As we reported last week, GAO released a report Friday morning assessing both financial risks to the federal government as a result of the Deepwater Horizon oil spill as well as policies surrounding cost reimbursement by (ir)responsible parties. Their conclusion? Yes, there are financial risks to the government, but their extent is unknown, as total costs of the disaster are still unknown. GAO also recommended that some applicable reimbursement policies be updated or amended.
In environmental emergencies, often the government will step in to cover immediate response costs. These funds come from the Oil Spill Liability Trust Fund, which was established by the Oil Pollution Act of 1990 (OPA) (enacted, appropriately, after the 1989 Exxon Valdez spill). Revenue for the fund comes from past fees on barrels of oil, interest on the fund, money collected from the responsible parties, plus any fines or penalties collected. At this time, the fund has $1 billion per incident cap.
The fund is administered by the U.S. Coast Guard’s National Pollution Funds Center (NPFC), who has designated two BP subsidiaries as “Responsible Parties” and subsequently billed them for expenses initially covered by nine different federal agencies, as well as some state agencies. These agencies will be reimbursed with the money collected from BP. So far, NPFC has received $518.4 million of the $581 million billed to the responsible parties.
GAO’s primary concern is that costs associated with the spill could skyrocket past the $1 billion cap (GAO reports current estimates in the tens of billions of dollars). While BP has voluntarily established a $20 billion trust to pay claims against them, it remains to be seen whether BP’s ability to cover costs will be compromised by numerous lawsuits or otherwise poor financial conditions.
The uncertainty surrounding reimbursements is compounded by holes in the relevant reimbursement policies. GAO found that the NPFC’s policies and procedures for obtaining reimbursement “did not always reflect current practices and were not sufficiently detailed to ensure they could be followed consistently.” For instance, “NPFC’s procedures for identifying and notifying Responsible Parties are dated 1996, when the Coast Guard was part of Department of Transportation, and are marked ‘draft.’”
Because of all the financial risks riding on this uncertainty, the GAO reinforces that it is “imperative that the federal government take prompt action to ensure that its policies and procedures are up-to-date, clear, and sufficiently detailed.” GAO also recommends that Congress eliminate OPA’s $1 billion per incident expenditure cap.