Superfund and Retroactive Liability: Is It Really Fair?
by Adam J. Smargon

Part I -- Introduction

The United States produces close to 300 million tons of hazardous waste every year. Nineteen years ago, Congress wanted to improve the management and disposal of hazardous waste, and it therefore enacted the Resource Conservation and Recovery Act (RCRA). But that act failed in the area of previously existing hazardous waste sites which threatened nearby residents by leaking into the water supply. In 1976, the nation awoke to find that Love Canal families had to move due to the neighborhood being built over an abandoned hazardous waste site. The end result in the wake of this public outcry was the passing of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), more commonly known as Superfund. It gave more authority to the federal government to react to threatened or actual releases of hazardous materials, and "it allows the Environmental Protection Agency (EPA) to compel parties to clean up their properties, or alternatively, to reimburse [the] EPA for the government's cost of doing the cleanup."[1] CERCLA was amended and reauthorized six years later, as the obviously-named Superfund Amendments and Reauthorization Act (SARA).

The underlying theory of the act's existence is that the polluters should pay for the pollution they caused. For those sites which no responsible group is available to foot the bill for cleaning the site, the act created a trust fund a "super fund" to fund those situations. Superfund was initially created to solve a perceived short-term dilemma, made up of a few big sites, with a few companies that were to blame. It was supposed to fix dangerous hazards with speed, safety, and economy. It hasn't. "While [the] EPA has successfully implemented more than 2,400 emergency cleanups, key flaws in the Superfund program have slowed the overall pace of cleanup, increased costs, and created an unintended legal morass... more than $25 billion has been spent."[2] James M. Strock, who heads Cal/EPA, California's state agency of environmental protection, called Superfund "the environmental equivalent of the Defense Department's $600 toilet seat," and Representative Michael G. Oxley, a Republican from Ohio's 4th district who chairs the House of Representatives Subcommittee on Commerce, Trade and Hazardous Waste, called Superfund "a scholarship program for lawyers' kids."[3] And Superfund taxes, which includes $800 million per year from business revenues, are scheduled to expire on New Year's Eve 1995. Congress is debating how to reform and save this fifteen-year-old environmental embarrassment, and the topic of retroactive liability for hazardous waste continues to periodically rear its ugly and controversial head. This paper will focus on retroactive liability and how it affects the future of Superfund.

Part II -- The Proposal

When Superfund became law one month before Ronald Reagan took office, Congress thought the maximum commitment was five years. It gave the EPA the power to finance the cleaning of sites on a per-site basis, using a system labeled retroactive liability. Under this system, the EPA can hold any potentially responsible party (PRP) financially responsible for cleaning the site. PRPs are also designated on a per-site basis, and are so designated if they have had or do have any connection at all to the site, regardless of fault. PRPs can be stuck with a majority or all of the costs of cleaning a site. It does not matter if the actions and transactions of the PRP were legal at the time, or if the PRP purchased land or a business after the contamination occurred. Retroactive liability does not make polluters pay for Superfund cleanups; rather, it shifts the focus of Superfund from public safety to financial fights. PRPs are more likely to fight the EPA than to fund any actual cleaning, due to the system encouraging that behavior. They attempt "to spread out their liability by suing other PRPs, their insurance companies, and third parties who may also be liable. These disputes drag on for years, delaying cleanup."[4] Varying reports claim that one-fourth to three-fourths of the total Superfund budget goes to lawyers, legal fees, and other similar administrative expenses, which are cleverly labeled as "transaction costs, [which] account for close to forty percent of the average total site costs."[4]

The system, when originally designed, attempted to make the deep pockets of the corporate polluters take the biggest slice of the Superfund cleanup pie. But Congress underestimated the overall situation, as the number of sites on Superfund's National Priority List (NPL) grew from a few hundred to numbers in the four-digit range.

The proposal is found in S 1285, filed by Senator Bob Smith, a Republican from New Hampshire who is on the Senate's Committee on Environment and Public Works, and HR 2500, introduced by the aforementioned Representative Michael G. Oxley. Both legislators stop just short of a total repeal of retroactive liability.

Among the worst things it would do, Smith's bill would delay cleanups by allowing polluters to delay the actual cleanup until after the liability is allocated among the polluters. It would offer the polluters new opportunities for legal action to stop a cleanup, based on disagreements with the EPA over the nature of the risk and the cleanup plan. And it robs the taxpayer by imposing new costs on local communities and giving a 50% tax credit to companies which do cleanups. It also dramatically reduces the amount of "natural resources damages" the government can seek from polluters for damage done to the environment.[1]

Oxley's bill may even be worse than Smith's bill. Among other things, Oxley wants to limit cleanups to those that would place the "lowest total cost" (which usually would mean fencing people out, rather than restoring property), reopen many ongoing cleanup plans (leading to new litigation and significant work for an overworked and underfunded EPA), override stricter state cleanup standards (unless the state is willing to pick up the entire extra cost of cleanup), curtail citizen participation in cleanup planning by drastic figures, and allow half of the cleanup cost to be avoided for sites created prior to 1987.[1]

Part III -- Arguments For The Proposal

A plan drawn up by Superfund Reform '95, a Washington lobbying organization, desires a repeal of retroactive liability for toxic wastes disposed of before 1 January 1987. (On that date, the federal government required that comprehensive data begin to be recorded on waste disposal, and the EPA had spelled out unambiguous policies regarding waste disposal as well.) It also wants "a proportional liability system for disposal occurring after 1986."[5] "Most cleanups currently being financed by retroactive liability would be financed by the Superfund Trust Fund. This will cut transaction costs by $1 billion a year, remove the liabilities that federal, state and local governments have as PRPs, and cut non-cleanup Trust Fund expenditures by over $400 million. More money will go toward cleanups, and the cleanups themselves can begin in a timely manner because they will not be held up lengthy and expensive litigation."[4] Furthermore, Superfund Reform '95 claims that revenue increases would not be necessary for cleaning the sites if the PRPs did not foot the bill. Superfund taxes are coming from corporations, and shifting governmental and private savings from these reforms to cleanup will permit the money to be spent on continuing cleanups without raising taxes.

Those who oppose eliminating retroactive liability, which will be covered in more detail later in this paper, may claim that getting rid of it will be unfair to those PRPs who spent gigantic amounts of capital on cleanups sometimes in the tens or hundreds of millions of dollars while rewarding those who ran away from the responsibilities of their actions in regards to the hazardous waste. Industry advocate George Baker said that "the polluter doesn't pay. The polluter -- that bad guy -- is out of business, he's offshore, he's down in the Virgin Islands, he's gone. Or he's the mob, and you can't find him anyway."[6] The Tampa Tribune wrote that "in the bizarre world of Superfund, the innocent sometimes pay for the sins of the guilty, and the successful are saddled with the debts of the bankrupt."[7] The response from the pro-elimination camp states that we should step back and look at the bigger picture -- Superfund should be able to work in the future. It is an inefficient system that should not be sustained in the years to come based on the incorrect applications of the concerns of what is "fair." A very large percentage of the NPL cleanup bill hasn't been been spent yet, and keeping that burden of cost in mind, past costs are rather small in comparison. Even in cases where both sides shake hands in agreement, most expenditures are in the future and those groups benefit from reforming retroactive liability.

We should keep the following question in mind as a constant underlying thought process: what is the best thing for the future of Superfund, and what is the issue of "fairness?" If we examine "fairness" to PRPs (and trust their statements), no "penalty" would be assessed. But Congress should not be instructed to continue unfair behavior towards most PRPs to avoid treating them as terribly as some were in the lifetime of this act.

Superfund Reform '95 believes that outcome of the Smith bill will do little to reduce the burden of liability facing small businesses today; they're left with huge costs, and attorneys and consultants will be needed. And under Oxley's bill, they think it will end the involvement in the liability program for some small businesses, but not many. If a business contributed up to one percent of total volume of waste at a site, it will eventually be exempted. Anything over one percent isn't exempt.[8]

Officials at the EPA claim that Superfund Reform '95's plan will generate even more legal action than what already exists. The group denies this. Under RCRA, all parties were mandated to keep specific data of disposing all waste after 1986, and by this time disposal policy was clear. (In 1980, the policy was rather vague.) Their plan "would remove all financing-based disputes at eighty percent of the sites, and the vast majority of parties at the rest of the sites (based on a survey of EPA managers)... disputes relating to a small fraction of the current PRPs at a small fraction of the current sites would replace the current warfare between tens of thousands of PRPs at virtually every NPL site."[4]

Prospective Superfund liability, coupled with other environmental laws, waste regulations and economic market forces, are the most important incentives for intelligent integrated waste management, which has been confirmed by the EPA's study of the indirect effects of Superfund. In some cases, reforming liability will have a calming effect on integrated waste management by shifting the focus of environmental staffs of companies from legal battles to actually taking action on preserving natural resources and public safety and health, including the management, reduction and research of waste.

"When a company has been playing by the rules and then gets pulled into a Superfund cleanup for disposal activities that happened years -- or even decades -- earlier, they tend to think the system is unfair," said Thomas F. Harrison, a lawyer in Hartford, Connecticut, who represents corporations in Superfund cleanups. They become outraged when they find that they're being held responsible for paying the majority of cleanup costs, even though they disposed of a very small amount of toxic material at the site. "If you have a thimble full of wastes, it doesn't matter. You are still liable for the costs," Harrison said. "It is so draconian, you have no choice but to fight it... even after a site is cleaned up, the open-ended nature of Superfund liability keeps companies on the hook virtually forever."[9]

Representative Charles T. Canady, a Republican from Florida's 12th District, spoke on 6 February 1995 about H.R. 795, the Superfund Liability Moratorium: "These innocent individuals had no knowledge of the release of hazardous substances into the environment. They were simply trying to do the right thing by contracting with a third party for proper disposal. Now they are liable, under Superfund, for the cleanup of environmental disasters they did not create. Such liability without culpability is patently unfair. It runs contrary to common sense and the fundamental requirements of justice. Further, it can be financially devastating to innocent individuals who are caught in the Superfund trap... I introduced H.R. 795 last week to provide relief for innocent parties while we proceed with comprehensive reform of the law. My bill instructs the Administrator of the EPA to cease all agency actions against the nonpolluters. It also places a moratorium on the authority for contribution actions under the statute... H.R. 795 simply suspends the practice of financing Superfund cleanups on the backs of innocent people who had no knowledge of wrongdoing and no intent to harm the environment."[10]

Part IV -- Arguments Against The Proposal

Pending Congressional proposals threaten the EPA's ability to do it's job at top efficiency, due to a House Appropriations bill that would cut the funding of hazardous waste site cleanup by $560 million (a 36% reduction from the previous year), which includes a $115 million cut in Superfund enforcement. Combining these financial cuts with the proposed changes to Superfund would make taxpayers pay for the pollution, rather than the actual polluters. "The Clinton Administration is committed to making polluters pay for the contamination they have created. Congressional Superfund reauthorization proposals would repeal polluters' liability for disposal of hazardous materials that occurred before 1980 or 1987. This exemption from liability would place the responsibility for as much as $1.6 billion of cleanups on the shoulders of the American taxpayers instead of polluters."[11] The administrator of the EPA, Carol Browner, an alumnus of the University of Florida, criticized the reforms. She claimed that "the changes would `stick taxpayers' with the cost of cleanup instead of polluters."[12]

Karen Florini, an attorney with the Environmental Defense Fund, said she's particularly concerned about the proposal's language because cost of treatment appears to be the overwhelming concern: "It puts in a cost bias and no other bias. If you don't have a bias for returning property to productive use, you'll never get it done because that is always going to cost some money. The cheapest thing to do is always going to be to put up a fence, hand out bottled water and walk away."[12]

Florini is unconvinced that the system is unfair simply due to placing financial strains upon private companies: "So what? They made a mess, they are being asked to clean it up. Superfund does not send anybody to jail. Superfund does not propose fines or penalties. Just clean up the mess you made." She claims this method is more fair than the alternative, which is to put the burden on the taxpayer: "It is not meaningful to ask the question whether it is fair in the abstract. You can only ask if it is more fair than the available alternative, and the answer to that question is yes."[9]

Lois J. Schiffer spoke before the Subcommittee on Superfund, Waste Control, and Risk Assessment of the Senate Committee on Environment and Public Works on 27 April 1995 on the benefits of the core liability system. She claimed that retroactive liability is fair, for three main reasons. First, it's fair to ask those who create problems to fix them. Not only is that common sense (which we learned in grade school), but that approach has also been in the common law for many years under nuisance law. Secondly, "as between the victims of the pollution those who live near waste sites, the American taxpayers and the people who created the problem, it's fair to have the people who created the problem pay to fix it."[9] Finally, it's fair to have a company pay when it turned a profit in the past from the business that led to the waste in the first place.

Furthermore, she claims at least four reasons why eliminating retroactive liability would be grossly unfair and would cause serious problems. First, if it's eliminated, instead of the polluter paying, we'd have a giant public works program funded by the American taxpayer. Secondly, retroactive liability has been in the Superfund law for the entire life of the law, and in other pollution laws even before it was passed. "Changing it now would reward those who have failed to clean up during that time, and it would penalize those environmentally-sound businesses who complied with the law and cleaned up. It sends a bad message that it pays to hide from your responsibilities, and that those who complied actually spent their hard-earned capital inefficiently. That's bad policy, and it's not fair."[13]

Thirdly, some say that the solution for this unfairness is "payback" giving back to those who cooperated the money they paid to clean up. Schiffer says "that would require paying billions to companies at least $9 billion, according to the Congressional Budget Office which would purchase absolutely no benefit at all for American citizens: no more cleanup, no less pollution, no more public health, no overall better environment. It would turn Superfund from a `polluter pays' program into a program of `pay the polluter.'"[13] Further, "payback" would require a legal explosion, as the government and companies have to sort through decades of accounting records to determine how much to pay back. That's a ridiculously huge increase in transaction costs, not the reduction we're looking for. Finally, eliminating retroactive liability could cost very high amounts to the states that are trying to get non-federal sites cleaned up. That's unfair to the states and their taxpayers.

Schiffer does admit that some small aspects of the liability system could use some repair, like "exemptions for very small volume contributors, and reductions in transaction costs for the overall operation of the law."[13] Nonetheless, most governmental operations not only could use some repair, but we as citizens have a responsibility to help fix our government to ensure that it works smarter and more efficiently. And Schiffer claims that retroactive liability was not invented for Superfund; it's been part of federal law in other areas, like pension law.

According to the authors of a new study called Footing The Bill for Superfund Cleanups: Who Pays and How?, "there is a surprisingly small difference in the total annual cost of these different financing approaches [to Superfund]. The cost difference between the most expensive option considered (the current Superfund program) and the least expensive (one that would eliminate liability for wastes disposed before 1987 at all multiparty sites on the NPL) is less than 4 percent." So then, if there's such a small difference in overall cost, why is there a controversy over the proposed changes to Superfund's liability provisions? It depends on which companies and industries pay, and how they pay. "This helps explain why responsible parties find it worth spending time and money to influence the congressional debate."[14]

Part V -- Works Cited

Copyright © 1994-99 Adam Joshua Smargon ---
Superfund and Retroactive Liability: Is It Really Fair? --- updated 28 June 1999