a

GAO

United States General Accounting Office

Report to the Chairman, Committee on 

the Budget, House of Representatives

January 2003 LONG-TERM 

COMMITMENTS

Improving the 

Budgetary Focus on 

Environmental 

Liabilities

GAO-03-219
The federal government is legally required to clean up hazardous wastes that 

result from its operations. Agencies are currently required to report these 

environmental liabilities in their financial statements, but these estimates are 

not recognized until after a waste-producing asset is placed into service. 

Although agencies are supposed to consider cleanup and disposal costs 

associated with these assets as part of the acquisition process, they typically 

do not request the related budget authority until many years after the 

government has committed to the operation creating the waste, when 

cleanup is imminent. 

Alternative approaches to promote up-front consideration of the full costs of 

environmental cleanup and disposal for assets being proposed for purchase 

fall along a continuum ranging from supplemental information to enactment 

of additional budget authority. (See figure below.) While each approach has 

potential benefits and challenges, agencies’ lack of experience in estimating 

future cleanup/disposal costs up front suggest starting at the more modest 

end of the continuum—providing supplemental information to decision 

makers. Eventually, however, accruing budget authority for the tail-end 

cleanup/disposal cost along with the front-end purchase cost estimates 

would do the most to ensure that these costs are considered before the 

government incurs the liability. 

Continuum of Alternative Approaches to Improve Budgeting for 

Environmental Liabilities 

LONG-TERM COMMITMENTS 

Improving the Budgetary Focus on 

Environmental Liabilities 

www.gao.gov/cgi-bin/getrpt?GAO-03-219 

To view the full report, including the scope 

and methodology, click on the link above. 

For more information, contact Susan Irving on 

(202) 512-9142 or irvings@gao.gov. 

Highlights of GAO-03-219, a report to the 

Chairman of the Committee on the 

Budget, House of Representatives 

January 2003 

Although environmental liabilities 

resulting from federal programs 

and activities represent the third 

largest category of the federal 

government’s liabilities, the current 

cash- and obligation-based budget 

does not provide information on 

estimated cleanup costs before 

waste-producing assets are 

purchased. As a result, 

policymakers do not have the 

opportunity to weigh the full costs 

of a proposal with their judgment 

of its benefits. The Chairman of 

the House Committee on the 

Budget asked GAO to examine and 

report on various ways budgeting 

might be improved for 

environmental cleanup costs, 

including some of the benefits, 

limitations, and challenges 

associated with each. 

GAO recommends that the Director 

of the Office of Management and 

Budget (OMB) require 

supplemental reporting in the 

budget to disclose future 

environmental cleanup/disposal 

costs for new acquisitions. Agency 

and OMB officials should consult 

with legislative branch officials to 

ensure that useful information is 

provided to congressional decision 

makers. 
Page i GAO-03-219 Budgeting for Environmental Liabilities

Contents

Letter 1

Results in Brief 2

Background 4

Objectives, Scope, and Methodology 5

Environmental Liabilities Largely Associated with Defense and 

Energy 7

Current Budget Information Does Not Include Environmental 

Liabilities Before Acquisition 9

Alternative Approaches to Consider Environmental Liabilities 12

Each Approach Has Potential Benefits and Challenges 17

Conclusions 20

Recommendations for Executive Action 21

Agency Comments 21

Appendixes

Appendix I: Breakout of Environmental Liabilities 23

Tables Table 1: Breakdown of DOE and DOD Federal Environmental 

Liabilities, Fiscal Year 2001 23

Table 2: Environmental Liabilities, by Agency, Fiscal Year 2001 24

Figures Figure 1: Flow of Cleanup/Restoration and Disposal Funds for 

DOD 8

Figure 2: Flow of Cleanup Funds for DOE 9

Figure 3: Continuum of Alternative Approaches to Improve 

Budgeting for Environmental Liabilities 13

Figure 4: Possible Flow of Funds through Accounts 16
Contents

Page ii GAO-03-219 Budgeting for Environmental Liabilities

Abbreviations

CBO Congressional Budget Office

DERP Defense Environmental Restoration Program

DOD Department of Defense

DOE Department of Energy

EM Environmental Management

EPA Environmental Protection Agency

FUDS Formerly Used Defense Sites

NRC Nuclear Regulatory Commission

O&M Operation and Maintenance

OMB Office of Management and Budget

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Page 1 GAO-03-219 Budgeting for Environmental Liabilities

United States General Accounting Office

Washington, D.C. 20548

A

January 24, 2003 Letr

The Honorable Jim Nussle

Chairman

Committee on the Budget

House of Representatives

Dear Mr. Chairman:

The federal government undertakes a wide range of programs and 

activities—such as federal employee pensions, retiree health, and federal 

credit—that may create commitments for future spending. Environmental 

liabilities,1

 which result from some federal programs and activities, are one 

example of these future commitments and represent the third largest 

category of the federal government’s liabilities reported in the 2001 

Financial Report of the U.S. Government.

2

 Federal, state, or local laws 

and regulations require cleanup that may be done many years after the 

activity creating the environmental liability is undertaken. However, 

because the federal budget is primarily calculated on a cash basis, 

information on the estimated cleanup costs is not included in the budget 

when budgeting decisions are being made about such activities.

1

Federal accounting standards define environmental liabilities as the cleanup costs of 

removing, containing, and/or disposing of (1) hazardous waste from property or (2) material 

and/or property that consists of hazardous waste at permanent or temporary closure or 

shutdown of associated property, plant, and equipment. Hazardous waste is a solid, liquid, 

or gaseous waste or combination of these wastes that, because of its quantity, 

concentration, or physical, chemical, or infectious characteristics, may cause or 

significantly contribute to an increase in mortality or an increase in serious irreversible or 

incapacitating reversible illness or pose a substantial present or potential hazard to human 

health or the environment when improperly treated, stored, transported, disposed of, or 

otherwise managed. As used in this report, it may include such things as nuclear or toxic 

waste or unexploded ordnance, among other things. Cleanup may include, but is not limited 

to, decontamination, decommissioning, site restoration, site monitoring, closure, and 

postclosure costs. Federal accounting standards define a liability as a probable future 

outflow of resources due to a past governmental transaction or event.

2

The two largest liabilities are federal debt securities held by the public and federal 

employee and veteran benefits payable.
Page 2 GAO-03-219 Budgeting for Environmental Liabilities

You asked us to examine and report on various ways budgeting might be 

improved for environmental cleanup costs, including some of the benefits, 

limitations, and challenges associated with each. Accordingly, we reviewed 

current budgeting practices at the departments of Energy and Defense, 

since they account for about 98 percent of the government’s reported 

environmental liabilities. In addition, we discussed alternative approaches 

with staff within these departments, as well as staff in the Office of 

Management and Budget (OMB) and the Congressional Budget Office 

(CBO). The focus of this report is forward-looking. That is, it explores 

alternative ways to ensure that the cleanup costs of hazardous waste are 

considered by decision makers before the government has committed to 

the operation creating the waste.3

Results in Brief The federal government is legally required to clean up hazardous wastes 

that result from its operations. Although these cleanup costs represent the 

third largest category of federal liabilities, they are not usually addressed 

until many years after the government has committed to the operation 

creating the waste. Under current budget guidance, agencies include in 

their budget request for a given year only the funds they expect to obligate 

for cleanup during that budget year. As a result, at the time decisions are 

being made, the full costs of a program that will have cleanup costs are not 

recognized in the budget, nor are estimates of these future costs provided 

elsewhere in budget documents. The budget does not provide 

policymakers the information to compare the full costs of certain programs 

with their judgment of benefits.

Once waste-producing assets are acquired and placed into service, 

agencies must estimate and report in their financial statements the 

environmental liabilities associated with both retired assets and those that 

are currently being used in support of federal programs and activities.4

 

About 98 percent of the $307 billion in environmental liabilities that was 

reported in fiscal year 2001 financial statements was associated with the 

3

We recently issued a report that provides a broad overview of various program activities, 

such as environmental liabilities, that may expose the government to future spending. See 

U.S. General Accounting Office, Fiscal Exposures: Improving the Budgetary Focus on 

Long-Term Costs and Uncertainties, GAO-03-213 (Washington, D.C.: Jan. 24, 2003).

4

These retired assets include such things as excess facilities at the Savannah River Site in 

South Carolina and the Presidio military base in California.
Page 3 GAO-03-219 Budgeting for Environmental Liabilities

departments of Energy and Defense. Estimates of disposal and cleanup 

costs for new assets are not, however, routinely estimated before making 

the commitment to purchase the asset. Given the large number of years 

that frequently occur between acquisition and cleanup, estimates for new 

assets are likely to change during that period for a variety of reasons, 

including changes over time in technology and regulatory standards. This, 

however, is also true to some degree when agencies estimate cleanup costs 

at the end of asset lives when they begin to request funding for the cleanup. 

While cleanup cost estimates made before committing to purchase an asset 

would need to be periodically reassessed, they would provide more 

information than is currently provided.

Alternative approaches exist to promote more complete consideration of 

the full costs of environmental cleanup and disposal associated with the 

acquisition of new assets. They fall along a continuum representing the 

degree of certainty that the costs will be considered in decision making. At 

one end of the continuum, the government could increase awareness of full 

costs by reporting the long-term environmental liability costs associated 

with new assets as supplemental information along side budget authority 

and outlay figures in the budget. While this puts it closer to the budget 

numbers than would a separate report, there is no assurance that this 

information will be considered in budget decision making. However, it will 

help ensure that information is generated and made more transparent. 

Alternatively, budget process mechanisms could be established to require 

explicit disclosure and prompt consideration of the full costs of 

environmental liabilities associated with a proposed asset acquisition. For 

example, Congress could revise its rules to permit a point of order against 

legislation that does not disclose estimates for environmental liabilities 

associated with the acquisition of new assets to be funded in the bill. Such 

a process mechanism might increase attention paid to these costs even 

though they would not actually require funding until far into the future. 

Finally, it is generally assumed that costs included in primary budget data 

receive the most attention.5

 At this end of the continuum, budget authority 

needed for environmental cleanup for new assets could be accrued in the 

budget. OMB is currently working on a proposal along these lines. It is 

important to note that this approach would not change the costs of future 

cleanup—these have already been created by the decision to acquire the 

5

In this report, primary budget data refers to budget authority, obligations, outlays, and the 

deficit/surplus.
Page 4 GAO-03-219 Budgeting for Environmental Liabilities

asset. Rather, it would only shift the timing of when the costs are 

recognized.

No proposal can be viewed independently of associated implementation 

and estimation issues. For example, clear definitions for hazardous waste 

need to be developed as well as mechanisms for dealing with the inevitable 

cost reestimates. As a first step, OMB should require supplemental 

reporting in the budget to disclose future environmental cleanup/disposal 

costs for new acquisitions. Also, OMB should discuss with Congress how 

best to make the information useful to congressional decision makers. 

Thus, even if the ultimate goal would be to include cleanup costs in budget 

authority requests for new assets, implementation and estimation 

challenges may suggest starting with the supplemental information 

approach. 

Background Historically, federal outlays and receipts generally have been reported on a 

cash basis. That is, receipts are recorded when received and outlays are 

recorded when paid without regard to the period in which the taxes and 

fees were assessed or the costs resulting in the outlay were incurred. This 

has an advantage in that the deficit (or surplus) closely approximates the 

cash borrowing needs (or cash in excess of immediate needs) of the 

government.6

 However, over the years analysts and researchers have 

raised concerns that the current cash- and obligation-based budget does 

not adequately reflect the cost of some programs—such as federal credit or 

insurance—in which the government makes a commitment now to incur a 

cost, but some or most of the cash flows come much later. This means that 

for some programs the current cash- and obligation-based budget does not 

recognize the full costs up front when decisions are made or provide 

policymakers the information to compare the full costs of a proposal with 

their judgment of its benefits. Programs such as federal employee 

pensions, retiree health care, and environmental liabilities are examples 

where the cash basis of accounting does not represent the government’s 

full commitments.

6

Minor exceptions to this include changes in the Department of the Treasury’s cash 

balances, outstanding payment obligations, and net disbursements by the government’s loan 

guarantee and direct loan accounts. 
Page 5 GAO-03-219 Budgeting for Environmental Liabilities

Environmental liabilities are the result of federal operations that create 

hazardous waste that federal, state, or local laws and/or regulations require 

the federal government to clean up. Because these cleanup costs are not 

usually paid until many years after the government has committed to the 

operation creating the waste, policymakers have not been provided 

complete cost information when making decisions about undertaking the 

waste-creating operation. Although all agencies are not yet in compliance, 

current federal accounting standards require agencies to estimate and 

report in their financial statements their liability for cleanup costs when 

they are deemed probable and measurable. Traditionally, budget guidance 

has required agencies to estimate the funds expected to be obligated for 

cleanup activities during the budget year in which the funds are needed.7

 

However, in recent years OMB also has issued guidance for agencies to 

estimate life-cycle costs when purchasing capital assets. Among the items 

to be included in the total amount of these life-cycle costs are 

decommissioning and disposal costs. The life-cycle cost estimates are 

reported to OMB in budget Exhibit 300 and do not separately break out 

cleanup and disposal costs. The exhibits are for OMB’s informational 

purposes only; they are not included in the President’s budget request or 

agency’s budget justification provided to Congress. Department of Energy 

(DOE) and Department of Defense (DOD) officials told us that the cleanup 

portion of these total costs has traditionally not been separated out or 

identified at the time of purchase. This is because estimates developed at 

that time were very preliminary, often based only on a percentage of total 

costs rather than specific unit costs.

Objectives, Scope, and 

Methodology

To examine ways that budgeting might be improved for environmental 

liabilities, we focused on three key questions: (1) What are the federal 

government’s reported environmental liabilities? (2) How are 

environmental liabilities currently valued for financial statements and 

budgeted at selected programs within DOD and DOE? and (3) How could 

budgeting for these environmental liabilities be improved? 

To determine the federal government’s reported environmental liabilities, 

we extracted data from agencies’ fiscal year 2001 consolidated balance 

7

OMB Circular A-11 refers to a 1978 Executive Order that requires agencies to prepare 

annual cost estimates for the control of environmental pollution and to ensure that 

sufficient funds for compliance with applicable pollution control standards are requested in 

the agency budget.
Page 6 GAO-03-219 Budgeting for Environmental Liabilities

sheets. Because this analysis showed that about 98 percent of the 

government’s reported environmental liabilities were associated with DOD 

and DOE, we focused our review on the practices of these two 

departments. We reviewed published reports, related guidance, and budget 

and financial statement documentation from each agency. We also 

interviewed DOD, DOE, and OMB staff to discuss current budget practices. 

To develop alternative approaches to improve budgeting for environmental 

liabilities, we discussed ideas with staff from DOD, DOE, OMB, and CBO. 

We also met with appropriations subcommittee staff with jurisdiction over 

DOD and DOE to discuss the type of information that they would find most 

helpful. We analyzed the pros and cons of the approaches based on the 

extent to which they would (1) provide meaningful, full-cost information to 

decision makers up front, (2) provide disincentives for artificially low cost 

estimates, and (3) present implementation issues, such as additional 

administrative burdens for agencies or increased complexity to the budget 

and appropriations process. Finally, to understand how private 

organizations provide for environmental cleanup, we conducted limited 

research of private sector budgeting practices. However, little information 

was available about up-front decision making.

Our work was done in Washington, D.C., in accordance with generally 

accepted government auditing standards. We provided a draft of this report 

to the Secretary of Defense, the Secretary of Energy, and the Director of 

OMB. Comments are summarized in the “Agency Comments” section. 
Page 7 GAO-03-219 Budgeting for Environmental Liabilities

Environmental 

Liabilities Largely 

Associated with 

Defense and Energy

Nearly all of the $307 billion in environmental liabilities reported for fiscal 

year 2001 was associated with DOD and DOE. About 78 percent of these 

liabilities were associated with DOE and represent the environmental 

legacy resulting from the production of nuclear weapons. The 21 percent 

associated with DOD is primarily for environmental restoration of military 

installations and disposal of nuclear materials.8

 The remaining 

environmental liabilities associated with other federal agencies include 

such things as replacement of underground storage tanks, asbestos 

removal, and lead abatement. Some of this remaining 1 percent will be paid 

out of Treasury’s judgment fund.9

DOD and DOE manage environmental cleanup quite differently: DOD’s 

decentralized activities are managed within the individual services, at the 

program level, while DOE’s activities are centralized within its 

Environmental Management (EM) program. For example, DOD considers 

environmental liabilities in two categories: (1) disposal and 

(2) environmental restoration/cleanup. Army’s chemical weapons and 

Navy’s nuclear-powered carriers, ships, and submarines dominate DOD’s 

disposal liabilities. Funding for disposal is provided to the Army, Navy, and 

Air Force Operation and Maintenance (O&M) accounts. 

Restoration/cleanup activities are largely addressed through the Defense 

Environmental Restoration Program (DERP), which is funded through five 

environmental restoration accounts for Army, Navy, Air Force, Formerly 

Used Defense Sites (FUDS), and Defense-wide. The funds in these 

accounts are then transferred to the service levels’ O&M budgets. In 

contrast, within DOE, facilities that have reached the end of their useful 

lives and require cleanup typically are transferred to EM, along with some 

additional funds for surveillance and maintenance. EM also receives 

budget authority directly through an appropriation. Thus, budgeting and 

funding for cleanup is almost entirely handled by EM, not individual 

program offices. EM’s program emphasis is on site closure and project 

completion. Its activities include environmental restoration, waste 

management, and nuclear material and facility stabilization. Figures 1 and 

2 illustrate the flow of cleanup funds for these two departments. 

8

Auditors were not able to render an opinion on DOD’s fiscal year 2001 financial statements, 

in part because of DOD’s inability to comply with requirements for environmental liabilities. 

Thus, the $63 billion liability associated with DOD is not known to be a reliable figure.

9

Treasury’s judgment fund has permanent, indefinite budget authority. 
Page 8 GAO-03-219 Budgeting for Environmental Liabilities

Figure 1: Flow of Cleanup/Restoration and Disposal Funds for DOD 

a

In some instances, funds may be transferred to other accounts, such as military construction or 

procurement, for similar cleanup purposes.

b

Although the Army, as executive agent, receives funding from the FUDS DERP account, the sites in 

FUDS may have been owned by any of the services.

c

Includes the Defense Logistics Agency, Defense Threat Reduction Agency, and Deputy 

Undersecretary of Defense (Installations & Environment).
Page 9 GAO-03-219 Budgeting for Environmental Liabilities

Figure 2: Flow of Cleanup Funds for DOE

a

May also receive additional surveillance and monitoring funds from program offices and power 

administrations.

Current Budget 

Information Does Not 

Include Environmental 

Liabilities Before 

Acquisition

Current budget guidance and accounting standards both require agencies 

to estimate cleanup and disposal costs. However, neither requires that 

these costs be separately estimated for decisions when assets are being 

considered for purchase—before the government is legally committed to 

paying these costs. While information about private sector decision 

making on these costs is limited, at least some organizations set aside 

funds to address these future cleanup and disposal costs.
Page 10 GAO-03-219 Budgeting for Environmental Liabilities

Agencies have little or no budgetary incentive to develop estimates of 

future cleanup costs. With respect to primary budget data, agencies do not 

reflect associated cleanup costs in their budget requests for new wasteproducing assets. Funding for such cleanup costs is not requested until 

many years later when the waste produced is ready to be cleaned up or 

disposed of. Budget guidance does require agencies to estimate cleanup 

costs as part of total life-cycle costs when requesting funds for new assets. 

However, agencies are not required to specifically break out the cleanup 

portion of these costs.10 DOD and DOE officials told us that separating out 

the cleanup/disposal component from total life-cycle costs would be 

relatively difficult because their estimates of cleanup costs are very 

preliminary. Often, a percentage of the purchase price instead of a specific 

unit cost is used as the cost estimate. Moreover, they noted that future, 

unknown changes in regulatory requirements and technology make it 

difficult to develop what they believe to be reasonable and credible cost 

estimates at the time an asset is acquired. However, since estimates for 

retiring assets are being made under today’s regulatory requirements and 

technology, the same methodology might be used for preliminary estimates 

with respect to new assets. This would permit comparisons between or 

across different assets. Over time, as laws and technology change, periodic 

cleanup cost reestimates could be made. Clear definitions for hazardous 

substances also may need to be resolved to ensure that reasonable 

estimates are developed. For example, the Federal Accounting Standards 

Advisory Board (FASAB) defines hazardous wastes in relatively broad 

terms (see footnote 1) for accounting purposes. However, the 

Comprehensive Environmental Response, Compensation, and Liability Act 

of 1980 (CERCLA), which requires the cleanup of waste sites, provides a 

substantially more detailed definition. 

10DOD and DOE do provide cleanup cost information in various reports that are available to 

policymakers. For example, DOD provides an annual report to Congress on the progress 

and accomplishments of DERP. DOE periodically reports on the status of the EM program’s 

life-cycle cost and schedule estimates for completing cleanup. While the information in 

these reports may inform future budget planning, it does not include cleanup cost estimates 

for assets being proposed for purchase.
Page 11 GAO-03-219 Budgeting for Environmental Liabilities

While accounting standards promote an earlier recognition of 

environmental liabilities than does the budget, they do not call for 

estimates of environmental liabilities before an acquisition decision is 

made because they recognize these cleanup costs only after a transaction 

has occurred and an asset is put into service.11 Given that these conditions 

are met, agencies must estimate the environmental liabilities associated 

with all existing assets. Despite this, not all agencies comply with 

accounting standard requirements to estimate the environmental liabilities 

associated with all of their assets. For example, DOD typically records the 

liabilities associated with assets for which cleanup or disposal is imminent. 

DOD’s inability to comply with requirements for environmental liabilities 

was one of several reasons why independent auditors were not able to 

render an opinion about DOD’s fiscal year 2001 financial statements. 

Absent budgetary incentives to estimate future environmental liabilities, 

these cost estimates will not be developed as assets are considered for 

purchase—the time when decision makers still have an opportunity to 

judge whether the government should commit to these costs. 

11Accounting standards require that a liability be recognized (i.e., estimated) when a past 

transaction or event has occurred, a future outflow or other sacrifice of resources is 

probable, and the future outflow or sacrifice of resources is measurable.
Page 12 GAO-03-219 Budgeting for Environmental Liabilities

Data about how non-federal organizations consider environmental 

liabilities when planning to purchase assets or start new projects were 

largely unavailable. However, there are cases where companies set aside 

funds for future cleanup costs. For example, the Nuclear Regulatory 

Commission (NRC) requires private utilities to accumulate the funds 

necessary to decommission their nuclear power plants and most 

established sinking funds so that the decommissioning funds are 

accumulated over the operational life of a nuclear power plant as part of 

the cost charged to customers for the electricity they use. With the 

deregulation of electric utilities and the resultant industry restructuring, we 

recently reported that in most of the requests to transfer licenses to own or 

operate nuclear power plants approved by NRC, the financial arrangements 

have either maintained or enhanced the assurance that adequate funds will 

be available to decommission those plants.12 For example, projected 

decommissioning funds were generally prepaid by the selling utility. Also, 

an Environmental Protection Agency contracted study recommended that 

a Canadian hydroelectric company establish a liability fund to accumulate 

funds to finance asset removal, decommissioning, irradiated fuel disposal, 

and low-to-intermediate radioactive waste disposal.13 

Alternative 

Approaches to 

Consider 

Environmental 

Liabilities

Alternative approaches to promote more complete consideration of the full 

costs of environmental cleanup and disposal associated with the 

acquisition of new assets fall along a continuum from provision of 

supplemental information to accrual of those costs in budget authority up 

front, as assets are acquired. We explored three approaches along this 

continuum ranging from the relatively simple one of providing more 

information but making little other change to current budgeting, to a more 

complicated one involving significant changes to what is included in 

primary budget data. The approaches along this continuum represent the 

degree of certainty that the costs will be considered in decision making. 

Figure 3 summarizes the three approaches along the continuum.

12U. S. General Accounting Office, Nuclear Regulation: NRC’s Assurances of 

Decommissioning Funding During Utility Restructuring Could Be Improved, GAO-02-48

(Washington, D.C.: Dec. 3, 2001). 

13ICF Incorporated, “Full Cost Accounting” for Decision Making at Ontario Hydro: A Case 

Study (Mar. 22, 1996).
Page 13 GAO-03-219 Budgeting for Environmental Liabilities

Figure 3: Continuum of Alternative Approaches to Improve Budgeting for 

Environmental Liabilities

The first approach would be to report long-term environmental liability 

costs associated with new assets as supplemental information along with 

the budget authority and outlay amounts requested in the budget. For 

example, the program and financing schedules within the President’s 

budget appendix could be expanded to report these associated costs by 

budget account or program. This would enable those being asked to make 

a decision to see the full cost information along with currently requested 

funds. Although the estimates provided in the supplemental information 

would not be precisely correct, they would clearly be closer to correct than 

the current implication of no cost. If a running tally of total environmental 

liabilities is desired, periodic reestimates would be needed. 

A second approach would move beyond providing supplemental 

information to establishing budget process mechanisms to require explicit 

disclosure and prompt consideration of the full costs of the environmental 

liability associated with a proposed asset acquisition. Thus, Congress 

could revise its rules to permit a point of order against legislation that does 

not disclose estimates for environmental liabilities associated with the 

acquisition of new assets to be funded in the bill. This would have the 

effect of requiring cleanup cost estimates to be made, either by the 

executive branch or CBO, so that the estimates could be considered.
Page 14 GAO-03-219 Budgeting for Environmental Liabilities

At the other end of the continuum is the more comprehensive approach of 

accruing amounts for environmental liabilities associated with new assets 

in any requested budget authority for new assets.14 This approach 

represents the largest departure from current budgeting practices. Along 

these lines, OMB is developing a legislative proposal to require programs 

that generate hazardous waste to “pay the accruing cost to clean up 

contaminated assets at the end of their useful life. These payments would 

go to funds responsible for the cleanup.”15

Implementation of an approach that would include budget authority for 

environmental liabilities would require development of new budgeting 

mechanisms. The provision to accumulate budget authority over an asset’s 

life would require a means of “fencing off” the budget authority to ensure 

that it is actually used for cleanup. Also, since no such amounts were set 

aside for existing assets, it would be necessary to continue financing the 

cleanup of existing assets while implementing the new approach for new 

assets. One way to do this is to use a pair of accounts—a liquidating 

account and a cleanup fund account—in each department involved in 

budgeting for the cleanup costs. The liquidating account would obtain 

discretionary budget authority for the past share of cleanup costs of assets 

already in operation and for the cleanup costs of retired assets. It would 

pay the past share of cleanup costs for operating assets to the cleanup fund 

and would conduct or contract for the cleanup of assets no longer in use at 

the inception of this new approach. Given technological and other 

changes, regular reestimates of cleanup costs would be necessary. 

14Rather than accruing budget authority over time, the full amount for cleanup could be 

enacted at the time an asset is acquired. However, this would immediately insert the total 

highly uncertain cleanup cost estimate into the budget.

15Office of Management and Budget, Analytical Perspectives, Budget of the United States 

Government, Fiscal Year 2003 (Washington, D.C.: Feb. 4, 2002), 12.
Page 15 GAO-03-219 Budgeting for Environmental Liabilities

The cleanup fund account would obtain budget authority from two 

sources: (1) from the liquidating account for the past share of the cleanup 

cost for assets that are in operation when the new approach is established 

and (2) for new assets, from programs that operate assets that generate 

cleanup needs. The cleanup fund account would receive annual accruing 

cost payments from programs based on the estimated (and reestimated) 

cost of cleanup for all operating assets—those purchased after the new 

approach is implemented and those already in service. These payments 

would be a required part of the discretionary appropriations for running 

any program that generates cleanup costs. When needed, the cleanup fund 

accounts could also request additional budget authority for the assets in 

operation at its inception. These appropriations could be made to the 

liquidating account and paid to the cleanup fund account when the assets 

are ready for cleanup. Once in the cleanup fund account, the budget 

authority from the programs and liquidating accounts could be permanent, 

indefinite authority available for cleanup, subject only to the usual 

apportionment process.16 Figure 4 below illustrates one possible flow of 

funds through accounts.

16Any successor reform to the Balanced Budget and Emergency Deficit Control Act of 1985 

would need to recognize this change.
Page 16 GAO-03-219 Budgeting for Environmental Liabilities

Figure 4: Possible Flow of Funds through Accounts
Page 17 GAO-03-219 Budgeting for Environmental Liabilities

Each Approach Has 

Potential Benefits and 

Challenges

Each of the three approaches described offer both potential benefits and 

challenges to consider. All three would be likely to improve the quality of 

cleanup estimates. Although agencies are required to develop these 

estimates for financial statement purposes, they are not developed until 

after the asset is purchased. Also, not all agencies have completely 

complied with financial accounting standards. For example, in December 

2001, we reported that DOD was not estimating and reporting liabilities 

associated with a significant portion of property, plant, and equipment that 

was no longer being used in its operations.17 Moreover, DOD’s financial 

statements did not provide cleanup cost information on all of its closed or 

inactive operations known to result in hazardous wastes. In addition, in 

1997 and 1998 we issued a series of reports on DOD environmental 

liabilities that were not being reported, even though they could be 

reasonably estimated.18

Each of the three approaches would result in decision makers having 

information about costs and benefits of a proposed acquisition while there 

is still the opportunity to make a choice—before the government actually 

incurs an environmental liability. Since the cleanup costs for any asset will 

become a future claim on federal resources regardless of whether these 

costs were considered at the outset, good budgeting principles call for upfront consideration of these costs. Given that agencies are not currently 

experienced in separately estimating cleanup/disposal costs before assets 

are purchased, reasonable and credible estimates may take time to 

develop. This, however, is not an insurmountable issue. We have reported 

on numerous occasions that environmental liabilities can be estimated and 

have pointed out how estimation methodologies can be improved. For 

example, in December 2001 we recommended that, among other things, 

DOD correct real property records, develop and implement standard 

methodologies for estimating related cleanup costs, and systematically 

17See U.S. General Accounting Office, Environmental Liabilities: Cleanup Costs From 

Certain DOD Operations Are Not Being Reported, GAO-02-117 (Washington, D.C.: Dec. 14, 

2001).

18See U.S. General Accounting Office, Financial Management: DOD’s Liability for Missile 

Disposal Can Be Estimated, GAO/AIMD-98-50R (Washington, D.C.: Jan. 7, 1998); Financial

Management: DOD’s Liability for the Disposal of Conventional Ammunition Can Be 

Estimated, GAO/AIMD-98-32 (Washington, D.C.: Dec. 19, 1997); and Financial

Management: DOD’s Liability for Aircraft Disposal Can Be Estimated, GAO/AIMD-98-9

(Washington, D.C.: Nov. 20, 1997).
Page 18 GAO-03-219 Budgeting for Environmental Liabilities

accumulate and maintain the site inventory and cost information needed to 

report this liability.

Of the three approaches described, the supplemental information and the 

budget process mechanism approaches would be easiest to implement and 

could be done separately or together. Neither requires the enactment of 

budget authority and so would not increase reported budget totals. 

Supplemental reporting requirements would be the easiest to implement 

since OMB could require it under OMB’s current authority. However, 

unless agencies see that the new supplemental information is used in 

decision making, they may have less incentive to develop meaningful 

estimates. The budget process mechanism approach would increase the 

perceived importance of these estimates by permitting a point of order that 

could block legislation lacking appropriate cost information. For example, 

unfunded mandates legislation permits a point of order to be raised against 

proposed legislation containing significant intergovernmental mandates if a 

CBO estimate of the cost of the mandate has not been published in the 

committee report or the Congressional Record.

19 Unlike supplemental 

reporting alone, the budget mechanism approach has the potential to 

promote improved estimates because it could present members an 

opportunity to challenge legislation without appropriate cost information. 

Implementing a budget process approach with a point of order would 

require an amendment either to the Congressional Budget Act of 1974 or a 

change to committee rules. 

The third approach, accruing budget authority over the life of the asset, 

represents the largest departure from current budgeting practices. By 

requiring that agencies obtain budget authority before acquiring new 

assets, this approach would ensure consideration of environmental 

cleanup costs before an asset is acquired. Such an approach would require 

legislation. If Congress and the Administration agree to take such action, it 

would ensure that each program’s costs are fully reflected in program 

budgets. Requiring that agencies accrue budget authority for cleanup costs 

would likely increase the attention paid to improving the quality of 

estimates. All in all, given the current quality of agency estimates and 

significant implementation issues, such an approach may best be viewed as 

something to be considered in the future. 

19Unfunded Mandate Reform Act of 1995, Pub. L. No. 104-4, §423.
Page 19 GAO-03-219 Budgeting for Environmental Liabilities

Beyond the issue of developing reasonable and credible estimates early on, 

this third approach also would present administrative and structural 

challenges such as developing mechanisms to ensure that (1) budget 

authority provided for cleanup is adequately fenced off for cleanup, 

(2) agencies adequately track and manage that budget authority, and 

3) reestimates provide positive incentives to reflect the best approximation 

of the government’s total environmental liabilities. When demand for 

current funding is great, fencing off budget authority for future use can be a 

challenge. One way to address this would be to have payments into the 

cleanup fund come from discretionary appropriations, but once in the fund, 

the budget authority would become permanent, subject only to the usual 

apportionment process.20 Providing higher levels of budget authority now 

for expenses that may not be paid until well into the future may be difficult. 

It is important to note that this approach would not in fact change the costs 

of future cleanups—in effect these have already been determined by the 

decision to acquire the asset. Rather, this would only shift the timing of 

their recognition.

Ensuring that agencies adequately track and manage the earmarked budget 

authority would be a second challenge to successful implementation of this 

approach. For example, there is more than one way to manage the budget 

authority needed to clean up assets already in operation at the inception of 

the new approach. One way would be to transfer budget authority from a 

liquidating account to a cleanup fund for such assets when they are ready 

to be cleaned up. Alternatively, the full amount of budget authority for the 

past share of the cleanup cost could be enacted in one lump sum for the 

cleanup fund. This would simplify implementation since it would apply the 

new accrual concept fully to all assets in operation. Since this could be a 

considered a concept change, any discretionary caps on budget authority 

(if renewed) would be adjusted upward to accommodate the additional 

budget authority—but it would still increase reported budget authority 

totals.21 Some believe that covering all of the costs immediately would be a 

20Discretionary budget authority is provided in appropriations acts. Permanent budget 

authority is available as the result of previously enacted legislation and does not require new 

legislation for the current year. Apportionment is the action by which OMB distributes 

amounts available for obligation, by specific time periods (usually quarters), activities, 

projects, objects, or a combination thereof. The amounts apportioned limit the amount of 

obligations that may be incurred.

21An increase in budget authority totals alone would not affect the deficit/surplus measure 

because that calculation is based on the difference between total federal revenues and 

spending in a given year.
Page 20 GAO-03-219 Budgeting for Environmental Liabilities

cleaner, more consistent application of full costing since it would eliminate 

a lengthy and possibly confusing transition period. However, such a 

decision to provide budget authority for retired assets could shift the 

control over the timing of the cleanup from Congress to the Administration. 

Finally, a way to budget for inevitable reestimates of cleanup costs would 

have to be designed. If agencies must obtain additional budget authority 

for these reestimates, they will have less incentive to make artificially low 

initial estimates but may be reluctant to provide upward reestimates. On 

the other hand, one could envision agencies forwarding a low estimate 

“today” with the idea that they could worry about “tomorrow” later. 

Alternatively, reestimates could be handled as they are with credit 

programs, that is, agencies could automatically receive permanent, 

indefinite budget authority for upward reestimates of cleanup costs. This 

would hold agencies harmless for additional costs that result from 

technological or regulatory changes. It would also, however, provide an 

incentive to make artificially low initial estimates. 

Conclusions Because the federal budget does not recognize the full costs of a program 

that will have cleanup costs when decisions to commit to the program are 

being made, policymakers do not have sufficient information to compare 

the full costs of a particular program with their judgment of its benefits. 

Cleanup costs are in fact a liability associated with the ownership of many 

assets. Decision makers need to consider these costs before committing to 

acquire the waste-producing asset.

Agencies generally do not yet have experience in estimating future 

cleanup/disposal costs up front, before the decision to purchase the wasteproducing asset is made. Accordingly, all of the alternative approaches we 

discuss for providing this information represent a challenge for both 

agencies and OMB to develop an estimation methodology. Increasing the 

visibility of cost estimates may increase the effort spent on them and 

ultimately improve both the quality of the estimates and enhance decision 

making. As a first step, we believe that OMB and agencies should provide 

supplemental information. This can be expected to improve the focus and 

attention and permit improvements in estimating models. As this proceeds, 

further consideration should be given to budget process and budget 

accounting changes. Ultimately, accruing budget authority for the tail-end 

cleanup/disposal costs along with the front-end purchase costs of assets 

would best ensure that the cleanup/disposal costs are considered before 
Page 21 GAO-03-219 Budgeting for Environmental Liabilities

the government incurs the liability, but raises significant implementation 

challenges. 

Recommendations for 

Executive Action

We recommend that the Director of OMB require supplemental reporting in 

the budget to disclose future environmental cleanup/disposal costs for new 

acquisitions. To this end, agency and OMB officials should consult with 

legislative branch officials to ensure that useful information on estimated 

environmental cleanup/disposal costs is provided to congressional decision 

makers when requesting appropriations to acquire waste-producing assets.

Agency Comments The Secretary of Defense had no comments on our draft report. We did not 

receive comments from the Secretary of Energy in time to be considered 

and included in this report. In consultation with OMB staff, GAO was 

commended for its useful analysis and noted that the ideas discussed merit 

consideration. OMB staff also provided technical clarifications, which we 

incorporated as appropriate.

As agreed with your office, unless you release this report earlier, we will 

not distribute it until 30 days from the date of this letter. At that time we 

will send copies to the Ranking Minority Member of the House Committee 

on the Budget and the chairmen and ranking minority members of the 

Senate Committee on the Budget; the subcommittees on Defense and on 

Energy and Water Development, Senate Committee on Appropriations; and 

the subcommittees on Defense and on Energy and Water Development, 

House Committee on Appropriations. We are also sending copies to the 

Director, Office of Management and Budget. In addition, we are sending 

copies to the Secretary of Defense and of Energy. Copies will also be made 

available to others upon request. In addition, the report is available at no 

charge on GAO’s Web site at http://www.gao.gov.
Page 22 GAO-03-219 Budgeting for Environmental Liabilities

This report was prepared under the direction of Christine Bonham, 

Assistant Director, Strategic Issues, who may be reached at (202) 512-9576. 

Other major contributors were Carol Henn and Brady Goldsmith. Please 

contact me at (202) 512-9142 if you or your staff have any questions 

concerning the report.

Sincerely yours,

Susan J. Irving

Director

Federal Budget Analyses

Strategic Issues
Page 23 GAO-03-219 Budgeting for Environmental Liabilities

Appendix I

Breakout of Environmental Liabilities AAppenednxidexiIs

About a dozen federal agencies report environmental liabilities in their 

financial statements. This appendix provides additional detail on the 

environmental liabilities reported by the Department of Energy (DOE) and 

the Department of Defense (DOD) and about those reported by the other 

federal agencies. These data were extracted from agencies’ fiscal year 2001 

consolidated balance sheets and represent existing assets—not proposed 

acquisitions. Because DOD and the National Aeronautics and Space 

Administration auditors disclaimed an opinion on their financial 

statements, it is not certain that these amounts fairly present their 

liabilities. 

Table 1: Breakdown of DOE and DOD Federal Environmental Liabilities, Fiscal Year 

2001

Source: DOE and DOD. 

Note: Information was taken from DOE’s and DOD’s fiscal year 2001 consolidated balance sheets and 

accompanying notes.

a Numbers do not add to total due to rounding.

(Dollars in billions)

Agency Liability

DOE

Closed nuclear weapons complexes $184

Active and surplus facilities—other programs 31

High-level waste and spent nuclear fuel disposition 15

Other 8

Subtotal — DOE $238

DOD

Training range cleanup 2

Other cleanup sites 14

Formerly Used Defense Sites 18

Base Realignment and Closure 5

Aircraft carriers/submarines disposal 11

Chemical weapons and other disposal 14

Subtotal — DODa $ 63

Totala $302
Appendix I

Breakout of Environmental Liabilities

Page 24 GAO-03-219 Budgeting for Environmental Liabilities

Table 2: Environmental Liabilities, by Agency, Fiscal Year 2001

Source: GAO.

Note: Data were taken from these agencies’ consolidated balance sheets and accompanying notes. 

Only agencies that reported environmental liabilities in their fiscal year 2001 financial statements are 

shown.

(Dollars in millions)

Agency Liability Audit opinion Nature of liability

Department of Energy $238,349 Unqualified Legacy resulting from the production of nuclear weapons.

Department of Defense 63,294 Disclaimed Contamination resulting from decades of training and preparing for 

national defense.

Department of 

Transportation

2,178 Unqualified Cleanup associated with normal Federal Aviation Administration, Coast 

Guard, and Maritime Administration operations (e.g., storage tanks, 

fuels, solvents, and chemicals) or the result of an accident.

National Aeronautics and 

Space Administration

1,346 Disclaimed Groundwater, surface water/sediment, and ecological remediation and 

monitoring.

Tennessee Valley Authority 804 Unqualified Decommissioning of nuclear-powered generating plants.

Department of the Interior 268 Unqualified Remediation of hazardous conditions and contamination caused by the 

Department of the Interior and which exist on lands held by the 

department. 

Department of Veterans 

Affairs

260 Unqualified Asbestos removal, lead abatement, replacement of underground oil and 

gasoline tanks, decommissioning of waste incinerators, and 

decontamination of equipment prior to disposal.

General Services 

Administration

144 Unqualified Removal and containment of environmental hazards in federal buildings.

Department of Commerce 79 Unqualified Nuclear reactor, Pribiloff Island, and other cleanup.

Environmental Protection 

Agency (EPA)

15 Unqualified Cleanup of closed EPA sites plus the decontamination and 

decommissioning of EPA research facilities.

Department of Health and 

Human Services

13 Unqualified Removing, containing, and/or disposing of (1) hazardous waste from 

property or (2) material and/or property that consists of hazardous waste 

at a permanent or temporary closure or shutdown of associated 

property, plant, and equipment.

Department of Justice 5 Unqualified Underground fuel storage tank remediation, maintenance, and repair.

Total $306,755

(450077)
United States

General Accounting Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

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