36 ENVIRONMENTAL FEDERALISM September 1988 Depending on the environmental problem, not all program responsibilities need be allocated to the same level of government. For example, responsibility for setting standards may be allocated to the national government, but most implementation responsibility may be given to the states, although that enforcement actions may be necessary at all levels of government. There may be several reasons for higher levels of government--in particular, national government--to become involved in enforcement. First, to the extent that national goals are more stringent that state goals, states may have an incentive to enforce less vigorously. Federal enforcement can be directed both at polluters in states and at the states themselves, as has occured in the case of deficient State Implementation Plans under the Clean Air program. Second, states may be subject to pressures to attract and retain industry, and thus may treat violations more leniently than strict enforcement of standards would suggest. Finally, the national government may have more resources, more technical expertise, and more statutory clout in dealing with polluters. Research and Development Virtually every current federal environmental program assigns primary R&D responsibility to the federal government. Explicitly or otherwise, this recognizes that many environmental programs at different levels of government rely on similar types of information and that this information can often be provided more cost-effectively at a centralized level. Individual risk assessments on chemicals for use in setting drinking water standards, industrial-level technological control options under the Clean Water Act, and new technologies for hazardous waste disposal are all examples of federal R&D efforts the results of which may be used by federal, state, and local governments. Some states, particularly those with high pollution levels and a high population concentration, have taken the initiative to construct data sets or technical information in support of new program development. For example, New Jersey and California have been at the forefront of state activity, and their programs have provided the models for subsequent federal legislation--such as the Community Right-to-Know provisions of the Superfund Amendments and Reauthorization Act, in the case of New Jersey. Thus, states do conduct R&D on their own, but the extent of these efforts is not clear. Most of the statelevel efforts are probably related to the design, implementation, and monitoring of their own programs, rather than to basic science or technology that may have broader applications. For example, states have sometimes complained that they could do more to control their own sources of chemicals that lead to the formation of ozone (mostly volatile organic chemicals) if the federal government would complete more technical assessments of control options (called Control Technology Guidance documents) for specific sources. These documents do not apply to states or regions specifically but to classes of technologies. As states take the lead in certain environmental problems, they may be forced to undertake more basic R&D programs to support their initiatives. For example, over one-third of all states have regulatory programs to control emissions of toxic chemicals into the air. Underlying these programs are at least four different principles for setting standards, each requiring different CHAPTER III ALLOCATING GOVERNMENTAL RESPONSIBILITY 37 types of scientific and technical information. While some of the required information may be provided by the federal government, it is likely that states, or compacts of states, will have to look to their own research to meet their individual needs. Funding In practice, the level of government responsible for decision making or program management is often responsible for funding that activity. This correspondence of program and funding responsibility is both intuitively appealing on equity grounds and consistent with the efficiency and equity guidelines described earlier. The level of government with program responsibility may be in the best position to determine funding needs and choose among alternative funding schemes. Aligning funding with program responsibility has the additional advantage of introducing accountability; responsibility for providing or collected funds generates an incentive for conservation and careful management of resources. On the other hand, funding is unique among program activities because the allocation of responsibility for funding directly influences the distribution of the costs of a program.22/ Thus, there may be circumstances in which allocating funding responsibility on the basis of program responsibility may not always be equitable because the burden imposed on a particular group appears large in comparison to the ability of the group to meet the burden, or in comparison with the burden imposed on other groups in similar circumstances. There are three situations in which additional outside funding, usually federal, may be justified: if costs of improvement or revenue-raising capacities vary among or within states; if uniform national requirements impose burdens on lower levels of government; or if burdens are distributed unevenly over time. Adjusting for Local Differences. Abilities to raise revenues (fiscal capacities), and the costs of environmental improvement, vary among jurisdictions. Local circumstances, such as types and amounts of pollutants, meteorological conditions, and the age of the capital stock, differ among jurisdictions, so that the cost to industry and the local government of achieving a given level of quality (or a given reduction in pollution), or of providing a service such as wastewater treatment, varies. Similarly, differences in local economies, for example in the size of the tax base, mean that costs to consumers of obtaining a given service may vary among jurisdictions. 22. Funding mechanisms, such as fees and charges, may also be used as regulatory devices. If the funding mechanism chosen depends on the level of government, its effect on efficiency and equity may depend on whether costs are met, for example, through general tax revenues or by charges on polluters, or through a combination of mechanisms. This paper is concerned only with the question of who should bear the administrative costs of running the program--not the question of which regulatory device should be used. 38 ENVIRONMENTAL FEDERALISM September 1988 These differences form the basis for the argument made earlier that local governments are best able to adjust standards and programs to reflect local circumstances and to pursue efficient and equitable solutions for local problems. But there is another side to the picture: cost differences among localities may be viewed as inequitable, because people located in different jurisdictions will be required to pay different prices for a given level of environmental quality or a given improvement in the level of environmental quality. The inequities may extend to industry if similar industries located in different jurisdictions face different costs, either because they must meet different standards or because they must achieve different reductions in emissions to meet the same standard. If local cost differences represent inequities, then an argument can be made for using federal funds to equalize the "environmental purchasing power" of governments and industry through grants and subsidies. While efficiency concerns may dictate that governmental units weigh local costs and benefits in choosing local levels or protection, equity considerations may suggest that access to some minimum level of protection should be available to all jurisdictions, regardless of ability to pay. This consideration is reflected in the principle of "equal treatment of equals", which underlies many conditional and matching grant programs such as vocational education grants.23/ Formulas for allocating grant money among jurisdictions reflect both the potential ability of a governmental unit to raise revenues internally and the cost of providing specified programs or services. Measurement of fiscal capacity has concentrated on designing indicators of relative ability among jurisdictions. Per capita income frequently is a key component of these indicators, which also may include adjustments for indirect business taxes, profits of state-local enterprises, and other indicators of resources that affect the ability of a governmental unit to raise revenue.24/ Lightening Heavy Burdens. Environmental protection may represent not only a relative but also an absolute burden on municipalities and industry, particularly if national standards or other national policies require lower levels of government to perform activities such as issuing permits or inspecting facilities. The amount of supplemental federal funding appropriate for these programs depends on several considerations. The first consideration is the magnitude of the burden imposed on localities. The previous chapter of this paper presented evidence that state environmental budgets have been growing, which suggests that states in the aggregate have been able to replace declining federal aid with state or local funds. Whether or not states and municipalities can afford to pay for environmental programs is an empirical issue beyond the scope of this discussion; but the amount local 23. Oates, Fiscal Federalism, p. 87. 24. For discussions of measures of fiscal capacity, see Department of the Treasury, Office of State and Local Finance, Federal-State-Local Fiscal Relations: Report to the President and the Congress (September 1985), and Advisory Commission on Intergovernmental Relations, Measuring State Fiscal Capacity: Alternative Methods and Their Uses (Washington, D.C., September 1986). CHAPTER III ALLOCATING GOVERNMENTAL RESPONSIBILITY 39 governments can raise to finance such projects may be limited by their taxing ability. As state and local governments develop the authority to charge fees and make use of other innovative means of raising revenue, replacement of federal grants may become more feasible. Whether or not federal grants are warranted depends also on the justification for national control of state and local environmental activities. Many activities required of state or local governments by higher levels of government can be justified on the basis of externalities--that is, when the benefits of environmental improvement extend beyond a given jurisdiction, as is the case in most water or air pollution issues. Funding provides a mechanism for the federal government to persuade, control, or bargain with state and local governments when national policies differ from those that a state or locality would choose. Compensating the Losers. Federal funding may also be justified when the burden of complying with federal regulations is unevenly distributed over time or regions. Many pollution problems are the result of long-entrenched geographic concentrations of industry. In the case of acid rain, a substantial portion of the benefits of sulfur dioxide controls are received by the Northeast region, while much of the costs are borne by coal-producing states, in terms of lost jobs and higher energy costs. Requiring industry and state and local governments in the Midwest to bear the burden of emission controls or energy taxes may be equitable in the long run under the damages principle, but may be unfair in the short run because of high transition costs. One way of avoiding serious dislocation costs would be to have the federal government, or the states receiving benefits, compensate the losers in the Midwest. Otherwise, states in the Northeast will receive windfall benefits at the same time that Midwest states are penalized for location and polluting decisions that were made long before the pollution control laws came into existence. A similar effort has already been made to ease the cost of transition under the wastewater treatment program by providing federal construction grants. |