GAO REPORT ON MAKING THE POLLUTER PAY--INFORMATIVE BUT DISAPPOINTING

     On August 17, 2005, in response to inquiry from Sens. Leahy (D.-Vt.), Jeffords (I.-Vt.), Boxer (D. Calif.) and Cantwell (D.Wa.), the Government Accountability Office ("GAO") issued a "Report to Congressional Requesters" entitled "ENVIRONMENTAL LIABILITIES EPA Should Do More to Ensure That Liable Parties Meet Their Cleanup Obligations".  The full text of the Report can be found here.

    Specifically, according to the GAO, the above-mentioned Senators asked that it

(1) determine how many businesses with liability under federal law for environmental cleanups have declared bankruptcy, and how many such cases the government has pursued in bankruptcy court;

(2) identify challenges the Environmental Protection Agency (EPA) faces in holding bankrupt and other financially distressed businesses responsible for their cleanup obligations; and

(3) identify actions EPA could take to better ensure that such businesses pay for their cleanups.

     I found the Report informative but also disappointing.   The GAO provides a wealth of information regarding the effort by EPA to assert claims against bankrupt Responsible Parties and the challenges faced by the agency in so doing.  The GAO also provides an informative overview of the interaction of America's bankruptcy and environmental laws, correctly noting that the two sets of laws frequently conflict-- the bankruptcy laws are in substantial measure designed to enable debtors to discharge their obligations and get a fresh start, while the environmental laws in substantial measure seek to hold those same debtors (if "Responsible Parties") responsible to pay for the environmental harm they have caused.

     This collision of legal purposes has resulted in the various Circuit Courts crafting conflicting rules as to when an environmental liability is and is not dischargeable by the debtor declaring bankruptcy.  For example, the Report points out, the Second Circuit-- where, for the reasons discussed in the Report, many such debtors file for bankruptcy protection-- has a relatively debtor-favorable dischargeability rule.

     The Report also is useful in setting out the historical and existing sources of Superfund clean-up funding and the existing, and potential, mechanisms by which EPA might assure itself that Responsible Parties demonstrate adequate financial capability to respond to pollution they cause as opposed to leaving the financial response cost to the government.  The Report provides a series of vigorous recommendations for EPA to enhance/expand these mechanisms to ensure that the "polluter pays".

     The Report is disappointing, however, in unquestionably accepting the premise that we are always better off when the polluter, rather than the government (or, as the Report puts it, the "taxpayer"), does pay.  The truth is that the taxpayer always pays--the real issue is the distribution of the payment burden among taxpayers.

     When the government is forced to pay for environmental response action because of a Responsible Party's bankruptcy, as the Report states that payment is for the most part these days really being made by all of us taxpayers (since the response-action funding is coming out of the government's general fund).  On the other hand, where the Responsible Party itself can be successfully tagged to pick up the bill, taxpayers are not mythically relieved of the financial burden.  Hypothetical examples:

     1.  If the automobile industry has to fund $1 billion in environmental response, the industry will, if it can, tax consumers for that cost in the form of higher car prices;

     2.  If the industry cannot pass on the cost, then auto company's shareholders-- who are also taxpayers-- will bear the financial burden of lowered corporate profits;

     3.  If a given company in the industry is too weak even to fund the cost (e.g., think of Chrysler years ago when the government provided bail-out loans), then that company may fail-- laying off employees and shorting company creditors (who in turn may have to lay off employees).

     Thus, the real issue is the distribution of environmental response costs among taxpayers.  In any given situation, should taxpayers as a whole pay for environmental response from the government's general fund or should certain categories of taxpayers (e.g., auto workers) pay the cost (e.g., through job layoffs)?

     The Report was narrowly restricted in scope because the Senators requesting the report limited their inquiry simply to how much more EPA can force the polluter to pay.  The Senators did not ask the GAO to comment, for example, on any loss of revenues the government may suffer in the event any of the above hypotheticals were to occur.

     Nonetheless, although not the fault of the GAO, one still comes away from reading the Report with a sense of disappointment that the document is so narrow in perspective.  A large portion of the Report is, after all, spent acknowledging the fallout that exists from the fact that, as discussed above, Congress has enacted two sets of laws--bankruptcy and environmental-- with largely competing purposes.  The Report's recommendations, narrowly geared as they are to ensuring the "polluter pays", do not at all advance the important discussion of how to resolve these competing purposes. 

            

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