Bleak Assessment of Existing Federal Compensation Programs Casts Further Doubt on Viability of Sen. Specter’s Asbestos Corporate Bailout

WASHINGTON, D.C. – A recently released Government Accountability Office (GAO) study intended to help Congress grapple with the asbestos issue warns of deep flaws besetting existing federal compensation programs and should be a lesson to lawmakers contemplating a $140 billion asbestos trust fund, Public Citizen said today. Despite significant differences among the four programs it reviewed, the GAO found that they all shortchanged victims and swallowed tax dollars.

“Supporters of the proposed asbestos trust fund are relying on the same gimmicks that have undermined other federal efforts to aid victims while minimizing the financial blow to industry,” said Frank Clemente, director of Public Citizen’s Congress Watch division. “Low-balling claims projections makes the scheme politically palatable in the short run, but as the GAO has shown, that will end up backfiring on American taxpayers by making them pay the bills left by corporate wrongdoers.”

The GAO report examines the financial history of four major occupational and vaccine injury programs from their inception through 2004: 1) the Black Lung Program, set up for disabled coal miners in 1969; 2) the Radiation Exposure Compensation Program (RECP), established in 1990 for uranium miners and populations exposed to nuclear testing; 3) the Energy Employees Occupational Illness Program (EEOICP), created in 2000 for nuclear weapons industry-related injuries; and 4) the National Vaccine Injury Compensation Program (VICP), started in 1986 to compensate injuries and death caused by certain vaccines. The report is available here.

The GAO found that:

The programs had to be expanded beyond their original scope to include more categories of claimants, more medical conditions or additional benefits. For example, the RECP initially was designed for underground uranium miners but was subsequently enlarged to cover surface miners, millers and ore transporters who faced comparable health risks from exposure to radioactivity.

• Benefit costs exceeded—or will soon exceed—initial estimates. The Black Lung Program was established with $3 billion in 1969 to satisfy all claims through 1976, when it was set to expire.   By 1976, it had paid $4.5 billion to beneficiaries and was still going strong. As of 2004, its total payouts had topped $41 billion. Inadequate financing has forced the fund to borrow $8.7 billion from the federal treasury to date, resulting in more than $7 billion in interest payments.
• The number of claims filed by potential beneficiaries as of 2004 has topped initial predictions by anywhere from 59 percent in the case of RECP, to 344 percent in the case of EEOICP.
• It took at least two years for the programs to become fully operational, and even then claimants have had to wait long periods—sometimes years—for final determinations.

The GAO report is the latest in a series of red flags signaling the asbestos trust fund’s shaky financial footing. Its findings echo those of Prof. Peter Barth of the University of Connecticut, who earlier this year reviewed the three occupational injury programs and cautioned that the historic pattern of unrealistic forecasting and insufficient funding would doom the asbestos trust fund as well.

Several analyses of the asbestos proposal as currently conceived have found that asbestos injury claims could dramatically outstrip the financial capacity of the fund to satisfy them, sending victims back to the courts and renewing corporate liabilities.

• The Congressional Budget Office (CBO) estimate produced for the Senate’s asbestos trust fund bill, S. 852, in August forecast a $6 billion shortfall in the first 10 years that would have to be covered by government borrowing. It projected the total cost of the fund at $120 to $150 billion, excluding financing, but with the disclaimer that the significant uncertainty surrounding many of its assumptions—such as the number, severity and timing of claims, future interest rates and inflation, among others—made this estimate highly unreliable. In a November letter addressed to Senate Judiciary Chairman Arlen Specter (R-Pa.), the CBO flatly stated that the fund might not have sufficient resources to pay claims greater than $130 billion.
• Bates White, LLC, a private financial consulting firm, conducted its own analysis in November 2005 and concluded that “even under conservative assumptions” the fund would need $300 billion to satisfy claims—more than double the $140 billion proposed. George Mason University mathematical science professor, Dr. Rebecca Goldin, did a comparative review of various prognoses and concurred with Bates White, noting that the number of additional asbestos injury claims filed with the private Manville Trust alone is expected to range between 750,000 and 2.7 million—and that’s just for one company. Because claims have so far surpassed expectations, asbestos victims applying to Manville are receiving only 5 cents on the dollar as compensation for their injuries.
• Financial analyst Mark Petersen on Nov. 17 testified before the Senate Judiciary Committee that the financial burden of heavy borrowing would sink the proposed asbestos trust fund, leaving a debt trail of $35 billion to be picked up by defendants and insurers and paying out just $103 billion of the promised $140 billion to victims.

The GAO concluded its report on federal compensation programs with this advice: “[B]ecause these programs may expand significantly beyond the initial cost estimates, policymakers must carefully consider the cost and precedent-setting implications of establishing any new federal compensation programs, particularly in light of the current federal deficit.”