Government rapidly depleting Deepwater Horizon cleanup fund, GAO finds

Continued federal funding of the BP oil spill cleanup effort may leave the government unable to address future spills, according to a new Government Accountability Office report.

The federal government is close to reaching its total expenditure-per-oil-spill cap of $1 billion on agency reimbursements for cleanup costs related to the April 2010 BP oil spill in the Gulf of Mexico. As of May 31, the federal government alone had paid off more than $626 million in cleanup reimbursements, according to the GAO report released this week.

During the same period, BP reimbursed more than $700 million of combined federal and state government costs, as required by the 1990 Oil Pollution Act, auditors said. BP also has established a separate $20 billion trust fund to pay off individual and business cleanup expenses claims.

Federal money for the cleanup comes from the government's Oil Spill Liability Trust Fund, also established in 1990 after the Exxon Valdez spill in Alaska, to set federal funds aside for future incidents. The fund's primary source of revenue is a tax on petroleum products, which is set to expire in 2017.

The Oil Pollution Act established a "polluter pays" system, placing financial responsibility on the institutions that cause a spill up to a "specified limit of liability." The liability amount has no limit in cases where the spill was caused by "gross negligence." BP is being charged with claims of gross negligence by the government for its role in the Deepwater Horizon spill, but no decision has been reached yet.

Under the current reimbursement system, claims are first sent to BP. If the company rejects or does not respond within 90 days, the claims are refiled with the federal government, which then considers them for payment.

At its current rate of cleanup reimbursements, the federal government will soon deplete the maximum amount allowed by the terms of the trust fund. This combined with the expiration of the petroleum tax in 2017 would jeopardize the government's ability to provide adequate resources to future disaster response teams, GAO found.

GAO has recommended that Congress change the fund cap per incident to reflect net expenditures -- the amount the government spends on relief efforts after it has been reimbursed by BP -- instead of simply total expenditures, which is how the cap is currently set up. Additionally, the watchdog advised extending past 2017 the barrel tax that's used to finance the fund and improving federal reimbursement procedures for future significant spills. Finally, GAO recommended that the secretary of Homeland Security Department direct the Coast Guard to finalize revisions to its claims adjudication division's standard operating procedures to include information on how to process spill-related claims.

The report is being sent to several government organizations, including DHS, the Environmental Protection Agency and the Interior Department, all of which provided technical comments on earlier drafts that were incorporated into the finished report. Homeland Security agreed with the recommendations and said it plans to finalize changes to its claims adjustment division's operating procedures by Oct. 31.