I
Office of Inspector General
Audit Report
REPLACEMENT HOUSING AT THE
AUSTIN AVENUE RADIATION SITE
E1SFF7-03-0117-8100090
March 30,1998
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Inspector General Division
Conducting the Audit: Mid-Atlantic Audit Division
Philadelphia, PA
Region Covered: Region 3
Program Office Involved: Office of Solid Waste & Emergency
Response
Washington, DC
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 2046
OFFICE OF
THE INSPECTOR GENERAL
March 30, 1998
MEMORANDUM
SUBJECT: Final Audit Report on Replacement Housing
at the Austin Avenue Radiation Site
Audit Report No. E1SFF7-03-0117-8100090
FROM: Michael Simmons /s/
Deputy Assistant Inspector General
for Internal Audits (2421)
TO: Timothy Fields, Jr.
Acting Assistant Administrator
for Solid Waste and Emergency Response (5101)
Attached is our final audit report on Replacement Housing at the Austin Avenu
Radiation Site. The overall objective of this audit was to determine the
reasonableness of costs paid by EPA to build ten new houses. This report contains
important findings and recommendations concerning the need for EPA to develop a
policy for building houses under Superfund.
In this particular audit, the Office of Inspector General (OIG) did not measure th
audited office's performance against the standards established by the National
Contingency Plan (NCP). The findings contained in this audit report are not
binding in any enforcement proceeding brought by EPA or the Department of
Justice under Section 107 of the Comprehensive Environmental Response,
Compensation, and Liability Act to recover costs incurred not inconsistent with th
NCP.
As signed by Michael Simmons on 03/30/98.
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ACTION REQUIRED
In accordance with EPA Order 2750, you as the action official are required to
provide us with a written response to the audit report within 90 days of the final
audit report date. Your response should address all recommendations, and include
milestone dates for corrective actions.
This audit report contains findings that describe problems the Office of Inspector
General has identified and corrective actions the OIG recommends. This audit
report represents the opinion of the OIG and the findings contained in this audit
report do not necessarily represent the final EPA position. Final determinations on
matters in this audit report will be made by EPA managers in accordance with
established EPA audit resolution procedures.
We have no objections to the further release of this report to the public. If your
staff has any questions, please contact Michael Wall, Team Leader, Mid-Atlantic
Audit Division, at (215) 566-5800, or Bill Samuel of my staff, at (202) 260-3189.
Attachment
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EXECUTIVE SUMMARY
Introduction
Objective
Superfund was established by the Comprehensive
Environmental Response, Compensation, and Liability Act of
1980, which was reauthorized by Congress in 1986 and 1990.
The purpose of the program is to protect public health and
the environment from the release, or threat of release, of
hazardous substances. This protection can range from
"removal" actions to control emergency situations, to more
permanent long-term "remedial" actions. The Austin Avenue
Radiation Site underwent both removal and remedial
actions.
The site consisted of 40 properties in six municipalities that
were contaminated with radium and thorium, which are
considered health hazards when inhaled or ingested. Under
a removal action, 18 of the properties were decontaminated
and restored at a cost of $24 million. The remaining 22
properties were addressed through the remedial program at
a cost of $31 million. The remedial cleanup included
demolition, sampling, excavation and disposal of the
radiologically contaminated materials, temporary and
permanent relocations of the homeowners, and
reconstruction of the houses. Regarding the 22 properties,
initially Region 3 had wanted to demolish most of the
contaminated structures and permanently relocate the
owners into replacement houses. However, due to public and
political pressure, the Region allowed most of the owners the
option to either relocate or to have new houses built on site.
Ten of the owners chose to rebuild. Eight of the owners
chose to permanently relocate. Four of the owners were not
given a choice as to how their properties were to be
remediated.
The purpose of this audit was to determine the
reasonableness of the costs paid by EPA to build ten new
houses at the Austin Avenue Radiation Site.
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Results-in-Brief At the Austin Avenue Radiation Site, Region 3 spent an
average of $651,700 each to custom-build 10 houses (see
Exhibit A for "Before" and "After" pictures). The appraised
value of the old houses averaged only $147,000 each. The
cost variance occurred because the Region built new houses,
rather than relocate the owners, as has been historically the
case. Also, the Region undertook the building of new houses
without benefit of any guidance from EPA Headquarters.
Adopting the position that EPA was obligated to replace "like
for like," even though the original houses had been built
decades earlier, resulted in cost becoming less of a factor.
The lack of guidance, coupled with the demands made by
some property owners and local government representatives,
lengthened the process and increased costs.
We do not believe that EPA should be in the house-building
business. Furthermore, EPA was not mandated to replicate
every facet of an existing structure.
Recommendations We recommend that the Agency establish a policy whereby
instead of building new houses, EPA will give preference to
other options that consider the fair market value of the
properties. For example, EPA could give the owners: (a) the
replacement value of their property, such as is done by the
insurance industry; or, (b) the amount EPA would have paid
to permanently relocate the owners under the Uniform
Relocation Act. Either of these options would enable the
owners to arrange for the rebuilding of new homes on their
existing lots at a fair and reasonable cost without involving
the government in the house-building business. We also
recommend that the Agency develop a policy now that
explicitly defines equivalent housing before this type of
situation occurs again.
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Agency Response to The Agency agreed with our recommendations and indicated
Draft Report that it will evaluate and define: (1) equivalent housing when
Superfund activities impact residential properties; and (2)
address the available options for providing equivalent
housing in lieu of building new houses for impacted
residents.
OIG Evaluation EPA's response meets the intent of our recommendations.
We will be available to review the policy as it is being
developed, and provide input from our perspective.
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Report No. E1SFF7-03-0117-8100090
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TABLE OF CONTENTS
EXECUTIVE SUMMARY 1
CHAPTER 1 7
Introduction 7
Purpose 7
Background 7
Noteworthy Accomplishments 11
Scope and Methodology 11
Prior Audit Coverage 13
CHAPTER 2 15
EPA Paid Excessive Amounts to Build Houses 15
Conclusion 24
Recommendations 25
Agency's Response to Recommendations 25
OIG Evaluation 26
EXHIBIT A 29
Before and After Pictures oFProperties 29
APPENDIX A 41
Agency's Response to Draft Audit Report 41
Region 3's Comments to Draft Report 49
APPENDIX B 53
Distribution 53
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Report No. E1SFF7-03-0117-8100090
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CHAPTER 1
Introduction
Purpose
The purpose of this audit was to determine the
reasonableness of the costs paid by EPA to build ten new
houses at the Austin Avenue Radiation Site.
Background
Site History
Superfund was established by the Comprehensive
Environmental Response, Compensation, and Liability Act of
1980, which was reauthorized by Congress in 1986 and 1990.
The purpose of the program is to protect public health and
the environment from the release, or threat of release, of
hazardous substances. This protection can range from
"removal" actions to control emergency situations, to more
permanent long-term "remedial" actions. The cleanups are
funded either by the parties responsible for the
contamination, or from a trust fund established under the
Act. The Austin Avenue Radiation Site underwent both
removal and remedial actions all of which was paid for out of
the trust fund.
Austin Avenue consisted of 40 radiologically contaminated
properties in six municipalities. Between 1915 and 1922, a
company located on Austin Avenue in Lansdowne,
Pennsylvania conducted a radium-processing operation.
This operation generated approximately 210 tons of
"tailings" containing radium and thorium, some of which
were mixed into materials used to build or renovate houses
within the six municipalities.
Radium and thorium are considered health hazards when
inhaled or ingested. The threat posed by the contamination
at the 40 properties was due to the significant possibility
that the radiological contamination may spread into the
environment in an uncontrolled fashion. Thus, EPA believed
Report No. E1SFF7-03-0117-8100090
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that the actual or threatened releases of hazardous
substances from this site posed a threat to the public health
and the environment.
The history of the Austin Avenue Radiation Site is
intertwined with that of the Lansdowne Radiation Site. In
1924, a university professor, who had worked at the Austin
Avenue company, set up a radium-processing operation in
the basement of his home to produce radium-filled implant
needles for the treatment of cancer. In 1984, EPA
determined that this house, as well as an adjoining house,
were radioactive. After the houses were demolished and the
site cleaned up, a private developer built four new houses on
the property.
EPA Actions Under a removal action, 18 of the Austin Avenue properties
were decontaminated and restored at a cost of $24 million.
The remaining 22 properties were addressed through the
remedial program at a cost of $31 million. The remedial
cleanup included demolition, sampling, excavation and
disposal of the radiologically contaminated materials,
temporary and permanent relocations of homeowners, and
reconstruction of the houses. Regarding the 22 properties,
initially Region 3 had wanted to demolish most of the
contaminated structures and permanently relocate the
owners into replacement houses. However, due to public and
political pressure, the Region allowed most of the owners the
option to either relocate or to have new houses built on site.
Ten of the owners chose to rebuild. Eight of the owners
chose to permanently relocate. Four of the owners were not
given a choice as to how their properties were to be
remediated. Instead one was relocated, and the other three
had their properties repaired.
8
Report No. E1SFF7-03-0117-8100090
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Rebuild Option
For the 10 property owners who selected to build new
houses, EPA's Record of Decision called for the Federal
Government to fund the construction of new houses to
replace the ones demolished by EPA. The new houses would
cost an estimated $5 million and would be constructed:
0 On the same lots once all the debris and contaminated
soils were removed.
Report No. E1SFF7-03-0117-8100090
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ft In accordance with current building codes, using
modern materials and methodologies.
ft With the equivalent amount of floor space as the
contaminated houses.
ft To retain the same architectural character and "curb
appeal" as the contaminated houses.
The Record of Decision also allowed each property owner to
participate in the selection of a building design, materials,
and features for the property.
On December 15, 1994, EPA entered into an interagency
agreement with the US Army Corps of Engineers (USAGE)
in the amount of $28,300,000 to arrange for the demolition,
cleanup, and construction activities during the remedial
action. On July 28, 1995, the USAGE awarded a
$13,685,414 firm-fixed price contract to remove
contaminated materials, renovate houses, and build new
houses. The total cost of the contract with modifications was
$15,164,165. As of January 1998, all of the new houses had
been turned over to the owners.
Relocation Option On December 30, 1994, EPA entered into an interagency
agreement with the USAGE in the amount of $1.820,630 to
arrange for the permanent relocations. The eight owners
who opted to relocate were to receive comparable houses in
accordance with the Uniform Relocation Assistance and
Property Acquisition Policies Act (URA). Under the URA,
the Government provides relocation benefits such as moving
expenses, as well as a purchase supplement up to a
maximum of $22,500 to enable the owner to relocate to a
comparable replacement property. This purchase
supplement is the difference between the cost of the
replacement property and value of the original property.
According to the URA, relocations must be to a decent, safe,
and sanitary dwelling meeting applicable housing and
occupancy codes. The dwelling must be adequate in size
with respect to the number of rooms and area of living space
10
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needed to accommodate the displaced persons. In addition,
the relocation must be to a comparable replacement property.
This means that in addition to being decent, safe, and
sanitary, the property will be among other things:
Q Functionally equivalent to the previous house.
C\ Adequate in size to accommodate the occupants.
d In a location as desirable as that of the previous
house.
& Within the financial means of the displaced persons.
As of November 1997, EPA had spent approximately
$1,184,962 on the permanent relocations and all but one of
the owners had been relocated.
Noteworthy
Accomplishments
The Austin Avenue Radiation Site presented novel
challenges to Region 3 and the US Army Corps of Engineers.
This particular project was extremely difficult to manage
because of its direct impact on a very concerned community.
In addition, EPA and USAGE personnel had to address the
concerns of Local, State and Federal elected officials as well
as those of the individual property owners. We commend the
personnel involved with this project for their efforts to solve
the complex problems associated with the 10 properties and
the numerous issues associated with the remainder of this
large project. More than 240 railroad cars (approximately
22,000 tons) of radiologically contaminated materials were
carefully excavated and removed from several residential
neighborhoods and shipped for disposal at a permitted
facility.
Scope and
Methodology
We performed the audit in accordance with the Government
Auditing Standards (1994 Revision) issued by the
Comptroller General of the United States as they apply to
economy and efficiency audits. Our review included tests of
11
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the program records and other auditing procedures we
considered necessary.
We reviewed the Comprehensive Environmental Response,
Compensation, and Liability Act, the Uniform Relocation
Assistance and Property Acquisition Policies Act, the Code of
Federal Regulations, the Federal On-Scene Coordinator's
After Action Report, and the December 1993 Memo from the
Assistant Administrator for the Office of Solid Waste and
Emergency Response which authorized Region 3 to build
new houses. We also reviewed the interagency agreements
with the US Army Corps of Engineers (USAGE), as well as
the contract awarded to clean up the site and build the new
houses. In addition, we performed two site visits during
which we attended weekly progress meetings and toured
houses under construction.
We performed our review in EPA Region 3 where we
interviewed the On-Scene Coordinator, and the Section Chief
and the Remedial Project Managers (RPMs) from the
Remedial Section of the Hazardous Sites Cleanup Division.
We also interviewed personnel from the USAGE
Construction Division and the Real Estate Division. We
reviewed voluminous EPA documents maintained by the
former and current RPM regarding EPA's decision to build
the new houses. These included the Proposed Remedial
Action Plan (PRAP), the Revised PRAP, the Record of
Decision, and various documents relative to community
opposition. We also reviewed log books maintained by the
former RPM, costs related to building the new houses, costs
associated with temporarily and permanently relocating
residents, and the minutes from weekly progress meetings
that were submitted by the cleanup contractor.
The scope of our audit focused primarily on the Austin
Avenue Radiation Site and the reasonableness of the costs
EPA paid to build 10 new houses. Our audit included an
evaluation of management controls and procedures
specifically related to the audit objective. As part of this
audit, we reviewed the Hazardous Sites Cleanup Division's
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Annual Reports on Internal Controls for fiscal years 1994 to
1996. There were no weaknesses identified in these reports
that pertained to the scope of work we audited.
We completed our survey on May 30, 1997. As a result of our
survey, we initiated an in-depth audit on June 2, 1997. The
field work for this audit was completed on December 31,
1997. We submitted position papers on potential issues to
EPA Headquarters' Director, Office of Emergency and
Remedial Response (OERR) on January 5, 1998, and to the
Region 3 Acting Director, Hazardous Sites Cleanup Division,
on January 6, 1998. We received Region 3's response on
January 26, 1998, and met with regional personnel on
February 4, 1998 to discuss their response and clarify
several issues. On February 2, 1998, OERR responded to the
position papers. On February 5, 1998, we discussed this
response with OERR personnel and solicited comments on
our proposed recommendations.
We issued a draft report on February 11, 1998, to the
Assistant Administrator for Solid Waste and Emergency
Response. His response of February 26 also included
comments from the Region 3 RPM. On March 5, 1998, we
met with the RPM to clarify several issues. On March 17,
1998, we received comments from the Administrator of
Region 3. On March 19, 1998, we held an exit conference
with the Administrator and Acting Deputy Administrator of
Region 3. and with representatives of the Office of Solid
Waste and Emergency Response. EPA's responses to our
draft report are summarized at the end of Chapter 2 and
provided in their entirety in Appendix A.
Prior Audit There has been no prior audit coverage of the issues
Coverage discussed in this report.
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CHAPTER 2
EPA Paid Excessive Amounts to Build Houses
At the Austin Avenue
~ r.n. Radiation Site, Region 3 spent
On average, EPA spent c *e c 1 ™n u ^
*ccn nnr. „ an average of $651,700 each to
over $650,000 to , ,&.,, in ,
,.-.,, custom-build 10 new houses.
custom-build houses. .-, . , , ,,... , ,
The appraised value of the old
houses averaged only $147,000
each. The cost variance
occurred because the Region built new houses rather than
relocate the owners, as has been historically the case. Also,
the Region undertook the building of new houses without
benefit of any guidance from EPA Headquarters. Adopting
the position that EPA was obligated to replace "like for like,"
even though the original houses had been built decades
earlier, resulted in cost becoming less of a factor. The lack of
guidance, coupled with the demands made by some property
owners and local government representatives, lengthened
the process and increased costs.
We do not believe that EPA should be in the house-building
business, or that it is mandated to replicate every facet of an
existing structure. In the future, we recommend that the
Agency use other options instead of building new houses.
One option that was previously suggested by the USAGE for
the site was to compensate the owners for the fair market
value of the properties to enable them to arrange for the
rebuilding of new homes on their existing lots. We also
recommend that the Agency develop a policy now that
explicitly defines equivalent housing before this type of
situation occurs again.
15
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Build Versus The Region's original intent was to relocate the owners, as
Relocate had been done in the past at other Superfund sites.
According to regional Superfund personnel, building new
houses was more costly because of Federal contracting
requirements. For example, the "Davis-Bacon Act"
mandated increased labor rates, and the "Buy American Act"
restricted the sources available for materials. Also, although
the USAGE was quite experienced with relocating people
into comparable houses, neither it nor Region 3 were
experienced in building new houses. Moreover, building new
houses required more involved negotiations with owners and
more oversight on the part of the Government.
Accordingly, on July 1, 1993. Region 3 issued a Proposed
Remedial Action Plan (PRAP), which explained that EPA
would permanently relocate the owners into comparable
housing and demolish most of the houses. In response,
however, the Region received over 700 form letters protesting
the proposed relocations and demanding that EPA build new
houses. The arguments presented against relocating the
owners included dwindling property values, a shrinking tax
base, and the fear that EPA would leave the municipalities
with abandoned lots. The Region, on the other hand, argued
that at a former Superfund site—in the same area and with
the same problem—it had relocated the owners, demolished
the houses, and cleaned up the site upon which four new
houses now stood generating tax revenue. The Region also
preferred relocation over building because it would cost less,
and because regional personnel were inexperienced with
building houses and negotiating housing amenities with
owners.
EPA strongly urged
to build houses.
Region 3 also received pressure
to build new houses from Local,
State, and Federal officials. For
example, on August 24, 1993, the
Acting Regional Administrator
received a letter signed by two Senators and three
Congressmen. The letter strongly urged EPA to reconsider
its preference for relocation which seemed based on financial
considerations, and to build new houses. In the meantime,
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the Region had requested EPA Headquarters (Director,
Office of Emergency and Remedial Response) to determine if
Superfund monies could even be used to build new houses,
pointing out that Agency actions at this site may set
precedent for future remedial actions at other sites. On
October 19. 1993, the Acting Regional Administrator again
asked for a decision, explaining that the local officials were
planning to approach the Administrator, and that he was
under considerable pressure to finalize the Agency's position
on this situation. On December 17, 1993, EPA Headquarters
(Assistant Administrator for the Office of Solid Waste and
Emergency Response) informed Region 3 that it could—and
should—build new houses that were equivalent to those in
place prior to demolition. However, the Region received no
guidance on how to go about this process.
In order to gain community acceptance,1 the Region issued a
revised PRAP on March 2, 1994, which offered many of the
owners the option to rebuild, but asserted that Five of the
properties could be repaired. Based on community response,
EPA modified the revised PRAP. On June 27, 1994, the
Record of Decision stipulated that 18 property
owners—including 4 whose houses that had been slated for
repair—could now have their houses rebuilt. Ten of the
owners took advantage of this option. Thus, Region 3 and
the USACE now reluctantly entered the custom house-
building business.
Cost to Build Before building the new houses, the USACE paid a
contractor to appraise the old houses. As seen in the
following chart, EPA paid 300 percent more on average to
construct the new houses than the appraised value of the
properties; in two instances, the building costs exceeded the
appraisals by 400 percent. NOTE: We derived the "COST
TO REBUILD" from the amounts proposed by the contractor
on the "Contract Unit Price Schedule" included in the firm-
1 Community acceptance is one of nine criteria evaluated when selecting a remedy.
The lack of community acceptance can change a remedy. The Acting Regional
Administrator at that time informed us that he did not change the remedy because
of political pressure, but rather to gain community acceptance.
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fixed price contract awarded on July 28, 1995, plus
subsequent modifications to the Price Schedule. This did not
include the cost of removing the contaminated materials.
A $103,000 $354,360
B $114,500 $277,694
C $120,500 $390,628
D $141,500 $422,175
E $153,200 $507,878
F $155.000 $360,395
G $161,000 $706,010
H $161,500 $489,816
I $162,700 $487,449
J $200,000 $911,411
1'
In addition to the $4.9 million in direct costs, the Agency
paid approximately $1.6 million in indirect costs. According
to Regional and USAGE personnel these indirect costs
included:
+ Fees paid to architect & design engineer to
design the 10 houses $570,829
+ Fees paid to architect & design engineer $ 98,615
to meet with owners to select interior
amenities
+ Time spent dealing with owners & public
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officials by:
EPA $ 48,893
USAGE Construction Division 150,000
USAGE Real Estate Division 149,404
USAGE Cleanup Contractor 300,000
+ Davis-Bacon labor adjustment 100,711
+ Landscaping for the 10 houses 141,734
+ Fees for local inspections 9,500
+ Fees for supplemental local inspections 40.125
Subtotal - Additional Costs Incurred $ 1,609,811
+ Direct Building Cost 4.907.816
Total Cost $6.517.627
Cost Became Less The Region knew it would cost more to build new houses,
of a Factor than to take advantage of the USAGE'S expertise and
relocate the owners. However, it appears that after the
Region's authority to build equivalent houses was clarified,
cost became less of a factor. Based on the figures above, EPA
spent an average of $651,700 each to rebuild 10 houses
whose appraised value averaged only $147,000 each. Refer
to Exhibit A for "Before" and "After" pictures.
Regional ^^^^^^^^^^^^^^^^^^^^^^
personnel I Customized replication of 70-year-old
explained that I houses increased government cost.
part of the high ~
cost was
attributable to Federal mandates such as the "Davis-Bacon"
and the "Buy American" Acts. They also explained that
these houses cost more to build because the Region had
replicated as closely as possible the original houses, in order
to "make the owners whole again." Unfortunately, this
engendered extraordinarily excessive costs, because rather
than replacing the original houses with houses of equal
value, the Region replaced them with extensively customized
replicas. This decision to replace "like for like" coupled with
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the demands of some of the owners resulted in the total costs
being far higher than they need have been. In dealing with
the owners, EPA utilized the services of individuals from a
variety of occupations including architecture, interior design,
botany, and in one instance, psychiatry.
Personnel from the USAGE, Region 3, and the architect
negotiated with property owners over the custom design of
their new houses. During these "design and fashion"
meetings, each owner was afforded the opportunity to choose
their amenities such as rugs, cabinets, and bath tubs.
Although EPA was extremely generous in the building of the
new houses, there were complaints, most of which did not
appear warranted. Moreover, some of the cost increases
were directly attributable to such complaints, as well as the
fact that some owners were more demanding than others.
The circumstances associated with Property "G" were the
most challenging for Region 3 personnel to resolve.
Property "G" This property was demolished and the owner received a
custom-built house. The contaminated property was a three-
story house purchased in 1989. In 1992, the owners stopped
paying the mortgage2 and by 1994 faced foreclosure. The
owners did not live in the house, but their son did, along
with two tenants.
The property was described by the Remedial Project
Manager as "run-down, unmaintained, and in a large
portion, structurally unsound." EPA's architect classified the
building as being in "fair to poor condition," noting that
"most all of the existing structure roofing/porch structure
was rotted or failed ...." Although the appraised value of
the property was only $161,000, its replication had cost EPA
over $700,000 in direct building costs. EPA has also spent,
or will have spent, $100,000 in moving, storage, and rental
fees for the owner's son. Finally, according to EPA
personnel, the owner's son made many unreasonable
demands that were time consuming and costly to resolve.
2 Contrary to the Region's advice, some owners ceased paying their mortgages.
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Whereas most of the other owners required three
"design and fashion" meetings, this individual
required five meetings and numerous phone contacts
to discuss the amenities for the new house. According
to Region 3 personnel, part of the problem was his
inability to come to a decision, and part of the problem
was his overt intention to get the best of everything.
For example, he demanded a cedar roof because a
neighbor had gotten one as a "tradeoff." He wanted
his kitchens upgraded and demanded crystal lighting
fixtures and a "Tea for Two" bathtub (an oversized tub
installed on a platform to accommodate two people).
When Region 3 refused these demands as
unwarranted, he claimed that EPA was unfair and
had lied to him.
This individual insisted on extensive design changes,
upgrades, and tradeoffs. As a result, the new house
received a variety of "add-ons" including: a second
terra-cotta flue from the basement, a second electrical
panel in the basement, a powder room in the
basement, 42" kitchen cabinets (instead of the
standard 30" cabinets), a second stairway from the
kitchen to the basement, a bay window in the kitchen,
and a library on the first floor with cabinets and a
sink.
Despite the Region having made extensive design
changes and concessions, when it came time to move
out of the contaminated house, this individual refused.
Unless his demands were met, he threatened to
"create a disruption and a media show." As the
impasse continued, the Region contemplated
contacting the US Department of Justice to seek
assistance in dislodging this individual from the
premises. Such actions, however, became unnecessary
as he finally agreed to temporarily relocate.
Finding a temporary house also presented a problem.
This individual refused to consider any of the
comparable houses shown him. He demanded to be
housed in a mansion, with an in-ground swimming
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pool, situated on 20 acres. The Region refused and
offered to pay $1,850 a month to place him into a
$250,000 house, described by the RPM as being
"immaculate" and "a house anyone would be happy to
call home." Although this individual finally agreed to
relocate to this "dump" as he put it, he still expressed
concern that it was too small to accommodate his
"stuff." This included items such as used tires,
automobile mufflers, and planks of wood.
(2) Actually moving this individual also proved expensive.
EPA spent $33,864 to move his belongings, plus an
additional $13,990 to rent storage areas ($9,750 for
heated storage + $4,240 for unheated storage).
C) Finally, upon entering the contaminated house, EPA
was unable to access the upper two stories because
this individual had taken the stair treads and the
banisters. Upon further investigation, it was learned
that he had also removed a variety of other items
including: light fixtures, door knobs, door jambs,
window mounting hardware, cabinets, the heater,
sinks, and toilets.
On the other hand, EPA did refuse to authorize a variety of
demands such as: the "Tea for Two" bathtub, a cutting board
insert for the sink in the library, excessive telephone line
installation, a full bathroom in the basement, imported
porcelain tiles, excessive landscaping features, and a new
garage. EPA also refused to pay the owners $50,000 for their
unpaid mortgage bills.
As of October 1997, the new house was complete. However,
the individual was unable to move in because the
municipality refused to issue a "use and occupancy" (U&O)
certificate for the house, despite the fact that EPA had paid
the municipality inspection fees of $40,125, or an average of
$5,700 to inspect the new houses. Specifically, the
municipality objected to a detached garage which it classified
as a "blight determination." Although the Region pointed
out that the poor structural condition of the garage existed
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Inspection Fee Issue
prior to EPA's involvement at the property, and that the
garage was not part of the project because it was not
contaminated, the municipality demanded the garage be
replaced before it would issue a U&O certificate.
Coincidently, this objection was raised because of a
complaint by the owner of an adjoining property who: (a)
was also receiving a new house from EPA; and, (b) was a
local government official deeply involved in many of the
negotiations with the Region over the site. As of December
1997, the municipality finally issued a conditional U&O
certificate.
«
To summarize, EPA spent
over $700,000 to build the
house seen on the right.
It replaced a house
appraised at $161,000.
EPA has also spent, or
will have spent, an
additional $100,000 in
moving, storage, and
rental fees for this
individual. Moreover,
EPA incurred thousands of dollars more in indirect expenses
dealing with this individual.
Inspection fees
demanded from EPA.
One municipality demanded that
the Agency obtain permits for
the demolition of the old houses
and the construction of the new
houses. EPA explained that it
did not have to obtain permits
under Superfund. However, the Region did agree to pay
"reasonable" inspection fees beyond the $9,500 already
incorporated in the USAGE'S cleanup contract for
inspections. These fees would allow the municipalities to
review the housing designs and inspect the building of the
new houses to ensure that they adhered to local building
codes. Thereupon, the municipalities were to issue a U&O
certificate to enable the owner to occupy the house.
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One municipality which took advantage of this offer, claimed
$73,500 for its services, including $5,000 in legal costs.
However, the USAGE and the RPM reviewed this claim and
concluded that EPA should pay only $22,400. Dissatisfied
with this amount, the municipality negotiated with the
Region over a five-month period and in March 1996, received
$40,125.
Conclusion We believe that EPA should not be involved in the house-
building business. While we understand that the Agency
believed it needed to build the new houses to achieve
community acceptance, we believe it was more generous than
it had to be. The Region gave each owner a custom-built
house replicating the intricate workmanship of the original
house. As a result, the government built 10 houses paying
an average of $651,700 each, when the original houses were
appraised at an average of only $147,000 each. Finally, EPA
and the USAGE encountered considerable complications
from local governments and from some of the very owners
who were to receive the new houses.
There currently is no policy available regarding the building
of houses under Superfund. Region 3 asked EPA
Headquarters to decide if houses could be built. EPA
Headquarters replied that they could, but provided no
instructions, policy, or guidance. We found no evidence to
suggest that EPA was mandated to replicate the houses that
had existed at the Austin Avenue Radiation Site. We believe
that the Agency should consider other options instead of
building new houses. One option that was previously
suggested by the USAGE for this site was to compensate the
owners for the fair market value of the properties to enable
them to arrange for the rebuilding of new homes on their
existing lots.
However, before this type of situation arises again, where
EPA builds houses, the Agency should have in place explicit
parameters to define what is meant by equivalent housing.
We do not believe that the Agency should be obligated to
build customized replicas of the original houses.
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Recommendations
We recommend that the Assistant Administrator for Solid
Waste and Emergency Response:
(1)
(2)
Establish a policy whereby instead of building
new houses under Superfund. EPA will give
preference to other options that consider the fair
market value of the properties. For example,
EPA could give the owners: (a) the replacement
value of their property, such as is done by the
insurance industry; or, (b) the amount EPA
would have paid to permanently relocate the
owners under the URA. Either of these options
would enable the owners to have their houses
rebuilt at a fair and reasonable cost without
involving the government in the house-building
business.
Develop a policy now that explicitly defines
equivalent housing, before this type of situation
occurs again.
Agency's Response The Assistant Administrator concurred with our
to Recommendations recommendations and indicated the Office of Solid Waste and
Emergency Response will evaluate and develop policy that
will: (1) define equivalent housing when Superfund activities
impact residential properties; and (2) address the available
options for providing equivalent housing in lieu of building
new houses for impacted residents. The policy is expected to
be issued by September 30, 1999.
The Assistant Administrator's response also included
comments from the Region 3 Remedial Project Manager
(RPM) for the Austin Avenue Radiation Site. The RPM
asserted that the costs cited in our draft report were not the
true rebuilding costs, but were rather only estimates
submitted by the contractor.
The RPM believed that our suggestion to compensate
property-owners with the fair market or replacement value to
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enable them to rebuild presented several problems.
Specifically, he asserted that: (1) an amount of money equal
to the fair market value would have been inadequate to
rebuild comparable structures; (2) the Federal Government is
required to provide homeowners with comparable living
arrangements, and it cannot provide the homeowners with a
cash equivalent to the fair market value of their properties if
they desire a replacement dwelling; (3) the Federal
Government could not relinquish its responsibility for
building comparable dwellings to the homeowners; and, (4)
property owners would not accept a forced arrangement.
Finally, the RPM challenged the fairness of our comparing
the appraised values of the properties to what it cost EPA to
rebuild them. Instead, he believed it would be more
reasonable to compare what it cost EPA to rebuild with the
houses' replacement values, as might be done by insurance
companies.
On March 5, 1998, we met with the RPM and clarified
several issues. We also made several minor editorial changes
in our report as warranted. However, we did not materially
change our position.
EPA's response meets the intent of our recommendations.
OIG Evaluation We will be available to review the policy as it is being
developed, and provide input from our perspective.
We disagree with the RPM's comment that it is not fair to
compare the cost EPA paid to rebuild the houses to their fair
market value. We believe that the fair market or appraised
value of a property should be used as the basis to compensate
owners. The USAGE used such appraisals calculated by its
contractor to negotiate the relocation of other Austin Avenue
Site owners into comparable housing under the Uniform
Relocation Act. Moreover, we contacted two major insurance
companies and learned that the insurance industry: (a) takes
into consideration a house's worth, even when writing a
replacement insurance policy on a new house; and (b) would
probably only write a policy on older houses (such as those at
Austin Avenue) for their fair market value. The example
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Illustrated by one agent was a pre-1955 house. It had a slate
roof, hardwood floors, and plaster walls and was valued at
$ 150,000. It would therefore be insured for a "face value"of
$ 150,000. But if it cost $200,000 to replicate the house the
owner would have to make up the difference or start trading,
i.e., getdrywall instead of plaster.
Finally, the cost figures we used were taken directly from the
contract.
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EXHIBIT A
Before and After Pictures of Properties
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Property A
Exhibit A
Page 1 of 10
Before-$103,000
After - $354,360
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Property B
Exhibit A
Page 2 of 10
Before-$114,500
After - $277,694
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Property C
Exhibit A
Page 3 of 10
Before-$120,500
After - $390,628
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Property D
Exhibit A
Page 4 of 10
Before-$141,500
After- $422,175
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Exhibit A
Page 5 of 10
Property E
Before-$153,200
After - $507.878
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Property F
Exhibit A
Page 6 of 10
Before-$155,000
After - $360,395
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Property G
Exhibit A
Page 7 of 10
Before-$161,000
After-$706,010
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Exhibit A
Page 8 of 10
Property H
Before-$161,500
After-$489,816
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Exhibit A
Page 9 of 10
Property I
Before-$162,700
After - $487,449
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Exhibit A
Page 10 of 10
Property J
Before - $200,000
After- $911,411
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APPENDIX A
Agency's Response to Draft Audit Report
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF
SOLID WASTE AND EMERGENCY
RESPONSE
February 26, 1998
MEMORANDUM
SUBJECT: Draft Audit Report on Replacement Housing
at the Austin Avenue Radiation Site
(Audit Report No. E1SFF7-03-0117)
FROM: Timothy Fields, Jr. /s/
Acting Assistant Administrator
for Solid Waste and Emergency Response (5101)
TO: Michael Simmons
Deputy Assistant Inspector General
for Internal Audits(2421)
As requested, the Office of Solid Waste and Emergency Response (OSWER), in
consultation with Region 3, has reviewed the draft audit report entitled Replacement Housing at
the Austin Avenue Radiation Site, dated February 11,1998. This report documents Region 3's
efforts to provide replacement housing for residents affected by cleanup activities at the Austi
Avenue Radiation Site in Delaware County, Pennsylvania.
I concur with the recommendations stated in the report regarding the development of
policy that pertain to replacement housing at Superfund sites. OSWER will evaluate and develop
policy to: (1) define equivalent housing when Superfund cleanup activities impact residential
properties, and (2) address the available options for providing equivalent housing in lieu of
building new houses for impacted residents. We will begin development of the policy this year.
Since regional workshops will be required to enable discussion and evaluation of the concerns an
options pertaining to these and other residential cleanup issues (including methyl parathion sites),
it is estimated that the final policy will be issued by September 30, 1999.
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In reviewing the Draft Audit Report and its Executive Summary, I would like to point out
that the recommendations in the Executive Summary are not a brief summary of the
recommendations in the Draft Audit Report. The Draft Audit Report recommends the
development of new replacement housing policy, whereas the Executive Summary goes well
beyond this recommendation to state OIG beliefs and suggested options. As stated above, I agree
that OSWER should develop such replacement housing policy. I request that the
Recommendations Section in the Executive Summary be shortened to agree with the concise
recommendations stated in the Draft Audit Report.
Also, it appears that there is a duplication in paragraphs describing the "use and
occupancy" certification for one new house. The second paragraph on page 22 appears to be a
restatement of the paragraph at the top of page 21. We recommend that these paragraphs be
consolidated.
Region 3 has prepared separate review comments which pertain to specific project details
included in the Draft Audit Report. Region 3's comments are attached.
Thank you for the opportunity to provide comments on the Draft Audit Report. If you
have any questions, please contact Ken Skahn of the Office of Emergency and Remedial Response
(OERR) at 703-603-8801, or Elizabeth Harris, OSWER audit liaison, at 202-260-7323.
Attachment
cc: Mike Shapiro Dev Barnes
Abe Ferdas Johnsie Webster
Elizabeth Harris Sharon Hallinan
Ken Skahn Barbara Braddock
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
REGION III
841 Chestnut Building
Philadelphia, Pennsylvania 19107
SUBJECT: Review of Draft IG's Report on Austin
Avenue Radiation Site
FROM: David P. Turner, RPM
Western PA Section (3HS22)
TO: Kenneth Skahn
Office of Emergency and Remedial Response (5204G)
I have reviewed the "Draft Audit Report" regarding the Austin Avenue Radiation Site,
dated February 11, 1998 and offer the following comments
page 1: 2nd Paragraph:
The remedial action also included disposal of the contaminated wastes.
The owners not given a choice of rebuilt or relocation were either :owners of duplex
homes where the rebuild housing density on the existing lots could not be assured (since both
duplex owners would have had to select the rebuilt option), or they were owners of properties
that only had a portion (i.e. porch) contaminated and that portion could be repaired / replaced.
page 2, "Recommendations":
The Region does not agree with the Draft Report's opinion that the ROD "...went beyond
providing equivalent structures that were authorized by EPA Headquarters." EPA HQ reviewed
the ROD containing the "same curbside appeal language" and concurred before it's signing.
The IG recommends that EPA use other options instead of building new houses and cites
an option, attributed to a suggestion by USAGE, "...to compensate the owners for the fair market
value of the properties to enable them [the owners] to arrange for the rebuilding of new homes on
their existing lots"
This suggested option presents several problems. First, the concept of "fair market
value" is quite subjective and is closely associated with "appraised value." In no instance would
nfl amount of money equal to the "fair market value" of any of the properties have been adequate
to rebuild, in any comparable fashion, the structures that were destroyed during the response
action(s). Second, the Uniform Relocation Act requires that the federal government provide
homeowners with living arrangements that are comparable to those destroyed by the government,
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if the owners so desire. The federal government cannot merely hand the owners cash equivalent
to the "fair market value" of their properties, but must actively seek to provide a replacement
dwelling if the owners desire a replacement dwelling. Third, since replacement housing is
required by federal law, and, therefore, must be provided for as part of the remedial action, to
allow the property owners to use government funding to rebuild their respective dwellings would,
in effect, constitute the conduct of a portion of a remedial action by those owners. The legal and
practical implications of this are certainly prohibitive. Fourth, no reasonable property owner
would accept such a forced arrangement, and EPA would likely end up facing a class action
lawsuit.
Even if EPA were to compensate the owners with the "replacement value" of their houses
(as opposed to the "appraised value" or the "fair market value"), to expect the homeowners to
rebuild their own houses would still be problematic for the reasons noted above.
page 5 Site History: The W. L. Cummings Radium Refining Company was the company located
at the intersection of Austin and Union Aves. Same appears on p. 6 of the Draft Report where the
"Austin Avenue Company" is referenced.
page 6 EPA Actions: The Action also included permanent relocation for affected homeowner
selecting not to have their homes rebuilt.
The Draft Report references four owners not given a choice. These four owners
referenced were owners of duplexes. These owners were not given a choice because the Region
was not able to assure the Borough that the housing density of the respective lot would be
achieve. (In order to rebuilt these homes on the same lot, meeting the same duplex housing
density, each of the respective homes owners would have had to select reconstruction option.)
The ROD included this provision (lack of options for these owners) to prevent a possible situation
were one owner selected rebuild and the adjoining owner selected relocation.
page 7 Table: Some errors in Table identified, please check:
Property R: Options provided to Owner: None
Property V: Property addressed under Removal Action - Repair
page S.Relocation Options: The Draft Report references last resort housing. Loaning money is
just one option under available in the URA's "housing of last resort" provision.
page 9 Noteworthy Accomplishments: The remediation proceeded without incident except for a
broken wrist suffered by a worker during the dismantlement of a house.
page 13 , 2nd paragraph - reference page 2 comment regarding EPA HQ authorization.
page 14 2nd paragraph : the four new homes constructed are two duplexes.
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Page 15, "Cost to Build": The IG states that, EPA paid 300 percent more to construct new
houses than the appraised value of the properties..." However, to compare the cost to rebuild the
subject houses with the appraised values of those houses is not a fair comparison. Virtually no
house had an appraised value that would have provided sufficient funds to rebuild that house. A
more reasonable comparison would have been to compare the cost that EPA incurred to rebuild
the houses with the "replacement values" of those houses as might be done by insurance
companies. If such a comparison were made, it would be shown that EPA's costs to rebuild the
houses were more comparable to the "replacement values" and, therefore, not as disparate as
when compared to the "appraised values." (The appraised values of the properties only had
relevance for those instances in which the property owners chose offsite relocation.)
Page 15 : Cost to Rebuild: The Draft Audit Report does not address the fact that the costs paid
to rebuild the various structures were included as "unit price" items in the submittal of a formal
response to a Request for Proposal ("RFP") by the contractor who received the government's
contract, under the auspices of USAGE, for the project. These are not true costs, but the bidder's
estimate. The position paper also does not note that the selected contractor's proposal was both
the lowest price proposal and the most responsive, responsible proposal for the entire remedy.
The ROD contains information (ROD Table 1) indicating the estimated total cost
associated with the remedial action / construction: $38.4 (MM) (This figure was arrived at by
summing the actual option later implemented at each affected property.) The independent
government cost estimate performed by the COE for the clean up was $18.1 (MM). The seven
bids the COE received for the job ranged from $13.7 (MM) to $39.6 (MM), approximately the
range covered by EPA and the COE in their estimates. This is not unexpected since the
hazardous waste remediation business is very competitive. The bids were reviewed by two
independent teams at the COE and ranked for cost and technical merit. This contract was
awarded for $13.7 (MM) to the contractor determined to give the best value for the government's
dollar.
A comparison of all the contract bid packages indicates that the cost of building the
replacement homes is about the same in each package. What this indicates is not that EPA paid
too much for the homes, but that its initial estimates of the cost of the homes was too low. This
was probably due to our (and the COE) inexperience in this area and an unfamiliarily with the
local market for home construction. It is another reason why we agree with the IG that the
Agency should not be in the home building business. It is also true, having better estimates of
these costs up front, well have changed our decision.
page 15 2nd paragraph: The four homes referenced: "slated for repair" may be in error, for this
description is not entirely accurate. Four homes were not given a choice in the matter (the Pine
Street duplex properties).
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Page 19 3rd Bullet: The ATSDR psychiatrist provided assistance problems dealing with
relocation.
Page. 21: 1st Paragraph: The Borough contracted to a local contractor to provide the services
identified in the paragraph,.
Page 24, "Recommendations": Recommendation number (1) advises that EPA should use
remediation options that consider the "fair market value" of the properties. The IG then advises
that, "For example, EPA could give the owners: (a) the replacement value of their property, such
as is done by the insurance industry..." It is apparent that the concepts of "fair market value" and
"replacement value" are not being used as distinct and separate concepts by the IG. EPA, in
rebuilding the houses, essentially provided the owners who chose building replacement with the
"replacement value" of their properties. The recommendation should be revised to reflect the
distinction between "fair market value" and "replacement value."
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APPENDIX A
Region 3's Comments to Draft Report
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
REGION III
841 Chestnut Building
Philadelphia, Pennsylvania 19107
March 17,1998
SUBJECT: Comments on Draft Audit Report:
Replacement Housing at Austin Avenue Radiation Site
FROM: w. Michael McCabe (3RAOO)/s/
Regional Administrator
TO: Michael Simmons (2421)
Deputy Assistant Inspector General for Internal Audits
This responds to the February 11, 1998 Draft Audit Report on replacement housing at the
Austin Avenue Superfund Site.
First, the Region agrees that the Agency should not be in the home building business. As
the draft report indicates, the Region's original proposal was to relocate families into comparable
replacement off-site homes under the Uniform Relocation Act (URA). The intense public
opposition which occurred when the proposed relocation plan reached the community, however,
challenged our established approach.
It was not simply the affected homeowners who opposed the Agency's proposal. The
Region received almost eight hundred letters in protest, as well as significant bipartisan input from
federal, state and local representatives. The Region carefully considered this outpouring in light
of EPA's mandate, under the National Contingency Plan, to evaluate community acceptance in
the course of remedy selection. In response, and after the Region had secured an opinion from
the Agency's Office of General Counsel clarifying our authority, the Region included rebuilding as
an alternative to off-site relocation. At the time this decision was made, the additional costs
associated with this option were estimated to be minimal in relation to the total costs of the
cleanup.
In its evaluation of this decision to include the rebuild option, the report focused on the
replacement of individual homes and not the community as a whole. When the Region modified
its remedy in an effort to secure community acceptance it was not dealing simply with a few
disgruntled homeowners, but with a community that was passionate and inflamed. The
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community found the prospect of vacant lots, diminished property values, and an eroded tax base
looming over them. Vacant lots to these communities were not the wholesome places where
small children leam to play baseball, but places where used tires and other unwanted items are
dumped. In Lansdowne, a small borough where most of the contaminated homes were located,
the prospect of a reduced tax base and a further erosion of property values was a frightening
reality. For this reason the community pushed, through its elected officials, to modify the
proposed remedy to include on-site replacement of dismantled homes. Superfund, by design, has
a robust community involvement process which includes the very real possibility that the
community can change the remedy. Such a change in fact occurred at Austin Avenue after the
Region considered all of the remedy selection criteria-including community acceptance and cost.
Nonetheless, as the federal agency charged with protecting the public health and the environment,
we have an obligation not only to fulfill our fundamental mission in the affected communities we
serve, but also to manage costs for the benefit of the taxpayer in general. It is arguable that in
implementing the decision to rebuild in the absence of replacement housing guidance, too much
emphasis was placed on meeting homeowner preferences and too little on limiting costs.
The Region also agrees that there is a need for guidance that provides a clear definition of
what a "replacement dwelling" is and is not. The draft report's evaluation of the Region's vision
of "replacement dwellings" turns almost exclusively on cost, using the difference between the
assessed value of the home and the rebuild cost as the benchmark. In reality, the assessed value
of a home bears no relation to the cost to construct that home today and therefore has no place in
an evaluation of the Region's rebuild costs. The reasonableness of the Region's rebuild costs in
this case can be measured only by reference to construction costs incurred by others in
constructing similar homes in similar locations at a similar time. The commonly accepted
insurance industry concept of "replacement cost" lends support to this position. A replacement
insurance policy would pay for the actual costs of construction, as EPA's remedial action did, and
is not pegged to the assessed value of the home.
Finally, the Region found itself on the relocation "cutting edge" at the time the Austin
Avenue remedial action was selected. Our experiences in implementing this remedial action have
placed the Region in a unique position to assist in development of guidance that may be useful in
avoiding many of the problems discussed in the draft report. The Region stands ready to provide
such assistance in an effort to ensure that relocations performed during Superfund cleanup actions
are cost effective as well as responsive to community needs.
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APPENDIX B
Distribution
Headquarters
Office of Inspector General (2410)
Assistant Administrator for Solid Waste & Emergency Response (5101)
Assistant Administrator for Congressional & Legislative Affairs (1301)
Assistant Administrator for Communications, Education & Public Affairs (1701)
Agency Follow-up Official (2710)
Agency Follow-up Coordinator (3304)
Audit Follow-up Coordinator (5101)
Regional Office
Region 3 Administrator (3RAOO)
Director, Hazardous Site Cleanup Division (3HSOO)
public Affairs Branch (3CG20)
Audit Follow-up Coordinator (3PM70)
Other Offices
pivisional Inspector General Offices
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