Tamara Maschino made her discovery of the audit law's effects while fighting a plant permit.
Tamara Maschino made her discovery of the audit law's effects while fighting a plant permit.

Smoke and Mirrors

Tamara Maschino did not know everything about her prospective neighbor's past. What she did know scared her.

The chemical giant Elf Atochem was seeking permits for a new acrylic acid plant less than a mile from her Seabrook home. This was the same company that paid an estimated $100 million settlement to the families of eight children who died from birth defects in Bryan. Elf left a trail of lawsuits, fines and toxic incidents at other facilities, including a 1994 sulfuric acid release at its Crosby plant that sent four people to the hospital.

Maschino wanted to avoid similar trouble. Her neighborhood of well-appointed brick houses already sat uneasily amid a throng of polluting factories in the petrochemical heart of America.

The proposed $150 million facility, called American Acryl, was projected to spew more than 800,000 pounds of pollutants each year. Maschino and the community group she co-founded, Clean Air Clear Lake, petitioned the Texas Natural Resource Conservation Commission to deny the permits.

They made an extensive document request to get the hard facts about Elf Atochem's pollution history, as well as the risks posed by the new plant.

The company responded with a lengthy set of objections, and select documents were withheld. Maschino and her group felt they were getting only part of the story. But the process was educational nonetheless. Maschino's group relied on state statutes in its search for information. But the quest brought them face-to-face with an obscure state law employed by Elf Atochem to block part of that pursuit. Maschino discovered that the statute -- under the lofty title of Texas Environmental, Health, and Safety Audit Privilege Act -- puts the citizens' right to know about industrial hazards far beneath another priority: protecting the secrecy of polluters.

"It's not fair that this information be withheld from the average citizen," she says. "We have a right to know what is happening near our homes."

The Audit Privilege Act essentially gives companies carte blanche to inspect operations and keep what they find from ever seeing the light of day. In most cases, a company that uncovers a violation and reports it to the state gains immunity from penalties. If the company decides not to report the violation, nobody on the outside will be the wiser.

Before the law, inspectors and courts could request pertinent documents they needed to gauge a company's performance, without facing such broad barriers. The state also had the authority to mete out punishments that fit self-reported pollution offenses.

Business leaders overwhelmingly support the measure, saying it spurs them to voluntarily locate and fix problems. George W. Bush put his pen to it in 1995, making it one of the first bills he signed as governor.

Critics pan it as a "polluter immunity" law, one that has "everything to do with hiding information from the public that could be injurious," in the words of Rick Lowerre, an Austin attorney.

Under the best scenario, the industry will use the law responsibly, seek out hazards and report them. Companies that do so will not be fined if they agree to correct the problem "within a reasonable period of time."

But there is ample room for cheating. A company may strongly suspect a violation prior to conducting the audit and go through the exercise simply to "find" the problem and avoid paying penalties. Or it may choose not to report a violation at all. In that case, the firm takes a chance that state investigators might discover the problem during a routine inspection. Yet that's a small price to pay for the cache of information they can glean that the state or a court almost never can obtain.

The audit act provides that information found in a voluntary inspection is privileged against disclosure and inadmissible as evidence in a civil or administrative hearing. In most cases, that means lab analyses, notes, interviews, photographs, maps, charts and surveys remain confidential, making the provision far more sweeping than other protections like attorney-client privilege.

The law changes the very notion of what constitutes fact, Lowerre says, and that undermines a free and open society.

"The game in courts isn't who can best hide information. It's "Let's find the truth,' " he says.

"Audit privilege is totally contrary to that."

Lowerre represented a citizens' group near Amarillo that sought to block a permit for an expansion to a Browning-Ferris Inc. landfill. The dispute revolved around contaminated groundwater, which the TNRCC had determined posed a potential health risk.

BFI performed two detailed inspections after the contamination was discovered. During the administrative hearings, Lowerre's clients sought access to the reports, but the company claimed they could be kept secret under the audit act. BFI had never notified the TNRCC of its intent to conduct an audit, but it didn't have to, argued company lawyer Elizabeth Hurst.

"The very purpose of the Texas Audit Privilege Act is to establish this liberal and broad privilege rule as an incentive to businesses to conduct their own audits and freely report violations," she wrote in a court brief. "There is no evidence in the statute to support the claim that prior notice is required for privilege."

Administrative law Judge Sylvia A. McClellen agreed with Hurst's assessment, and the audits remained hidden from public review.

"We believe those two audits were done so they could really determine what was going on without ever having to tell anybody," Lowerre charges, adding, "When you create those kinds of environmental risks, you shouldn't get that privilege."

In the end the judge recommended denying the permit because of the groundwater pollution, but the TNRCC reversed her decision.

Lowerre likens the law's effect to a card game where all players except one have to lay what they're dealt face up on the table. The lucky one gets to keep his cards hidden. Lowerre says audit laws can be effective if they offer immunity without letting polluters profit, and if they protect the public's right to know. But Texas's statute does neither.

"The legislature said, "It's more important for companies to audit than for you to be able to get information,' " he says. "It's a dramatic shift. A reversal of 200 years toward openness."

Even as Texas reigns as the nation's undisputed pollution champ, the Audit Privilege Act gives expanded powers to polluters. Environmentalists view the statute as a signature piece of pro-industry legislation, and one of the sorrier legacies of Governor Bush. He gave his blessing to a bill that had its origins in a straight-talking lobbyist named R. Kinnan Golemon.

A former general counsel for the Texas Chemical Council, Golemon had a busy 1995. That year he added several top-shelf companies to his already weighty list of corporate clients, which included the likes of Exxon, Shell Oil and Hoechst Celanese.

Mobil Oil, Motorola and Koch Industries solicited Golemon's services for between $10,000 to $24,999 each. In filings with the Texas Ethics Commission, Golemon reported that his work for those corporations focused in part on lobbying for the Audit Privilege Act.

Golemon says he became intrigued by the audit privilege concept when he learned about a related Colorado statute that passed in 1994. He says that his work on behalf of industry interests in Texas led him to conclude that the state's environmental laws are "dysfunctional." The system, he says, favors companies that stay silent about mishaps rather than those firms that report them to regulators. He says he witnessed this with some of his own clients who tried to come clean.

"Because they were good citizens and sat down with the state, they got the beautiful opportunity to pay significant penalties," Golemon says. "The person who screws up 50,000 times and never goes in and tells anybody, he doesn't have to pay unless somebody catches him, and we don't have enough people out there to begin to inspect and enforce."

The lobbyist says he discussed the Colorado law with industry clients, who exhorted him to get to work on creating a similar statute for Texas. Those were heady days when a conservative revival was sweeping the country, heralded by Newt Gingrich's Contract with America. Policy makers across the nation sought to give industry a freer hand at policing itself.

Perhaps, then, it was no mere coincidence that state Representative Warren Chisum, the chairman of the House Environmental Regulation Committee, was himself working on an audit privilege law with the conservative American Legislative Exchange Council. Golemon sat down with the Pampa Republican to kick around ideas. The two agreed that companies needed special incentives to tackle pollution violations without fear of reprisals.

With Golemon's input, Chisum and his staff prepared the bill. Golemon, meanwhile, rallied lawmakers on behalf of his corporate clients who wanted the audit privilege and immunity in the worst way.

Representative Steve Wolens, D-Dallas, claims there are only a couple of bills that upset him in his 20 years in the Texas legislature. House Bill 2473, Golemon and Chisum's Audit Privilege Act, was one of them. He first heard about it from Golemon, who paid him a visit to discuss the measure in what Wolens describes as a "very forthcoming and open and honest way."

Wolens could not believe what he was hearing. He recalls asking the lobbyist with a certain degree of awe, "How did you have the gall to dream this up? How did you have the gall to think this big?"

The bill was one of many that crawled through the legislature that session. Because it lacked the visceral spark of abortion or budgets, Wolens says, the measure slipped past most people's radar screens.

But it proved polarizing during an Environmental Regulations Committee hearing in late March 1995. In public statements, environmentalists and prosecutors decried the measure for undermining accountability and offering special rights to polluters. Meanwhile, industry lobbyists and groups like the Texas Association of Business and Chambers of Commerce urged its passage.

In his inaugural address earlier in 1995, Bush declared that "What Texans can dream, Texans can do." Wolens recalls taking the house floor when the bill was being debated. "This bill is evidence of only one thing," he told colleagues. "What lobbyists can dream, lobbyists can do."

The measure easily passed both the house and senate, where it was introduced by Lake Jackson Republican J.E. "Buster" Brown.

During the legislative session Golemon had met with members of the governor's staff to win their support for the measure. "They said, "Well, it's an interesting concept, and if it gets to us and we like it, we will give it due consideration,' " he recollects. The governor signed it into law.

Golemon was at the signing and shook Bush's hand moments before the governor sealed the deal.

Backing measures popular with industry has paid off handsomely for Bush. Companies that have taken advantage of the Audit Privilege Act have been among the most generous contributors to his campaigns. A 1999 report by Texas Public Employees for Environmental Responsibility found that 45 of the 242 companies that had submitted self-audits accounted for a whopping 48 percent of the requests to have violations forgiven under the Audit Privilege Act. Personnel or political action committees for those companies contributed about $950,000 to Bush's gubernatorial campaigns.

"In other words, the politically active companies pushing the legislation were collectively among the worst environmental actors with the most to gain by concealing their polluting activities," the report said.

But Mike Jones, a spokesman for Bush, says the audit act has nothing to do with campaign cash. It's just good policy.

"We believe the law is a strong incentive for any of these regulated groups to do better than the bare minimum required by federal and state law," he says. "Overall, we think the law is a good common-sense idea that's having a positive impact."

The Audit Privilege Act does a lot more than help firms meet the bare minimums required by law, says Tom Smith, the director of Public Citizen's Texas office. The statute helps companies break the law and in some cases profit by doing so.

"A polluter simply says, "Whoops, we made a mistake and we have a plan [to fix it].' Without that fear of enforcement, there's no real incentive to clean up their acts," he says. "As a result, we may never get clean air."

Golemon compared it to parents hearing a 14-year-old son talk about beer-drinking. "You hammer him real big because he was there when somebody popped a beer open," he explains. "You think he's going to come and tell you again? No, I don't think so."

Smith finds another boozy metaphor more apt.

"A drunk every time stumbles home and says to his wife, "I promise I'll never do it again,' and proceeds to do it again," Smith intones. "Because of this law, we have a state agency that facilitates violations of pollution laws."

Critics of the audit statute argue that companies do not need special incentives to do audits. A business has a clear interest in running an efficient and responsible operation, catching problems before regulators do and avoiding liability.

Twenty-five states have passed audit privilege or immunity laws. Another 11 have some form of audit policy. The National Conference of State Legislatures found in a 1998 study that the percentage of facilities conducting self-audits was the same in states with an audit statute as in states without -- about 80 percent. The NCSL also determined that such laws or policies did not appear to impact the disclosure of violations. Between one-fourth and one-third of facilities disclosed violations in states with and without audit provisions.

Golemon believes the audit act comes down to trust. He says that if regulators and the public sprinkled just a few grains of that rare commodity on companies, they would be rewarded with a harvest of impeccable corporate behavior. "If you're going to get honesty in the process, somebody has got to have a little trust along the way," he says.

But if companies cannot be trusted to act responsibly enough to operate cleanly within the law, should they be entrusted with enhanced powers to police themselves?

Elf Atochem has notified the TNRCC of its intent to conduct nine audits since the law passed. In a letter dated October 12, 1995, a company official described the scope of one investigation, to begin four days later, as covering "all operations and activities" at the Houston chemical plant. "The scope of the audit will be to evaluate compliance with all applicable environmental laws and regulations as well as environmental permits."

Aside from the eye-poppingly short notice the company gave for such an ambitious probe, the notable fact is that the company did not, upon completion of the audit, report a single violation. This was the same company that less than five years earlier had to pay a settlement of $900,000 for more than 50 separate alleged violations of federal hazardous waste laws.

"It's so scary," Maschino says.

Elf Atochem's failure to find a single violation during its self-audits is not surprising. Phillips Petroleum has reported 47 self-inspections under the audit act, some casting a net wide enough to cover all federal, state and local environmental laws, rules and regulations and any associated permits and authorizations. At least eight audits were conducted at its Pasadena complex, which has been rocked by deadly explosions. Nevertheless, Phillips says it has not found a single violation to report.

Skeptical environmentalists have come to expect such pristine findings when the state leaves it up to industry to regulate itself. The TNRCC itself admits limitations in its oversight of these companies.

TNRCC officials frequently bemoan the "limited resources" they have to ensure full environmental compliance. A particular area of concern is the paltry number of full-time field inspectors, some 482 in all. Patrick Shaughnessy, an agency spokesman, says the TNRCC would like to inspect every facility annually but doesn't always meet that goal.

Officials at the TNRCC, the agency that administers the vast majority of self-audits, applaud the Audit Privilege Act because it defrays their inspection burden.

"Given the limited resources the state has for doing inspections, certainly the audit program is a complement to ensure compliance with the law," says Toni Toliver, the TNRCC's audit coordinator.

This notion of a partnership between the agency and the entities it is supposed to be regulating is not without problems, critics charge. The agency clearly shares Golemon's sense of trust. Toliver says that the TNRCC almost always accepts a company's word that it has corrected a violation, without independently verifying the result.

The TNRCC can check up on companies during future inspections, she says, adding that the immunity is conditional and can be stripped if the agency learns that a problem persists. But Toliver is unaware of any instances where the agency has stripped immunity for failure to achieve "appropriate" corrective action.

"In the time that I've been here, I'm not familiar that we've gone back and denied immunity for noncorrection of a violation," she says.

The audit act also states that a regulated entity cannot get immunity if its violation resulted "in injury or substantial risk to one or more persons." But Toliver says that the agency has never determined that a self-reported violation by a company rose to that level of harm.

To Lowerre, the Austin attorney, that can mean one of two things: Either the companies don't have serious violations, or they're not disclosing them.

"It's my position they're not reporting them," he says. Lowerre has many criticisms for how the TNRCC handles the audit program. Among the most serious is his contention that the agency has done virtually nothing to gauge the program's overall impact on health and the environment.

Indeed, agency officials have little to show to bolster their optimism about the program. The only thing the TNRCC can say for sure is the number of self-audits and instances in which companies have received immunity for breaking environmental laws. At the end of August the totals were 1,208 audits, 345 of which disclosed one or more violations.

But how the law has impacted the public is anybody's guess. Paul Sarahan, the director of TNRCC's litigation division, admitted as much in a July 12 letter to Lowerre.

"Currently, the TNRCC does not specifically track the impact of the audit act on general compliance in Texas or on the levels of pollution in Texas," he wrote. Still, he defended the program.

"Generally the violations disclosed and corrected by regulated entities through the audit program are violations that had not yet been noted by inspectors or the entities, and thus, the program leads to expedited compliance," he wrote.

The TNRCC has a history of going to bat for the audit privilege law.

In 1997 the Environmental Defense Fund and the Oil, Chemical and Atomic Workers Union filed a petition with the Environmental Protection Agency to withdraw Texas's authority over programs under the federal Safe Drinking Water Act.

That petition and the EPA's own historic aversion to audit privileges prompted the agency to pressure Texas to amend its law or lose enforcement authority over federal statutes. The TNRCC mounted a vigorous counteroffensive. In scathing testimony before the U.S. Senate, then-TNRCC chairman Barry McBee -- a Bush appointee -- blasted the EPA for being "a persistent antagonist" to state regulators.

Nevertheless, Texas reached détente with the feds when lawmakers amended the audit act in 1997, eliminating, among other things, its application of privilege and immunity to criminal actions.

Golemon insists that nobody can point to any cases of problems or abuse associated with the law. "It's five years later; they can't point to a single problem," he says.

Lowerre disagrees. Perhaps nobody can produce "a dead body," as a result of the law. But who knows? Embedded in the audit privilege statute is a kind of vicious circularity, he says. How can you prove harm if you can't obtain the information that might document it?

"If you make information privileged, you can't show truth," he says.

That was a primary lesson learned by Maschino and her Clean Air Clear Lake, in their campaign against the American Acryl permits for the plant. While they got many documents, the company used the Audit Privilege Act and a forest of other legal barricades to impede the flow of facts about the plant proposal.

Now, the new plant's foundation begins to take shape on flattened acreage, illuminated by the flare of a nearby tank farm licking the night sky like a toxic Olympic flame. American Acryl's permits were approved in May by TNRCC commissioners. And the citizens of Clean Air Clear Lake can only speculate about what might have been in the undisclosed documents.

"This company has been very secretive," Maschino says. "They really don't want us to know."


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