GUEST SPEAKER: Dear Governor, as you
know, we're currently facing a controversy
around the funding for cleanup of a highly polluted Superfund
site.
Before delving into some details,
I wanted to divide my talk into three parts.
First, I'll walk you through why this has become
a controversial topic today.
Secondly, I'll walk you through how
you can apply cost-benefit analysis
in this particular case.
And finally, I'll close with some observations
around possible gaps and recommendations
on how to move forward.
So first some background.
A decade ago some abandoned underground storage tanks
from a former foundry leaked into neighboring wetlands.
Given that the company had gone out of business,
it was impossible to hold them to account
for the cost of the cleanup.
As a result, we put in $3 million to cap the site
and sequester the polluted water and soil.
Today this issues resurfaced because the city wants
to build a new mall on the site and has requested
that the state government fund the construction of a road that
would link this area near an interstate.
This sparked debate around who should
fund the cleanup, which is estimated to cost $35 million.
The local government argues that the economic benefits
of the mall on this site will be widespread so the state should
cover these costs.
However, the transportation agency
believes that the developers should cover these costs given
that they will gain much of the economic benefits.
To develop a position, you asked me to work on a cost benefit
analysis, and I'll walk you through the process
of this analysis.
As you know the purpose of a cost benefit analysis
is to determine whether the social benefits exceed
the social costs.
The benefits are an increase in the human environmental
well-being, while the costs are the reductions
in this well-being.
To sum the benefits, we would calculate the willingness
to pay for benefits or accept compensation
for any losses that might occur.
We also determine the standing, in other words,
the stakeholders whose costs and benefits are to be considered,
and the time over which these costs and benefits are
to be counted and discounted over time.
Finally, to compare the costs and benefits,
we use that present value.
In other words, the discount of these values over time.
And then that present value is important
because it helps us rank our options.
And we should only consider implementing
those that have a positive net present value.
For this particular case here are
some of the most important direct
and indirect costs and benefits that we could focus on.
Some of the potential costs of development of this mall
would be the actual cleanup of the site
and the ongoing monitoring of any lingering contamination,
certifying compliance and authorizing
sites for redevelopment, building, maintaining a road
or necessary structures such as bridges or parking lots,
loss of revenue of existing local and state businesses,
increased traffic, as well as air and noise pollution
in the area and any resulting shifts in demographics
of these areas.
Some potential benefits could be economic activity
and generation of business revenues, employments, wages,
and benefits that can affect household income, which
in turn can propel the economy, and state and local taxes
can increase revenue for the government.
It's important to note that many of these issues
can be seen as either cost or benefits
depending on different stakeholders point of view.
For example, a large new mall could
increase the property value in some surrounding areas
and decrease it in others.
As far as time frame, it would be
important to capture each phase involved
from the cleanup of the development construction
to its functioning in the long-term,
so we can project the potential long-term costs and benefits.
Ideally, a lot of psychoanalysis that
captures the impacts of the mall from construction
to deconstruction would be carried out.
Regarding the geographic scope, it's
key to include in the study the actual site
plus a certain radius of surrounding
areas and neighboring towns to ensure that cost benefit
analysis gains the full picture of the impacts of the project.
Each cost benefit would require a different scope
depending on the impact and how far it would
reach the surrounding areas.
Consultation with local stakeholders
can be helpful in determining the scope.
Finally, regarding the question of inevitable distribution
of costs and benefits.
We may give higher weight of cost benefit
for particular stakeholders who may experience the impacts
at different rates due to particular situations
or locations such as indigenous peoples
with cultural and physical survival may be at stake.
Those who are negatively affected by it
would carry higher costs, and therefore that
should be factored in.
To wrap up, I just wanted to offer some recommendations
and closing thoughts.
One, issues that we're discussing,
two, scenarios keeping the site as is
or conducting cleanup for a new development such as a mall.
To make an informed decision and given that environmental groups
claim that there have been long-term health
effects experienced by water users in the area,
it would be key to carry out environmental health risk
analysis of the current site, so we
know what we're comparing the action of redevelopment to.
In this case, non-monetary costs and benefits
should be given a score so that the two options of action
and non-action can be compared.
Moreover, I would also encourage us to consider other options
aside from the construction of a mall
as a form of redevelopment.
It would be important to consider
other alternatives that might generate
higher benefit at a lower cost.
Taking these steps and conducting a cost benefit
analysis will give us a more comprehensive picture
of the situation and fill in some important gaps
of information that we currently face
to make an informed decision.
A well done cost benefit analysis
will help us determine which course of action,
as well as how much each party should contribute to make
this plan actually happen.
Thank you.