Why States Can Do More

W hen Congress laid the foundation for today's environmental regulation in the 1970s, it was an article of faith that states inevitably cut corners in conservation and pollution control in order to attract business. Only the federal government, the argument went, had the political clout and national reach to prevent a state "race to the bottom."

Seemingly, there is new support for this view. Not long ago, the press carried lurid reports of hog wastes washing down Virginia's Pagan River toward the Chesapeake Bay. The federal Environmental Protection Agency (EPA) sued Smithfield Foods, Inc., the East Coast's largest producer of pork products, accusing Virginia Governor George Allen of lax enforcement of national water pollution laws. The state's failure "could create 'pollution havens' " and "lead to a shift of manufacturing and jobs that would penalize the conscientious states," the New York Times editorialized.

But "race to the bottom" is far too simplistic a notion to describe state environmental politics in the 1990s. The idea is outdated for three reasons. First, state policies have been transformed by three decades of national regulation and increased public consciousness, which give pollution and conservation issues a larger voice at the state level, quite independent of current federal action. Second, evidence is by now overwhelming that businesses rarely decide where to locate or expand based on the strength or weakness of state environmental laws. Third and most important, public attitudes have changed. After 30 years of government action and scientific progress, state officials, business executives, and voters find that some environmental measures have economic value. Assuring safe drinking water, limiting growth, or preventing sewage from polluting public beaches, for example, may produce benefits that residents and businesses can appreciate and are sometimes willing to pay for. More often, though, support for environmental protection follows, rather than precedes, state economic success. Today, states compete to gain prosperity in a fast-changing economy. In that race, some states lead in economic performance and environmental protection, while others lag behind in both.

Of course, there are still tough trade-offs to be made. Hiring inspectors to enforce pollution laws or buying land to protect a watershed is expensive, and must vie for limited state funds with improving schools, building roads, and paying for Medicaid and welfare. Nor is controversy avoidable. Environmental issues often do pit jobs against cleaner air or better conservation, and sometimes both choices offer economic benefits. When stakes are high, business, labor, homeowners, and other groups will fight to protect their interests.

T he question of whether race-to-the-bottom pressures exist is important right now, because we have reached a turning point in national environmental policy where some readjustment of federal and state roles is inevitable. Thanks in part to the considerable success of national rules aimed at controlling major sources of pollution and encouraging conservation of resources on large tracts of federal land, public attention is now turning to problems that are harder to solve from Washington. The next generation of environmental policies will tackle widely scattered sources of pollution and conservation opportunities that affect farms and housing developments as well as forests and meadows.

Lessening contaminated runoff from fields and streets, the largest remaining source of water pollution, means addressing politically volatile questions of how homeowners manage their property and how farmers use their land. The considerable difficulties of monitoring pollutants from industrial and municipal pipes pale before the intricacies of controlling septic tank maintenance, grazing practices, and fertilizer use. And the complexities of conserving resources on public land are small compared to the challenge of protecting ecosystems that are a patchwork of farms, housing developments, and forests. "Most of the problems remaining now . . . are site-specific, varying from area to area and requiring tailored controls at the regional, state, or local level for effective mitigation," the EPA Science Advisory Board concluded in 1990. The National Academy of Public Administration has suggested that state and local governments might be better at making decisions about chemical contaminants in drinking water, and about when, where, and how to clean up hazardous wastes.

Both Republicans and Democrats are calling for new approaches to traditional environmental problems, to combat the cost and inflexibility of "command-and-control" regulation. EPA administrator Carol Browner has suggested that federal rules be supplemented with negotiated solutions, market incentives, and industry standards, and she predicted recently that in ten years environmental standards will be set "place by place," rather than "pollutant by pollutant."

Because most of our daily attention is drawn to hard-fought battles at the perimeter of government authority, it is easy to forget that we have witnessed an exceptional event in the last three decades: the successful introduction of a new theme in national policy. Mainstream Democrats and Republicans agree that air pollution, water pollution, and other environmental problems that cross state lines should continue to be controlled by federal rules.

During the fight last spring over tightening standards for soot and smog, no voices were raised in favor of giving up federal rules altogether. In fact, the battle itself was a dramatic illustration of the need for national standards, since it pitted upwind midwestern states protecting their coal-burning power plants against downwind northeastern states concerned about their partially imported dirty air. Likewise, it took an amendment to the Clean Air Act in 1990 to balance the interests of midwestern utilities that burn high-sulfur coal against the needs of northeastern states and Canada where their emissions contribute to acid rain.

Continuing confusion about the capabilities of state governments is costly. Much-needed revisions of three of the legal cornerstones of national environmental policy —the Superfund, clean water, and endangered species laws—remain stranded in Congress in part because of troublesome questions about how state and federal governments should share authority. Two of the most divisive issues slowing consideration of the Superfund law are whether states will be permitted to set their own rules to clean up hazardous waste sites, and whether they can keep the power to sue companies for long-term damage to natural resources, which businesses have lobbied Congress to eliminate.

In the long-delayed revision of the Clean Water Act, the administration and Republican leaders have been unable to agree on whether federal or state governments will decide standards for controlling runoff from city streets and farms, and whether states will be granted greater flexibility in the degree to which to protect wetlands. A key issue in the Endangered Species Act, whose authorization expired in September 1992, is how much authority states should have to make deals with developers, industry, and environmental groups to allow untrammeled development in some areas while setting aside large tracts for habitat in others.

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States Have Changed

While congressional gridlock has slowed efforts to update national policy, the state role in environmental protection has fundamentally changed. Many aspects of pollution control and conservation have been assimilated into state and local politics, as they have been into national politics. In a particularly lucid essay in Environmental Policy in the 1990s: Reform or Reaction?, political scientist Barry Rabe of the University of Michigan notes that about 70 percent of important environmental legislation enacted by the states now has little or nothing to do with national policy, and that only about 20 percent of the $10 billion that states now spend annually on environment and natural resources comes from Washington.

State and local governments are responsible for nearly all the enforcement of national environmental laws, and continue to dominate decisions in areas like land use and waste disposal where Congress has not acted. Most states have replaced a traditional public health department orientation with single agencies that manage environmental protection, and three years ago those agency heads formed an Environmental Council of the States to encourage state initiative and federal flexibility. Echoing the National Environmental Policy Act, most states require assessment of environmental impact of important public actions, and a combination of state and federal rules require public hearings before permits are granted to industry to discharge pollutants in the air, in the water, or on land.

The strength of grassroots environmental activism complements the changes in state policies. When the EPA sued Smithfield Foods, Inc., last December and criticized the state of Virginia for a three-year pattern of failing to enforce water pollution laws, the regional Chesapeake Bay Foundation had already called attention to violations and a bipartisan panel of the state legislature had issued a 255-page report attacking the laxity of that state's enforcement program. To the federal floor of national standards, governors and legislators have added a variety of independently supported state structures that outlast any political regime and act as a counterweight to political moves to cut environmental protection.

Occasionally, states have cooperated to spread the costs of addressing a complex problem or concentrate pressures for action among affected states. In 1994, the EPA initiated a watershed approach to controlling water pollution in which federal, state, local, and industrial representatives would identify pollution from all sources and agree on controls. Starting in 1995, 37 states and the District of Columbia worked for two years under EPA auspices to find ways to reduce the drift of ozone-causing pollutants from state to state. Last spring, the group recommended reducing smog-related pollution from power plants by 85 percent and from factories by more than two-thirds. But regional cooperation has limits; it is unlikely to alter fundamental state interests.


Businesses Have Changed

Industry has now been living with strong federal and state environmental regulation for nearly three decades. Today, environmental costs rarely are a determining factor in business location, in part because national laws have encouraged all businesses to improve their practices. In the 1970s, sudden new government requirements with short deadlines frequently called for large, unplanned investments that were costly to industry. Now, however, pollution control and conservation costs generally have become a small and predictable element of business operating expenses. Even for chemical and petroleum industries, annual pollution control expenses run less than 2 percent of sales. Capital expenditures for pollution abatement vary widely from one industry to another, ranging from 2 percent of total capital costs for machinery and 3 percent for electronics to 13 percent for chemical industries and 25 percent for petroleum and coal. Even when substantial, though, those costs are usually dwarfed by labor, real estate, transportation, energy, and tax considerations in relocation decisions, according to surveys of corporate executives.

Economists have found this issue hard to analyze due to the paucity of information about business relocation and the complexity of environmental policy, but have found strong associations between environmental compliance costs and business location only in special circumstances. And a recent Organisation for Economic Co-operation and Development (OECD) report, "Integrating Environment and Economy," found little evidence that international businesses seek pollution havens.

At times, businesses may have incentives to choose a high standard of environmental protection for reasons that have nothing to do with state law. Investors stung by plummeting Rust Belt stock prices in the 1970s, when companies predicted devastating costs to comply with the first wave of environmental laws, now want to know that firms have planned for new requirements. "I always ask companies, 'Are you budgeted to meet new rules?' " Kenneth W. P. Hoffman of Prudential Securities Research told the New York Times earlier this year. Firms with plants in many locations may find it economical to follow a single set of environmental standards. Multinational corporations "often adhere to a single (high) standard in all their operations world-wide," the OECD reports, because designing to several different standards is less efficient.

These days, when a company relocates, it may get an unexpected dose of state scrutiny of its environmental practices as part of the bargain, even from a state that is competing hard to gain business. That's what happened when the Intel Corporation, producer of the Pentium computer chip, announced a decision in 1993 to build the world's most advanced semiconductor plant in Rio Rancho, New Mexico. The company's move provoked local protests that directed national attention to pollution and conservation issues in an industry generally seen as environmentally friendly, and induced Intel to cut proposed water use and to spend unanticipated millions on pollution control.


Public Attitudes Have Changed

Further, the idea that states routinely minimize environmental protection to attract business is outdated because many state politicians, business executives, and voters now understand that some cleanup and conservation measures have economic value, particularly if they contribute to critical infrastructure, attract skilled workers, or satisfy the needs of particular businesses. Voters have shown that they are sometimes willing to pay for environmental protection if benefits fall within state borders and will be experienced soon.

For example, Texas ranchers and environmentalists made common cause two years ago when voters approved a state constitutional amendment allowing ranchers to keep their agricultural tax exemption when they used their land for wildlife management rather than livestock. Tourism, currently the state's third-largest industry, is expected to lead the economy in ten years, and nature tourism, including hunting and fishing, is the fastest-growing part of the industry.

Facing predictions by Maryland Governor Parris N. Glendening that development in the central part of the state would gobble up as much land in the next 25 years as it has in the state's entire history, last spring the state legislature approved a particularly strong growth management initiative. Using the state's $15 billion budget as an incentive, the law requires that state funds for roads, sewers, and schools be used only in areas targeted for concentrated growth, "to save our natural resources before they are lost forever," Glendening said, and includes $140 million to acquire land threatened by development.

New Jersey, a small, densely populated state traditionally heavily dependent on chemical manufacturing and petroleum-related industry, has been a leader in environmental protection. Over the years, the state's voters supported the nation's first mandatory recycling law, restrictions on wetland development more severe than those included in federal rules, and a right-to-know law that was the model for the federal Toxic Release Inventory, telling people about dangerous chemicals discharged by industry.

Sometimes, state initiatives have been inspired by sudden threats to public health. After a 50-mile slick of floating garbage washed up on Massachusetts beaches in 1987, the state initiated a $200 million program to clean up coastal areas. In response to evidence that a quarter of drinking-water wells were contaminated with pesticides, Iowa legislators increased pesticide registration fees and fertilizer taxes to fund research on how to reduce chemical use in agriculture.

T he race among states in the 1990s is a competition to gain prosperity in an economy where firms are consolidating, capital is increasingly mobile, and skilled workers are sometimes in short supply. This contest is not a "race to the bottom" to minimize environmental protection, but a "race to the bottom line" to improve property values and increase tax revenues.

Governors and legislators support environmental proposals that promote safe drinking water or provide adequate sanitation not because the national government requires it but because public health is a precondition to prosperity. DeWitt John of the National Academy of Public Administration, who analyzed state initiatives in his 1994 book Civic Environmentalism, found many measures concentrated in areas like water quality and waste management, but few directed at improving air pollution, for example, where benefits may not be obvious to voters, especially since federal action has eliminated most concentrations that the public can see or feel.

Measures that improve an area's appeal as a place to live, work, or vacation also can add to state coffers. The needs and availability of a skilled workforce are replacing cost "as the principal driver in site selection" for businesses, reported James A. Schriner of Fantus Consulting in Industry Week earlier this year. "Workers may be willing to sacrifice monetary compensation in order to . . . live in communities relatively free of pollution," Robert Tannenwald, senior economist of the Federal Reserve Bank of Boston, argued in the March/April 1997 issue of the New England Economic Review.

Creating environmental conditions that improve prospects for particular businesses also can have economic value. Tourism, the commonly cited example, accounted for nearly 10 percent of U.S. jobs in 1995, and the political power of the industry is growing. But many other businesses share a direct interest in pollution control or conservation. For example, firms that require large amounts of pure water—computer-chip manufacturers, food-processing companies, and breweries—have economic reasons to keep streams, rivers, and groundwater uncontaminated.

At the other extreme, spending money to clean up pollution that drifts, flows, seeps, or can be transported into other states is likely to be viewed as a poor prospect by state politicians. Much of the detritus of civilization turns out to be mobile. The relentless march of scientific knowledge now links toxic pollution in Lake Superior to air pollution that originates outside the Great Lakes region, sulfur dioxide emissions from midwestern factories to acid rain in northeastern states and Canada, and nitrogen oxide emissions from distant power plants to smog in eastern states.

Likewise, giving up prime development land to protect endangered species is likely to be viewed as lacking in economic or political benefits by governors and legislators. Environmental scientists must consider effects of development on future generations. State politicians usually can't. When poor investments for states are priorities for the nation, rigorous federal oversight is needed.


Persistent Inequities

In general, though, support for environmental protection is a result, more often than a cause, of prosperity. At least at the extremes, states with strong economies tend to support relatively strong environmental protection programs while those with weak economies often conclude they can't afford them. Just as differences among states in public spending generally have stayed about the same for 25 years, so too have differences in spending on environment and natural resources, with some states spending more than twice as much as others, even when population or manufacturing differences are taken into account. An analysis by the Institute for Southern Studies in 1994 found that 9 of the 12 states that were strongest in environmental protection also were strongest in economic performance, while 12 of the 14 states that were weakest in environmental protection also ranked among the lowest in economic success.

Such differences are not surprising. State boundaries were drawn by accidents of settlement and political compromise, not by a desire for equity. Those chance divisions have produced variations in population, political culture, and history, differences that in general we celebrate. They have also produced variations in natural resources and taxable assets. State environmental protection, which lies at a junction of economic forces, political will, and historical tradition, naturally reflects such enduring differences.

States dependent on oil, timber, mining, or other natural resource industries face special problems with improving environmental protection and with assembling the ingredients of lasting growth. Thomas Michael Power, chair of the economics department at the University of Montana, argued in his 1996 book Lost Landscapes and Failed Economies that the cyclical character of markets for oil, timber, and minerals may lead businesses and residents to minimize permanent investments in areas dependent on those industries, while damage to the natural environment also may make them unattractive places to live. Power observed that businesses now often move to places where skilled workers want to live, instead of the other way around.

None of this is an argument for economic determinism, however. State economies are constantly changing as markets change, and experience has shown that political will and fortuitous circumstances can overcome obstacles to growth. Booming high-tech industries and tourism made the Rocky Mountain states the fastest-growing region of the country in the early 1990s. In Idaho, electronics manufacturers like Micron and Hewlett Packard employ more workers than the traditionally dominant forest products industry. And, in South Dakota, tourism grew more than 40 percent in the last ten years, making it second to agriculture as the state's leading industry.

S tates that are weak in both economic growth and environmental protection are particularly vulnerable to a funding squeeze that may turn out to be an important political dynamic during the next ten years—the prospect of increasing demands for environmental protection that no one is willing or able to pay for.

Federal and state environmental officials agree that inadequate funding is the most important issue confronting them, with 83 percent of state program managers interviewed by the General Accounting Office (GAO) in 1995 saying that they were reluctant to accept any new program responsibilities because they did not have resources to fund current programs. Many demands ultimately fall on local governments, where the shortage of funds is especially severe.

Two additional pressures intensify the funding squeeze for states that are relatively weak in environmental protection and state revenues. First, many of the least prosperous states depend most heavily on federal funds to finance their environmental protection programs. For the foreseeable future, such funds are severely limited by efforts to balance the national budget. Some prosperous states receive less than 10 percent of their environmental protection funding from the federal government, while some less prosperous states receive as much as half their funding from Washington. Second, the budgets of less prosperous states where the poverty rate is high are likely to be heavily burdened by demands like welfare and Medicaid, and are unlikely to be easily expandable by tax increases or borrowing.


What to Do?

Giving up on the simplistic theme of a "race to the bottom" among states to minimize environmental protection opens the way for considering harder questions. How much flexibility should states have to make choices about environmental measures? How can national priorities not in the interest of any one state best be advanced? How should chronic inequities among states be dealt with? A number of initiatives already underway suggest constructive approaches.

State Flexibility. Setting clear national goals and giving states as much flexibility as possible in how to carry them out is the best way to mediate between national priorities and state differences. The National Academy of Public Administration has suggested a strategy of "differential oversight" to concentrate federal monitoring and enforcement wherever states, taking their various paths in pursuit of prosperity, are weakest. Supplementing standards with wider use of market incentives, negotiated solutions, and business self-certification can also broaden local choices while respecting national priorities. And as knowledge improves, state progress should be judged by changes in pollution and conservation, rather than by numbers of inspections and permits. All of this is, of course, much easier said than done. After 30 years of efforts and billions of dollars spent, the United States still does not have a reliable system of measuring trends in environmental conditions that could be a basis for setting national goals and marking progress toward them.

Information as Regulation. Requiring that the public receive detailed information, interpreted objectively, can create incentives for business and governments to limit pollution. The 1996 amendments to the Safe Drinking Water Act, passed by the 94th Congress after two years of acrimony, require local water systems to notify customers once a year about bacteria and chemicals in tap water as one way of encouraging careful monitoring. And a number of states require electric utilities to report on environmental factors. Using "Surf Your Watershed," the newest EPA internet site, anyone who enters a zip code can now get specific information about pollution sources, water quality, and drinking water sources. These information requirements follow the example of the Toxic Release Inventory, a provision added to federal law in 1986 that requires companies to report on their discharges of toxic substances.

Regional Cooperation. The potential benefits of regional cooperation have received too little attention in a political system that emphasizes national and state authority. Many environmental problems are inherently regional in scope, rather than national or local. We need to understand better why some attempts at regional cooperation succeed and others fail.

Creative Financing. Voters who have effectively capped state revenues by resisting tax increases remain willing to pay special fees for environmental services or projects that are viewed as needed investments, helping to alleviate the funding squeeze. Three-quarters of state and local waste disposal programs are financed by special fees, a proportion that has increased rapidly in the 1990s, according to a 1995 GAO report. A number of states have linked fees from one activity to related environmental investments. Iowa passed a law raising pesticide registration fees and fertilizer taxes to help finance research on lowering the use of chemicals in agriculture. And Florida got congressional permission to use revenues from tolls on a section of Interstate 75 north of the Everglades to finance conservation and pollution control instead of road improvements. While special fees are useful politically, they also have disadvantages. Linking revenue raising to spending on particular activities can reduce the agility of the political system in responding to changing public needs.

I t would be a mistake to let the fears of the 1970s dominate action into the next century. The "race to the bottom" is a powerful idea that resonated with sudden changes in environmental requirements during the 1970s. It has little bearing on the challenges of the 1990s when environmental costs are a relatively small portion of business expenses, state governments have constructed means of weighing their constituents' environmental needs in public decisions, and public understanding has improved. After nearly 30 years, environmental protection has been assimilated into the political system, where it will continue to evolve in thousands of separate national, state, local, and private actions. The success of those actions depends in part on our ability to adapt our ideas about how governments and businesses work to changing circumstances. In a time of scarce national resources and continuing disparities among states that are successful in economic growth and environmental protection and those that are less successful at both, our attention should now turn from the "race to the bottom" to the "race to the bottom line."

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