989.  This
initiative emphasizes getting responsible parties to perform the
cleanups rather than having the government do them; the government
then seeks reimbursement from the parties.  Under the initiative, EPA
increased its use of unilateral administrative orders,\4 increased
the number of staff assigned to settle cases, and established stiffer
penalties for uncooperative parties. 

However, EPA has not been successful in its attempts to recover its
cleanup costs.  According to EPA's data, the agency spent $8.7
billion in the Superfund program through the end of fiscal year 1993. 
(See fig.  2.) Of the $8.7 billion, $2.9 billion (or 33 percent) is
indirect costs excluded from cost recovery efforts under EPA's
current regulations.  Another $1 billion (or 11 percent) is costs
that EPA has indicated will probably not be pursued or has identified
as probably unrecoverable, mainly because responsible parties either
cannot be identified or cannot pay for their portion of the cleanup
costs.  The remaining 55 percent--$4.8 billion, represented by the
shaded portion in figure 2--is potentially recoverable from
responsible parties.\5

   Figure 2:  Accounting for $8.7
   Billion in Superfund Costs
   Through Fiscal Year 1993

   (See figure in printed
   edition.)

Note:  Because of rounding, the percentages do not add to 100. 

Source:  GAO's presentation of EPA's data. 

According to EPA's data, as of the end of fiscal year 1993, the
agency had achieved agreements with responsible parties or won court
orders to recover $1.2 billion (or 14 percent) of the $8.7 billion.\6
The agency is also seeking an additional $1.5 billion through
litigation, including $271 million in bankruptcy claims.  The
remaining $2.1 billion in costs has not yet been addressed by EPA for
a number of reasons:  For example, in some cases the agency is still
identifying the responsible parties at a site, or the site is in the
early stages of cleanup and the agency cannot yet act to recover the
costs.  An unknown portion of the $2.1 billion will not be recovered
because partial settlements have been made with responsible parties
or because financially viable parties will not be located. 


--------------------
\3 EPA lists its most serious hazardous waste sites on the NPL. 

\4 EPA issues unilateral administrative orders--authorized by CERCLA
section 106--to require responsible parties to undertake a removal or
remedial action. 

\5 Because of rounding, the percentages do not add to 100. 

\6 EPA actually collected $725 million of the $1.2 billion, meaning
that it collected only 8 percent of the $8.7 billion in expended
costs. 


   SEVERAL FACTORS ACCOUNT FOR LOW
   RECOVERIES
------------------------------------------------------------ Letter :4

Cost recoveries have been limited by several factors, most of them
within EPA's control.  EPA has recognized some of these limiting
factors for years but has failed to act on them.  The problems
include the exclusion of large amounts of indirect costs from the
recovery program, the lack of certain goals and information that
would help EPA to better manage the program, and the low priority
accorded the program. 


      EPA EXCLUDED SOME COSTS FROM
      RECOVERY EFFORTS
---------------------------------------------------------- Letter :4.1

EPA's low rate of cost recovery results in large part from the
agency's decision to exclude $2.9 billion in indirect costs from its
recovery efforts.  As we reported in 1989,\7

EPA established the policy early in the Superfund program that it
would not seek certain indirect costs from responsible parties,
including the costs of research and development and of the
preliminary work to assess whether a site should be included in the
Superfund program.  According to a senior Superfund accounting
official, EPA chose this conservative policy because at the time,
there was uncertainty as to which indirect costs were recoverable
under CERCLA.  As a result, EPA and the Department of Justice
(Justice) reached a legal consensus that while indirect costs were
defensible, EPA was more likely to prevail in cost recovery actions
if it used a conservative methodology.  EPA estimates that as of
fiscal year 1993, these excluded indirect costs accounted for $2.9
billion, or one-third of its total Superfund expenditures. 

EPA has continually delayed expanding its definition of recoverable
costs.  A 1987 study by a contractor concluded that EPA should
include certain costs, such as the costs of research and development,
in its definition of recoverable indirect costs.  In August 1988,
EPA's Comptroller proposed to account fully for all indirect costs. 
Although the proposal did not receive unanimous support within EPA
and Justice, in June 1989 EPA's Administrator decided that the agency
should initiate a rulemaking to expand the types of costs that EPA
would pursue in cost recovery actions.  EPA expected to issue the new
rule in July 1991. 

EPA drafted a revised regulation on cost recovery and forwarded it to
the Office of Management and Budget (OMB) for review on March 8,
1991.  The new regulation proposed to make large amounts of the
indirect costs recoverable, including the costs of research and
development and site assessment.  On the basis of comments from OMB,
EPA revised the proposed rule and resubmitted it on November 25,
1991.  OMB did not approve the publication of the draft regulation
until the spring of 1992.  EPA published its proposed regulation for
comment in the Federal Register in August 1992.  The public comment
period was extended to November 4, 1992. 

Industry representatives objected strongly to the proposed rule
because it would have increased responsible parties' costs.  As a
result of these comments, EPA is considering changes to the rule.  In
addition, the agency has been reluctant to issue such a controversial
rule while the Congress is considering the reauthorization of CERCLA. 
EPA officials could not predict when the rulemaking would be
finalized. 

This delay has resulted in a loss of potentially recoverable indirect
costs for the government because cost recovery settlements have been
made on the basis of the current definition of recoverable indirect
costs.  EPA estimates that indirect costs associated with sites for
which settlements have already been reached totaled over $400 million
through fiscal year 1993.  Additional delays in finalizing the rule
will increase the government's loss of potentially recoverable
indirect costs. 

In addition to excluding certain indirect costs from recovery, EPA
excluded hundreds of millions of dollars in contractors' program
management costs.  EPA uses funds from the Superfund program to pay
contractors to conduct studies and undertake cleanup work at sites. 
While most of the contractors' costs are incurred at specific sites
and charged to the accounts for those sites when incurred, some of
the costs are for activities not specific to the sites.  Typically,
these costs are for program management; that is, the costs associated
with the contractors' overall management of efforts that cannot be
attributed to a specific site.  Some of these costs are only incurred
in the first year or two of the contract, such as "start-up" costs or
payments for equipment that is to be used throughout the life of the
contract. 

EPA's delay in developing a process for allocating these program
management costs to sites also resulted in a loss to the government. 
Although the agency began to develop such a process in 1987, it did
not actually implement the process until April 1993.  By then, these
program management costs totaled $689 million.  However, an estimated
$144 million of this amount could not be allocated for recovery
because it was associated with sites for which settlements had
already been reached.  After subtracting the $144 million in
unallowable costs, $545 million remained to be allocated.  EPA has
allocated $230 million of this amount to individual sites and is
working toward allocating the remaining costs. 

A senior Superfund accounting official explained that EPA spent 5
years determining how to allocate program management costs to
individual sites for cost recovery.  He attributed the delay partly
to EPA's wish to write an allocation methodology that was not highly
labor-intensive and that would be defensible if challenged in court
and partly to the fact that EPA did not assign a high priority to the
project. 


--------------------
\7 GAO/RCED-90-22, Dec.  14, 1989. 


      OTHER FACTORS CONTRIBUTE TO
      LOW RATE OF COST RECOVERY
---------------------------------------------------------- Letter :4.2

The absence of useful management goals and the information necessary
to track progress also contribute to EPA's low rate of cost recovery. 
EPA listed its cost recovery program as a material weakness in the
agency's 1992 and 1993 Federal Managers' Financial Integrity Act
(FMFIA) reports and has begun to make improvements, but additional
opportunities remain. 


         PROGRAM GOALS
-------------------------------------------------------- Letter :4.2.1

EPA has established some limited goals for the cost recovery program
in its agencywide goal-setting system.  For example, one goal is for
the regions to undertake a certain number of "administrative
actions," such as using early negotiations to achieve cost recovery
settlements with responsible parties.  In addition, the cost recovery
unit at EPA headquarters has established an annual goal for the
regional offices to take action at sites where the statute of
limitations on cost recovery is about to expire. 

However, these goals do not provide sufficient direction for the
program.  First, EPA's goal of undertaking a specific number of
administrative actions is unambitious; it allows the agency to easily
meet its target even though the actual progress achieved is limited. 
For example, EPA regions have consistently met their targets for
administrative actions, meeting 242 percent and 321 percent of their
targets in fiscal years 1991 and 1992, respectively.  More
importantly, these targets simply measure the number of actions
taken, not the progress EPA is making in recovering its cleanup
costs. 

Furthermore, while EPA's goal is to act to recover costs before the
statute of limitations expires,\8 the agency does not have a goal
that encourages early action on cases.  The longer EPA waits to take
action, the greater the likelihood that evidence will be lost or that
the financial condition of the responsible parties will deteriorate,
thus compromising EPA's ability to recover the cleanup costs.  EPA's
guidance encourages the regions to take cost recovery action within
12 months after a removal is completed and 18 months after the
construction of the remedy is initiated at a remedial site.  However,
because EPA has not translated these procedural requirements into
program goals, the agency is not actively monitoring each case to
determine whether the deadlines are being met.  EPA also has no goal
for recovering any specific dollar amount or percentage of the
recoverable costs. 

Although GAO and internal reviewers at EPA have reported in the past
on the lack of progress in the cost recovery program and have
stressed the importance of goal-setting and strategic planning for
managing the program, EPA has not responded.  For example, in our
December 1989 report, we found that EPA needed to set measurable,
long-term program goals and determine what resources it needed to
achieve them.  In a June 1989 report,\9 a former EPA Administrator
said that EPA would identify goals for the cost recovery program by
February 1990 and communicate them to the Congress and the public. 
However, EPA did not establish these goals.  In addition, while the
cost recovery unit at EPA headquarters has considered establishing
goals for taking early action on cost recovery cases and recovering
specified percentages of costs, the agency, as discussed below, has
never given a high priority to implementing such goals. 


--------------------
\8 According to EPA's records on cases in which the costs exceeded
$200,000, in fiscal year 1993, two cases were lost as a result of the
statutes of limitations. 

\9 A Management Review of the Superfund Program, U.S.  Environmental
Protection Agency (Washington, D.C.:  June 1989). 


         EPA'S MANAGEMENT
         INFORMATION
-------------------------------------------------------- Letter :4.2.2

EPA has also not developed enough management information to evaluate
its efforts to recover costs.  Specifically, EPA does not have
adequate information on the recoverability of many of its costs or
its success in cost recovery negotiations.  Additionally, the agency
cannot routinely produce reports on the status of cost recovery
efforts because the information needed is not available in its
information systems. 

According to EPA officials, an accurate count of unrecoverable costs
is important both for judging the success of the cost recovery
efforts and for forecasting future recoveries for budgeting purposes. 
Nevertheless, EPA officials acknowledge that the agency's major
management report about the program does not present an accurate
picture of unrecoverable costs.  Specifically, the report does not
fully disclose the amount of costs that cannot be recovered because
they were spent at orphan sites\10 or sites at which only partial
recoveries are possible. 

EPA's policy is to write such costs off on the agency's books as soon
as it is determined that they cannot be recovered.  EPA's report
understates these unrecoverable costs because regional officials are
reluctant to expend the considerable resources they say are needed to
formally write these costs off. 

We discussed with headquarters and regional officials the possibility
of making it easier to recognize unrecoverable costs by establishing
a reporting category for "potentially unrecoverable" costs.  In
assigning costs to this category, EPA would not be required to
formally determine that the costs should be written off.  Such a
procedure could help the agency value its outstanding costs and
assess the success of its cost recovery program.  Officials generally
agreed that this less-formal procedure would be useful. 

As we reported previously,\11 EPA also lacks information important
for managing the program on another issue:  the success of its cost
recovery negotiations with responsible parties.  EPA does track the
number and value of the settlements achieved by its regional offices. 
However, the agency does not track the amount of funds its regions
estimated they could reasonably obtain from responsible parties in
their negotiations or the amount of funds they waived in
negotiations.  Without such information, the agency is unable to
determine what proportion of costs were excluded from recovery during
negotiations, why these costs were excluded, or how successful the
negotiations were--that is, what portion of the government's target
was achieved. 

Finally, EPA officials said that they could not regularly produce
reports showing the recovery status of all Superfund costs because
information on the costs expended is contained in one data system and
information on the costs recovered is contained in another data
system that is not fully compatible with the first system.  For
example, one data system tracks information for entire sites, while
the other system tracks data for segments of sites. 

In a June 1993 report, EPA's Deputy Administrator noted that "there
has not been a system-wide reconciliation between the two systems,
and as a result, it is very difficult to combine data from the two
systems to obtain a full report for cost recovery activities."
According to EPA accounting officials, the agency is working to
better integrate the two systems. 


--------------------
\10 An orphan site is one for which no financially viable responsible
party can be located. 

\11 GAO/RCED-91-144, July 18, 1991. 


         LOW PRIORITY OF PROGRAM
-------------------------------------------------------- Letter :4.2.3

The cost recovery program has historically been given a low priority
by EPA.  In our 1989 report, we warned that a backlog of cost
recovery cases was developing and that more staff were needed to
address this backlog.  According to officials we contacted in EPA's
regions and in the cost recovery unit at headquarters, resource
constraints continue to be a primary problem in the cost recovery
program.  For example, both headquarters and regional officials told
us that resource constraints have forced EPA to plan its program
around taking action before the statute of limitations expires, as
opposed to meeting the time frames for early action described in
EPA's guidance. 

The lack of priority given to the program was also reported by EPA
officials who participated in focus groups for a report by EPA's
Office of Inspector General (OIG).\12 These officials stated that
taking enforcement actions to compel responsible parties to undertake
cleanups is considered a higher priority than recovering the costs of
cleanups led by EPA.  Therefore, the cost recovery program often
lacks the support or resources needed, and upper management does not
consider the program as critical to cleaning up the environment as
other areas of the Superfund program.  Other program areas, these
officials concluded, are therefore better supported than cost
recovery.  Cost recovery officials also told us that they believe
additional resources for cost recovery would be cost-effective; that
is, EPA would more than recoup the costs expended. 

The low priority assigned to the program also helps to explain EPA's
failure to follow through on previous commitments and the agency's
inaction on proposals to improve the program, as highlighted above
and in previous reports by GAO and EPA's OIG.\13


--------------------
\12 Assessment of Financial Management in the Environmental
Protection Agency (EPA/OIG-E1SFG3-11-0026-4400042, Mar.  31, 1994). 

\13 For example, GAO/RCED-90-22, Dec.  14, 1989; Followup Review of
EPA's Cost Recovery Actions Against PRPs
(EPA/OIG-E1SJG0-11-0022-0400036, Sept.  25, 1990); and Whether EPA
Has Maximized the Use of PRPs to Effect Superfund Site Cleanups
(EPA/OIG-E1SJE2-02-0063-3100152, Mar.  31, 1993). 


      EPA IS MAKING AN EFFORT TO
      IMPROVE THE PROGRAM
---------------------------------------------------------- Letter :4.3

Despite the low priority historically assigned to the cost recovery
program, EPA's management has recognized the need to take some action
to address problems in the program.  In fiscal years 1992 and 1993,
the agency identified the cost recovery program as a material
weakness in its report to the President under the requirements of
FMFIA.  Under FMFIA, federal agencies identify major concerns that
need their attention.  Additionally, in a plan EPA developed for
improving the Superfund program, improving the effectiveness of the
cost recovery program was included as one of 17 administrative
initiatives.  The plan, known as the Superfund Administrative
Improvements Implementation Plan, lists three major actions for
improving the effectiveness of the cost recovery program.  We have
already mentioned two of these actions:  the agency's (1) effort to
better integrate the data systems that provide management information
for the cost recovery program and (2) decision to issue the new
regulation on cost recovery.  However, as discussed earlier, EPA has
not set a timetable for adopting the final rule. 

The third action is intended to reduce litigation expenses through an
increased use of alternative dispute resolution techniques.\14
However, since EPA has used these techniques primarily in cost
recovery cases, this initiative may benefit the cost recovery program
as well as reduce litigation expenses. 


--------------------
\14 Alternative dispute resolution, which includes mediation and
arbitration, involves the use of neutral third parties to help
resolve disputed issues. 


   CERCLA'S CURRENT RESTRICTIONS
   ON INTEREST RATES LIMIT
   RECOVERIES
------------------------------------------------------------ Letter :5

In addition to recovering from responsible parties a greater portion
of the costs it expends, EPA could recover more interest on these
costs if certain provisions of CERCLA were modified.  CERCLA
currently restricts interest charges on the amounts due from
responsible parties in two ways.  First, it permits interest to
accrue from the date that funds are spent or the date that payment is
demanded, whichever is later.  This provision results in the loss of
substantial interest, since EPA often waits several years after funds
are expended to demand repayment.  For example, we reported in
1991\15 that in one settlement in fiscal year 1989, EPA's Region V
sought to recover $81,287 in interest that had accrued from the date
the region demanded payment.  However, the region could have sought
$322,414--or almost four times as much--if interest had begun to
accrue on the date the funds were expended.  On a broader basis, we
estimated that in 1990, EPA could have accrued about $80 million in
interest on expenditures in fiscal year 1989. 

Second, CERCLA mandates that EPA accrue interest on its program costs
at the government's borrowing rate, which is lower than the
commercial lending rates.  We estimated in our report that this limit
reduced the interest accrued in 1990 on fiscal year 1989 settlements
by about $25 million.  Furthermore, this amount in effect represents
a subsidy to responsible parties that leave their cleanups to the
government.  While the responsible parties that borrow money for
cleanups have to obtain financing from lenders at the commercial
rates, the parties that reimburse EPA are charged interest at the
government's lower borrowing rate.  Precedents for charging interest
higher than the government's borrowing rate are found in other
federal programs.  For example, the Internal Revenue Service charges
3 percent over the government's borrowing rate on late tax payments. 

In our 1991 report, we recommended that to enable EPA to more fully
recover its costs, the Congress amend CERCLA to allow the agency to
accrue interest from the date that the funds are expended and to
charge an interest rate equivalent to the commercial lending rates. 


--------------------
\15 GAO/RCED-91-144, July 18, 1991. 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

EPA's low rate of recovery can mainly be attributed to the exclusion
from recovery efforts of billions of dollars in indirect costs. 
However, EPA is not certain when it will issue its new regulation on
cost recovery or which indirect costs will be included.  In addition,
EPA's goals for the program are insufficient, stressing the number of
administrative actions taken rather than the timeliness of the action
taken on cases or the actual costs recovered.  With better
information about the accomplishments of its program, EPA could
ensure more timely and effective recovery efforts. 

Although resource constraints have been and continue to be an issue,
further improvements to the cost recovery program--such as issuing
the new cost recovery rule and improving management
information--depend to a larger extent on increased attention and
commitment from EPA's management.  The agency has begun to show some
increased commitment and attention by designating the cost recovery
program as a material weakness in its 1992 and 1993 FMFIA reports. 
While some improvements in the program, such as taking earlier action
on cases, may require additional resources, program officials contend
that the actions taken would be cost-effective. 

Additionally, changing CERCLA's limits on interest rates would yield
millions of dollars to the federal government and eliminate a subsidy
to responsible parties.  We previously recommended that the Congress
amend CERCLA to (1) mandate that interest accrue on EPA's costs from
the date that funds are expended and (2) allow EPA to charge an
interest rate equal to the current commercial lending rates.  We
continue to believe that these changes are needed. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :7

To ensure maximum recovery of EPA's cleanup costs from the parties
responsible for these costs, we recommend that the Administrator of
EPA (1) expedite the issuance of the regulation on indirect costs,
(2) establish goals for early action on cases and for the percentage
of costs to be recovered, and (3) develop better information on the
recoverability of costs and the success of settlement negotiations. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :8

We discussed our findings with EPA's cost recovery and financial
management officials, including the acting chiefs of EPA's cost
recovery and Superfund accounting branches, and we incorporated their
comments where appropriate.  While these officials generally agreed
with the facts presented in our report and with the need to elevate
the priority of the cost recovery program, they emphasized the
difficulty of providing additional resources to the program in the
current budget climate.  As requested, we did not obtain written
agency comments on this report. 


---------------------------------------------------------- Letter :8.1

We conducted our work between September 1992 and September 1994 in
accordance with generally accepted government auditing standards. 
Appendix III details our objectives, scope, and methodology. 

As arranged with your office, unless you publicly announce its
contents earlier, we will make no further distribution of this report
until 30 days after the date of this letter.  At that time, we will
send copies to other appropriate congressional committees; the
Administrator, EPA; and the Director, Office of Management and
Budget.  We will also make copies available to other interested
parties on request. 

Please call me at (202) 512-6112 if you or your staff have any
questions.  Major contributors to this report are listed in appendix
IV. 

Peter F.  Guerrero
Director, Environmental
 Protection Issues


HISTORICAL SETTLEMENTS FOR
SUPERFUND CLEANUPS
=========================================================== Appendix I

Superfund cleanups include three main phases:  (1) the removal phase,
which typically consists of short-term cleanup actions; (2) the
remedial investigation and feasibility study (RI/FS) phase, in which
a site's wastes and cleanup options are evaluated; and (3) the
remedial design and remedial action (RD/RA) phase, which involves
long-term cleanup actions.  Table I.1 shows the settlements made for
Superfund cleanups in fiscal years 1980-93. 



                          Table I.1
           
             Settlements for Superfund Cleanups,
                     Fiscal Years 1980-93

                    (Dollars in millions)



Fiscal         Dollar       Dollar       Dollar       Dollar
year      No.       s  No.       s  No.       s  No.       s
--------  ---  ------  ---  ------  ---  ------  ---  ------
1980        1    $0.1    1    $0.5    3    $1.5    5    $2.1
1981        4     5.7    0       0    5    54.0   10    60.1
1982        8     5.7    4     3.8    8    13.3   21    22.8
1983       12    10.3    7     1.4    9    90.5   33   107.3
1984       54    19.6   20    14.9   11   105.5   98   147.6
1985       68    32.4   43    31.8   21   140.2  132   204.4
1986       51    35.8   59    43.2   18   638.4  132   743.2
1987       39    14.0   69    72.2   17   121.3  126   207.5
1988       97    66.7   79   111.9   43   395.5  221   578.6
1989       98    67.1   60    55.3   90   817.4  248   939.7
1990      127   164.0   73    80.9  112  1,217.  312  1,461.
                                              1            9
1991      115   129.5   37    41.2  111  1,230.  263  1,401.
                                              9            6
1992      102   179.7   42    44.6  102  1,306.  246  1,530.
                                              1            4
1993       86   118.5   13    15.7   92   776.2  191   910.4
============================================================
Total     862  $849.1  507  $517.4  642  $6,907  2,0  $8,317
                                             .9   38      .6
------------------------------------------------------------
\a Totals may include cases that are not included by remedy or
settlement type because the Environmental Protection Agency (EPA)
categorizes them as unspecified. 

Source:  EPA. 


HISTORICAL AND PROJECTED DATA ON
COST RECOVERIES
========================================================== Appendix II

Table II.1 shows the levels at which EPA recovered costs from fiscal
year 1981 through fiscal year 1993.  Table II.2 shows the levels at
which the agency expects to recover costs from fiscal year 1994
through fiscal year 1999.  EPA estimated future cost recovery levels
by applying past trends in cost recoveries to the number of cases the
agency believes it can support in the future.  EPA has not projected
the future value of settlements for cleanups conducted by responsible
parties. 



                          Table II.1
           
           Cost Recovery Levels, Fiscal Years 1981-
                              93

                         Value of cost            Portion of
                              recovery            settlement
Fiscal year       settlements achieved    actually collected
----------------  --------------------  --------------------
1981                           $58,500                    \a
1982                         2,517,400            $2,309,500
1983                         4,791,100               356,300
1984                         5,636,700             3,440,400
1985                        23,063,100             7,925,800
1986                        20,870,100            15,700,300
1987                        43,364,300            18,866,500
1988                       165,748,200            55,611,500
1989                       122,144,900            66,526,700
1990                       155,438,500           104,859,000
1991                       196,355,900            83,648,500
1992                       241,524,200           183,672,100
1993                       221,752,100           181,724,600
============================================================
Total                   $1,203,265,000          $724,641,200
------------------------------------------------------------
\a Although EPA reached settlements for $58,500 in this fiscal year,
the funds were actually collected in subsequent years. 

Source:  EPA. 



                          Table II.2
           
            Projected Cost Recovery Levels, Fiscal
                        Years 1994-99

                    Projected value of
                                  cost  Projected portion of
                              recovery           settlements
                           settlements              actually
Fiscal year                   achieved             collected
----------------  --------------------  --------------------
1994                      $205,700,000          $159,200,000
1995                       128,700,000           147,900,000
1996                       121,200,000            93,500,000
1997                        89,000,000            88,200,000
1998                       161,000,000            65,500,000
1999                       161,000,000           116,300,000
============================================================
Total                     $866,600,000          $670,600,000
------------------------------------------------------------
Source:  EPA. 


OBJECTIVES, SCOPE, AND METHODOLOGY
========================================================= Appendix III

In anticipation of a comprehensive reauthorization of the Superfund
program, the Chairman, House Committee on Energy and Commerce, and
the Chairman of its Subcommittee on Transportation and Hazardous
Materials requested that we provide information on EPA's settlement
and cost recovery programs and identify the factors that inhibit EPA
from recovering costs expended on Superfund cleanups.  In addition,
we were asked to provide historical data on EPA's settlement and cost
recovery programs. 

We performed our work at EPA headquarters in Washington, D.C., and in
EPA's Region II (New York City), Region III (Philadelphia), and
Region V (Chicago).  These regions had the highest total of
cumulative disbursements in the Superfund program as of the end of
fiscal year 1992.  In addition, EPA officials told us that these
regions represent a range of approaches to cost recovery. 

To assess EPA's efforts to recover cleanup expenditures, we analyzed
EPA's data bases and reports on cost recovery and reviewed EPA's
actions in three EPA regional offices and at five regional Superfund
sites for which costs could be recovered.  We also interviewed
federal and regional cost recovery officials and reviewed reports and
studies on regional cost recovery programs.  To provide historical
and projected data on EPA's settlement and cost recovery programs, we
interviewed cost recovery officials at EPA headquarters and requested
the data. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix IV

RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION,
WASHINGTON, D.C. 

Bernice Steinhardt, Associate Director
James F.  Donaghy, Assistant Director
R.  Tim Baden, Evaluator-in-Charge
Monique C.  Austin, Staff Evaluator

CHICAGO REGIONAL OFFICE

James B.  Musial, Regional Management Representative
Paul J.  Schmidt, Senior Evaluator
Adam J.  Wasserman, Intern

