Leaking Underground Storage Tanks:

EPA Should Take Steps to Better Ensure the Effective Use of Public Funding for Cleanups

GAO-07-152: Published: Feb 8, 2007. Publicly Released: Feb 22, 2007.

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Underground storage tanks that leak hazardous substances can contaminate nearby groundwater and soil. Under the Resource Conservation and Recovery Act (RCRA), tank owners and operators are primarily responsible for paying to clean up releases from their tanks. They can demonstrate their financial responsibility by using, among other options, publicly funded state financial assurance funds. Such funds function like insurance and are intended to ensure timely cleanup. These funds also pay to clean up releases from tanks without a viable owner, as does the federal Leaking Underground Storage Tank (LUST) Trust Fund. GAO was asked to report on (1) states' estimates of the public costs to clean up known releases, (2) states' primary sources of cleanups funding and their viability, and (3) federal sources to address these releases. GAO surveyed all states and discussed key issues with EPA and selected state officials.

States estimated that fully cleaning up about 54,000 of the approximately 117,000 releases (leaks) known to them as of September 30, 2005, will cost about $12 billion in public funds. The Environmental Protection Agency (EPA) estimates that it costs an average of about $125,000 to fully clean up a release. State officials said that tank owners or operators will pay to clean up most of the remaining 63,000 releases. However, an unknown number of releases lack a viable owner, and the full extent of the cost to clean them up is unknown. A tank owner may not be viable because the owner fails to maintain adequate financial responsibility coverage, which is intended to provide some assurance that the owner has access to funds to pay for cleanups. While 16 states require annual proof of coverage, 25 states check owners' coverage less often or not at all. Furthermore, 43 states expect to confirm about 16,700 new releases in the next 5 years that will require at least some public funds for cleanup. States reported that they primarily use financial assurance funds to pay the costs of cleaning up leaks. States reported that they spent an estimated $1.032 billion from financial assurance funds to clean up tank releases in 2005. Overall, fund revenues totaled about $1.4 billion in 2005, of which about $1.3 billion came from state gasoline taxes. The assurance funds in the 39 states for which GAO has information held an estimated $1.3 billion as of September 30, 2005, according to state officials. However, many states also use these funds to clean up releases from sources other than underground tanks. Several state assurance funds may lack sufficient resources to ensure timely cleanups. While EPA monitors the status of state funds, its method of monitoring the soundness of these funds has limitations. Furthermore, there are concerns that, by paying the bulk of the cleanup costs, state financial assurance funds may provide disincentives for tank owners--who pay only a relatively small deductible--to prevent releases. In addition to their own funds, states employ resources from the LUST Trust Fund, the primary federal source of funds for cleaning up releases from underground storage tanks. As of September 30, 2005, the fund balance was about $2.5 billion. For fiscal year 2005, the Congress appropriated about $70 million from the fund to help EPA and the states clean up releases and to oversee cleanup activities. EPA distributed about $58 million of this amount to the states to investigate and clean up releases and conduct enforcement efforts, among other actions. To distribute LUST Trust Fund money among the states, EPA uses a formula that includes a base amount for each state and factors to recognize states' needs and past cleanup performance. However, although the LUST Trust Fund provides funds to states to assist in addressing releases from tanks without a viable owner, EPA has not incorporated this factor into its formula. Furthermore, EPA's information on states' performance comes from state reports; however, GAO found that some of the information in these reports is inaccurate and inconsistent.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Energy Policy Act of 2005 requires EPA or states, as appropriate, to conduct on-site inspections of USTs every three years to determine compliance with requirements imposed by Subtitle I of the Solid Waste Disposal Act. In April of 2007, EPA issued a grant guideline to states for implementing the inspection provisions of the EPAct. This guideline requires, as a condition of funding, that states conduct on-site inspections of all regulated underground storage tanks that have not been permanently closed at least once every three years. In addition, the guideline specifies the minimum criteria that states must use when conducting the on-site inspection. One of these criteria is to assess compliance with financial responsibility. By requiring this, EPA is ensuring that states are verifying, on a regular basis, that tank owners and operators are maintaining adequate financial responsibility.

    Recommendation: The Administrator, EPA, should ensure that states verify, on a regular basis, that tank owners and operators are maintaining adequate financial responsibility coverage, as required by RCRA.

    Agency Affected: Environmental Protection Agency

  2. Status: Closed - Implemented

    Comments: In response to our recommendation, EPA developed its "Guidance for Regional Office Review of State Underground Storage Tank Financial Assurance Funds," which was finalized in January 2012. This guidance provides EPA regions with recommended procedures and factors to consider for monitoring the soundness of these funds. The guidance instructs EPA regions to perform an annual review of state funds to achieve the goal of helping to ensure the adequacy of state funds.

    Recommendation: The Administrator, EPA, should improve the agency's oversight of the solvency of state assurance funds to ensure that they continue to provide reliable financial responsibility coverage for tank owners.

    Agency Affected: Environmental Protection Agency

  3. Status: Closed - Implemented

    Comments: Late this summer(2011), the Office of Underground Storage Tanks (OUST) will complete its study of the nation's backlog of open, unaddressed releases from leaking underground storage tanks. The study has sought detailed information from 14 states to understand characteristics of open releases within these states and the pace of LUST cleanups. As part of this study, the Agency sought, where possible, to examine differences in the pace of cleanups comparing releases with different types of financial responsibility mechanisms. Unfortunately, detailed data exploring different financial mechanisms was not readily available, especially with respect to privately funded cleanups, although limited data identified differences in the age of release and stage of cleanup. In addition, EPA has recently released a draft study of private insurance. This study sought to understand how insurance policies address claims and where behaviors by either owner/operators or insurance companies might leave gaps in coverage and delay cleanups. The study concluded that for the insurance policies examined, they generally complied with regulatory requirements and given limited information, insurance carriers did not appear to be excessively or dismissively denying claims. This study also identified several opportunities for improvement.

    Recommendation: The Administrator, EPA, should assess, in coordination with the states, the relative effectiveness of public and private options for financial responsibility coverage to ensure that they provide timely funding for the cleanup of releases.

    Agency Affected: Environmental Protection Agency

  4. Status: Closed - Implemented

    Comments: EPA continues to pursue quality control on the information it collects to support its distribution of program resources to States. While discussions with Regions and states to clarify definitions of reported measures have been on-going, the implementation of the Recovery Act and the adoption of certain existing measures for that purpose (i.e., cleanups initiated and cleanups completed) have led to an enhanced vigilance in the accuracy of such performance measures. Such oversight and improvements in quality control are reflected in the lessons learned memorandum issued over these past two years. In addition, EPA has implemented a new on-line tool to collect reports from states and EPA regions on performance measures. This new tool has streamlined the reporting process, enabling EPA regional and headquarters staff to focus more quickly and effectively on quality control issues associated with submitted data. Finally, as part of the Office of Underground Storage Tanks (OUST) backlog characterization study and associated conversations with states, EPA has emphasized the demarcation and reporting of the federally regulated underground storage tank universe and sought information on sites without a viable owner (i.e., orphaned or abandoned). The Agency has also emphasized the distinction between the federal regulated universe and other entities covered by state programs in its draft fund soundness guidance. With respect to information on abandoned sites, the Agency found that such information was often unavailable or the state indicated it was unreliable. The Agency notes that since state programs are delegated, states that report abandoned tanks have differing definitions of "abandoned" and differing processes for making this determination. This information is important to understand the ability of the state to address such cleanups and EPA continues to discuss this sub-universe of sites with states as part of its on-going programmatic oversight.

    Recommendation: The Administrator, EPA, should better focus how EPA distributes program resources to states, including LUST Trust Fund money, by ensuring that states are reporting information in their semiannual activity reports that is consistent with EPA's definitions; encouraging states to review their databases to ensure that only data on the appropriate universe of underground storage tanks are being reported in their semiannual activity reports; and gathering available information from states on releases attributed to tanks without a viable owner and taking this information into account in distributing LUST Trust Fund money to states.

    Agency Affected: Environmental Protection Agency


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