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CRS Discusses Revenue Sources for Hazardous Substance Superfund

MAY 13, 2002

RL31410

DATED MAY 13, 2002
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Citations: RL31410

 

Report for Congress Received through the CRS Web

 

 

Superfund Taxes or General Revenues: Future Funding

 

Options for the Superfund Program

 

 

May 9, 2002

 

 

James E. McCarthy

 

Specialist in Environmental Policy Resources, Science,

 

and Industry Division

 

 

Superfund Taxes or General Revenues:

 

Future Funding Options for the Superfund Program

 

 

Summary

 

 

[1] This report discusses the role of dedicated taxes and other sources of revenue in funding the Hazardous Substance Superfund. Congress makes annual appropriations to the Environmental Protection Agency from this Trust Fund and from general revenues for the purpose of responding to hazardous substance spills, cleaning up former waste disposal sites, and administering the Superfund program.

[2] Three dedicated taxes historically provided the majority of the Trust Fund's income. The taxes expired at the end of 1995, however, and the amounts of unobligated money in the Fund have gradually dwindled. By the end of FY 2003, the Fund's unobligated balance will be just $28 million, down from a high of $3.8 billion in 1996. As this balance has declined, controversy has grown over the Bush Administration's decision not to request reinstatement of the taxes. Legislation has been introduced in both the House and Senate to reinstate the taxes. As of early May, no action had been taken on these bills.

[3] This report provides background information on the sources of income to the Fund and estimates that, if the taxes are not reinstated, $1.2 to $1.5 billion would need to be appropriated from general revenues in FY 2004 to meet identified program needs.

Contents

 

 

Background

 

Superfund Taxes

 

Expiration of the Taxing Authority

 

The Dwindling Fund Balance

 

Superfund's Future Needs

 

Available Funds

 

General Revenue Requirement

 

Congressional and Administration Action

 

 

List of Figures

Figure 1. Hazardous Substance Superfund, End of Year Unobligated Balance, FY 1993-2003

List of Tables

Table 1. Superfund: Trust Fund Revenues and General Revenue Contributions, FY 1991-1995

 

Superfund Taxes or General Revenues:

 

Future Funding Options for the

 

Superfund Program

 

 

[4] In recent months, controversy has erupted over the Bush Administration's decision not to request renewal of the Superfund taxes in its FY 2003 budget submission.1 The Superfund is used to clean up sites contaminated by releases of hazardous substances. Without dedicated taxes, and with a declining balance in the Trust Fund, appropriators are using general revenues for a larger percentage of cleanup funds. This report provides background information on the sources of income to the Fund, and estimates the required contribution from general revenues in FY 2004 if the taxes are not reinstated.

Background

[5] The Superfund was established by the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), and greatly expanded by the Superfund Amendments and Reauthorization Act of 1986 (SARA). Under the program, the Environmental Protection Agency (EPA) and potentially responsible private parties clean up contaminated sites and respond to emergencies caused by spills of hazardous substances, pollutants, and contaminants.2

[6] In a majority of cases, Superfund cleanups are paid for by potentially responsible parties (referred to in the program by the acronym PRPs). At a large number of sites, however, either there is no identifiable or solvent PRP, or there are disputes among the PRPs concerning their degree of responsibility. In such cases, CERCLA permits EPA to proceed with cleanup using the Fund's resources. Where possible, the Agency undertakes enforcement actions to recover the Fund's costs from PRPs at a later date.

Superfund Taxes

[7] The Fund has had several sources of revenue over the years, the most important being dedicated taxes on petroleum, chemical feedstocks, and corporate income. The taxes on petroleum (9.7 cents per barrel) and on chemical feedstocks and imported chemical derivatives (varying amounts, depending on the chemical) were based on the assumption that many of the hazardous substances to be cleaned up were derived from these sources (an approach generally referred to as the "polluter pays" principle). The third tax (referred to as the Corporate Environmental Income Tax), pegged at 0.12% of corporate income in excess of $2 million, was meant to raise funds from a wide range of companies that may have used and disposed of hazardous substances.

[8] Lesser sources of income to the Fund have included interest on the Fund's balance (which is invested in government securities until expended and cost recoveries from PRPs and other government agencies. There has also generally been an annual contribution to the program from general revenues.

[9] Table 1 shows the sources of revenue to the Fund over the period 1991-1995. The three dedicated taxes provided an average of $1,450 million per year, 65.8% of total revenues during the period. The taxes provided nearly four times as much as the contribution from general revenues, which averaged $369 million per year, 16.8% of total Superfund revenues during the period. The remainder of the Fund's income came from interest on investments ($200 million per year) and cost recoveries ($180 million per year).

Expiration of the Taxing Authority

[10] The taxes that supported the Fund expired at the end of 1995. The Republican leadership, notably the Chairman of the Ways and Means Committee during the 104th-106th Congress, opposed reinstating the taxes except as part of a comprehensive CERCLA reauthorization that would remove or modify Superfund's liability provisions.3 No consensus was reached on reauthorization, so the taxes were not reinstated.

          Table 1. Superfund: Trust Fund Revenues and General

 

                 Revenue Contributions, FY 1991 - 1995

 

 _____________________________________________________________________________

 

                                      Amount       Percent of

 

 Source                             ($ million)    Total

 

 _____________________________________________________________________________

 

 Trust Fund Revenues

 

 

 Petroleum Tax                           2,800     25.4

 

 

   Chemical Feedstocks and               1,327     12.1

 

      Imported Derivatives Tax

 

   Corporate Environmental               3,121     28.4

 

      Income Tax

 

   Cost Recoveries from PRPs               901      8.2

 

   Fines and Penalties                      11      0.1

 

   Interest on Investments               1,003      9.1

 

 

 General Revenues                        1,845     16.8

 

 _____________________________________________________________________________

 

 

Source: Funds Management Division, U.S. Treasury Department

[11] When the taxes expired, the Fund had an unobligated balance of nearly $4 billion,4 and, even after expiration of the taxes, money continued to be added to it from interest payments, cost recoveries, and other sources. Thus, the lapse in taxing authority initially had little effect on the ability to fund the program. The Clinton Administration requested reinstatement of the taxes annually in its budget submission, but no action was taken on the requests and the program continued to be funded through a combination of the existing unobligated Trust Fund balance and general revenues.

[12] In order to make the Fund last longer, the contribution of general revenues to the annual appropriation has been increased in recent years, from $250 million annually in FY 1993 - FY 1998, to $634 to $700 million in FY 2000 to FY 2002. The Administration has requested $700 million from general revenues in FY 2003, as well.

The Dwindling Fund Balance

[13] In recent months, attention has been focused on the dwindling amount of unobligated funds in the Superfund Trust Fund. As shown in Figure 1, at the end of FY 2001, the Fund's unobligated balance had declined to $860 million. The President's budget projects a further decline, to $427 million at the end of FY 2002, and to just $28 million at the end of FY 2003. This projection has raised the question as to what contribution from general revenues would be required in fiscal year 2004 (and later years), given that the Fund will have little in the way of unobligated resources.

Superfund's Future Needs

[14] In order to estimate general revenue requirements for Superfund in 2004 or later years, it is first necessary to identify future program needs. In July 2001, Resources for the Future, with support from EPA and the House and Senate Appropriations Committees, released a comprehensive report to Congress identifying those needs and projecting future costs. The study looked at all major elements of the Superfund program, including the removal program (for emergency and short-term cleanups); the remedial program (long-term cleanup); site assessment activities; program staff, management, and support costs; program administration; and Superfund-related work of other programs and agencies. It developed alternative scenarios for estimating the number, type, and cost of sites likely to be added to the program in coming years. It presented its results In a 294-page report, with 73 tables and 28 figures.

 

Figure 1. Hazardous Substance Superfund, End of Year Unobligated

 

Balance, FY 1993-2003

 

 

[graph omitted]

 

 

[15] The report estimated that the cost of Superfund in FY 2004 would be $1,577.5 million (in 1999 dollars). Adjusting for projected inflation, the program's needs in 2004 are $1,748.5 million, according to RFF.5 This was the report's "base case" -- described as "our best judgement of the future cost of the Superfund program, given the full body of our research, analyses, and interviews." The report also estimated a high and low case, to reflect uncertainties about the factors used in their cost models.6 The low estimate for 2004, adjusted for inflation, is $1,610.5 million; the high estimate is $1,927.6 million.7

Available Funds

[16] In order to estimate amounts available to the program from all sources, we have relied on data provided in the Appendix to the Budget of the United States Government, Fiscal Year 2003 (hereafter referred to as the President's budget request). According to the budget request, amounts available for Superfund appropriations can be summarized under nine headings: 1) balance, start of year; 2) excise taxes; 3) corporation income taxes; 4) fines and penalties; 5) recoveries; 6) interest and profits on investments; 7) interfund transactions; 8) Hazardous Substance Superfund, offsetting collections; and 9) Agency for Toxic Substance and Disease Registry, offsetting collections.

[17] Two of these categories, excise taxes and corporation income taxes, are the dedicated taxes that expired at the end of 1995, and thus are estimated at zero. Another category, interfund transactions, represents the contribution from general revenues, which can be whatever amount Congress establishes. Thus, there are six remaining sources of funds, each of which will be discussed in turn.

[18] Balance, Start of Year. The President's budget request estimates that $28 million will be available as an unobligated balance in the Hazardous Substance Superfund at the end of FY 2003. The balance at the start of FY 2004 would be identical. Thus, $28 million is available in this category.

[19] Fines and Penalties. Fines and penalties paid to the Superfund totaled $2 million in FY 2001, and are estimated by the President's budget request at $3 million in each of FY 2002 and 2003. Based on these data, we have estimated FY 2004 fines and penalties at $3 million.

[20] Recoveries. Cost recoveries represent payments to the Fund from potentially responsible parties to reimburse the government for cleanup expenditures at sites for which a private party is legally responsible. Recoveries vary from year to year; projecting them several years in advance is difficult, and may have a larger potential margin of error than some other categories of revenue.

[21] Actual recoveries appear to be declining in recent years. Over the five-year period 1997-2001, they averaged $277 million per year, but they declined to $231 million in FY 2000 and $202 million in FY 2001. The President's budget request projects recoveries at $175 million in each of FY 2002 and 2003. Based on these data, we projected recoveries at $175 million in FY 2004.

[22] Interest and Profits on Investments. Like other government trust funds, the Superfund earns interest on its current balance until the money is actually expended. Expenditures can lag obligations by several years, so there can be a substantial difference between the unexpended and unobligated balances in the Fund. The unexpended Superfund balance totaled $3,653 million at the beginning of FY 2002, whereas the unobligated balance totaled only $860 million. Because the unexpended balance is more than $3.6 billion, the Fund is still earning substantial amounts of interest -- $95 million in FY 2001. According to the President's budget request, an estimated $143 million in interest is projected for FY 2002, and an estimated $96 million in FY 2003.

[23] The budget request projects the Fund's unexpended balance at the end of FY 2003 to be $2,848 million. Assuming the same interest rate as the President's FY 2003 request, we estimate FY 2004 interest at $84 million. This assumes an interest rate that is historically low -- about 3%. If interest rates are higher than that in FY 2004, interest earned on the unobligated balance might be higher.

[24] Hazardous Substance Superfund, Offsetting Collections. Offsetting collections to the Fund are reimbursements for hazardous waste site cleanup services rendered by EPA to other federal agencies. These can vary substantially from year to year. In FY 2000, they amounted to $137 million; in FY 2001, they were projected at $100 million, but the amount actually rose to $354 million.

[25] The President's budget request assumes that they will be $100 million in each of FY 2002 and 2003. According to EPA's Budget Formulation Control and Policy Branch, the $100 million per year estimate is based on outstanding agreements that the Agency has with other federal agencies, and it would be their best current estimate for the amount in FY 2004, as well.8 Thus, we have assumed $100 million for this item.

[26] Agency for Toxic Substance and Disease Registry, Offsetting Collections. Offsetting collections from ATSDR reflect reimbursements to the Fund for EPA participation in health assessments undertaken at Superfund sites. The amount was $7 million in FY 2001, and is projected at $26 million in each of FY 2002 and 2003. According to EPA's Budget Formulation Control and Policy Branch, $26 million is a fair assumption for FY 2004 as well.9

[27] Total. Estimated amounts available to the Hazardous Substance Superfund in FY 2004 from sources other than general revenues are (in millions):

 Balance, start of year                            $28

 

 Fines and penalties                                 3

 

 Recoveries                                        175

 

 Interest                                           84

 

 Haz. Subst. Superfund, offsetting collections     100

 

 ATSDR, offsetting collections                      26

 

 

      Total                                      $ 416 million.

 

 

General Revenue Requirement

[28] In order to provide appropriations meeting RFF's estimate of program needs, general revenues would need to make up the difference between the $416 million provided by other sources and the desired level of spending ($1,748.5 million in RFF's base case). Thus, the general revenue contribution in FY 2004 would need to be $1,332.5 million, an increase of $632.5 million over the amount requested for FY 2003. Using the low and high case estimates prepared by RFF, the needed contribution from general revenues ranges from $1.2 to $1.5 billion. Whether such an increase will be available, given the expected pressures for increased spending on other government programs (defense, homeland security, Medicare, Social Security, transportation, etc.) is an open question.

[29] It should be noted that in the three fiscal years for which the RFF provided estimates of program needs and for which Congress has already appropriated funds (FY 2000 - FY 2002), appropriations have lagged RFF's estimated needs by a total of $97 million. RFF assumed that the Agency would begin taking action at so- called "mega sites" in FY 2002 and 2003, and that program funding needs would rise as a result: the President's FY 2003 request lags RFF's estimated needs by $355 million. If RFF's estimates are correct, these unfunded needs will also have to be met in future years, making additional demands on general revenues.

Congressional and Administration Action

[30] Since release of the President's budget request, legislation has been introduced in both the House and Senate to reinstate the Superfund taxes. In the House, H.R. 4060 (Pallone) would reinstate the taxes without change starting on the day of the bill's enactment and ending October 1, 2007.10 In the Senate, S. Amdt. 3037 (Torricelli) contains identical language. No action has been taken on the House bill or Senate amendment as of early May.

[31] When asked about the Superfund taxes on February 25, both the President and his spokesman, Ari Fleischer, stated that the Administration's priority is on reforming Superfund's liability provisions. At a Senate hearing April 10, however, Marianne Lamont Horinko, EPA Assistant Administrator for Solid Waste and Emergency Response, said that the Administration would reexamine its position on the tax in fiscal 2004,11 presumably meaning that it would look at the issue when preparing its budget for FY2004 next winter

 

FOOTNOTES

 

 

1 The Administration did not request renewal of the taxes in its FY 2002 budget submission either, but the issue did not become contentious, in part, perhaps, because the Fund had a larger balance at the time.

2 For more information on the Superfund program, see CRS Report RL31154, Superfund: A Summary of the Law and CRS Issue Brief IB10078, Superfund and Brownfields in the 107th Congress.

3 See, for example, "CBO Reports Trust Fund Can Survive Through 2000 Without CERCLA Taxes," Daily Environment Report, July 16, 1996.

4 According to the Budget of the United States Government, Fiscal Years 1996-2003, the unobligated balance of the Fund peaked at $3.829 billion at the end of FY 1996.

5 Katherine N. Probst and David M. Konisky, Superfund's Future: What Will It Cost? (Washington, D.C.: Resources for the Future, 2001), pp. 158, 266. The inflation adjustment factor is discussed in Appendix F.

6 Ibid., p. 121.

7 Ibid., pp. 266-267.

8 Personal communication, April 10, 2002.

9 Ibid.

10 The bill would also reinstate the Oil Spill Liability Trust Fund tax and extend the Leaking Underground Storage Tank Trust Fund taxes for the same period.

11 "Superfund: Administration Will Consider Reinstating Tax on Industry in 2004, EPA Official Says," Daily Environment Report, April 11, 2002, p. A-2.

 

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