HAZARDOUS WASTE SITE CLEANUP: TOWARDS NEW, MORE EFFICIENT MANAGEMENT MODELS

Prepared By: Apogee Research 4350 East West Highway Bethesda, Maryland 208 14

December 8, 1993

APOGEE RESEARCH INC,

Apogee Research is pleased to present the attached paper: Hazardous Waste Site Cleanup: Towards New, More Efficient Management Models. The paper is the result of a day-long working session on alternatives to existing Superfund Management sponsored by the Reinsurance Association of America (RAA) in September of 1993. The working group was composed of an impressive group of public policy experts from the public, private, and non-profit sectors, with many years of experience in Superfund as well as other environmental and public works domains.

Although Apogee Research is responsible for synthesizing the group's ideas into this document, the ideas themselves were generated by working group members. Certainly no in-depth discussion of Superfund can achieve total consensus, the issues are complex and disagreements among experts are common. The RAA working group was no exception, and there are many opinions presented in this paper that did not receive the support of all who participated. Nevertheless, we have tried to capture the essence of the interesting ideas presented that day, many of which received the support of a majority of those present.

PUBLIC WORKS RONOMICS & FINANCE

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We were quite impressed with the caliber of the ideas presented and the cooperative nature of the discussion an this important and often emotional issue. We are delighted to play a part in bringing these ideas to a wider audience.

We join the project's sponsors, Frank Nutter and Sandy LaFevre of the Reinsurance Association of America, in thanking all those who participated for giving their time and intellectual energies in this effort. The working group was composed of the following:

4350 EAST WEST t-I(.3-W%' SUITE 600 BETHESDA, MD 20814 301 652 8444

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Participant Affiliation

David Allee David Aylward Larry Buc Craig Chaney Don Clay Claudia Copeland DQn Crane Lee Fuller David Gibbons Jospeh Giglio Kent Jeffrys Bruce McDowell

Marty Reuss

Cornel1 University National Strategies Project Performance Corporation Project Performance Corporation Don Clay Associates Congressional Research Services W.R. Grace Inc. Walker, Free Associates EOP Group Smith, Barney, Harris, Upham & Co. Competitive Enterprise Institute Advisory Commission on Intergovernmental Relations Army Corps of Engineers

In addition, special thanks goes to John McGlennon of ERM New England for facilitating the discussion.

Kenneth I. Rubin President Apogee Research

Hazardous Waste Site Cleanup: Towards New, More Efficient Management Models

EXECUTIVE SUMMARY

The Superfund program needs improvement. As Congressional reauthorization approaches, numerous plans are on the table that offer advice on how to fix our national hazardous waste cleanup program. While many of these proposals have focussed on the liability provisions of the current act, little attention has been paid to critically analyzing weaknesses in the overall management structure of the program. This paper, based on a working group discussion of public policy experts sponsored by the Reinsurance Association of America, is a first step towards addressing that deficiency.

Discussion participants were asked to draw upon their experience in a broad range of public works and environmental areas to answer a fundamental question: How should Supe@nd be managed? Their proposals, which blend aspects of market-based decision- m&ing at the local level, structures based on state-level "authorities", and some well- designed elements of the current federal program, are an important contribution to the policy dialogue. These alternatives deserve serious consideration as the debate on Superfund moves forward.

THE GOAL: EFFECTIVE AND EFFICIENT PROTECTION OF HUMAN HEALTH

The hazardous waste cleanup program is principally aimed at protecting human health. In order to do so efficiently and effectively a management system must include mechanisms for accurately identifying and prioritizing the risks within a universe of sites eligible for cleanup. The program must promote least-cost practices, streamline administrative systems, and foster the development of innovative, low-cost solutions for the future. Decisions on cleanup at individual sites should reflect local valuations of the costs and benefits of alternatives in ways that maximize the welfare of all society. Roles and responsibilities among federal, state, and local governments, and the private sector must be clearly defined and must balance the management efficiencies of centralized structures with the decision-making benefits of decentralization.

This complex array of objectives suggests that any program management structure must be flexible enough to handle uncertainty and maneuver between often competing interests. While much can be learned from examining a few simple structures, the intricacy af the problem suggests that these approaches are only a first step.

FEDERAL, STATE, AND LOCAL APPROACHES TO ACHIEVING OBJECTIVES

The federal government holds the majority of management control in the current Superfund program. Yet this federally focussed structure is only one of many management models to consider. Federal, state, and local governments, as well as the private sector, continue to play a variety of often shifting roles in public programs from highways to waste water treatment, with each taking on wide-ranging levels of responsibility for implementation

and decision-making. The assortment of federal, state, and local approaches in use implies a multiplicity of options to consider in critically evaluating Superfund management.

Federal Management

The current EPA-managed program is highly centralized, with most of the decision- making authority centered in the federal government. EPA’s role is comprehensive, especially for the nation’s most contaminated sites on the National Priorities List (NPL). EPA is a standards-setting body, a regulatory enforcement agency, a program administrator, and contracts manager, a research organization, and a site-specific project implementor. This top-down structure offers the potential for economies-of-scale efficiencies in administration and remediation. In addition, knowledge and experience can develop quickly within the agency, leading to potential increases in productivity. EPA’s success in emergency removal demonstrates these benefits.

Nevertheless, a centralized management structure has considerable weaknesses. Most critically, the federal structure leads to a poor understanding of, and flexibility towards, local needs. The result is an inability to make decisions that maximize benefits based on an accurate evaluation of alternatives at the local level. In addition, the current program frequently engenders distrust among local residents, who, having no direct stake in cleanup expenditures and no assurance of future redress, push for costly cleanup solutions that may be inappropriate for current land use expectations.

Local Management Approaches -- The Authority Model

Local management is often promoted as a means of improving public program efficiencies since decisions are made with an in-depth understanding of regional costs and benefits. Local authorities are one mechanism for expanding local input. Authorities are independent local entities that have direct responsibility for the management and use of a pool of funds in the provision of a service. As applied to hazardous waste, an authority would be created for an individual hazardous waste site or a number of waste sites in a community. Members of the local government, technical advisors, and other interested stakeholders would comprise the authority board and would manage cleanup activities at the site. The authority would apply to the federal fund for grants and loans and would be responsible for making its own finaqcial commitment for cleanup and maintenance. Local ownership would assure residents that future redress was possible, thus promoting the use of appropriate cleanup techniques. Where feasible, site-specific revenues, from property taxes, rents, and the like, might be used by the authority to repay federal loans or retire commercial debt.

The local authority model would improve decision-making by placing responsibility in the hands of those who have a direct stake in the future of the community, and in some cases requiring local financial commitment to ensure that the benefits and costs of cleanup

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alternatives are clear. Nevertheless, a local approach would eliminate many of the economies-of-scale efficiencies of the federal program, would require an extensive federal training component, and would not be easily implemented at sites with little economic value located in resource poor communities.

State-Based Program Management

A state-led strategy addresses some of these weaknesses and offers a natural middle- ground between the decentralized public authority model, and the centralized federal management structure currently in place. State environmental agencies that are currently managing non-Superfund remediation, and leading some-site specific cleanup efforts as part of the Superfund program could be expanded to manage hazardous waste cleanups for all sites in the state. Alternatively, independent hazardous waste cleanup authorities could be created in each state with the help of federal funds to lead the Superfund cleanup effort. These state entities would then be responsible for identifying, evaluating, and remediating regional hazardous waste sites.

The state agency would create site-specific teams, which would include some local fepresentation, to assess conditions and plan strategies at individual sites. The authority would then request grants and loans from the federal government, commit authority funds, and, in many cases, require a local contribution for cleanup. The authority would manage a portfolio of sites in the state, and could use site-related revenues to repay federal loans and fund efforts at new sites.

A state-level structure can capitalize on existing infrastructure and experience in some states, and can take advantage of scale economies in administration. Decision-making would be more reflective of true benefit-cost tradeoffs at individual sites than the current federal system. The state could balance the needs of poor communities with the resources available elsewhere in the state, and also could assure residents that additional cleanup is possible if land use needs change. Nevertheless, not all states are in a position to accept management responsibility for such a program, requiring a federal government management role, at least during a transition phase. In addition, states are unlikely to fund research and development efforts for new technologies adequately, and all may not be capable of matching EPA’s quality emergency removal efforts.

TOWARDS A SOPHISTICATED SOLUTION TO A COMPLEX PROBLEM

None of the federal, state, or local approaches described above offer a complete solution to the hazardous waste problem. There are no easy answers. Nevertheless, elements of each approach offer distinct advantages and suggest that a hybrid approach to the problem may be the most productive course to follow. A plausible framework might include:

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t Federal financial management of the central trust fund;

0 Federal management of the emergency removal process as well as general research, training, and technical assistance activities;

0 Federal capacity to manage site implementation during transition, and when state governments lacked adequate management capability;

0 State management, cost-sharing, and ownership of the majority of site-specific projects through the use of state-level authorities;

0 Local involvement in state-managed site teams from site identification onward, perhaps including some local financial commitment;

0 Local control of some sites under certain favorable circumstances; and,

0 Private sector involvement throughout, as a contractor for technical assistance, research, and training, and as an interested member of site-specific implementation teams.

T h i s multi-faceted approach appears to go a long way towards meeting the principal objwtives qf the program, and seems especially well-suited to the complexities of' the hazardops waste cleanup problem.

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Hazardous Waste Site Cleanup: Towards New, More Efficient Management Models

INTRODUCTION

As Superfund reauthorization approaches, there is widespread agreement that the existing program for hazardous waste site cleanup needs improvement. This discussion paper presents alternative approaches to program management that address current program weaknesses and, therefore, offer options for Congress and other interested parties to consider as the debate on Superfund goes forward.

The alternatives presented build on innovative approaches used in public works programs such as waste water treatment, and focus on mechanisms that decentralize those aspects of the decision-making process that are best made at the state or local level. These options attempt to address all major program objectives and are structured to provide flexible solutions to a particularly complex policy issue.

This paper is based on a recent roundtable discussion of Superfund management sponsored by the Reinsurance Association of America. Participants included Superfund experts and public works specialists from industry, academia, non-profit organizations, and government. Participants were asked to focus on program management, rather than on details of financing or questions of liability. The discussion was based on the following initial assumptions:

0 A new hazardous waste cleanup program would restrict Superfund’s current reliance on strict, retroactive, and joint and several liability; and,

0 An enlarged trust fund would be available for site cleanup, raised through general federal taxing authority, or through special business taxes.

These assumptions were made in order to focus attention on issues of program management. Indeed, there was no discussion of participants’ views on the liability issue. Instead, the roundtable simply required that participants accept these ground-rules and propose the most efficient means of managing a hazardous waste cleanup program if Congress chooses to move in this direction.

Participants were free to debate goals for the program, to discuss processes for reaching objectives, to suggest roles for various stakeholders, and to consider obstacles to successful implementation. Central to much of the discussion was a desire to establish a framework that would create incentives among stakeholder groups such that cleanup decisions

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would reflect, as much as possible, a fair assessment of program costs and benefits. This paper follows the general outlines of the discussion and is structured as follows:

0 Goals of a hazardous waste cleanup program;

0 Current Superfund management -- federal control of decision-making;

0 Alternative management models -- public authorities and state control;

0 Transition issues -- obstacles to change; and,

0 Conclusions.

GOALS OF THE PROGRAM

The discussion participants articulated the following goals for a hazardous waste cleanup program :

0 Protect human health;

0 Ensure effective use of resources by defining and prioritizing a universe of sites where an acceptable level of risk to human health can be eliminated, relative to the resources expended;

0 Ensure efficient use of resources by promoting the utilization of least-cost appropriate technologies and by streamlining management processes. Promote the development of innovative remediation strategies and technologies to encourage continuing improvement in cleanup efficiencies in the future;

0 Involve the local community in decision-making through programs that educate and build trust. Allow for a flexibility of response that reflects local community needs;

0 Place decision-making authority and accountability at a governmental level that balances the benefits of local control over decision-making with the economies- of-scale, information-flow efficiencies of centralized management. This balance implies an important role for state governments.

0 Establish market-like mechanisms that make the benefit-cost tradeoffs among alternative resource uses explicit. Create incentives for decision-makers to select options with the highest societal benefits.

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These goals are discussed in detail below.

Effective and Efficient Protection of Human Health

A hazardous waste site cleanup program is principally aimed at protecting human health. As with any public program, financial and technical resources available for this purpose are finite and must be allocated among competing uses. A principal goal of a hazardous waste cleanup program, therefore, is to reduce or control the most risk to human health using the fewest resources. This goal requires that resources be used both effectively and efficiently.

Effectiveness, in this context, is defined as the elimination or control of acceptable amounts of risk relative to the resources expended. For a hazardous waste cleanup program, effectiveness promoting measures include program mechanisms for evaluating site risks and for deciding which sites are appropriate targets of program-funded remediation. This implies that procedures exist for defining an initial universe of sites, and processes are maintained for adding sites to this inventory. In addition, the program should establish procedures for prioritizing sites or specific problems within sites, and for measuring eventual risk reduction against expectations. In order to limit expenditures to tasks with real benefits, each cleanup project, and the program as a whole, must have clearly delineated boundaries such that project and program completion are well-defined.

Efficiency criteria focus on minimizing the resources expended, primarily money and time, to reach specific objectives. This implies that mechanisms are in place that promote the use of appropriate remediation strategies such that cleanup goals are achieved at least cost. Remediation strategies that have proven effective in the past should be adopted and streamlined for consistent application. At the same time, the program should encourage the development of innovative technologies for future use. Mechanisms that promote efficiency, therefore, require a balance between the use of known "best technologies" and the development and dissemination of innovative processes that may prove to be more efficient in the future.

In addition, management processes must be designed in order to minimize transaction costs. Roles and responsibilities should be clearly defined and duplication of effort minimized. Information flows should be streamlined such that decisions can be made quickly with readily available access to both site specific and general technical information. External transaction costs due to litigation or other legal maneuvering should be minimized. The program should concentrate on achieving principal objectives, allowing other programs and policies to address priorities not directly aimed at achieving existing site cleanup.

Although efficiency and effectiveness criteria are appropriate methods for allocating a fixed supply of resources, their application to hazardous waste cleanup is not easy. There is considerable uncertainty surrounding the risks to health and the environment posed by

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hazardous waste sites. Risk assessment and remedial design are inexact sciences that require an in-depth understanding of chemical and geological interactions as well as knowledge about future site uses. There may be considerable disagreement over the relative riskiness of a site as well as over appropriate remediation strategies. Plans for site use can change over time, thereby increasing or decreasing the potential health risks. To the extent possible, the program must incorporate these uncertainties into its risk assessments and establish procedures that allow site use and conditions to be monitored and revisited over time.

Ideally the health risks at hazardous waste sites should be evaluated relative to the risks posed by other health and environmental problems that compete for the finite resource pool. A true measure of the program’s effectiveness would consider the reduction in health risk, relative to resources expended, in relation to benefits that could be realized through alternative uses of these resources. Many environmental risk experts, including some within EPA, suggest that the risks at current Superfund hazardous waste sites are of a smaller magnitude than those of other environmental hazards, such as radon contamination. It is impractical, however, to suggest that any truly comprehensive risk/cost comparison of all health and environmental problems will be made. Nevertheless, a hazardous waste cleanup program should be designed such that cleanup decisions reflect, to some degree, an explicit acceptance of the tradeoffs inherent in the underlying resource expenditure decisions.

Involvement of Local Communities and States

Since residents living close to hazardous waste sites bear the brunt of the costs of non-treatment through reduced property values, decreased options for land use, and the potential for increased incidence of disease, it is imperative that they participate in a meaningful and constructive way in decision-making on hazardous waste cleanup. A hazardous waste cleanup program must, therefore, educate the community on site risks and involve residents and local governments in decisions related to remediation and resource expenditure. Constructive local involvement requires that trust be established between the local community and federal authorities and that residents have an outlet for the understandable emotional responses to the uncertainties of living near a site. Furthermore, the program should recognize that individual communities may have a range of reactions to the existence of a site and should allow for a flexibility of response with respect to each community’s unique circumstances.

In addition to ensuring local community involvement, the hazardous waste program should establish appropriate decision-making roles for each level of government. Local and state governments may be effective in defining the response to a local hazardous waste cleanup problem in ways that meet the particular needs and objectives of each community and region. Decision-makers close to the problem are better able to respond in a manner

, that reflects local benefit-cost tradeoffs. The benefits to be gained by this type of flexible, decentralized decision-making, however, must be weighed against the advantages of centralized management processes.

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Centralized structures allow decision-makers to develop expertise relatively quickly, to exploit economies of scale in site remediation and administration, and to facilitate the flow of information on effective or ineffective remediation strategies. To be effective, a hazardous waste cleanup program needs to balance the flexibility of decentralization with the efficiencies available through centralization. This balance implies that all levels of government will be involved in the process, with state governments playing a particularly crucial role.

Establishing Market Mechanisms for Decision-Making

Many discussion participants suggested that an effective means of achieving many of the goals outlined above is through the establishment of market mechanisms for decision- making. Market-oriented decision-making is founded on the concept that consumers in a market for goods or services make choices among possible resource expenditures based on the maximization of their own welfare. Often these choices do not reflect the indirect costs and benefits which fall to individuals external to the market transaction. If all direct and indirect costs and benefits are weighed when decisions are made, the best possible choices for society will result.

A public program that seeks to incorporate market-based decisions must establish a framework such that choices are made based on a full evaluation of benefits and costs. This implies that structures are in place so that decision-makers can clearly calculate financial and other costs of their decisions as well as estimate the direct and indirect benefits that will result. It requires that costs and benefits weighed by those responsible for cleanup decisions are reflective of the costs and benefits that accrue to society as a whole.

Market mechanisms for hazardous waste site cleanup may be as simple as shifting control of specific site decisions to a local government entity that also must bear some of the financial responsibility for the site. Decision-makers then have a financial stake in the cleanup and can more clearly gauge the tradeoffs between expenditures on remediation versus alternative uses of those resources. In this way, the local community has a more direct incentive for choosing a combination of resource expenditures that maximize the community’s welfare. Since the costs of untreated hazardous waste sites are concentrated in the local community, processes that promote local decision-making, but require cost-sharing, should result in the most rational overall decisions.

A Focus on Hazardous Waste Site Cleanup

The goals articulated above are aimed at protecting human health and the environment by cleaning up existing hazardous waste sites. The majority of discussion participants felt that limiting the aims of the program to these principal objectives would result in the most efficient achievement of health and environmental goals. Although the participants certainly support efforts to punish those who acted illegally or negligently in the past, and to promote

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the effective use and disposal of hazardous substances in the future, many believe that there are adequate means for achieving these goals in parallel with a directed, efficient cleanup program. A hazardous waste cleanup program burdened with policy objectives that are not directly focussed on protecting human health and the environment at existing sites will necessarily be less efficient in achieving cleanup goals.

THE CURRENT MANAGEMENT STRUCTURE -- FEDERAL CONTROL OF DECISION-MAKING

Description of the Current Management Structure

As it is currently designed, Superfund is a federally managed program with much of the decision-making authority centered in Washington. If the liability provisions of the existing program were eliminated, and funding provided through general or special business taxes, the management structure of the existing program could be left intact. This highly centralized approach potentially offers efficiencies in the form of economies-of-scale in administration and cleanup implementation, as well as productivity gains as knowledge and experience grows within the agency. Nevertheless, the approach suffers from a lack of understanding of, and flexibility towards, local needs, resulting in an inability to make decisions that fully reflect the benefit-cost tradeoffs at individual sites.

Currently, the Environmental Protection Agency is responsible for evaluating sites, assessing their risk, and, for the most part, determining whether or not a site is added to the National Priorities List (Nl?L). When a site is selected for remediation, EPA, or their contractors, performs a detailed investigation of site risks and studies potentially applicable remedial technologies. The EPA regional administrator makes a final remedy decision and EPA coordinates all aspects of the remedial design and implementation effort. EPA is then responsible for long-term site monitoring, and the agency makes the final decision to remove a site from the NPL. Although state governments have become increasingly more involved in site management over time, including leading some NPL site remediation efforts, they still must answer to EPA’s ultimate authority. For many sites on the NPL, EPA’s role is comprehensive. It is a standard-setting body, a regulatory enforcement agency, a program administrator and contracts manager, a research and development organization, and a site- specific project implementor.

At various stages throughout the process, EPA does receive input from stakeholders, including industrial waste generators, state and local governments, community groups, and environmental interest groups. EPA encourages community involvement through the issuance of technical assistance grants that allow interested groups to conduct site risk assessments and evaluate remediation approaches. In many instances, EPA works closely with the states and industrial waste generators to implement and monitor cleanup. Nevertheless, it is the EPA who has undisputed primacy in standard setting, site

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prioritization, remediation planning and implementation, and site monitoring. Although EPA receives input from a variety of stakeholders, it ultimately makes the decisions.

Strengths of a Federal Program

The management structure of the current Superfund program is top-down, with much of the decision-making for both policy and implementation strategy centered in the federal government. This approach can result in the devehpment of a great deal of expertise within the agency, assuming personnel remain long enough to descend the learning curve. Expertise in the technical aspects of cleanup design and implementation, as well as program administration, can result in cost savings as the experience developed in the past enables program personnel to efficiently perform similar tasks in the future. Also, this expertise can be put to use in the research and development of new technologies that may improve cost- efficiencies in the future.

In addition, a centralized approach allows program managers to achieve economies of scale in administration and remediation. By performing all site cleanups within a single agency, many of the costs for training, overhead, equipment, and administrative support can be shared across all of the sites managed by the agency. To the extent that per site costs decline as the number of sites increases, centralization can be less expensive than a decentralized approach for some site cleanup processes. Furthermore, it may be easier to account for expenditures, promote consistency of response, and evaluate program-wide results if information and responsibility is tightly maintained within a single agency.

Weaknesses of a Federal Program

Despite its advantages, a federally focussed approach to hazardous waste management suffers from significant weaknesses. Although centralization at the federal level concentrates expertise, it also isolates managers from important aspects of the decision process at individual sites. Indeed, in order to maximize economies of scale, a centralized agency must limit the range of responses available for use. Even if the procedures in use by the federal agency are performed efficiently, they may be inappropriate for local conditions. Although the current system permits some flexibility in program implementation within each of the ten EPA regions, decision-makers are still considerably removed from local realities and often constrained by standard procedures defined at a higher level in the hierarchy. By promoting consistency, the agency necessarily sacrifices flexibility, resulting in a loss in program effectiveness.

In addition, since communities have little input at the beginning of site investigations, residents may feel that solutions chosen by EPA do not reflect the community’s needs. Although EPA has made an effort to get input from local communities, many argue that it comes too late in the process, often when this information can do little to alter the agency’s decisions. Frequently, there is little trust between the affected communities and EPA,

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partially because of a general image problem with the Superfund program, partially because communities recognize that they own the problem, but EPA is responsible for the solution.

Since the liability focus of the current Superfund program may result in cleanups designed and carried out by waste generators, communities may be further convinced that EPA does not value their needs sufficiently. The result is an all too common "us versus them" mentality, with affected residents viewing the problem as a standoff between community needs on the one hand, and an EPAhdustry alliance on the other. At the same time, EPA may feel that communities are demanding too much cleanup when the risks do nor warrant such an approach. Since the community has no direct financial stake in the decisions, they have little incentive to settle for anything less than 100 percent remediation.

A critical element of the problem arises because communities are wary of accepting less than permanent cleanup from an agency that is so removed from local control. Remediation strategies that contain and control hazardous waste at the site may be appropriate and cost-effective in instances where the land is not expected to be extensively developed, and where geologic conditions offer assurances of safety for the surrounding region. Nevertheless, communities often push for more expensive removal strategies because residents feel that this may be their one opportunity to remediate a site against any contingency. Since land-use expectations may change over time, and communities have no assurances that a federal agency shielded from local control will respond to these new realities, localities have incentives to press for cleanups that exceed current needs and land- use expectations.

In 'addition, although the present structure offers the capacity for cost-saving economies of scale and centralized expertise, it is not clear that Superfund has fully capitalized on this potential. High personnel turnover limits the concentration of expertise within the agency, especially at those levels of the program most directly involved with site- specific implementation. Mismanagement of contractors has led to a number of public criticisms of the agency, strongly suggesting that there is room for improvement in streamlining administrative structures and eliminating waste and abuse. The sheer size of the program and allegations of pork barrel practices have prompted some to suggest that managerial incentives within the agency sometimes relegate true progress on reducing health risks to a secondary objective.

Accusations of empire-building and bureaucratic waste and abuse are not unique to Superfund, and are common to most public programs of this magnitude. Indeed, many of the charges are disputed by the agency, or have been addressed through a series of management reforms since Superfund's inception. Nevertheless, it is clear that the centralized management structure of Superfund does isolate the agency from the unique circumstances at individual sites, decreasing the effectiveness of cleanup decisions. The inability of the agency to capitalize fully on the benefits of centralized management further suggests that it is worthwhile to consider alternative management structures that might

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improve program effectiveness.

ALTERNATIVE MANAGEMENT MODELS

There is no standard model for managing a public program, and many government programs have modified their management approach significantly over time. Federal, state, and local governments, as well as the private sector, continue to play a variety of often shifting roles in these public works areas, with each taking on broad-ranging levels of responsibility for implementation and decision-making. Federal control of the hazardous waste cleanup program is, therefore, only one of many management options available. Responsibility for standards and priority-setting , project planning, capital financing, project implementation, and operations and maintenance varies widely across the landscape of public programs, from highways to transit, and solid waste to waste water treatment.

Often the mgnagement approach in use is more an outcome of the historical evolution of a program than a rational, planned design focussed on achieving objectives. Certainly history has played an important role in determining much of the current Superfund management structure. Nevertheless, recent management trends in some environmental public works programs, such as waste water treatment and water supply, and a growing recognition in the public sector that government structures can be actively redesigned to improve efficiency lend credence to an effort aimed at critically evaluating alternatives to current Superfund management.

Decentralized Decision-Making and Local Cost-Sharing

Management structures that grant more decision-making authority to state and local governments are often accompanied by a state or local cost-sharing requirement. The cost- sharing element of these programs is intended to promote efficient expenditures of resources by requiring the decision-makers to evaluate the alternative uses of their cost share. In this way, decisions are made than not only take into account local needs that may be obscured at the federal level, but that also promote a true understanding of the relative costs of these choices at the local level. The proportion of state and local contributions to costs can vary widely depending on the resources available in the municipality; the local benefits, especially future revenues, expected from the expenditure; and the magnitude of overall project costs.

In the decentralized hazardous waste cleanup models considered below, we have assumed that in many cases local cost-sharing would be used to improve the effectiveness of cleanup decisions. This does not imply that the federal government would cease to provide the majority of funds, especially in instances where there is an extreme lack of resources available at the local level. In some cases, mechanisms such as revolving loan funds, which provide subsidized loans to states and localities on the expectation of future revenues, can be used to fulfii cost-sharing requirements. In others, cost-sharing may need to be waived

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entirely, necessarily implying increased federal or state responsibility for expenditure decisions.

The following section sketches the outlines of two alternative approaches: a highly decentralized model based on the creation of local public authorities; and a state-led approach, based on a transfer of primary management and decision-making authority from the federal government to the states. In addition, this section discusses ways in which these alternatives can be combined with the current federal management structure, to create a dynamic management process most suited to the complexities of the hazardous waste cleanup problem.

Local Authorities

Description

One possibility for hazardous waste site cleanup is the use of public authorities. Authorities are independent local entities that have direct responsibility for the management and use of a pool of funds in the provision of a specific service. Authorities are common in waste water treatment, solid waste disposal, and a number of other public works domains. Often authorities have the capability to raise funds through the issuance of debt, which they repay with revenues generated through delivery of services. The authority may also receive loans or grants from federal, state, or local governments and usually contributes a share of financial capital to fund ongoing operations and maintenance. The authority is responsible for managing the facility under its jurisdiction and administering all the funds in its control.

In the context of hazardous waste cleanup, an authority would be created at an individual hazardous waste site or for a group of nearby sites. A federal agency, such as the EPA, would manage a central trust fund for hazardous waste cleanup, and would respond to demands from local authorities for funds and assistance. In most cases, the local authority would contribute some of its own financial capital and would have primary responsibility for remediation and maintenance at the site once funds were awarded. The authority would own the site and would reap any economic benefits from its eventual reclamation.

More specifically, a local government would create an advisory board following the identification of a hazardous waste site. The board would include appointed officials, community members, expert advisors, industry representatives, and other important stakeholders. The board would request an initial tranche of funds from the federal agency to perform a preliminary site assessment. If, in the view of the advisory board, the risk from the site was significant, the board would request an additional allotment of federal funds to prepare a detailed plan characterizing the site, cleanup goals and objectives, and future anticipated land uses. In addition, the board would create a financial management plan detailing expected sources and uses of funds. The plan would describe the financial commitment of the local authority and would detail how the authority would manage site

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remediation and maintenance.

The federal agency would evaluate the proposal for funding based on broadly-defined minimum standards and would perform some initial prioritization, based on risk, of various local requests for funding. If the federal government accepted the plan and approved funding, the local government would create an authority charged with remediating and maintaining the hazardous waste site to a level outlined in the objectives of the initial plan. Upon receipt of federal funds, the authority would carry out further site investigation, remediation design and implementation, and would monitor the results of the cleanup.

Much like the federal government does now, the authority would turn to contractors in the private sector for most of the technical work at the site. The federal agency would periodically audit and evaluate local authorities for financial soundness and the technical competence of the cleanup process, but management of the site and day-to-day decision- making would reside at the local level.

Strengths of a Local Approach

The public authority model is an extreme example of a decentralized management structure, Since the approach requires some local financial commitment, and the decision- makers are closely tied to the community, judgments regarding whether to pursue cleanup, as well as what type of cleanup technique to employ, would more fully reflect local benefit-cost tradeoffs. In fact, in its purest form, the process would self-regulate the universe of sites selected for remediation to those where the benefits from cleanup were greater than the benefits to be received from alternative expenditures of the local community’s financial stake. Although this localized approach to decision-making would neither erase disagreement over site risks, nor eliminate emotional responses to the uncertainties of hazardous waste sites, it would grant decision-making authority to those who have a real stake in the community and its future.

Local ownership would improve dialogue and trust within the community. Since community residents would be members of the authority board, they would have real input in the decision-making process, from site identification onward. They would own the problem and also could control how it was addressed. Although many tough choices would still need to be made, decisions would reflect the ways in which individual communities value, and come to terms with, the risks and benefits of various cleanup options.

Since the authority would be an ongoing entity responsible for the site, uncertainties about future land use would have less of an effect on cleanup choices. Communities could choose remediation approaches that met current projections of land needs. In instances where those requirements changed over time, the public authority could return to the federal fund, if needed, to request additional assistance in meeting new land-use objectives. It is likely that residents would be more comfortable accepting immediate, appropriate, and less

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costly solutions to hazardous waste site problems if they were sure that the site and its status were f m l y under their control.

In instances where hazardous waste sites are located on economically productive land, the public authority approach has a great deal of appeal. In some instances, the future value of the land following cleanup may fully compensate the community for its financial contribution to the authority. If these expected benefits are recognized in the private capital markets, the local authority may be able to raise their stake by issuing debt through the bond market, pledging the proceeds of future property taxes and other site-related revenues expected after cleanup to the repayment of these notes. Use of the federal pool could be limited to that portion of cleanup costs not available through private sector financing.

Also, in instances where sufficient resources existed at the local level, the federal resource pool could be used, in part, as a revolving loan fund. In this case, the authority’s financial plan would include projections of future land values and site revenues following reclamation. Federal funds transferred to the authority would be a mixture of a grant and a loan based on these projections. The authority would still be responsible for contributing a financial stake independent of the loaned funds. As site remediation progressed, and site revenues were received, the authority would repay monies to the federal pool. These repaid federal loans would then be used to fund further cleanup. The mixture of grants and loans used at each site would be contingent on specific conditions at the site, as well as the overall financing capability of the federal resource pool. A revolving fund approach with a minimal grant component would further promote the accurate evaluation of benefits and costs prior to any local decisions on site cleanup. Obviously this solution is imperfect, especially in those communities with little resources upon which to draw. These weaknesses will be examine in more detail in the section to follow.

Weaknesses of a Local Program

This characterization of a public authority model has a number of obvious weaknesses. Not all municipalities have the resources to contribute a financial stake to operating and maintaining a public authority, nor the management and technical expertise needed to run an authority. Although, in some instances, the anticipated economic value of the remediated site may offer assurances of a future financial contribution, there will be many sites where this is not the case. In most federal programs based on a local authority model, allowances are traditionally made for communities that simply can not bear their share of the financial burden. In these cases, the federal government would need to directly subsidize resource-poor communities through entirely grant-based expenditures from the fund. In situations where a local financial commitment is not available, the task of site prioritization would fall partially on the federal government, although the local entity would still be responsible for planning the remediation approach and submitting a proposal for approval.

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Since most localities do not currently have the expertise to assess hazardous waste sites and plan remediation strategies, any locally focussed approach would need to rely on a sizable training component. Initially, the program would incur considerable costs as localities used federal funds to develop the expertise and infrastructure needed to manage and implement a program. Since each authority would require a base level of knowledge, and authorities would be created throughout the life of the program, federally managed training would be a necessary permanent aspect of this approach.

The private sector could play an important role in providing technical assistance and training to localities, given the considerable expertise many engineering firms have developed through their cleanup work for EPA. But this increased reliance on the private sector for training and assistance by inexperienced localities would require that authority managers pay strict attention to the technical and managerial competence of the contractors. The federal government may need to play some role in certifying qualified agents so that low-cost contracts from incompetent f m s don’t compromise cleanup quality.

Also, extreme decentralization eliminates many of the economies of scale available in the current federal structure. A certain amount of administrative infrastructure and capital investment is necessary whether an agency is responsible for one site or ten. These costs would be borne by each local authority created, increasing the administrative burden across the universe of sites. In addition, local authorities would be isolated from information collected and experience gained at other sites, unless systems were in place to facilitate the flow of information.

The weaknesses of an entirely decentralized approach suggest that local authorities could not entirely replace the current system. Nevertheless, the benefits of a system that promotes flexible local decision-making, that more fully incorporates benefit-cost tradeoffs, and that builds trust and ownership among the affected community should not be under- emphasized. A new hazardous waste cleanup program should endeavor to incorporate these aspects of the public authority model into its management structure.

State-Led Approach

Description

A state-led approach offers a natural middle ground between the decentralized public authority model, and the centralized federal management structure currently in place. A state-led program moves decision-making authority down from the federal level, allowing for increased flexibility in cleanup responses, and improved decision-making that more clearly reflects regional needs. At the same time, state programs can exploit economies of scale in administration and, in many cases, build on existing infrastructure and experience.

The states play a critical role in the management of many public works programs,

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including highway development and transit. In addition, the EPA has found state-led management structures to be valuable tools in such areas as underground storage tanks and air pollution control. Although state governments have become wary of new federal programs that set strict and expensive standards with no concomitant financial backing, in most cases they are ready to take over management responsibility of programs where necessary resources exist for implementation. Given that many states are already financing non-Superfund hazardous waste cleanups, and that many state-level organizations have come out strongly in favor of expanded management responsibility for Superfund, there is already a good deal of momentum building for this type of approach.

A state-led program might resemble the transit authorities currently in operation in a number of regions of the country. These authorities operate largely as self-financed agencies that plan, implement, operate, and maintain complex, diversified transit systems throughout a state or region. While some federal and state funds are available, the authorities collect revenues from the services they provide. These revenues are then used to repay loans or to expand the system.

Similarly, hazardous waste cleanup authorities, either independent agencies or expanded versions of existing state hazardous waste agencies, would be responsible for all hazardous waste sites in each state. The federal fund would provide initial contributions to all state hazardous waste management authorities, and additional financing would be raised at the state level. These initial funds would be used to develop an administrative infrastructure, to train personnel, and as an initial resource pool for site investigation and assessment.

Following identification of a potentially hazardous waste site, the state authority would establish a team to manage initial site assessment and evaluation. The team would include permanent employees of the state authority, as well as local stakeholders with particular interest in and knowledge of the site. If the evaluation team determined that a significant risk existed, the state authority would prepare a detailed site remediation strategy, including a financial management plan. The complete plan would be used by the state to secure loans and/or grants from the federal resource pool as needed. Also, the state authority would allocate monies from its own fund, and would be responsible for remediation design, implementation, and monitoring. The federal government would retain authority to prioritize the size and number of its allocations based on site specific risks.

As with the local model, the state authority would own the site throughout the process and would collect any site-related revenues. Where local-revenue raising capacity existed, loans from the federal fund would be repaid from revenues received in the form of property taxes, rents, and the like. Revenues in excess of federal loans would be used to fund the state authority’s contribution at other sites. Since the authority would own the site, remediation measures could be revisited over time as land-use needs changed.

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Strengths and Weaknesses of a State-Led Approach

In some respects, a state-led model can be viewed as an expansion of the existing EPA system to fifty "regions" rather than the current ten, with increased management and decision-making responsibility assigned to each region. The federal agency responsible for allocation of the central resource pool would implement funds transfer and audit procedures with each of fifty authorities in the country. Since EPA and the states already have mechanisms in place for transferring funds and exchanging information, both for hazardous waste cleanup and for other environmental programs, an expanded state-led hazardous waste program could build on administrative structures already in place.

In addition, since each state would have a number of hazardous waste sites within its borders, some economies of scale in administration and remediation could be realized. Certainly for states with a large number of sites, sufficient volume would exist such that optimal scale economies could be achieved for many activities. The concentration of sites within state borders would also encourage the development of cleanup expertise that could be applied in future remediation activities. This productivity-increasing know ledge base would also allow the larger state authorities to streamline common remediation techniques for use throughout the state.

In fact, many states currently manage cleanup from start to finish at hazardous waste sites that do not qualify for Superfund remediation and have taken over management responsibilities at some NPL sites. In these states, there is already a base of experience and an administrative infrastructure in place that could be enlarged to meet the needs of an expanded state role. Although the level of current experience and management capacity varies widely from state to state, it is likely that there would be less need for extensive training relative to the local public authority model. In addition, since the state authority is an ongoing entity responsible for all sites within a state, the state program would be able to take over training responsibilities at some point. Also, assuming that a transfer of responsibility from federal to state government results in fewer personnel needs at the federal level, there may be an already experienced cadre of individuals available to manage and implement these state programs.

In addition to preserving some of the experience benefits and scale economies of the federal model, a state-led management structure also incorporates some of the decision- making benefits of the local authority alternative. A state entity is likely to respond to local needs more effectively than a federal agency, and can better judge the benefit-cost tradeoffs at a particular local site. The state authority could request that each site management team include community representatives, and could require a local government financial contribution for site cleanup. Mechanisms would exist for revisiting cleanup strategies at sites where land use requirements change. Since the authority would own the site, as one of many properties under its control, local residents might be more willing to accept immediate

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cost-effective cleanup, with the promise of further work in the future if justified.

Although sites that offer no possibility for future revenue generation pose a problem to any authority-based model, a state authority is apt to manage this problem more efficiently than a highly decentralized local entity. States that manage a pool of sites can balance the needs of poor communities with the resources available from more prosperous regions. This ability to form "problem sheds" across a subset of sites, while maintaining close scrutiny on overall needs and resource constraints, is a particular advantage of a state-led model.

Nevertheless, the federal government must still maintain the capacity to provide resources and management in instances where individual states prove unable or unwilling to fulfill the requirements of the state-led approach. A transition to a state-led model would need to proceed in phases, with some states accepting the lead role relatively quickly, while others built infrastructure and expertise over a longer period of time. In some cases, a considerable amount of federal assistance would be necessary to develop the management capacity for successful transition. A handful of states may never be able to assume full control of the program.

In addition, although the state-led approach has the potential to achieve a number of program objectives, it is not a complete solution to the problem. State authorities would have few resources to set aside for pure research and development of new treatment and control technologies. Most states would have difficulty matching EPA's current level of efficiency and expertise in emergency removal. In both these instances, the economies of scale, information rich structure of the federal management approach appear superior to state-level capabilities.

The Importance of Flexibility: A Hybrid Approach

The federal, local, and state options outlined above are only a few of many possible management approaches to the hazardous waste cleanup problem. Obviously, they do not come close to fully accounting for the subtleties of the existing program, nor the complexities to be faced if one wished to adopt a more decentralized management structure. Certainly, the alternative models should not be considered as exclusive choices ready for implementation. Indeed, each of the options has unique benefits as well as weaknesses. The hazardous waste cleanup issue is complex, and it is unlikely that any one management approach, including the one currently in place, will adequately address the diverse array of needs at sites across the country. Nevertheless, these approaches do offer additional tools that, combined with existing processes, can be used to create a more effective and efficient approach to hazardous waste cleanup.

The models we have considered thus far have assumed that Superfund management is a single indivisible entity that must be universally packaged in federally, state-, or locally sized pieces. In fact, there exist a number of smaller management "modules" that can be

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individually parceled out across the levels of government in a variety of ways. Some aspects of the program can be controlled entirely at the federal level, while others are managed by state and local governments. In addition, some elements of the program can be effectively managed through partnerships with the private sector. The program can be administered in distinct ways throughout the country, with localities taking the lead in site management in some areas, and states in others. Some multi-state regional entities might even be formed to develop management capacity and improve administrative efficiencies among resource poor states.

Some program activities are probably best managed at the federal level. Research on the health and environmental effects of hazardous waste, as well as development of general tools to improve risk assessment and risk reduction are obvious candidates. These activities provide a base of general knowledge upon which to draw when planning remediation at individual sites. It is appropriate and cost-effective for the federal government to manage this effort, since they can reduce duplication of effort and provide a central storehouse of information. The government should continue to promote a variety of R&D programs, funding research at universities and in the private sector, as well as experimental remediation efforts at specific sites. Information gathered from these efforts would form the basis of minimum standards that state and local authorities would need to meet in their requests for federal funds. Also, the federal government could serve as a technical assistance agency, working with states and localities to implement innovative techniques at individual sites.

In addition, the EPA’s emergency removal efforts have been quite effective and could easily remain as a federally managed piece of the overall cleanup effort. These emergency actions require quick response and often rely on similar sets of procedures for removal. In instances where an imminent danger exists, there is little need for an up-close understanding of benefit-costs tradeoffs. In these cases, economies-of-scale and reaction-time efficiencies from centralization outweigh the minimal benefits of decentralized decision-making. Although some large states could reasonably take over emergency removal operations, much of this activity would largely remain a federal responsibility.

At the other end of the management spectrum, issues surrounding the uncertainty of future land use argue strongly for some type of decentralized approach to site-specific remedy design and implementation. At a bare minimum, the current federal system should be modified to encourage up-front involvement of the local community so that some trust and ownership in the decision-making process is established. Increased attention to public education on site risks and a believable federal commitment to site reassessment when land- use needs change may allow a purely federal program to make some strides in improved effectiveness. Ideally such changes would allow efforts at site stabilization to move ahead at a number of locations, replacing the current system of tedious contentious wrangling over permanent solutions at a few sites.

Nevertheless, without a strong local involvement in decisions, and some level of cost

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sharing in local communities, no true evaluation of benefits and costs relative to other resource expenditures will take place. The public authority approach, accompanied with some requirements for local financial contributions, is the purest market-based mechanism for ensuring effective program expenditures. It clarifies costs and benefits, and places decision-making authority in the hands of those who are best able to value tradeoffs among alternative resource expenditures. In instances where hazardous waste sites are located on valuable land, and sufficient management and technical expertise is available at the local level, an independent, locally managed authority makes sense. But not all sites offer future financial benefits, and not all localities can manage or fund cleanup efforts, even in serious circumstances. These limitations suggest that the public authority approach can serve as only a partial solution to the problem.

The state model could be used as a focus of project management and site specific decision-making. In instances where local authorities proved capable of running the program themselves, the state could cede responsibility to these independent local bodies. In other cases, the state would provide needed financial and management expertise and would share resources across the portfolio of state-managed sites. The state authorities would provide a link between the general program-level activities managed at the federal level and the implementation activities of site-specific remediation teams. Management and financial inadequacies in individual states would be addressed through regional groupings, if possible. As a last resort, the federal government would retain authority for state implementation until managerial competence could be developed.

This hybrid approach, with states managing the site specific aspects of the problem, using local authorities as appropriate, and the federal government managing R&D, technical assistance, and emergency removals as well as serving as the administrator of last resort, goes a long way towards meeting the goals outlined at the beginning of this paper. Most importantly, it addresses the major weakness of the current system by further clarifying benefit-cost tradeoffs through cost-sharing, and by placing site-specific decision-making authority at a level where a more accurate evaluation of alternatives can be made. It recognizes that the benefits of decentralized decision-making can be balanced with the advantages of centralized management to promote improved efficiency and effectiveness, while protecting human health and the environment.

TRANSITION ISSUES

This discussion paper began with the assumption that a modified hazardous waste cleanup program would restrict liability and raise funds through taxing authority. It then argues strongly that some aspects of Superfund management should be transferred from the federal government to states and localities. Such major changes to a program as large and complex as Superfund will be difficult to implement and will require careful evaluation and management of the transition process. Nevertheless, the difficulties in changing the system

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should not deter serious consideration of the benefits that will result from these modifications. The hazardous waste program will continue for many years, therefore the costs of transition must be weighed against the sizable benefits that will accrue throughout the program’s existence.

The transition process must ensure that cleanups continue while changes to the program are debated, and new structures are implemented. Government consideration of future restrictions in Superfund liability is likely to result in a reluctance on the part of industry to pay cleanup costs today. Parties responsible for waste at current Superfund sites may prefer to delay financial contributions and cleanup actions in the belief that changes in liability provisions will absolve them of direct responsibility. One possible solution to this dilemma is to provide transition credits to parties who pay for cleanup at current sites once serious discussion of Superfund reform begins. If modifications to liability are implemented, these credits would reduce the future tax liability of law-abiding parties who paid for cleanup during the transition period. Credits will eliminate the financial risks to firms who pay for cleanups and thereby encourage continuation of current efforts. With this system in place, requirements that f m s currently involved in site cleanup continue their remediation efforts should meet with less resistance and should be more easily enforceable.

Also, this paper has not discussed the structure of the tax used to raise revenues for the hazardous waste cleanup trust fund. Certainly the federal tax used to create this fund must be planned carefully to ensure that sufficient funds are available, and that any economic side effects are manageable. Although the effects on individual firms will vary, many Superfund observers suggest that waste-generating parties, as well as the insurance industry, would be better off paying a known tax than continuing to suffer the uncertainties of a broadly-defined liability scheme. Broad-based liability provisions make it difficult for firms to plaq for the future, whereas a hazardous waste tax can be easily incorporated in expenditure projections. Therefore, although the details must be worked out in collaboration with those who will bear the burden of the tax, it is likely that a tax system palatable to industry can be developed.

In addition, the tax must be developed to ensure that the revenues raised will be used solely, and completely for the purposes of hazardous waste cleanup. This will require that transition planners work with the U.S. treasury to analyze tax effects on the U.S. budget. Timing of transition tax credits, tax inflows, and program outlays will need to be structured such that the effects on the U.S. economy are acceptable, and the fund can be used on a dedicated basis for site cleanups. The more mundane, but also complex details of altering the accounting and budgeting procedures of the current program to accommodate major changes also will have to be carefully examined.

Once the tax system and budget mechanisms are in place, the transition program also must anticipate initial training and infrastructure development needs. Any change towards a more state-based program will need to occur in phases, led by a few states who can take over

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primacy rather quickly based on their previous experience. At the same time, the EPA will need to continue managing the program in the rest of the country, while providing the necessary training to a large number of states who have some, but not all, of the necessary infrastructure to manage the program. Another possibility is to begin transition in a single EPA region, and after sufficient progress is made, to continue the transition process in other areas of the country.

CONCLUSIONS

Cleaning up existing hazardous waste sites is a complex public health and environmental problem that requires a sophisticated solution. Yet its primary objective: protecting human health, often seems to be lost in the din of contentious debate over liability. The sponsors believe that insufficient energy has been focussed on evaluating the underlying management structure of the current program. This discussion paper is a first cut at addressing that critical deficiency.

There are significant weaknesses in the existing program. Decisions are made in isolation from the realities at individual sites by mailagers who have no direct stake in a community’s future. Communities often distrust EPA’s intentions, and, lacking any financial responsibility for the cleanup or assurances of future redress, are frequently unwilling to accept anything less than costly cleanup strategies that promise permanent solutions. Experience in other public programs and an evaluation of the structures governing current program decisions suggest that a decentralkatian of the decision-making processes is appropriate. A state-led model, with some reliance on local authorities, seems a strong candidate for further consideration.

At the same time, some aspects of the current program design appear well-suited to the problem. Federally panaged emergency removal, as well as research and development activities, seem to benefit from the centralized management structure of the current program. Although EPA must continually strive to improve the efficiency of these operations, there is little to suggest that other levels of government would be more effective.

The decentralized decision-making benefits of the state-led model, and the centralized management efficiencies of the federal system suggest that improving program management will require a blending of these structures. Such a multi-faceted approach to hazardous waste cleanup seems well-suited to the complex character of the problem, and appears to meet key program objectives. It warrants a critical appraisal by anyone who hopes tp improve our nation’s performance on this important issue.

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