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Mr. Chairman and Members of the Subcommittee, I am pleased on behalf of the Congressional Budget Office (CBO) to participate in your review of the Superfund program. As requested, my testimony today will focus on the likely effects of establishing a cutoff date for Superfund liability. I will also discuss the current distribution of spending within the federal Superfund budget and the consequences of not reauthorizing the program's dedicated taxes.

Liability under the Superfund law currently is retroactive; that is, "potentially responsible parties" (PRPs) are held liable for cleanup regardless of when sites were contaminated with hazardous substances. Some proposals would relieve parties of liability for actions occurring before December 1980, when the Congress enacted the original statute; other proposals call for a release from liability or pre-1987 actions. Proponents of a cutoff date for liability want to eliminate the perceived unfairness of retroactivity and to reduce or eliminate the "transaction costs" of funding cleanup through a liability-based system. Reducing transaction costs would increase efficiency for the nation as a whole. The main trade-off inherent in having a cutoff date for liability is that it shifts the responsibility for cleanup from the PRPs to the federal government. In so doing, it requires some mix of cost savings, increased federal spending, and reductions in the pace of cleanup.

The potential impacts are large. CBO estimates that repealing liability for pre-1987 actions, as proposed by groups such as Superfund Reform '95, could eliminate or shift $2.4 billion per year in private costs while adding $1.6 billion per year to the
federal government's burden for cleanup. The government faces an additional onetime cost of as much as $6 billion if the new policy allows PRPs to claim reimbursement for costs they have already incurred under the old system. Other combinations of policies reduce both the savings to the private sector and the increase in the federal cleanup burden.

All groups trying to analyze the likely effects of a cutoff date for liability, CBO included, must grapple with a shortage of data on the current level of PRP cleanup spending, transaction costs to PRPs and insurers, and the significance of illegal actions in causing the contamination problems at Superfund sites. Accordingly, CBO's analysis should be regarded as preliminary at this point. Our analysis assumes that final PRP cleanup spending will be 50 percent higher than reported in the Environmental Protection Agency's (EPA's) estimates. We made that assumption on the basis of information from EPA that its own cleanups end up costing an average of 50 percent more than originally estimated, in part because additional contamination is discovered as the cleanup proceeds.

Some people have challenged our analysis on the grounds that the assumed 50 percent growth in costs may not accurately reflect the experience of the PRPs or may already be captured in the available data on the dollar value of PRP settlements. The evidence we have obtained so far has not led us to modify our analysis, but we continue to gather information from EPA and other sources to assess its appropriateness. Even if additional information does cause us to reduce our estimate of PRP spending on cleanup, our estimate of PRP and insurer transaction costs would almost certainly fall as well, leaving the proportions of benefits and costs from a liability cutoff largely unchanged.

The main conclusions of our analysis to date are as follows:

• Repealing liability for pre-1987 actions could save the nation as much as $1.1 billion annually in transaction costs if little investigation or litigation occurs over the legality of past actions. Most of those savings would accrue to the private sector, however, and the net increase in the federal cleanup burden would build up over a handful of years to the $1.6 billion per year already mentioned. Reimbursing PRPs for their ongoing expenses under existing cleanup commitments would create that increased burden of $1.6 billion per year right away; the loss of the "grace period" would add $7.5 billion to cumulative federal costs. Moreover, reimbursing PRPs for past costs as well could add a one-time cost of $6 billion.
  
  
• An alternative cutoff date of December 31, 1980, would be somewhat less costly in terms of the increase in demands on federal cleanup resources, but it would also be less effective in reducing transaction costs. Again assuming that illegal activity was a relatively minor cause of the contamination at Superfund sites, the shift in the responsibility for cleanup would mount up to $1.3 billion per year, and transaction costs would fall by $500 million to $600 million per year. Cumulative federal costs for reimbursing PRPs could total $5.5 billion for ongoing cleanup work and $4.4 billion for past work.
  
  
• EPA data suggest that illegal activities may have played some role at one-third to one-half of nonfederal Superfund sites. If PRPs remain significantly exposed to liability at a considerable fraction of sites because their behavior is thought to have been illegal, the savings in transaction costs could be greatly reduced or even eliminated.

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