A Dirty Shame

On April 7, 1987, a hooded man was led into a chamber in the United States Capitol. Great care had been taken to conceal his identity; in addition to the hood, screens shielded him from the eight assembled U.S. representatives, their staffers and the media. The man was flanked by federal marshals. He was identified only as John Doe.

For days the House Subcommittee on Governmental Operations had been burdened with dry, dull testimony on toxic-waste disposal, particularly the handling of polychlorinated biphenyls, or PCBs. But John Doe had a dramatic story to tell.

It was a story of law-breaking and the Mafia. It was a story detailing a series of government screwups. And, although no one at the time could possibly have guessed, it was a story that more than a decade later would wind up with a very unhappy ending for some Colorado towns.

In 1984, the man testified, he had started working for a two-year-old Kansas City company called PCB, Inc. The business was one of several in Missouri recently licensed to dispose of toxic chemicals, specifically PCBs, by the federal Environmental Protection Agency. In the early Seventies scientists had concluded that PCBs were dangerous to people, and later research was showing that without the proper treatment, the chemicals could accumulate in the environment. So in 1981 Congress had approved very explicit rules governing the disposal of these toxic wastes.

But after only a year of operation, the mystery man continued, PCB, Inc. found itself falling behind on the job. It had collected far more PCB-contaminated equipment than it could handle at its Kansas City site, and tons more of the stuff was coming in every day. John Doe's bosses panicked and instructed him to get rid of it--illegally, if necessary. Dump the stuff, the managers told him, "where it couldn't be found."

Which John Doe did, he confessed. Most of the PCBs arriving at the Kansas City facility were encased inside old transformers and other electricity-generating equipment. Working with fellow PCB, Inc. employees, he began tossing the contaminated equipment into nearby rivers--the Missouri, for one--and recreational lakes. The dumping continued every night for six months. He told the committee that he was rewarded for his off-the-books work with cash bonuses, which he took to be money PCB, Inc. had saved by not paying to dispose of the chemicals properly.

John Doe's story was never completely verified, and the government tried hard to portray him as a liar. Three weeks after his extraordinary appearance in front of the congressmen, he was charged with making false statements. Yet after six months of prosecutorial effort, a U.S. District Court jury took less than two and a half hours to clear him. "It was possible that he did [dump the PCBs]," the foreman said, "and every one of us would like to know for sure whether he did."

True or false, the man's testimony touched an open nerve at the EPA. Even before John Doe spilled his secrets, there was evidence that the EPA's regional office that had been charged with overseeing the disposal of PCBs in the Kansas City area had fumbled the job.

Previous government investigations had revealed that the EPA's Region 7 office had failed to uncover serious disposal problems, such as those at PCB, Inc. And when the EPA eventually did find the violations, it rarely did anything about them until it was far too late.

Later, federal law enforcement officers would reveal that officers of PCB, Inc. and other Kansas City-area PCB-disposal companies were linked to Buffalo and Kansas City mob families, which in turn were involved in narcotics, prostitution, pornography, loan-sharking, arson and extortion--links that the EPA was aware of yet did nothing about.

But like many government investigations that begin vigorously and with the best intentions, the congressmen soon lost interest in the Kansas City PCB scandals. While the EPA worked on cleaning up some of the sites, the old PCB, Inc. facility remained largely forgotten until three months ago. That's when two dozen towns, electrical cooperatives and companies across Colorado began receiving letters from the EPA informing them that they would have to help pay the tens of millions of dollars it would take to clean up the vast, toxics-laced site of the now-defunct company.

"It's going to be a mess before it's over," predicts Darrell Davis, utilities manager for the tiny central Colorado town of Center. "We'll get stuck for more money. If I get by with less than $20,000, I'll be surprised. We've already paid our dues, and now we're going to have to pay again."

To those who must dispose of toxic wastes--power companies, municipalities, the military--the laws enacted over the past two decades directing how disposal sites gone wrong must be made right are like a trail of gasoline: You never know when it will ignite, flash back and blow up in your face. Collectively, these laws are known as the federal Comprehensive Environmental Response, Compensation and Liability Act.

"And make sure to underline the 'liability' part," advises Shaun Sullivan. He should know: An assistant city attorney for Denver, Sullivan was assigned in 1990 to unravel the legal tangle at the Lowry Landfill.

Purchased at a fire-sale price from the federal government in 1963, the 64,000-acre former bombing range was pressed into service by the City of Denver as a municipal landfill. A decade later it also became the main local disposal site for thousands of tons of industrial waste generated by companies such as Coors, Hewlett-Packard and IBM.

Beginning in the mid-1970s, however, Congress passed a new, stricter set of rules directing how landfills should be run. And soon after, studies at Lowry detected waste leaching into the local groundwater supply. In 1983 the landfill was declared a Superfund site. The big question: Who would pay the estimated $4.5 billion it would cost to clean it up?

Mostly Denver, the EPA determined. Although the city had run the facility correctly and legally according to the laws of the time, Denver was the owner of Lowry and so had to pay up to half the cost of cleaning it up, the agency contended. After several lawsuits, the city eventually agreed to cover about 20 percent of the bill.

Sullivan estimates that when the books are closed, Denver's final tab for Lowry will come to between $300 million and $400 million, even though the city did nothing close to illegal. "The fact that the EPA can come back [and demand cleanup costs]," he says, "creates in people the sense that something's wrong with the system."

Denver isn't alone in getting snagged by environmental laws that come back and bite years later. Other Colorado cities have written big checks to dispose of their toxic waste and then forgotten about it, only to receive certified letters years later informing them that there is unfinished business to pay for.

But the mess spilling from the PCB, Inc. case is different. For one thing, the amount of time that has elapsed between the initial job and the new bill is unusually long; Colorado towns sent their PCBs to the Kansas City company as many as fifteen years ago. In addition, the number of entities being warned of their liability for the site is huge: approximately 1,800 nationwide, 25 of which are in Colorado. And while some of the parties are large--US West and Colorado State University may get hit by big bills--the majority are small municipalities and electric power co-ops that will be forced to pass the five-figure tabs on to their short lists of citizens and customers.

The biggest difference between PCB, Inc. and other cases, however, is that there is plenty of documentation to suggest that, next to the company and its officers, the party mostly to blame for the toxic ground that Colorado towns are being asked to launder is the EPA itself.

For fifty years, beginning in 1929, approximately 1.5 billion tons of the synthetic chemical compounds known as PCBs were manufactured in this country, mostly by the Monsanto Corp. Because of their stability and heat resistance, the vast majority of PCBs were used in electric transformers and capacitors, although some of the chemicals could be found in epoxy paints, machine lubricants and dyes.

In the late 1960s, though, studies started to indicate that PCBs were toxic to humans. In 1968, nearly 1,300 residents of Yusho, Japan, were inadvertently exposed to PCBs; many of them later developed cancer at a rate higher than the general population, and in 1972 Japan banned PCB production within its borders.

Later studies showed that the very same characteristics that made PCBs valuable in industrial electrical uses--their structural stability--posed a long-term threat to humans through the environment. The chemicals accumulated in plants and animals, which in turn provided a channel to humans.

As a result of the growing alarm over PCBs, Congress began regulating the manufacture of the chemicals in 1976; three years later their production in the U.S. was banned. By then, however, the tap had been left running for a long time. The EPA estimated that about 750 million pounds of PCBs were still in use, and that another 20 million pounds of them sat in storage awaiting disposal.

To scientists and public health officials, those numbers presented a serious health threat. (More recent studies have questioned the danger of PCBs; however, they still are considered hazardous chemicals.) Yet to entrepreneurs, the huge supply of chemicals scattered throughout the country presented an almost limitless opportunity: Somebody had to dispose of them--generally using chemicals or through incineration--and somebody would get paid for it.

Unfortunately, some of these entrepreneurs came from the same stock of businessmen who'd once been drawn to trash-hauling enterprises, and the early days of PCB disposal were ugly. The greatest collection of dubious PCB disposal firms seemed to spring up in the Kansas City area, which, because of the ease of receiving disposal permits there, became known as the "PCB Capital of the World."

It didn't take long for the title to become a curse.

Walter Carolan formed Martha C. Rose Chemicals in 1982 and operated a sprawling facility in Holden, Missouri--until July 1986, when Carolan's company suddenly declared itself bankrupt and walked away from 13.5 million pounds of contaminated equipment left sitting in the middle of the city. Although Rose Chemicals had collected millions of dollars in disposal fees, it left a mere $2,000 behind to clean up the site.

Almost more startling than the mess Rose Chemicals left behind, though, was how the company managed to operate on the far side of the law with minimal, if any, interference from the EPA--the very government agency charged with regulating PCB disposal. In the four years the company was operational, the EPA inspected it four times and assessed $206,000 in fines but managed to collect only $50,000.

Testimony at congressional hearings in 1986 revealed that EPA inspectors had missed most of the violations. Former Rose Chemicals employees confessed that upon receiving spent transformers and capacitors, they simply removed the PCB-laden materials and tossed them into fifty-gallon drums; later, when even that became too burdensome, they were stashed in one-hundred-pound feed bags that were piled thirty feet high in a "hidden room."

EPA investigators never discovered the secret room because they warned Rose Chemicals' managers up to four days in advance of an inspection. Once advised of the approaching audit, the supervisors would spend the next four days cleaning out the warehouse. On the day of the EPA inspection, all workers were told to stay home.

Martin Thrasher saw it all. Then, as now, director of utility services for Colorado Springs, Thrasher in 1983 contracted with Rose Chemicals to dispose of about 360,000 pounds of PCB-laced equipment. "They had excellent service," he recalls. "If you needed a truck or some paperwork done, they were right there for you.

"Of course," he adds, "it was all fraudulent. It wasn't worth anything."
Thrasher discovered that the hard way in 1984, when the company stopped returning phone calls. Frustrated and suspicious, he and two assistants hopped a plane for Kansas City in the spring of 1986. It turned out that, even though Rose Chemicals had easily obtained its permit from the EPA, the city of Holden had refused to allow the company to build a PCB processing facility. The company had continued collecting fees for disposing of the chemicals, though, and simply stockpiled the toxic waste.

By the time Thrasher arrived, the Rose Chemicals facility had been shuttered. But a couple of employees still hanging around let him into the locked warehouse, Thrasher recalls. They showed him to the back room, which they called the "bag room."

"There were still feed bags piled to the ceiling, leaking oil contaminated with PCBs," Thrasher says. He took pictures, which he keeps to remind him never to trust anyone when it comes to waste disposal--including the government. By 1988, Colorado Springs had paid $300,000 as its share of cleaning up a problem that the EPA could have seen coming--but didn't. Although most of the cleanup work has been completed, the Rose Chemicals site today is still considered a work in progress.

"Kansas City was absolutely rife with these places," says Thrasher. "And what does that tell you? That EPA wasn't on the ball."

In 1990 Carolan and other company officers were sentenced to two years in prison for giving the EPA fraudulent records in connection with Rose Chemicals. But they weren't the only toxic-waste businessmen skirting the law in Kansas City.

In 1981, before he formed Rose Chemicals, before he began piling PCB-riddled equipment into feed bags--before he went to prison--Walter Carolan ran a company called PCB Eliminators. Joining him as a director of the company was a man named Jack Van Gundy, who in 1982 split off and formed PCB, Inc.

The firm's original mission was as a transporter and storer of PCBs. But in 1983 the company received another permit from the EPA allowing it to detoxify PCB oils. And in 1984 PCB, Inc. received a third permit that approved it for dismantling and detoxifying PCB transformers. In short order, Van Gundy, using a handful of other companies he also controlled, spun a complex web of business and ownership arrangements.

The EPA was as lax with PCB, Inc. as it was with nearby Rose Chemicals--if not more so. The agency didn't conduct its first detailed records inspection of the PCB, Inc. facility for more than two years after it opened. And then the review clearly showed that the company was already falsifying disposal records, indicating that PCBs had been destroyed when in fact they had not. A succession of other inquiries found that the company had been illegally dumping some PCB-contaminated capacitors in landfills.

By the fall of 1986, the EPA had levied fines totaling more than $4 million against PCB, Inc. and a sister company owned by Van Gundy. None of it was collected.

But despite the growing hill of damning evidence, the EPA did not shut the company down. Instead, the agency allowed PCB, Inc. to continue operating until its permits expired in February 1987. Even then, the company carried on as a broker of PCB waste for another year.

"So in September 1985 the situation with PCB, Inc. was this," Mike Synar, an Oklahoma representative, wondered out loud to an EPA official during a 1987 congressional hearing. "EPA was unable to determine how much material was going in and out of the facility; you also had clear evidence that the company was disposing of some PCB material improperly; and EPA was aware of allegations that PCB material was being dumped illegally. Why was this company allowed to continue operating?"

PCB, Inc. went out of business the next year, declaring itself bankrupt. Jack Van Gundy, the sole owner of the company, died soon after.

In 1988, after further congressional hearings into how Kansas City's PCB disposal businesses had gotten so out of hand so quickly, the federal General Accounting Office published its report, Laundering Waste: EPA's Efforts to Prevent Criminal Activity in PCB Disposal. The government's self-investigatory arm discovered that for many officers and associates of PCB, Inc. and its sister companies, mishandling toxic waste was just their latest criminal enterprise.

Joseph Cannova, the former president of one of Van Gundy's companies, had been convicted of mail fraud and income tax evasion, charges that had grown out of an investigation by the Kansas City Organized Crime Strike Force. "In reviewing intelligence files, GAO also found repeated references to alleged criminal activity by persons associated with PCB, Inc," a 1989 congressional report concluded. "These included involvement in narcotics, prostitution, pornography, loan-sharking, illegal gambling, arson, insurance fraud, bank fraud, and extortion."

As with PCB, Inc.'s mishandling of toxic waste, the EPA seemed to know all about these criminal connections, too. By 1984 the agency's National Enforcement Investigations Center had compiled reports reflecting ties between officers of PCB, Inc. and "organized crime associations." Indeed, as early as 1982 local EPA officials had been contacted by the Kansas City Police Department and advised that men associated with PCB, Inc. were under investigation for bank fraud.

Despite such information, however, the EPA had quickly granted permits to PCB, Inc. to dispose of millions of pounds of highly toxic chemicals.

Darrell Davis was working as the superintendent of utilities for Center (population 1,600) in 1982 when the town decided it was time to jettison its transformers insulated with PCBs. "We were trying to live by the law and get rid of these things," he recalls.

Davis learned of PCB, Inc. from other Colorado utilities managers who were sending their old electrical equipment to the company. (Although Colorado falls in the EPA's Region 8, Kansas City boasted the closest companies that could deal with PCB disposal.) Center eventually sent about 3,000 pounds of tainted equipment to PCB, Inc. through a transporter named Trinity Chemical; the town paid about $10,000 to dump the machines according to the law. "We kept the manifest records and eventuall, we received a beautiful Certificate of Destruction from PCB," Davis recalls. "It has a gold seal on it."

The city of Gunnison (population 6,000), south of Glenwood Springs, also hired Trinity Chemical to haul six transformers to PCB, Inc. in 1984. "We have all our Certificates of Destruction and manifests," says Ken Bradford, supervisor of the city's electrical department. "We figured we were doing the right thing: PCB, Inc. and Trinity were both licensed by the EPA."

The Y-W Electrical Association, a rural cooperative that provides power to residents and businesses of Yuma and Washington counties on Colorado's northeastern plains, sent twelve capacitors to PCB, Inc. Highline Electric Association, a co-op based in Holyoke that powers irrigation systems in eleven counties in northeastern Colorado and western Kansas, sent about 1,200 pounds of PCB-laced machinery to Kansas City.

Westplains Energy, a small utility company that provides electricity to about 76,000 customers in the Pueblo area, unknowingly inherited the PCB, Inc. headache. In 1983, and then again in 1984, a company called Centel had shipped loads of old capacitors to PCB, Inc.--36,000 pounds of contaminated equipment in all. In 1990 Centel was purchased by UtiliCorp, which renamed the utility company Westplains. Three months ago, the new owners learned they probably will be liable for tens of thousands of dollars in cleanup costs.

Also doing business with PCB, Inc. were the Delta-Montrose Electric Association, the Fort Morgan Electric Department, the Fleming (population 388) Electric Light Department, the city of Loveland, Yampa Valley Electric, the Holy Cross Electric Association of Glenwood Springs, and Moonlake Electric, of Rangely.

Wray (population 2,100) sent ten capacitors and three electric switches, a total of 740 pounds, in 1983. In 1984, the city received its own Certificate of Destruction from PCB, Inc. "It looks to me like the city did everything it possibly could," says Doug Sanderson, assistant city manager. Nevertheless, the city may wind up paying for PCB, Inc.'s cleanup.

Worse, for some cities, this isn't the first time they'd been dunned a second time. Holyoke's Highline Electric, for example, paid $55,000 to ship a batch of toxic capacitors to Rose Chemicals, and then, eight years later, another $60,000 to clean up the Rose facility. Y-W Electric paid $15,000 to cover its Rose connection in 1987. "And now what it's going to cost us to get out of this PCB, Inc. thing, I don't know," says manager Terry Hall.

When Congress passed the CERCLA laws in 1980, its intent was to find somebody--anybody--to cover the astronomical costs of cleaning up waste sites across the country. Part of the strategy was to force everyone who had anything to do with the contamination to work together on a remedy. As a result, the parties that may be held responsible for the PCB, Inc. tab range all the way from the current owners of the site back to the original generators of the waste--including small towns in Colorado.

"You're equally liable if you mismanaged your waste as you are if you managed it properly," complains Russ Selman, a Chicago attorney who worked for the EPA enforcing the laws before striking out on his own to represent the other side, a clientele that currently includes several former customers of PCB, Inc. "The law is like a drive-by shooting; you may get who you intended to get and all the innocent bystanders."

During its short shelf life, PCB, Inc. collected more than thirty million pounds of contaminated material, much of it from the military. Although the company made a token effort early on to clean up the two buildings and concrete flooring it left behind, the work fell far short of what was needed.

"Unfortunately, PCB, Inc. wasn't real careful about disposing of these things," says Belinda Holmes, an attorney for EPA's Region 7 in Kansas City. Although federal laws passed in 1989--inspired by the Kansas City disasters--require companies to set aside money for potential cleanup costs, PCB, Inc. left behind virtually nothing. The more than $4 million in fines that the EPA had levied against the company, Holmes says, "was uncollectable."

In 1995 the PCB, Inc. property was declared a Superfund site.
With Van Gundy dead and his business defunct, this past January the EPA finally decided to dun the companies that transported the waste to the PCB, Inc. site, along with the entities that hired those transport companies. In Colorado, that means two dozen towns, co-ops and companies that thought they'd cleaned out their PCBs a decade and a half ago--and paid for the job--now await another, perhaps larger bill.

"We just get caught in the middle," says Center's Darrell Davis. "It's frustrating as hell."

Last week, a committee of towns and companies on the hook for the PCB, Inc. cleanup calculated it would cost anywhere from $35 million to $40 million to get the job done--and they'll be picking up most of the bill. Van Gundy's widow is still alive but unlikely to contribute to the cause. "We'll send her a bill, but I don't think we'll collect," says Dick Sternberg of the Washington, D.C.-based National Rural Electric Cooperative Association, which represents co-ops that sent PCBs to the company.

Still, what angers most Coloradans on the hook for the cleanup is that one of the main parties at fault is off the hook entirely. "EPA was the one that fouled it up," says Tom Johnson, manager of Highline Electric. "And we're the ones that have to pay for it."

"I'm so mad at the EPA, and I have so little respect for Region 7," adds Sternberg. "Of course, they're guilty as sin as far as I'm concerned."

But they're not liable for any of the cleanup costs. "That's just not how the laws are written," says Holmes, the EPA attorney. Besides, she adds, the agency did its best with PCB, Inc.

"EPA was kind of in a tough position with respect to facilities like this," she says. "It's not like we were going to be a presence there, making sure things are going according to the law. We can't be there every day checking up.

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Eric Dexheimer
Contact: Eric Dexheimer