Protest, Property Rights, and Hazardous Waste

In 1980, the US Environmental Protection Agency estimated that despite the need for as many as 125 new sites for hazardous waste facilities in the near future, local opposition would make finding these sites an "exceptionally difficult task." That pessimism was understated. Not one major facility has been sited anywhere in the United States during the last six years, and, according to the 1985 state-by-state review published in Hazardous Waste Consultant, the outlook for the future is "even more bleak," due in large part to a worsening of the "emotional atmosphere" surrounding siting efforts. This situation has come about regardless of assurances by government and company officials that new facilities would pose negligible risks to local residents. Attempts have been made to break local deadlocks by instituting procedures for extensive public participation, establishing state siting boards with the power to overrule local decision makers, and requiring facility owners to compensate local governments for safety services, all to little avail.

The ambiguity of existing property rights that govern the siting of hazardous waste facilities is an important cause of the stalemate. What is called for is a new approach to siting—we suggest a political market via a referendum mechanism—that recognizes the de facto property rights assumed by local communities. The referendum, supervised by the state, would be held at the request of the firm wishing to site the facility. The developer, in effect, would offer a comprehensive package of incentives to the community in exchange for a yes vote.

To understand the rationale for our approach, it first is necessary to examine the evolving nature of the property rights in question, an evolution driven by changing perceptions of the risks associated with toxic waste disposal and a social movement of considerable power that has raised the cry of "not in my backyard." Of course, citizens as individuals have much to gain by opposing hazardous waste facilities near them. But their resistance imposes large costs on society as a whole. After all, blocking new waste facilities does not make the waste itself disappear. Quite the contrary: growing quantities of toxic chemicals held in temporary and deteriorating storage conditions as they await destruction or a permanent home create strong Incentives for illegal "midnight dumping."

Protest is effective

Until recently, waste disposal was not considered a social problem. Dumps containing hazardous materials were treated by the public and planners as minor extensions of garbage dumps and sanitary landfills; and opposition, if any, was based on the dumps' nuisance characteristics, not on their perceived safety risks. As for property rights, the developer's entitlement to engage in waste handling was preeminent as long as the facility was located in an industrial area.

Passage of the Resource Conservation and Recovery Act (RCRA) in 1976 marked official recognition that these wastes, many of them disposed of improperly in the past, posed a potentially serious threat to health. Three years later, the Superfund legislation targeted existing toxic waste dumps for cleanup. In between, the issue exploded into public awareness when the problems at New York's Love Canal reached the national news media. Subsequently the entire town of Times Beach, Missouri, was abandoned after authorities found dioxin contamination there in 1982, and news reports of contaminated drinking water wells now are commonplace.

Proposed hazardous waste facilities quickly became the subject of widespread and effective protest, despite stringent federal design and operation safety standards imposed by RCRA and augmented by state regulations. For example, four years of work and $1.5 million were spent on a comprehensive treatment and land disposal facility in Los Angeles County before its corporate owner withdrew in the face of seemingly insurmountable public opposition. In Texas, a regional authority proposed a high-temperature incinerator for toxic wastes from the area (a solution favored by environmentalists). Notwithstanding a well-demonstrated need for such a facility and initial support from local governments, citizen opposition caused the developer to give up after a three-year battle when it became apparent that political approval was not forthcoming.

Property rights specify how persons may benefit or be harmed and, therefore, who must pay whom to modify the actions taken by affected parties. In a now-famous article, "The Problem of Social Costs," Ronald H. Coase argued in 1960 that the assignment of property rights to one party or another does not, in the absence of transaction costs, affect economic efficiency, although it does affect the distribution of wealth. Coase's insight was deep: resources are put to their most efficient use regardless of how the political system initially chooses to allocate property rights. The problem with the hazardous waste situation is that currently no one really has clear title to site a hazardous waste facility—not the firm, not the community, and not community residents as individuals.

As noted, firms wishing to cite a hazardous waste facility have lost their unfettered right to locate where they wished as the public and government officials became alarmed over the possible risks posed by the technology. Local residents increasingly have been able to delay (and thus effectively block) siting efforts in administrative and judicial hearings, and communities have taken a leading role in stopping the construction of new hazardous waste facilities through the use of their extensive police powers to regulate zoning and safety. With a few exceptions, however, communities do not have the legal right to ask for sizable payments in exchange for issuing the necessary licenses and permits.

The recent establishment of state siting boards with the power to preempt local governments is an attempt to reassert the former property right regime. The concurrent establishment of schemes for compensating communities for the presence of a hazardous waste facility represents a movement in the opposite direction— toward giving the property right to the community. The innovative Massachusetts siting law has both features, going further in the direction of bargaining for compensation and less in the direction of preemption (calling for binding arbitration only in the case of irreconcilable differences) than any law in the country. No facilities yet have been sited under this law, suggesting that compensation without ultimate local veto power over a facility may not be a successful strategy.

Community rights

If local residents were individually to hold the property right, developers could not bargain efficiently with the large number of potentially affected residents and one holdout could block a well-conceived project. We suggest, therefore, that a collective property right be established by having states pass a law specifying the use of referenda to determine local approval or rejection of a proposed facility. Such a law would require the relevant political authorities to hold a referendum when requested by a qualified developer meeting state requirements. Specific plans for the facility and for compensation to the community for its perceived drawbacks would be proposed by the developer and incorporated into the ballot proposal. A number of possible compensatory measures have been suggested in recent years, and the contents of a developer's particular package probably would vary according to the nature of the facility, the characteristics of the site, and the community's concerns. The types of measures that might be offered include guarantees against declines in property value, incentive payments to the community (which could be earmarked to reduce property taxes or for other purposes), outside monitoring, accident insurance, credible guarantees of nonabandonment, donation of land for use as parks, and in-kind services like free waste disposal for community residents and businesses.

Should the decision rule be a simple majority, or something larger, such as the often-used two-thirds majority? Although a two-thirds majority requires a more expensive package, we believe it is more likely to produce a situation of maximum benefit and minimum cost and therefore greater community harmony.

Who would administer and enforce the contract established by the referendum? This undoubtedly would fall first to the local political authorities and ultimately to the state. This must be made clear beforehand, because doubts about enforcement would increase the payments required to pass the referendum. In addition, there must be sufficient administrative flexibility to respond to new EPA regulations and to technological change. The boundaries defining who should be allowed to vote on the proposal is a difficult political question that the state legislature would have to decide.

The advantages of a referendum law are several. The developer and the state have strong incentives.to address the issues of most concern to the community. The community's incentive to be intransigent is minimized because it has the power to say no, and it is protected from unwittingly accepting too great a risk because the facility would have to meet strict federal and state safety regulations. Moreover, the debate occasioned by the referendum should ensure close scrutiny of the developer's proposal. Paying for the compensation package transforms the costs hitherto concentrated on the local community into more equitably shared burdens that are borne by the ultimate beneficiaries of the facility. Finally, to the extent that this plan increases the costs of handling hazardous wastes, those who produce the wastes will have an incentive to engage in in-plant waste-stream modifications and resource recovery.