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Highlights

The burden of cleaning up Superfund and other hazardous waste sites is increasingly shifting to taxpayers, particularly since businesses handling hazardous substances are no longer taxed under Superfund and the backlog of sites needing cleanup is growing. While key environmental laws rely on the "polluter pays" principle, the extent to which liable parties cease operations or restructure--such as through bankruptcy--can directly affect the cleanup costs faced by taxpayers. GAO was asked to (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.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Environmental Protection Agency To close gaps in financial assurance coverage that expose the government to significant financial risk for costly environmental cleanups, the EPA Administrator should expeditiously implement the statutory mandate under Superfund to develop financial assurance regulations for businesses handling hazardous substances, first addressing those businesses EPA believes pose the highest level of risk of environmental contamination, as the statute requires.
Closed - Implemented
In February 2009, a federal court directed EPA to take steps to implement the Superfund financial assurance requirement enacted by the Congress in 1980, as we had recommended. In its decision, the court cited GAO's finding that by its inaction on this mandate, EPA has continued to expose the Superfund program and U S. taxpayers to potentially enormous cleanup costs. On July 10, 2009, the Administrator signed a Federal Register notice naming hardrock mining as the first class of facilities for the development of financial assurance requirements under the Superfund provisions (section 108(b)). EPA is now developing a proposed financial assurance regulation for hardrock mining. In its July notice, EPA stated it will issue another notice addressing additional classes of facilities EPA plans to evaluate under section 108(b) by December 31, 2009.
Environmental Protection Agency To better ensure that the financial assurances EPA does require under the Superfund and the Resource Conservation and Recovery Act (RCRA) corrective action programs provide sufficient funds for cleanups in the event liable parties do not fulfill their environmental obligations, EPA should enhance its efforts to manage and enforce the financial assurance requirements for Superfund and RCRA corrective action cleanups by evaluating the financial assurances the agency accepts in light of such factors as the financial risks EPA faces if liable parties do not meet their cleanup obligations; the varying financial risks posed by the individual financial assurance mechanisms; the agency's capacity to effectively oversee the various financial assurance mechanisms--in particular, the expertise of staff (federal and state) and the number of staff; the information gaps the agency faces in overseeing the various financial assurances; and the concerns about certain financial assurances, such as the corporate financial tests, corporate guarantees, and captive insurance, that have been brought to the agency's attention by state regulators, the EPA Inspector General, and others.
Closed - Implemented
In October 2006, EPA finalized a plan for the RCRA financial assurance program that outlines EPA's planned financial assurance activities, including regulatory decisions, as well as programmatic implementation items, and the associated timeframes for completing those activities. EPA has implement a number of aspects of this plan. In addition, as part of its 2009 initiation of a rulemaking under section 108(b), the Superfund financial assurance mandate, EPA will evaluate the financial assurance mechanisms it will accept for demonstrating financial assurance under these regulations.
Environmental Protection Agency To better ensure that the financial assurances EPA does require under the Superfund and RCRA corrective action programs provide sufficient funds for cleanups in the event liable parties do not fulfill their environmental obligations, EPA should enhance its efforts to manage and enforce the financial assurance requirements for Superfund and RCRA corrective action cleanups by revising and updating its financial tests to address the deficiencies identified by the EPA Inspector General and others, if EPA continues to accept the corporate financial tests and corporate guarantees as financial assurance in these programs.
Closed - Implemented
EPA has obtained formal advice from its Environmental Financial Advisory Board (EFAB) on financial tests and corporate guarantees and on improvements to the financial test. EPA is now consulting with EFAB on the implications of the current (2009) financial climate for these issues. Officials reported that EPA will also incorporate this advice into its recently initiated work on Superfund financial assurances (section 108(b)).
Environmental Protection Agency To better ensure that the financial assurances EPA does require under the Superfund and RCRA corrective action programs provide sufficient funds for cleanups in the event liable parties do not fulfill their environmental obligations, EPA should enhance its efforts to manage and enforce the financial assurance requirements for Superfund and RCRA corrective action cleanups by implementing changes to Superfund and RCRA databases to support the efficient identification of EPA's portfolio of financial assurances and populate these databases with information on all financial assurances that liable parties should have in force, developing quality controls to ensure data reliability.
Closed - Implemented
A new data field for financial assurance expiration date has been added to the Superfund database. Also, beginning in FY 2010, financial assurance will be a program measure, "Total Amount of Response Commitments Secured through Financial Assurance." The Superfund Program Implementation Manual has been updated with a definition of the new measure. As a result, there will be a new data requirement in the Superfund database for Regions to identify all new enforcement instruments that have financial assurance provisions. Regarding RCRA, on June 8, 2009, the new financial assurance module of RCEAInfo went into production and implements GAO's recommendation.
Environmental Protection Agency To better ensure that the financial assurances EPA does require under the Superfund and RCRA corrective action programs provide sufficient funds for cleanups in the event liable parties do not fulfill their environmental obligations, EPA should enhance its efforts to manage and enforce the financial assurance requirements for Superfund and RCRA corrective action cleanups by developing a strategy to effectively oversee the agency and state portfolios of financial assurances to ensure that all required financial assurances are in place and sufficient in the event the related businesses encounter financial difficulties, including bankruptcy. Such a strategy should include ensuring that adequate staffing resources with relevant expertise are available.
Closed - Implemented
OECA has developed and implemented a national strategy with specific goals to focus on financial assurance enforcement. The strategy addresses RCRA closure/post-closure, RCRA corrective action, and Superfund.
Environmental Protection Agency To better ensure that the financial assurances EPA does require under the Superfund and RCRA corrective action programs provide sufficient funds for cleanups in the event liable parties do not fulfill their environmental obligations, EPA should enhance its efforts to manage and enforce the financial assurance requirements for Superfund and RCRA corrective action cleanups by requiring that financial assurances be in place before EPA and liable parties finalize Superfund settlement agreements.
Closed - Implemented
EPA and the Department of Justice revised the financial assurance language for Superfund settlement agreements to require that the form and substance of the financial assurance are finalized prior to the executive of a consent decree and by shortening the time period to 10 days after the entry of the consent decree for the settling defendant to make the agreed upon financial assurance mechanism effective.
Environmental Protection Agency To better ensure that EPA holds liable parties responsible for their cleanup obligations to the maximum extent practicable, the agency should seek opportunities to more fully use its enforcement tools, particularly tax and other offsets, and provide specific guidance to their staff on how and when to use these tools. For example, EPA should routinely take advantage of tax offsets when liable parties are not meeting their obligations--not just when parties file for bankruptcy.
Closed - Implemented
In response to our recommendation that it seek opportunities to more fully use its enforcement tools--particularly tax and other offsets--EPA reported that the agency considered the option of using CERCLA 104(e) information requests to obtain tax information for the purpose of determining where tax refunds are due but determined that EPA cannot address the problem without a government-wide system in lace for obtaining such offsets.
Environmental Protection Agency To better ensure that EPA identifies relevant bankruptcy filings to pursue and bankruptcy actions to monitor, EPA should develop a formal process for monitoring bankruptcy proceedings and maintain data on bankruptcy filings reviewed, for example using an EPA Intranet site that would be readily available to all relevant staff.
Closed - Implemented
EPA reported that the agency has developed a national Bankruptcy Information Database that addresses GAO's recommendation by allowing EPA to (1) identify bankruptcy notices served upon the agency by debtors or other parties in interest and share such information whiting the agency; (2) track and share information within the agency regarding EPA investigations and analysis of bankruptcy cases; (3) track bankruptcy cases where EPA both asserts a claim or decides not to assert a claim, and (4) track the results of EPA's enforcement actions in bankruptcy cases.
Environmental Protection Agency EPA should revise and update its guidance on participation in bankruptcy cases to more clearly identify some actions needed to better protect the government's interest, such as steps to take to better ensure that the courts do not inappropriately discharge environmental liabilities and to specify that staff evaluating new bankruptcy filings should routinely determine whether EPA has any existing liens related to the filings.
Closed - Implemented
EPA's 2005 Bankruptcy Protocol provides guidance for managing multi-regional bankruptcies and directs relevant staff attorneys working on each bankruptcy matters to investigate the debtor's environmental liability for Superfund and RCRA corrective action sites. This analysis includes a determination of whether EPA has an existing lien regarding the site.

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