Trump’s Budget and the Bay by David Montgomery


Although no details are yet available, President Trump’s 2018 Budget Blueprint “Eliminates funding for specific regional efforts such as the Great Lakes Restoration Initiative, the Chesapeake Bay, and other geographic programs. These geographic program eliminations are $427 million lower than the 2017 annualized CR levels. The Budget returns the responsibility for funding local environmental efforts and programs to State and local entities, allowing EPA to focus on its highest national priorities.“

I have mixed reactions to this proposal.  It can be argued that the Bay is a national and global asset, and that its benefits extend far beyond the 7 states in the Chesapeake Bay Watershed.   As seen in the picture below, the jurisdictions in direct contact with the Bay are Maryland, Virginia, Pennsylvania and the District of Columbia.  The watershed includes New York, Delaware and West Virginia where the headwaters of rivers and streams feeding into the Bay are located.

In more practical terms, the Federal government sets expectations for the Watershed Implementation Plans that the states must develop in order to comply with Federal Clean Water Act standards for the Bay, yet the states bear the cost of compliance with Federal standards.

There is nothing unique about this combination of Federal standards and state implementation, as it derives from the basic design of the Clean Air Act and the Clean Water Act.  The Federal government decides on what standards should be met for air and water quality, in part because emissions and effluents from one state almost always travel across state boundaries to affect other states.

It is left up to the states to create plans for achieving the standards set by the Federal government.  These plans are reviewed by the Federal government, usually by modeling how the specific provisions of the plan would affect future air and water quality.

Once the plans are approved, each state must implement the plans through whatever combination of legislation, regulation and economic incentives it chooses.  Thus the actions taken by each state form part of what should be a cooperative solution for the region and country as a whole.   Maryland benefits from reductions in emissions from coal-fired powerplants in upwind states like Ohio, West Virginia and Virginia, and those states benefit from improved recreational opportunities and less costly seafood from the Bay.

Many studies have been made by environmental economists of the benefits of improved air and water quality, and how those benefits are distributed across different regions and populations.   Thus there is probably a study of how the benefits of improvements in water quality of the Chesapeake Bay are distributed to residents of different states.  Recreational benefits, for example, are usually allocated by distance so that the Bay states themselves would gain most of those benefits.  Improved fisheries would benefit the entire market for seafood from the Bay, and also the watermen who live in the Bay states.  

Nevertheless, there is no broad provision in the Clean Air Act and Clean Water Act for allocating cleanup costs based on the distribution of benefits.  That distribution was no doubt in the minds of the members of Congress who enacted those two laws, and in the process for setting and meeting standards that they created, and it falls out of the laws as written.  In one case, Title IV of the Clean Air Act, Congress set up a trading program to limit emissions of acid rain precursors, and was specific that costs would be borne by the states where the emissions occurred.

Based on all this, I see no particular claim that the states in the Chesapeake Bay Watershed could make for funding of Bay cleanup by other states, any more than California could claim that it should be compensated for achieving smog goals in the South Coast Air Basin.

All this is consistent with the great principle of subsidiarity, that decisions should be made at the lowest level of government that can deal effectively with a problem.  

But on the other side of the coin, it is unclear that as individual states, each of the 7 watershed states has the incentive, information or ability to carry out its part in a cost-effective management system.  The so-called “headwater states” of New York, Delaware and West Virginia, are not on the Bay and get no direct benefit from its cleanup.  Pennsylvania borders part of the Upper Bay, but its share of effluents (largely from the Susquehanna) is claimed to be far greater than it share of the Bay’s waters.  

For this reason, there are a number of interstate agreements intended to coordinate action and planning across these states, in particular the Chesapeake Bay Watershed Agreement signed in 2014.  It is described as being a  “plan for collaboration across the Bay’s political boundaries [that] establishes goals and outcomes for the restoration of the Bay, its tributaries and the lands that surround them.”  It is administered by the Chesapeake Bay Program, which has an Executive Council composed of the governors of Maryland, Virginia, Pennsylvania, the mayor of the District of Columbia, the Chair of the Chesapeake Bay Commission, and the Administrator of EPA.   

Federal funding may not be necessary to clean up the Bay, but it can certainly be an effective lever for gaining cooperation in this multi-state activity.  Not only can such funding grease the wheels by sharing the cost of particularly contentious tasks, the threat of withholding federal funds can be an effective tool in gaining compliance with plans previously agreed by the states.  In particular, Pennsylvania frequently appears in the news as failing to meet its commitments or reduce effluents sufficiently for Maryland and Virginia to meet federal standards in their waters.

There is an alternative, but one that would also require some initiative from the Administration to bring about.  Unlike the Delaware River Basin Commission, all of the commissions and other agreements about Chesapeake Bay Cleanup are voluntary agreements of states based on each state’s own legislation.  The Delaware River Basin Commission is a formal Interstate Compact, ratified by the U.S. Congress and enforceable under Federal law on all members .  Creating a Chesapeake Bay Interstate Compact including the 7 watershed states would make plans and commitments enforceable by any member of the Compact against another member.  

The Delaware River Basin Commission (DRBC) has responsibilities for water supply that may or may not be useful for the Chesapeake Bay, but its management of pollution control and flood control would be.  The DRBC can itself finance and build waste treatment plants, and plan for the balance among different sources of effluents.  It also devises its own funding mechanisms.  A similar Commission for the Chesapeake would certainly be able to design and implement an effluent trading program for the entire watershed, which is the only way to make one effective.  In principle, there should be a way for the Commission to develop a single, comprehensive Watershed Implementation Plan binding on all its members.

This is not an entirely original idea, as I discovered after writing this article.  The Environmental Law Institute published a paper  that discusses the merits of an interstate compact for the Chesapeake Bay at much greater length.  I think that decisions on where effluents should be reduced, by what means, and at whose expense should be a responsibility of the 7 watershed states, and not require an external party like the federal government to impose them.  In line with the principle of subsidiarity, a watershed compact appears to me to be the lowest level of government capable of dealing with the problem effectively.  

Perhaps the proposed withdrawal of federal funding for Bay cleanup could provide the impetus for more effective coordination of the efforts of the responsible states.

David Montgomery was formerly Senior Vice President of NERA Economic Consulting. He also served as assistant director of the US Congressional Budget Office and deputy assistant secretary for policy in the US Department of Energy. He taught economics at the California Institute of Technology and Stanford University and was a senior fellow at Resources for the Future.



Letters to Editor

  1. David Lloyd says:

    Mr. Montgomery is about 80 years behind the times. He needs to stop trying to defend an administration that has no interest at all in helping to maintain/improve the air and water quality in this country. What would he say if he were around during the 1930’s when the drought came so close to destroying the economies in Kansas, Oklahoma, Missouri and elsewhere in the western states? Would he have opposed the federal “intervention” that helped save thousands of lives and millions of dollars in potential agricultural losses due to the drought? He should revisit history and learn how being ignorant can really hurt! P.S. How can he write — with a straight face — for an “eastern shore” publication that should be so firmly in favor of getting some federal money to help preserve the “eastern shore!?” As a resident of St. Michaels, I am appalled!!

  2. Hugh Beebe says:

    Mr. Montgomery’s attempt to cast the priorities of the Trump administration’s limited budget draft in a favorable light as possibly stimulating “effective coordination” between neighboring states managing Chesapeake Bay pollution ignores the history of neglect. The unmet need for cooperative interstate action to restore the Bay’s health argues strongly for federal intervention.

    But the Trump administration yields to widespread fossil fuel industry support and overt decrease of action to protect our environment that remains harmed by adversity on land, sea and air. This should come as welcome news for NERA Economic Consulting. I suggest Talbot Spy readers might take a moment to examine the information available on what that organization actually does and its support sources:

    So, Mr. Montgomery reveals again that a leopard keeps its spots (and bias) and lipstick still doesn’t make the pig appear really different.
    The assault on environmental protection, preservation of public lands and a healthy Chesapeake Bay must be resisted if we hope for a habitable Eastern Shore to exist in the future.

  3. David Montgomery says:

    In between his opinions of my character, Mr Lloyd raises an interesting question: what is the difference between the dust bowland pollution of the Bay? The difference is that of insurance versus redistribution. Federal disaster aid is a form of insurance and a proper role of government to spread disaster risk across the largest group facing the same risks. It benefits everyone who participates. Paying for Bay cleanup is simply redistrubution, so that the Bay states benefit and the average taxpayer in the rest of the country who could care less about the Bay loses. As I mentioned, there is an argument that the existence value of the Bay justifies socializing the cost of cleanup, but to me that is more than offset by the inefficiency and failure of the current funding and priority setting system.

    As to how a resident of the Eastern Shore can argue against our getting federal aid, I would extend Mr Beebe’s silly analogy by pointing out that we do not all need to be pigs at that trough.

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