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 TIME CNN/AllPolitics CNN/AllPolitics with Congressional Quarterly

Paying a price for polluters

Many of america's largest companies foul the environment but clean up on billions of dollars in tax benefits

By Donald L. Barlett and James B. Steele

TIME magazine

It was about 5 o'clock on Thursday afternoon in August 1996, when a dense gray cloud descended over Route 73, a two-lane road near Geismar, La., cutting visibility to zero and triggering a rear-end collision. As State Trooper Ross Johnson, a fresh-faced, 25-year-old Marine Corps veteran, drove toward the accident, he noted that every car headed his way had headlights on and windshield wipers flapping. When Johnson got out of his patrol car, he suddenly got hit by the heavy smell of ammonia. He ushered the drivers of the two cars out of the cloud and into a guard shack at an entrance to the Borden Chemicals and Plastics plant. "The fog was so dense I couldn't see the road," one driver told him. A plant safety officer had notified authorities about the chemical release, but had assured them "there was no off-site impact." By then, Johnson recalled, "there was a fog as far as the eye could [see]."

After Johnson left the scene, his "throat was really starting to clench, my eyes were starting to burn, and my skin was really starting to itch." Johnson later learned that the cloud was a witches' brew of toxic chemicals: ethylene dichloride, vinyl-chloride monomer and hydrogen chloride.

It had been just another day at the Borden Chemicals and Plastics plant. A month later, half a dozen similarly hazardous chemicals were released but remained on plant grounds. The following year, in July 1997, vinyl-chloride monomer and ammonia escaped from the plant and forced the closing of Route 73. In July 1998, a cloud of hydrochloric acid spewed out, shutting down roads in the area for about 20 minutes.

Back in 1994, at the request of the U.S. Environmental Protection Agency (EPA), the Justice Department filed a lawsuit against Borden Chemicals, accusing the company of a series of environmental-law violations. Among the charges: the company stored hazardous waste, sludges and solid wastes illegally; failed to install containment systems; burned hazardous waste without a permit; neglected to report the release of hazardous chemicals into the air; contaminated groundwater beneath the plant site (thereby threatening an aquifer that provides drinking water for residents of Louisiana and Texas); and shipped toxic waste laced with mercury to South Africa without notifying the EPA, as required by law. Last March, on the third day of what was expected to be a three-week trial, the company signed a consent agreement to settle the case. Without admitting any wrongdoing, Borden Chemicals agreed to pay a fine of $3.6 million--the largest in Louisiana history. The company also consented to spend $3 million to clean up groundwater contamination and stop injecting waste into underground storage wells, and to donate $400,000 for equipment for local emergency response units.

Don't weep for Borden Chemicals. It was able to pay the fine with just a couple of years' savings from abated taxes. For over the past decade, while the plant has been fouling the land, water and air in Louisiana, the state has excused the company from paying $15 million in property taxes as part of just one of its corporate-welfare programs. A Borden spokesman said even with the exemption, the tax the company pays in Louisiana is "about average" for Southern states. Without the exemption, he says, Louisiana would no longer be "competitive as far as trying to attract and retain" jobs.

And who are the real beneficiaries of this welfare? One is the Wall Street buyout firm of Kohlberg Kravis Roberts & Co., one of whose affiliates "manages and controls the activities of the company," according to filings with the U.S. Securities and Exchange Commission.

Borden Chemicals, which years ago was part of Borden Inc., the milk-and-dairy-products company, is typical of scores of companies in Louisiana that receive tax abatements at the same time they contribute to the state's polluted environment. That pollution, in Louisiana and across the country, represents corporate welfare's greatest hidden cost. Chemicals, mining wastes and a broad range of other hazardous materials have fouled water, land and air across America. Billions have already been spent undoing environmental damage. Many more billions will be spent in coming years. Industry itself is footing part of the bill. But the largest chunk will come from taxpayers--a massive corporate-welfare program.

The Federal Government, for example, has spent $130 million so far to clean up the Alamosa River in Colorado, contaminated with cyanide and heavy metals from a gold mine abandoned in 1992. The final tab is expected to reach at least $160 million. The government will eventually spend more than $100 million to clean up a site in Wayne, N.J., contaminated with radioactive waste. The company has agreed to chip in $32 million. The government estimates it will cost as much as $200 million to scrub up a zinc-smelter site in Palmerton, Pa. The tab for cleaning up radioactive waste, at a site in Weldon Spring, Mo., is put at $800 million.

As is so often the case with environmental pollution, practices once deemed safe turn out years later to be hazardous. So it was with the PCBs used by General Electric Co. and other manufacturers of transformers. Now cost estimates for cleaning up GE's pcb contamination in the Hudson River alone range as high as $3 billion.

Add to these cleanup bills yet another cost from pollution: the billions spent on health care to treat conditions ranging from black-lung disease to asbestosis. These costs are yet to be counted; it often takes years, even decades, to document links between chemicals and other products and deadly or debilitating diseases.

A little start-up called Exxon

To better understand the link between corporate welfare and pollution, let's take a closer look at Louisiana, a state that hands out tax breaks to companies that have been repeatedly fined or cited for discharging hazardous chemicals or for generating large amounts of toxic waste. Louisiana has been canceling taxes owed by industry ever since the Great Depression. But, as elsewhere, the exemptions have soared over the past decade.

Thus far in the 1990s, a TIME analysis shows, the state has wiped off the books $3.1 billion in property taxes alone. That's 14 times the amount the state excused in the 1960s and doesn't include all the other types of tax breaks granted to corporations. That makes Louisiana No. 1 in terms of subsidies per capita. Some of the big beneficiaries include Lucent Technologies, Uniroyal Chemical, Willamette Industries, PPG Industries and Georgia Gulf Corp. Paul Templet, a professor of environmental studies at Louisiana State University, has measured business subsidies across the country. His sobering conclusion: "The states that offer the least subsidies are doing the best from per capita income, [low] poverty, you name it ... as the subsidies rise, the states essentially get poorer." What's more, Templet found, "as these subsidies rise, the income disparity ... between the rich and the poor rises."

Plenty of states pass out tax breaks, of course, even to polluters whose mess taxpayers must later clean up. But Louisiana's incentive program has an odd twist: the tax abatements are intended to help start-up businesses. The purpose of the industrial-tax-exemption program, in the state's own words, is to offer "to industry certain tax benefits at the most critical stage of any business endeavor--the beginning."

So what are some of these "beginning" businesses? Over the past 10 years the state canceled $213 million in industrial property taxes owed by Exxon Corp., a company that traces its origins back 116 years. It eliminated $140 million in taxes owed by Shell Oil Co. affiliates, a business whose roots in the U.S. go back 86 years. It erased $103 million in taxes owed by International Paper Co., which opened its doors 100 years ago. And it voided $96 million in taxes owed by Dow Chemical Co., which was established 101 years ago.

While government officials across the country publicly embrace tax-abatement programs like Louisiana's, the employees involved in the actual administration of them are often quietly critical. In Louisiana, as in other states, TIME encountered those outraged by the escalating handouts but fearful of losing their jobs and powerless to stop the process. A Baton Rouge state official, who agreed to talk anonymously, said some companies today practice a form of "extortion" in Louisiana--they demand tax breaks yet give back very little in return. At one time, he said, companies might actually create new jobs in exchange for the abatements. "Today the corporations may add one or two new jobs for every million [dollars in abatements they receive]," he said. "That's not fair." Even when a company does create "100 new jobs, [it] closes a plant somewhere else, and 150 people lose their jobs," he added.

But he is quick to say that Louisiana on its own cannot stop the handouts if other states don't join in. "We'd be killed."

Today's lesson: Rats do bite

When government distributes handouts to select companies, someone else pays, either in higher taxes or in reduced services. Among the nation's most innocent victims: children who attend public schools. In some Louisiana parishes (counties), 20% or more of the industrial property taxes goes to education. So every tax break granted to a company translates into less money for schools. Consider the consequences of that policy for the 56,000 students in the East Baton Rouge Parish school system, the state's second largest after New Orleans. Everyday, many of them face some or all of these afflictions: rat bites; roofs with holes in them; buildings whose antiquated wiring will not permit more than a few computers to work at one time; walls so damaged by water leaks that paint will not adhere to the plaster; floors so rotted that children put their feet through them; long lines to use outmoded bathrooms; sewage backups in classrooms; asthma and respiratory illnesses as a result of mildew and fungus in ancient air ducts; falling ceiling tiles; condemned rooms; collapsing partitions; unusable playgrounds; broken stairs; carpets that smell from the repeated leaks and flooding.

Cindy Jones, an assistant principal, says, "It's astonishing... that people actually have to come to work and to learn in this kind of environment." Adds John McCann, principal of the 1,000-student Woodlawn High School, arguably the most dilapidated building in the district: "Teachers, they get run-down. It hurts their morale. They're tired of coming to school and getting wet when it rains." McCann means, of course, that teachers are tired of getting wet inside the school--not outside.

Sometimes the flooding occurs at inopportune moments, like the time students sat down to take a state-required test that determines whether they will graduate. "We went to classrooms vacuuming out with those big wet vacs," McCann recalled. "The kids were supposed to be trying to take an exam to see if they can get out of school. Well, we had to stop [the test]...and we had to move some kids out of [the] classrooms."

McCann's school was built long ago on a geological fault and is now cracking--literally. The auditorium, band room and choir room are off limits because they have been condemned.

None of this is to suggest that corporate welfare alone is responsible for the plight of the state's schools. While it certainly is one of the contributing factors, there are others. For example, at the same time the state passes out tax breaks wholesale, it does not contribute one cent to building construction or other capital needs of schools, as many other states do. All of which helps explain why Louisiana ranks 45th in the nation in spending on elementary and secondary education.

As if conditions inside Baton Rouge schools were not bad enough, students and teachers must also contend with pollution alerts. Listen to assistant superintendent Christine Arab describe life amid the petrochemical plants:

"Certain schools are in wind patterns from chemical plants, and they have as part of their safety drill what's called shelter-in-place, where all the windows in the buildings must be shut, the doors sealed in a special way. No one can go outside. They stay right there until it's cleared.

"Well, we had a barge overturn up on the north end of the river last year that was about a three- or four-day emergency, and we had kids sheltered in place for hours and hours and hours and had to wait for the wind to shift so we would be permitted to take the buses in and get out as many children as we could before the wind pattern changed again. Amazing. I thought to myself, I didn't know when I took this job that I would be issued a hard hat and a gas mask."

Very blackened redfish, anyone?

Each year the EPA compiles a catalog of the toxic chemicals discharged into the environment. Congress ordered the accounting after a deadly cloud of chemicals escaped from a Union Carbide plant in Bhopal, India, in 1984, killing thousands of people--and after the company released a smaller quantity of an equally toxic gas from its plant in Institute, W.Va., less than a year later.

Let's look at five companies in Louisiana that have earned spots on the EPA's list of the Top 50 companies measured in volume of chemical releases across the country. The five also happen to be beneficiaries of direct corporate welfare.

Cytec Industries Inc. ranked No. 1 in the release of toxic chemicals in Louisiana during 1996. The company pumped 24.1 million lbs. of chemicals into wells and the air. The company also ranked No. 5 on the EPA's Top 50 list of companies that spew out the largest volume of toxic materials nationwide. Cytec, based in West Paterson, N.J., is a global chemical company with sales of $1.3 billion. And it has a friend in Louisiana, which has excused it from paying $19 million in local property taxes on machinery and equipment over the past decade. Records of the State Department of Economic Development show that the company created exactly 13 jobs during that period--meaning taxpayers shelled out $1.5 million for each additional person hired by Cytec.

IMC-Agrico Co., at 12.8 million lbs., placed No. 3 on the EPA list of largest generators of toxic chemicals in Louisiana. Nationwide the company ranked No. 20. Louisiana has excused the company from paying $15 million in property taxes over the past decade. IMC-Agrico is a subsidiary of IMC Global Inc., a firm with sales of $3 billion in 1997.

Rubicon Inc., a Geismar, La., chemical company, ranks No. 4 on the EPA's Louisiana chemical-release list--No. 34 nationwide--at 8.4 million lbs. Louisiana has exempted the company from payment of $9 million in property taxes over the past decade. Rubicon is a joint venture of Uniroyal Chemical Co., with 1997 sales of $1.2 billion, and Imperial Chemical Industries PLC of London, with sales of $16 billion. Uniroyal itself has received $20 million in tax abatements on its Louisiana plant.

Monsanto Co., the global chemical and pharmaceutical company, holds fifth place on the Louisiana toxic-chemical-release chart at 7.7 million lbs. Nationally the company ranks 39th. Louisiana has excused Monsanto from payment of $45 million in property taxes over the past decade.

Angus Chemical Co. placed No. 6 on the Louisiana chemical-release list at 6.3 million lbs., and No. 49 nationwide. Louisiana has excused Angus from payment of $12 million in property taxes over the past decade--peanuts compared with some. But Angus has a special distinction: in 1991 an explosion ripped through the Angus chemical plant in Sterlington, La., killing eight workers and injuring more than 120. Clouds of toxic gas filled the air, and shock waves damaged a nearby hospital, a school and homes.

In addition to saving $100 million in property taxes, the five companies--along with thousands of others--have profited from the failure of federal and local governments to impose more stringent controls on the release of lethal chemicals. Count it, at the very least, in the tens of millions of dollars.

Meet the man with 41 bathrooms

This brings us to the company that has earned the top spot in the country on the EPA's toxic-chemical roster: Magnesium Corp. of America in Rowley, Utah. The company has been in first place for the past two years. In 1996 it pumped 65.3 million lbs. of chemicals into the air. That was up from 64.3 million lbs. the year before. On average, the Utah plant spews 123 lbs. of toxic chemicals into the air every minute, 24 hours a day.

Who owns this foul business?

A holding company called the Renco Group Inc., which, in turn, is owned by Ira Leon Rennert, until recently a relatively anonymous New York City investor. Renco, with offices in Rockefeller Center, is a conglomerate of sorts, the far-flung parts of which seem to share a common thread: they're out of compliance with pollution laws.

WCI Steel Inc., a Renco holding, has been battling the EPA in federal court for the past several years over alleged environmental violations at its Warren, Ohio, plant. In a series of civil lawsuits, the agency has charged that the company "has operated hazardous-waste-management units at the facility" without permit; that it has stored hazardous waste in ponds that did not meet "minimum technological requirements"; and that it has discharged zinc, copper, lead, cyanide and other pollutants above allowable limits into the Mahoning River. The government is requesting that fines that could run upwards of $20 million be imposed on Rennert's company.

WCI Steel also happens to be a recipient of some generous corporate welfare. Trumbull County, Ohio, records show that in 1997, the company was excused from paying $189,000 in real property taxes and $651,000 in personal property taxes. Projections show that the company, over the life of its agreement with local authorities, will save $19 million in real and personal property taxes. There are two ways to look at that: Rennert's company will get a pass on 75% of its $25 million tax bill, or its tax breaks nearly equal the fines the EPA is seeking.

Let's look at another Renco holding, the Doe Run Co., based in St. Louis, Mo. Doe Run operates the world's second largest lead smelter in Herculaneum, Mo., 30 miles south of St. Louis. A massive complex encompassing 170 acres on the banks of the Mississippi River, the Doe Run smelter operates seven days a week, 24 hours a day, and turns out 250,000 tons of refined lead a year for storage batteries and other products.

Like Rennert-affiliated operations in Ohio, the Herculaneum smelter fails to meet air-quality guidelines. In Securities and Exchange Commission filings, the company has acknowledged that "the area surrounding the Herculaneum smelter currently is out of compliance" with federal air-quality standards for lead. That's earned the Doe Run smelter the 37th spot on the EPA Top 50 list of companies that release the most toxic chemicals in America.

The ranking wouldn't surprise the townspeople who live in the shadow of the smelter and experienced its periodic discharges of blue-black smoke long before Rennert bought the plant--and still do today. Tom Reece, a city employee, recalls times when emissions engulfed the town during Friday-night high school football games. "The smoke was so bad you couldn't see the ball," he says. Another resident, Michelle Davis, remembers one such night within the past year when she was leaving city hall after a meeting. "It was like there was a fog out there," she says.

Townspeople speak of children and adults who are "leaded," the local term for those who have higher than normal levels of lead in their body. Lead poisoning has long been known to have serious health effects, especially in children, including decreased intelligence, slow growth, impaired hearing and brain damage.

Dale and Michelle Richardson used to live in a house next to the Doe Run smelter. When tests revealed that their young son and daughter had higher than normal levels of lead in their body, Doe Run dispatched workers to decontaminate the house. "They sent people over to vacuum the house," recalls Dale Richardson. "They were saying, 'Don't let [the children] go outside.' Now they knew that wasn't going to happen. You can't keep children from going outside."

Doe Run eventually bought the property, demolished the house and carted off the debris and soil around it. The Richardsons bought another house in town and have joined other residents in suing Doe Run and the smelter's previous owners for being "negligent and careless" in operating the smelter by allowing "hazardous and dangerous toxic metals and substances to come into direct physical contact" with townspeople. Doe Run is contesting the lawsuits and says in SEC filings that it's "working with regulators to develop a new three-year compliance plan to implement identified control measures."

The usually low-profile, 64-year-old Rennert has stirred controversy of another sort in another location--the Hamptons, the enclave of the rich and famous at the eastern end of Long Island, N.Y. He's not pumping lead into the air there, but he is building a house on a 63-acre tract facing the ocean--a house that will be not only the largest on Long Island but one of the largest in the country. At 66,000 sq. ft.--about the size of 1 1/2 football fields--Fair Field will dwarf even the new $53 million home of Microsoft's Bill Gates, which is a mere 40,000 sq. ft.

When completed, the main dwelling in the Rennert villa--it's classed as a single-family home--will house an art gallery, two libraries, three dining rooms, 11 sitting rooms, quarters for more than a dozen servants, 25 bedrooms and 41 bathrooms. To service such accommodations, Fair Field will be equipped with eight septic tanks; four water tanks for heating, cooling and firefighting; two diesel-fuel storage tanks and one unleaded-gasoline storage tank.

The cost? Somewhere between $30 million and $100 million. Less than Rennert's companies receive in corporate welfare.

--With reporting by Laura Karmatz and Aisha Labi, and research by Joan Levinstein

Third in a series on corporate welfare. Part 1 focused on tax breaks and subsidies local governments shower on companies, Part 2 on subsidies Washington hands out. This week: how money is diverted to major polluters at the expense of public services.

Next Week: Empire of the pigs


Cover Date: November 23, 1998

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