Scenario 9

Cost-Benefit Analysis

You are on the governor's personal staff. You are there because you have superb credentials as a policy analyst, including a joint PhD in environmental planning and resource economics.

There is a controversy over the long-delayed clean-up of a highly polluted Superfund site. At one time, there was a foundry at an inner suburban site. Long-abandoned underground storage tanks at the site leaked into nearby wetlands. No one disputes that. While there are few residential neighbors who have been adversely affected, the city is eager to reuse the site for a new mall. Efforts have been made to pin financial responsibility for the clean-up (Which is likely to cost $35 million or more) on various successor corporations, but this strategy has failed. The company that ran the foundry went out of business and there are not even any clients of the foundry around anymore who can be held accountable for the cost of the cleanup. The state government has no funds to pay for the cleanup beyond the $3 million it spent more than a decade ago to cap the site and sequester the polluted water and soil.

The town government that is trying to push forward with plans for a new mall wants the state (or the federal government) to fund an arterial road linking the cleaned-up site to the nearby interstate. This would make the mall more accessible, and perhaps justify additional state or federal investment in the clean up.

The governor is getting pressure from many sides. Her transportation agency thinks the mall developer should pay for the cleanup and the new road. Her Secretary of Environment thinks that the cleanup is a good idea, but is not prepared to specify what share of the cost should be borne by the state. Environmental groups charge that there are rpobably long-term health effects experienced by water users in the area that might be caused by dangerous materials buried at the site leaching into nearby aquifers. Local officials argue that the economic benefits of the redevelopment of the site will be shared by the region as a whole, so it is not unreasonable to ask the state to cover the cost of the clean up.

The governor has asked you to outline a comprehensive cost-benefit analysis that can be done to help answer all these questions. How should benefits and costs in this case be defined? What, in your view, are the most important costs and benefits to focus on in the study? What should be the time frame and the geographic scope of the study? How should the governor handle the question of the inequitable distribution of benefits and costs associated with re-use of the site?


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