Professor Dennis Coates is an economist at the University of Maryland-Baltimore County. His interest in LLRW policy began while he was at the University of North Carolina-Chapel Hill during the early stages of North Carolina's siting process. Funded initially by a grant from Resources for the Future to study voting on LLRW policy issues in state legislatures, his research spreads into all areas of LLRW policy. He has published articles on LLRW policy in a variety of economics and public policy journals.

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I want to start out by thanking Governor Nelson and Steve Moeller from his office and also Diane Burton, who happened to track me down by doing a search on the Internet and running across a paper of mine, for the invitation to address you today. It is the paper which Diane found that I'm going to pretend to tell you a little bit about today. I'm also recognizing that being an economist I tend to be dull and dry - going to try to avoid boring you. I must also acknowledge that this presentation is based on some work that I've done with a colleague named Michael Munger, who is at Duke University, Department of Political Science.

Let me start off with the punch line or actually, three punch lines. What we conclude from this research is that a compact system will not work in the case of a “locally undesirable land use.” It's very good when you're trying to organize to provide a public good. Shortly, I'll give some examples of public good situations where it has worked, and I will give you two situations where compacts have not worked. You'll see that where compacts have not worked the situations are very similar.

There is a way that the compact system, even with a locally undesirable land use, could be effective. If there is adequate compensation to the county, municipality, township, or what have you, to host this undesired facility, then the compact system may work. As an aside I must respond to Senator Dierks who suggested this morning that an incentive is a bribe. No, that's not true. An incentive is not a bribe. An incentive for me to go to work every day is that I get a paycheck. It's not a bribe for me to go. Now, you all probably will agree that if it were not for some compensation, some financial incentive, that you would not do some of the things that you do. The problem, as I see it with the compact system, and especially the way the compacts were written, is that they did not recognize the need to adequately compensate. And I'll show you a slide later on that will show you exactly how the compacts ignored compensation.

The second punch line that I want to give you is that events as they have unfolded, especially since 1995, have borne out the importance of adequate compensation. Now when I say that what I'm really pointing to is the reason that South Carolina has kept the Barnwell facility open is because it got addicted to the revenues that it was collecting on those surcharges: this past year over $70 million paid by out-of-state generators to the State of South Carolina. That's compensation. The year before that it was something on the order of $95 million. That's compensation. That's money the State of South Carolina did not have to raise on the backs of South Carolina taxpayers because it was raising it on the backs of utilities and other waste generators from around the country.

The third punch line of this work is that flexibility is important. And one thing that was not recognized, I think, in any of the Low-Level Waste Policy Act or the Policy Amendments Act is the need for flexibility. These Acts say, “This is what you must do.” Or if they don't say it quite that way, they say, “Here's what we would really strongly like you to do.” And so states go out and do it. Well, I'm going to give you an indication of why I think that this is a really bad idea. I'm going to do that by starting with an analogy. And I actually had this analogy before I heard Diane D'Arrigo this morning talk about radiation roulette. Suppose that right now three gunmen walked into this room and started blasting the walls, and they said to us, “You have a choice. You can either sit in groups formed by yourself, talk amongst yourselves, and figure out to play Russian roulette amongst yourselves, or we'll shoot you.” Now, what are you going to do? You're probably going to play, right? But if the gunmen stand over in the corner and don't pay much attention, you probably aren't going to be real excited about the game and you're going to fiddle around and waste time, right? Well, that's sort of the way the compact system started. The gunmen stopped paying attention and what happened? All the compacts sort of fiddled around and wasted time. Then the deadline came up for 1985 and no compacts were formed. There wasn't real progress and part of the reason was because unsited compacts had a very strong interest in not allowing any compacts to be enacted or enabled by the federal government because once they did, the three sited compacts would not allow access to their facilities. Well, it's pretty easy to see that the votes in the states that did not have it or would not have access would outweigh the votes in the states that would. So a crisis, another crisis, was fomented. Now, this example that I've given you here of Russian roulette and our gunmen is not terribly far from what really happened. We heard this morning from Ed Helminski about the tri-state agreement. Washington, South Carolina, and Nevada, the three sited states, worked on an agreement together and what happened? Two of those three shut down for a while. Why? To force action. That was the gunmen taking action. So take that analogy for what it's worth. I don't want to stand here and tell you I'm not a doctor, I'm not a radiation specialist, I'm not going to suggest to you that this radiation is any more or any less dangerous than playing Russian roulette. I don't know. What I do know is that if you foment a crisis to force legislative action and then you get legislation out of that, legislation that was not duly considered, you probably get exactly what you deserve. Starting a crisis and then getting last-minute legislation on the last day before all hell breaks loose, you're going to get legislation that's not going to be very well received and is going to be hard to implement.

Now, I'm going to have to say one other thing, and this is a purely economic thing and that is that this is probably the strangest piece of legislation I've ever seen. Usually when you think about big businesses conspiring amongst one another, what you think about them doing is conspiring to make prices higher so that they don't compete with anybody else. What the three states did was essentially conspire together to force somebody to lower prices with them. Very bizarre. Never happens. So this was a pretty strange thing in the first place. Fortunately, it hasn't succeeded. In fact, I don't believe this was intentional, though people here might dispute that. The milestones that were created and imposed sanctions, monetary sanctions, and surcharges did exactly what a rational economist would have told them to do in the first place. If you don't want to sell so much of this stuff, raise your price. That's exactly what the surcharges did. And what did we see as a result? Dramatic drops in volume. So instead of starting this compact system, what could easily have been done is the three states could have just said, “Look, you want access to our facilities? We're going to put a tax on it.” Raise the tax high enough and volumes will drop, as we've seen.

Well, I've sort of gotten off track here a little bit. I haven't talked about the compact systems, per se. A compact is a formal agreement amongst states and it must get permission from the federal government if that compact would in some way or if that agreement in some way would alter the balance of power between the federal government and the state governments. These compacts would do that because they would interfere with interstate commerce as we heard a little bit this morning.

Where have compacts been successful? Air and water shed protection. Port authority, regional airports, metropolitan area transit authorities. I come from Baltimore on the Chesapeake Bay. There's a Chesapeake Bay Authority that involves Maryland, Delaware, Pennsylvania, and Virginia. They all work together because all of them expect to benefit from working together. In economics we have something called the free rider problem. And that is if somebody else is going to do it and I'm going to benefit, then chances are I'm not going to do it too, or Ill do less than I otherwise would. The compact system overcomes that problem in these sorts of instances.

Where has the compact system failed? Well, one we know for sure is low-level radioactive waste, otherwise we wouldn't be here. Another one is hazardous waste. The authority to compact has existed for a long time. They've never taken up the idea. Why bother? Well, there's lots of reasons why not, but it wouldn't work there any better than it does here. In fact, as early as 1985 there was a paper by Kearney and Stuccer (spelling?) that said the Low- Level Radioactive Waste Policy Act and its amendments is the first time ever that the compact system has been tried in the case where one entity, one state, will bear all the pain, and all the other will bear all the benefits. Well, right there's the rub. One bears all the pain. And what we've seen over the course of time is exactly this: Someplace gets forced to house a radioactive waste facility and then what happens? People think to themselves, “ I don't really want to do this, and since the compact law is not well defined, there is really very little that can be done to force me.” Now, I haven't met too many of you folks before last night and today, but one of the things that I've heard is how much distrust there is. People saying, “Well, this is all a plot by that group, or this group.” Well, yeah. Is there a plot? I don't know, but it's very clearly the case that once someplace is selected host, lots of people have an incentive to fight it and other people have reasons to support it. And since there's no way that the compact can bind the citizens of a different state with respect to their ability to push lawsuits and so on, there's no way that litigation and protests can be stopped.

All of the compacts ask for good faith efforts. And I would say all of the compacts have probably done good faith efforts. In North Carolina, where I was when I started this stuff, North Carolina really did do a good faith effort. But citizens around the state brought suit. They (the state or the siting authority) also hired some really bad consultants who said that you ought to put it in this site or in this county because the people there were uneducated, they don't have very good newspapers and so on and so forth, so not much will be spread around. That sort of thing is the sort of thing that you all are well familiar with and I'm not going to go into all that. The problem here is that the compact system is designed to get states to cooperate. Cooperate assumes that everybody gets a gain. I do this because I'm going to be better off as a result. You do it because you're going to be better off as a result. People living next to the dump, whether or not their fears are rational, don't believe they're better off. And there's no way that you're going to convince them. So the compact system, which was fostered in this crisis situation, could never address that kind of issue. It was never considered.

In closing, let me say a bit more about compensation and why I think it's very important. When I read the compact legislation for every compact, with the exception of the new Northeast Compact, which is sort of irrelevant since there is Connecticut and New Jersey and each one is going to build its own facility, very few of those compacts, in fact basically all of them, with the exception of the Central Midwest, the Midwest, and the Rocky Mountain, say that you can't use the facility as a revenue source. In other words, all you can do when you set up this facility is recover your costs. Well, when I enter into an agreement with somebody I expect to do better than just get my costs. I want to be better off than I was before I started. And that's where compensation incentives, not bribes, comes in. Are you better off after the deal than before? If the answer is “yes,” then you'll do it. If the answer to that is “no,” then you won't. And the problem with the compact system and the reason that I think that a voluntary siting procedure should go forward, is that what we've seen is when we've effectively done voluntary siting it's been successful. You might say, “Well, when have we done that?” We've done that by South Carolina staying open. And we've done that by Envirocare opening. Those were both voluntary. They had nothing to do with, were completely outside of, the compact system.

Thank you.