When Asarco's then-president, Daniel Tellechea, filed for Chapter 11 last August, he named "numerous environmental-related lawsuits brought by governmental authorities and private parties" as one of the main reasons for the bankruptcy. The filing puts such suits and efforts to collect environmental damages on hold. When this happens, creditors--in this case, the EPA and states like Arizona, Texas, and Washington, where the company has operated--line up for payment. They're unlikely to see much money: Asarco's most valuable assets were sold to a shell company--set up by its parent, Grupo México, which purchased Asarco in 1999--well in advance.
In 2002, Senator Maria Cantwell (D-Wash.) was concerned enough about corporate shell games and other legal evasions to ask the Government Accountability Office (GAO) to see if corporate polluters were avoiding their responsibility under existing laws. She was particularly interested in Asarco, which had operated a copper smelter near Tacoma, Washington, for nearly 100 years and was responsible for cleanups of $75 million for the smelter and up to $30 million for arsenic and lead contamination in the neighborhoods of north Tacoma.
Once, Tacoma could have depended on the federal Superfund program to force the parties responsible to bear the cost of cleaning up contaminated sites. Most of the costs of restoring "orphaned" properties--many created through bankruptcy--were paid by a tax on crude oil and certain chemicals and an environmental tax on corporations. Not anymore. When authority to collect these taxes expired in 1995, Congress did not renew it, and now the program's "polluter pays" fund is depleted. Cleanup dollars have to be pulled from general funds, meaning out of the public's pockets.
Just one week after Asarco declared bankruptcy, Cantwell unveiled the results of the two-year GAO study, which bore out her fears that the burden of cleanup was being carried by taxpayers. "Corporate polluters are using bankruptcy and other corporate gimmicks to get out of their environmental-cleanup obligations," she explained. "There's more this administration could be doing to hold Asarco and other companies like it responsible for the harm they've done. They should not be allowed to get away with this now, and they most definitely should never be able to do it in the future."
No one knows just how widespread the problem is. According to the GAO report, "While more than 231,000 businesses operating in the United States filed for bankruptcy in fiscal years 1998 through 2003, the extent to which these businesses had environmental liabilities is not known because neither the federal government nor other sources collect this information." But a wander through BankruptcyData.com's listing of bankruptcy filings still active in 2004, in which "environmental and/or asbestos liability has played a significant role," reveals some familiar names: Kaiser Aluminum; energy giants Mirant Corporation, NorthWestern Energy, and Pacific Gas and Electric Company; Owens Corning; Monsanto spinoff Solutia; and chemical titan W. R. Grace.
Andrea Madigan is the chair of the EPA's national bankruptcy work group and an enforcement attorney based in Denver's Region 8 office. When called a month after Asarco filed for Chapter 11, she volunteers with a weary voice that she has a pile of documents more than a foot high relating to the case and that more are on the way. Asarco has been on the EPA's radar for some time (its liabilities were obvious), and its bankruptcy did not appear to catch Madigan and her colleagues by surprise. "It has [cleanup] sites in every [EPA] region," she says, and has been on shaky financial ground for years. The agency will try to recover whatever cleanup costs it can.
Yet other companies that owe the EPA money for environmental cleanup--no one knows whether there are tens, hundreds, or thousands of them--may slip through the cracks because the agency is never informed. "The bankruptcy laws specify that companies have to give notice to their creditors, and if we are a creditor, we should be identified," says Madigan. But is the EPA notified so it can collect? "Debtors can sometimes be pretty sloppy."
Ideally, ironclad and enforceable financial assurances would be in place before the earthmover breaks ground or the air, water, or operating permit is granted. Yet the GAO found the EPA has failed in this task, noting that the agency has yet to implement a 1980 Superfund mandate requiring businesses handling hazardous substances to prove that they can clean up potential spills or other environmental contamination. "By its inaction on this mandate, EPA has continued to expose the Superfund program, and ultimately the U.S. taxpayers, to potentially enormous cleanup costs," the GAO report says. Leaving aside all the small-scale toxic sites around the nation that need cleanup, it's estimated that it will cost, on average, $140 million to remediate each of the 142 largest Superfund sites, for a total of almost $20 billion, according to the GAO. That's nearly three times the EPA's entire 2006 budget. The report further notes that the EPA could not even locate relevant financial-assurance documents to evaluate compliance in more than one in five of its cases.
"Believe me, the GAO's report on the weaknesses in the agency's approach to financial assurances has everybody's attention," says Madigan. Even so, the agency has yet to draft regulations to improve the situation. Given the pro-industry climate in the Bush administration, that's unlikely to happen. George W. Bush's choice to head the Council on Environmental Quality, attorney James Connaughton, once represented Asarco in a fight with the EPA over environmental liabilities. According to the Denver Post, when former Interior secretary Gale Norton was Colorado's attorney general, residents of a neighborhood polluted by heavy-metal emissions from an Asarco smelter had to hire their own lawyers to improve a cleanup deal approved by Norton's office. And when Bush's nominee to replace Norton, Dirk Kempthorne, was a U.S. senator, he cosponsored legislation that would have limited Asarco's extensive financial liability for cleaning up Idaho's Coeur d'Alene River Basin.
Cleanup should be a cost of doing business, but without bonds and other rock-solid forms of financial assurance, it's easy for corporations to walk away from their obligations. Montana learned this lesson the hard way. (When toxic sites do not receive federal Superfund status, individual states must go after the polluters and pay for cleanup themselves if they are unsuccessful.) In 1998, after Pegasus Gold filed for Chapter 11, the state was stuck with a $40 million cleanup bill for three of the company's six hardrock mines, then watched helplessly as Pegasus paid out more than $5 million in bonuses to its executives. The state made sure this sort of thing wouldn't happen again by increasing financial assurances in the form of bonds at nearly every remaining mine site from 50 percent to more than 10,000 percent.
Arizona has not been so prudent. With 2003 estimates of hardrock-mine-reclamation liabilities at nearly $4 billion, the state still allows corporate "self-guarantees," essentially a CEO's pledge that a company will pay rather than proof that there's real money behind the promise. Asarco's word wasn't worth much to the communities near its Arizona Ray and Mission mines or its Hayden smelter when the company went belly-up. (Reclamation-liability estimates for the Ray and Mission mines alone run close to $870 million, and it is unclear whether Asarco will bear any of these future cleanup costs. If not, the costs will fall to the state rather than the federal EPA because they are not Superfund sites.)
"Ultimately, you've got to make everybody play by the same set of rules," says David Chambers, executive director of Montana's Center for Science in Public Participation. If the EPA enforced financial assurances, and disallowed empty promises like Arizona's corporate IOUs, it wouldn't be so easy for businesses to skip out on cleanup. "We all know that companies have incentives to minimize their liabilities, and it's the duty of our regulators to act as a check against that," says Chambers.