We have 90 to 95 percent unemployment on the reservation. We have people on fixed incomes, and . . . [at] the furthest point from the landfill, it would cost them $90 a month to haul their trash. If a man is receiving $300 a month, and he is required to pay . . . to haul his trash, what decision is he going to make? Is he going to buy his family bread, or haul trash? That’s the decision we have to make.
– Cleve Neiss, Rosebud Sioux Tribe[1]

Introduction

[The] EPA’s current approach, paying for the cleanup of illegal dumps and for solid waste planning on tribal land but refusing to pay for long-term solid waste collection, is misguided. Photo by S. McDevitt.

Imagine a Native American nation situated on less than 1,000 acres in a rural area. Seventy percent of the hundred tribal members living on the land are unemployed; their primary income sources are government assistance and small amounts of revenue from tribally-owned businesses. The waste hauler for the nearby county refuses to service tribal land. With self-haul distances of eighty miles to the nearest transfer station, and many members without easy access to a car, the tribal members have little option but to dump their trash in the woods.

Recognizing the threat to health and the environment that the accumulating trash piles are causing, the tribal government approaches the United States Environmental Protection Agency (EPA) for funds to clean up the trash and to start a tribally-run trash collection program. EPA grants the tribe $100,000 to clean up the five dump sites and $100,000 for a “pilot” collection and recycling program.

A year later the dump sites are cleaned up and the collection program is used by all members of the tribe. But as the grant period draws to a close, a problem arises: although the collection program brings in modest amounts of revenue from the tribal members themselves, the program is not self-sustaining. Rising fuel costs, long haul distances, and lack of economies of scale mean that without raising collection rates beyond what members would be able to pay, the program is doomed. The EPA grant project officer apologizes to the tribe. Although EPA can continue to give the tribe grants for dump cleanup, beyond pilot projects EPA cannot fund ongoing waste collection for tribes. The tribe is on its own.

This article will argue that EPA’s current approach, paying for the cleanup of illegal dumps and for solid waste planning on tribal land but refusing to pay for long-term solid waste collection,[2] is misguided.[3] This article will show that, at least for some tribes, the result of paying for dump cleanup rather than trash collection is less desirable from both an environmental and an economic perspective. Part I of this article will examine the unique legal position of small tribes and why funding ongoing collection may be the most environmentally sustainable solution. Part II will evaluate the costs to EPA of cleaning up dump sites on tribal land against the costs of strategically funding ongoing solid waste collection for small tribes. Part III will evaluate the potential reasons behind EPA’s reluctance to pay for ongoing collection. Finally, Part IV will offer an alternative funding model.

I. Background

There are 336 federally-recognized tribes in the continental United States, speckled across the country on approximately 326 tribal land areas administered as federal Indian reservations. Approximately 87,000 square miles of land are held in trust by the United States government for tribes, and approximately 15,600 square miles of individually-owned “allotted” lands are held in trust for allottees and their heirs.[4] If all these tribal lands were combined, the size would be slightly larger than the state of Oregon.[5]

Although there are a handful of large reservations, about two-thirds are less than fifty square miles each.[6] Many reservations are less than two square miles each.[7] Every tribe, whatever the size, has the same sovereign status and right to self-government. The relationship between each tribe and the United States is roughly one between sovereigns—a “government-to-government” relationship. In addition, the “federal Indian trust responsibility” binds the United States to protect tribal treaty rights, lands, and resources. The relationship between tribes and states, on the other hand, is of independent sovereigns. Tribes have the authority to regulate activities on their land independent from state government control, and states generally do not have the authority to enforce state law on tribal land.[8]

The history of the federal government’s relationship to Native American tribes is long, convoluted, and troubled, oscillating between periods of relative enlightenment and periods when tribal members were forced into assimilation and tribal lands were broken up and sold.[9] In Johnson v. M’Intosh and the cases that followed, the Court set out a basic dichotomy of federal Indian policy: tribes are to have sovereign power within their borders, but the United States “has charged itself with moral obligations of the highest responsibility and trust” to the tribes.[10]

The shadows of the past remain today. Tribal lands are highly fragmented,[11] tribal languages and customs have been lost,[12] and the number of tribal members and the amount of tribal land is a small fraction of what it once was.[13] The parcels of tribal land remaining are often those that white settlers ignored; they tend to be arid or semi-arid areas far from important urban economic centers, with little potential for agriculture, pastureland, or economic development.[14] Even in light of progress made in the self-determination era, and even though some tribes have had success in tribal gaming,[15] today Native Americans are among the poorest people in America, with 39.4% below the poverty line in 2000 and an average of 21.9% unemployment on reservation lands.[16] As a consequence of poverty on tribal lands, in 2000 almost twelve percent of houses on reservations lacked indoor plumbing—more than twice the national average—and there are fewer Internet connections, telephones, and roads on tribal lands than elsewhere.[17]

A. EPA’s Role

EPA is the federal agency responsible, in concert with the tribes, for ensuring that federal environmental laws are carried out on tribal lands and that the tribal environment is not degraded. Although federal statutes are in effect on tribal lands and EPA maintains “final authority for decisions affecting human health and the environment in any particular instance,”[18] like states, tribes have day-to-day oversight and control and can set standards more stringent than the federal standards.

EPA is guided by its 1984 Indian Policy, an “unparalleled endorsement of tribal self-determination” and “one of the strongest policy statements endorsing tribal self-determination ever made by a federal agency.”[19] Reaffirmed by Administrator Jackson in 2009 and consistent with President Obama’s Executive Order on government-to-government relations with tribes,[20] the Policy continues to hold EPA to a “government-to-government” relationship when working to “protect the land, air, and water in Indian country.”[21]

To achieve these goals, EPA’s strategy has been to provide funding through the Indian Environmental General Assistance Program (GAP).[22] The GAP program provides funding in the form of “GAP grants” to pay for an environmental protection program for each tribe. To address illegal dumping on tribal lands, EPA provides funding through the GAP program, as well as through the “Tribal Solid Waste Management Assistance Project,”[23] for solid waste management planning and the cleanup of illegal dump sites. EPA explicitly will not, however, fund “long-term, on-going operation and maintenance of solid waste collection and recycling facilities.”[24]

Across all environmental media, GAP grants are not allowed to be used for ongoing programs. For example, although GAP will pay for basic air pollution training and for a study to determine the need for a longer-term air monitoring program, GAP funding may not be used to fund air monitoring activities on a long term basis, as that would “be considered ‘program implementation,’ which is not the focus of GAP funding.”[25] However, at least for air and water issues, once ongoing monitoring or program implementation is deemed necessary, a tribe can apply for other EPA grants to implement the ongoing program. For example, Clean Air Act Section 103 funding is available for long-term air projects,[26] and Clean Water Act Section 319 funding is available for implementing nonpoint source pollution control programs.[27] In contrast, similar funding for ongoing waste management is not available through EPA’s supplemental tribal waste management grant program, the Tribal Solid Waste Management Assistance Project, the goals of which are almost identical to GAP’s: to provide funding to tribes in order to develop solid waste management plans, assess and close illegal dump sites, and develop codes and ordinances against illegal dumping.

B. The nature of the problem

1. The nature of the environmental problem on tribal land

As of 1998, there were 1,104 open dumps on Indian lands; however, there is reason to believe that the number today is much higher.[28] These sites range from small piles of a few trash bags on the side of a road[29] to a dump on the Torres Martinez tribe’s land (one of 26 on the tribe’s land) which, until it was cleaned up in 2007 at a cost of $1.75 million, contained 400,000 cubic yards of waste and was 30 feet high.[30] Open dumping has been identified as being “among the most serious threats to public health and the environment” on tribal land.[31]

The Los Angeles Times’ description of the “AuClair dump site,” on the Torrez Martinez tribe’s land, describes the worst of illegal dumping on tribal land.

[The] site had it all. Fires routinely sent poisons into the air; more than 34,000 square feet of arsenic and chromium ash littered the place. Transients also lived there; drug abuse was rife, and there was at least one killing, say police and the EPA. AuClair’s biggest mistake was burning thousands of toxic wooden grape stakes. “How could we have known grape stakes were treated with arsenic and chromium?” he asked. “There was no sign saying, ‘This is hazardous to your health.’” . . . Still, the site is small compared with other illegal dumps on the reservation.[32]

It is not only extreme sites that pose risks. The dumps often contain hazardous materials, such as lead acid batteries and discarded household chemicals, which can leach into the soil and ground water. Dumps set on fire can release dioxins and other toxic chemicals and can aggravate respiratory problems like asthma.[33] Rodents and insects attracted to the sites pose additional health risks. The dump sites may attract children, who are vulnerable to physical hazards present in piles of trash such as needles, protruding nails, and sharp edges.[34] Finally, because illegal dumping can become a magnet for more illegal dumping and other criminal activities, dumping may deter economic development on tribal land, reinforcing the original problem.[35]

2. The difficulty in preventing dumping on tribal land

Part of the difficulty of dealing with illegal dumping on tribal land is that, in absence of ordinances prohibiting it, dumping is not exactly “illegal.” Although the Resource Conservation and Recovery Act (RCRA) is self-implementing on tribal land, and illegal dumping is technically banned by RCRA under section 4005(a), to be enforced except by citizen suit[36] or by EPA under a finding of “imminent and substantial endangerment,”[37] the tribal regulatory authority must enact a code or ordinance prohibiting illegal dumping and set up a system to enforce the code.[38] For small tribes without codes, or without ability to enforce those codes because of lack of tribal police or court systems, the result is that dumping is hard to prevent and even harder to punish.

In general, as with states, if a tribe is not able to implement delegable programs, EPA is the responsible implementor. But in practice, EPA is not in a position to enter 326 tribal areas to run solid waste programs.[39] County programs often have the infrastructure to manage and enforce illegal dumping on the local level. But without a tribe’s approval, counties cannot enforce their ordinances on tribal land, and they are not responsible for solid waste management on tribal land.[40] This quandary presents a difficult regulatory gap.

Developing an illegal dumping regulatory scheme is no small task, and small tribes especially may not have the economies of scale to make it worthwhile. The tribe would first need to write a code prohibiting dumping, which would likely require legal assistance. Then the tribe would need to establish a system of enforcement. This would require at least one employee to physically dig through piles of waste looking for hints of who dumped it, or for someone to monitor areas with frequent dumping. Finally, the tribe would need a system of adjudication. This could be as informal as designating the tribal council as arbitrators, or as complicated as establishing a tribal court system or working with a group of tribes to establish an intertribal court.[41] For small tribes, where illegal dumping may be the least of the tribe’s regulatory worries, setting up a regulatory system to address illegal dumping may not be feasible.[42]

Finally, and most importantly, preventing illegal dumping can be difficult without addressing the underlying reasons for the dumping. The reasons for illegal dumping can be as varied as the sources. Although some illegal dumping may come from construction and demolition contractors or other businesses, illegal dumping most often occurs in low-income and rural areas where trash collection is unavailable or unaffordable, which is where most tribes are. Poorer members of tribes are often unable to afford proper trash disposal, especially where self-haul distances are long.[43]

II. Why Paying for Trash Collection is Environmentally Sustainable and in EPA’s Interest

A. Paying for collection is in accord with EPA’s Indian Policy and trust responsibility

The reality of illegal dumping on tribal land militates for a different strategy than simply cleaning up dumps and expecting all tribes to create sustainable enforcement programs. The fact that many tribal members are living below poverty levels and residing in rural areas where trash collection may be unavailable or unaffordable means that illegal dumping likely comes from members themselves. And the substantial legal and economic barriers to developing enforcement programs, especially for small tribes, means that illegal dumping is difficult, if not impossible, to prevent and enforce against. If dumping comes from tribal members and enforcement is an unlikely option, then the most effective solution is for EPA to pay for collection.

Providing more flexibility in EPA funding for tribes to allow EPA to fund ongoing collection is in the agency’s interest for two reasons: 1) it is in accord with EPA’s Indian Policy and the Indian Self-Determination Act and 2) it increases the ability of the federal government to fulfill its trust responsibility.

First, increasing flexibility in EPA grant programs for tribes to elect the optimal solution for the tribe promotes the goals of EPA’s Indian Policy and the Indian Self-Determination Act; EPA’s goal to recognize tribal governments as the primary parties for managing tribal environments is undermined by grant policies that force tribes to choose one environmental solution (closing open dumps) over another environmental solution (providing trash collection). And EPA’s goal to assure tribal compliance with environmental statutes would surely be promoted by increased ability to prevent illegal dumping. Likewise, implementation of the Indian Self-Determination Act’s self-determination policy must be questioned “[w]hen problems, the methods for their solution, and the standards to evaluate success are defined from the outside”[44] and not by tribes themselves.

Second, giving the federal government flexibility to most effectively address an environmental problem on tribal land helps fulfill the government’s tribal trust responsibility. In general, the tribal trust responsibility requires the government to protect tribal lands and resources. Although the Supreme Court has rarely held that this duty creates a legal obligation to tribes,[45] the philosophy as animated in Presidential Executive Orders[46] and EPA’s Indian Policy governs federal government and EPA decision-making. Indeed, implicit in the provision of funding for dump cleanup is that Congress views addressing the problem of degradation of the tribal environment as within the realm of its trust responsibility.

Mary Wood has argued that with regards to environmental protection on tribal land, the trust duty should encompass three distinct obligations: 1) to “achieve a degree of protection that is appropriate to protect the tribe’s way of life on the reservation, even if this level of protection exceeds what is otherwise mandated by statutory law;” 2) “to prevent environmental threats from developing into actual harm;” and 3) “to restore reservation environments that have been adversely affected by pollution due to the government’s neglect.”[47] Wood’s analysis that an environmental protection duty should extend to preventing environmental threats from developing into actual harm supports the idea that EPA should provide funding for dump prevention, not just cleanup. By preventing dumping from occurring in the first place, EPA would more effectively fulfill a duty to prevent degradation of tribal lands than by waiting until the land is degraded to act.

B. Paying for collection may not be more expensive than paying for cleanup

Not only may funding trash collection lead to sustainable prevention of illegal dumping, but it may also be less expensive, even on a continuing basis, than EPA’s current approach of paying to clean up illegal dumps after they occur. Take the example of a sixty-person tribe in a rural area, either currently with no trash collection service, or where the majority of members are unable to pay for it. If each member produces the national average amount of solid waste a day, 4.6 pounds,[48] then in the course of a year the tribe collectively produces 99,360 pounds of trash, or about fifty tons. Although the cost for weekly trash collection varies greatly around the country, rates between twelve and twenty dollars a month, per household, are about average.[49] This means that funding trash collection for our hypothetical tribe would cost between $8,640 and $14,400 a year.

Funding annual dump cleanup for a fifty-ton dump is likely to cost a comparable amount, if not more. For example, using EPA’s Illegal Dumping Economic Assessment (IDEA) Cost Estimating Model, the estimated cost of cleaning up a fifty-ton dump, re-grading and re-seeding the dump area, and installing sixty feet of fencing to prevent further dumping in the area, is $12,300.[50]

This number is likely conservative. It assumes there are no bulky or difficult-to-remove wastes, like refrigerators or tires, and that the dump is relatively easy to clean up—the dump is not buried in the woods, at the bottom of a cliff, or covered in brush.[51] It does not include extra administrative costs of writing a grant to pay for the dump cleanup, or the administrative costs of overseeing the dump cleanup itself. Finally, it does not account for less easily monetizable costs, like harm to the environment, human health, and property values.[52]

The point of comparing the costs of funding waste collection to the costs of funding illegal dump cleanup is not to suggest that EPA should conduct such cost comparisons to determine whether the agency should fund collection or cleanup for a given tribe. Even if it turned out that funding trash collection would be more expensive than dump cleanup, continually cleaning up dump sites is not exactly an environmentally friendly or sustainable solution. The point is merely to show that, given a situation where the illegal dumping is coming from tribal members and there are significant barriers for the tribe to fund collection and/or to prevent illegal dumping, stepping in and funding collection may be cost-effective.

It may also be true that more funding is needed for solid waste management on tribal lands in general, and that truly fulfilling the tribal trust responsibility requires Congress to designate appropriate funding for the task. The Indian Health Service estimated it would cost $126 million to clean up the 1,104 open dumps identified as of 1998. But as of 2005, only slightly more than ten million dollars had actually been spent on cleanup.[53] It is a bleak reality that many tribes are located in low-income, rural areas. Congress should not ignore the unique problems caused by whittling once-great tribal nations into checkerboarded lands, forcing them into the far corners of rural areas, and then deciding that tribal self-determination and sovereign status should govern. Rather, it has a duty to provide funding adequate so that, at the very least, these lands might stay free from trash accumulation.

III. EPA’s Reasoning—Why EPA Might Focus Only on Dump Cleanup

If it is largely unrealistic, given the hurdles that tribes face in preventing and enforcing against illegal dumping, to assume all tribes can develop sustainable solid waste management programs, and if paying for ongoing trash collection can cost about the same as cleaning up dumps, why doesn’t EPA fund ongoing collection programs? Two possible reasons exist: 1) funding ongoing solid waste programs does not promote program sustainability; and 2) by funding dump cleanup, EPA can more tangibly show progress in Indian country.

A. Program Sustainability

Although EPA pays for ongoing environmental projects for tribes in other environmental areas, similar funding for ongoing waste management is not available through EPA’s supplemental tribal waste management grant program, the Tribal Solid Waste Management Assistance Project. The logic behind EPA’s more limited funding scheme for solid waste is either that 1) funding solid waste planning and dump cleanup is the best way for a tribe to become sustainable; 2) funding trash collection is inherently unsustainable; 3) if long-term solid waste projects are needed, such as ongoing collection, a tribe should be able to find outside funding; or 4) funding ongoing collection will disincentivize tribes to become sustainable in the absence of EPA funding.

This logic is flawed. First, for a small tribe the best solid waste management system may not involve a lot of plan and code writing. “EPA . . . tends to view the regulatory aspect of municipal [solid waste management] as being limited to the development of the municipal [solid waste management] plan and the development of codes and regulations, as though this were somehow miraculously self-enforcing.” [54] EPA might spend $50,000 to pay for the development of an illegal dumping enforcement code, but if this code sits on the shelf because there is no tribal system in place to enforce the code, this money has been wasted. If what a small tribe needs to prevent illegal dumping is merely a contract with a local waste hauler, a solid waste management plan and illegal dumping ordinances worthy of a state solid waste program are overkill.

Second, it is a false dichotomy to view dump cleanup as sustainable, but trash collection as unsustainable. To EPA, it may be that paying for day-to-day trash collection does not really seem sustainable; unlike ongoing air and water programs, which one day might lead to a decrease in air or water pollution, ongoing trash pickup, once funded by EPA, will never end. This is in contrast to the apparent sustainability of dump cleanup, where ideally, once a dump is cleaned up, it stays cleaned up. This logic breaks down, however, in cases where EPA pays for dump cleanup for tribes where it is unrealistic to expect that dumping will cease; in this case EPA could end up spending the equivalent amount of money it might have spent on collection on continual dump cleanup, without making any real environmental progress.

EPA should think of ongoing trash collection in the same light as ongoing water quality monitoring (which EPA funds through Clean Water Act Section 106 Grants)[55] or the construction of wastewater treatment (which EPA funds through the Clean Water Indian Set-Aside Grant Program).[56] Funding ongoing water monitoring has no obvious endpoint to funding, yet it is necessary to protect the tribal environment. Constructing wastewater treatment facilities is a sustainable solution to wastewater management, even though EPA could equally elect to clean up wastewater contamination after it happens. Similarly to the logic behind these programs, EPA should think of funding ongoing collection as necessary in some cases to protect the tribal environment and as preferable to the alternative of cleaning up dumps after they happen.

Third, the idea that a tribe will be able to find funding outside of EPA to implement ongoing solid waste management may be wishful thinking. Although some tribal councils will be able to use tribal funds or gaming revenue to start recycling centers and collection programs, these tribes are exceptional cases.[57] And while many states fund their illegal dumping prevention and cleanup programs with revenue received from tipping fees at state landfills or revenue from bottle bills,[58] since few tribes run commercial landfills and none have bottle bill programs, these common methods of revenue generation for dump prevention are unavailable.

Finally, there is a risk that by funding ongoing trash collection, EPA will disincentivize tribes to become sustainable in the absence of such funding. Even if the tribal government or tribal members at a future date found themselves easily able to pay for collection, they may at that point be unwilling to. Why pay for a service you have previously gotten for free? This problem may be solvable through stringent grant conditions and project review. The grant application might require a detailed analysis of the tribe and tribal members’ ability to pay for collection. There might also be strict requirements for grant renewal, including a demonstration that economic conditions have not changed for the tribe.

If EPA focuses on the goal of sustainability in terms of sustainable dump prevention, then funding ongoing solid waste activities like trash collection is not as odious. Rather, it is one option, funded along with solid waste management plans and codes, that may help tribes become sustainable. Where dump sites crop up year after year, and the circumstances of the tribe make solid waste enforcement and prevention next to impossible without paying for trash collection, EPA should recognize that helping to fund collection is necessary for that tribe to create a sustainable solid waste management program.

B. Showing Progress

Counting dumps cleaned up each year in each region of EPA is an easy method of reporting progress. So is counting new solid waste management plans written by tribes. As a result the Office of Resource Conservation and Recovery (ORCR), EPA’s office that provides solid waste funding to tribes, requires EPA regions to report the number of tribes covered by solid waste management plans and the number of dumps closed each year.[59] ORCR also sets goals for the number of plans to be completed and dumps to be closed by region.

This means that even if EPA regions had the ability to use the limited national funding they receive to fund ongoing collection programs, the regions would be loath to allocate funding away from areas that help meet national targets and goals.

On one hand, having easily definable national targets forces regions to be accountable for where money is spent, and if the national goals are well thought out, measurement helps move the regions toward national goals. On the other hand, that measurement undermines EPA regions’ abilities to tailor their funding approaches to each tribe’s needs. It also incentivizes EPA regions to fund the development of unnecessary solid waste management plans and to fund as many small and inexpensive cleanups as possible so as to meet numeric targets rather than to fund cleanup sites in order of priority based on dump site risk to public health.

There may be no easy proxy for long-term solid waste sustainability that can be measured and reported on a quarterly basis. But re-thinking EPA’s system of measurement of tribal solid waste progress is necessary if EPA’s goal is long-term sustainability. Perhaps a metric could be based on surveying tribes each year as to how much garbage is being dumped on the land and whether that amount has gone up or down in the past year. This would incentivize EPA to pick the most cost-effective and long-term method for preventing dumping, rather than just pay for a dump site cleanup and move on. Or perhaps the metric could report the number of tribes where every member has access to waste collection and/or recycling services. This would incentivize EPA to spend the most resources for the most economically- and geographically-disadvantaged tribes. Whatever the measurement system chosen, it should reflect goals of long-term sustainability, not just what progress points are most easily quantifiable.

IV. Alternative Funding Proposal

To best fulfill the goals of its Indian Policy, EPA needs flexibility to grant funding to pay for ongoing waste collection for tribes. Flexibility in funding is the best way to recognize tribal governments as the primary parties for managing the environment. At the same time, to the extent that paying for ongoing waste collection decreases illegal dumping, flexibility helps assure compliance with environmental statutes and helps the federal government fulfill its tribal trust obligation.

This increased flexibility requires no change in EPA statutory or regulatory language, and only a relatively minor change in grant language. EPA’s regulations for the GAP program specifically permit implementation of solid waste programs.[60] It is only the terms of the grant application that prohibit the use of funds for ongoing waste collection. To adopt this alternative proposal, the terms of either the GAP grant program or the Tribal Solid Waste Management Assistance Project grant program should be changed so that proposals for ongoing collection are allowed. [61] Because the circumstances of each tribe, as well as the reasons for illegal dumping, vary dramatically between tribes, it should be up to each tribe to determine how funding would best be used when the tribe applies for EPA grants, and for EPA grant project officers to make reasoned judgments about how to distribute limited funding.

Funding collection is not appropriate in every case. When illegal dumping is coming from off-tribal land, funding collection will do little good. Nor does funding collection make sense if the tribe or tribal members already pay, or have the ability to pay, for regular collection; this would be a waste of EPA’s limited funds, and a decrease in illegal dumping may be better achieved through a tribal educational campaign.

However, paying for trash collection may be the most economical, sustainable, and environmentally friendly solution to illegal dumping for tribes where the majority of illegal dumping comes from tribal members, there is no illegal dumping enforcement system and developing such a system may not be reasonable, and/or the majority of members are low-income or face significant barriers to access to waste collection. To ensure that funding for continuous collection goes only to tribes where such funding would make a difference, EPA could require through its grant programs that the tribe first complete an analysis of 1) where the illegal dumping is coming from; 2) whether creating an illegal dumping prevention and enforcement program is feasible; and 3) if illegal dumping is coming predominantly from tribal members, what the reasons are. If the tribe shows through its analysis that illegal dumping is caused predominantly because members and the tribe are unable to pay for collection, EPA should provide funding in the next phase of the grant to cover the costs of waste collection.

This funding for ongoing waste collection should be a backstop, however, and EPA should work with the tribe, as well as other federal and state agencies, to search for other sources of long-term funding and continue to promote creative solutions and cooperation among tribes.[62] In order to ensure that funding for ongoing collection does not disincentivize tribes to find other long-term solutions, grant conditions should be added to make sure ongoing collection is the best use of federal funds. For example, as a grant condition, additional reporting could be required on the effectiveness of ongoing collection in reducing illegal dumping and on attempts to supplement or supplant federal funding with other sources.

To evaluate whether this more flexible approach to funding is effective, EPA should change its program evaluation metrics from recording open dump cleanup and solid waste management plan development to metrics designed to evaluate long-term sustainability. As discussed above, possible metrics could include the number of tribes experiencing a decrease in the amount of illegal dumping each year and/or the number of tribes where every member has access to waste collection services.

Conclusion

Illegal dumping is not just a problem on tribal lands; low-income, rural areas across the nation grapple with the problem. But Native American tribes, especially small tribes, have significant limitations on the solutions available. EPA’s expectation that a small, rural tribe should be able to develop and implement its own illegal dumping enforcement and prevention program may not be realistic. EPA’s use of funds to clean up illegal dump sites in these areas, without meaningful attention and funding to prevent future dumping, is self perpetuating and self defeating. Removing restrictions on funding, and allowing tribes the flexibility to apply funding towards ongoing waste collection, would be better for the environment, be more cost effective, help EPA fulfill the goals of its Indian Policy, and help the federal government best meet its trust obligations to tribes.

* J.D., Harvard Law School, expected 2011. The author wishes to thank Joseph Singer for his guidance and the EPA Region 9 Tribal Solid Waste Team for their advice, data, and suggestions.

[1] Lynn E. Zender, Solid Waste Management on Indian Reservations: Limitations of Conventional Solid Waste Management Engineering 123 (1999) (unpublished Ph.D. dissertation, University of California, Davis) (citing Workshop on Solid Waste Disposal on Indian Lands: Hearings before S. Select Comm. on Indian Affairs, 102nd Cong. 102-72 (1992)), available at http://www.zendergroup.org/diss_contents.htm.

[2] Although this article refers to “solid waste collection” or “trash collection,” it does not mean to suggest that equal, if not greater, emphasis should not be placed on developing recycling and waste reduction programs.

[3] Although the Solid Waste Management Assistance Project is co-funded by the Indian Health Service, the Bureau of Indian Affairs, the Department of Defense, and the Department of Agriculture, and each of these agencies has some role in tribal solid waste management, this article will focus solely on EPA because of EPA’s lead role in providing funding and technical assistance for environmental protection on tribal land.

[4] Bureau of Indian Affairs, Frequently Asked Questions, http://www.bia.gov/FAQs/index.htm (on file with the Harvard Law School Library). There are 565 federally-recognized tribes total, 229 in Alaska.

[5] City-Data.com, Oregon, http://www.city-data.com/city/Oregon.html (on file with the Harvard Law School Library). Oregon is roughly 95,997 square miles.

[6] Klaus Frantz, Indian Reservations in the United States 45 (1999).

[7] Gregory Campbell, Indian Reservations, Dictionary of American History (2003), http://www.encyclopedia.com/doc/1G2-3401802046.html (on file with the Harvard Law School Library).

[8] Although a “government-to-government” relationship exists in theory, tribal land is subject to all federal laws, and tribal members living off reservations are subject to all state laws.

[9] See generally Cohen’s Handbook of Federal Indian Law (Nell J. Newton, et al. eds., 2005).

[10] Seminole Nation v. United States, 316 U.S. 286, 296-97 (1942). See also Johnson v. M’Intosh, 21 U.S 543 (1823); Cherokee Nation v. Georgia, 30 U.S. 1, 10 (1831).

[11] Cohen’s Handbook of Federal Indian Law, supra note 9.

[12] See, e.g., John H. Peacock, Jr., Lamenting Language Loss at the Modern Language Association, Am. Indian Q., Winter/Spring 2006, at 138.

[13] Cohen’s Handbook of Federal Indian Law, supra note 9.

[14] Frantz, supra note 6, at 44.

[15] See Jack Utter, American Indians: Answers to Today’s Questions 234 (2001). For example, the 30-member Cabazon tribe operates a successful hotel and casino, and each tribal member is reported to have an annual income of over $500,000. Cabazon’s success is not representative of gaming tribes, however. “For many Indian nations, particularly those far from large population centers from which to draw customers, gaming has made little impact on the problems of persistent poverty.” Harvard Project on Am. Indian Econ. Dev., The State of the Native Nations 117 (2008).

[16] William N. Thompson, Native American Issues 17 (2005).

[17] Id. at 17–18.

[18] James M. Grijalva, The Origins of EPA’s Indian Program, 15 Kan. J.L. & Pub. Pol’y 191, 278 (2006).

[19] Id. at 192, 292; see also U.S. Envtl. Prot. Agency, EPA Policy for the Administration of Environmental Programs on Indian Reservations (1984), available at http://www.epa.gov/indian/pdf/indian-policy-84.pdf.

[20] Memorandum from Barack Obama, President of the U.S., to the Heads of Exec. Dep’ts and Agencies (Nov. 5, 2009), available at http://edocket.access.gpo.gov/2009/pdf/e9-27142.pdf (affirming his commitment to consultation and collaboration with tribal officials).

[21] Memorandum from Lisa P. Jackson, Adm’r, U.S. Envtl. Prot. Agency, to All Envtl. Prot. Agency Employees (Jul. 22, 2009), available at http://www.epa.gov/indian/pdf/reaffirmation-memo-epa-indian-policy-7-22-09.pdf.

[22] American Indian Environmental Office, U.S. Environmental Protection Agency, Indian Environmental General Assistance Program (GAP), http://www.epa.gov/Indian/gap.htm (on file with the Harvard Law School Library).

[23] U.S. Envtl. Prot. Agency, FY 2009 Tribal Solid Waste Management Assistance Project: Overview Section, available at http://www.epa.gov/oswer/docs/grants/09-02.pdf.

[24] Region 9, U.S. Envtl. Prot. Agency, Sample General Assistance Program Activities 2 (2010), available at
http://www.epa.gov/region09/funding/pdfs/tribal-gap/gap2010-attcA-sampleactivities.pdf.

[25] Id. at 4.

[26] Id.

[27] See United States Environmental Protection Agency, Introduction to Tribal Water Pollution Prevention and Control, http://water.epa.gov/polwaste/nps/tribal/tribes2.cfm#AncOverv (on file with the Harvard Law School Library).

[28] Indian Health Service, U.S. Dept. of Health & Human Servs., Status of Open Dumps on Indian Lands 1 (1998), available at http://www.oehe.ihs.gov/Solid_W/1998_ODReport/1998OpenDumpsReport.pdf. EPA has not yet released an updated count.

[29] Zender, supra note 1, at 15.

[30] Jennifer Bowles, Cleanup funds are OK’d for illegal dump on reservation, Press-Enterprise, Nov. 15, 2006, http://www.pe.com/localnews/inland/stories/PE_News_Local_H_dump16.35f77d6.html (on file with the Harvard Law School Library).

[31] S. Rep. No. 103-253, at 1 (1994).

[32] David Kelly, Reservation’s Toxic Dumps a Multilayered Nightmare, L.A. Times, June 2, 2007, at A1.

[33] U.S. Environmental Protection Agency, Backyard Burning, http://www.epa.gov/waste/nonhaz/municipal/backyard/index.htm (on file with the Harvard Law School Library).

[34] Region 5, U.S. Envtl. Prot. Agency, Illegal Dumping Prevention Guidebook (1998), available at http://www.epa.gov/reg5rcra/wptdiv/illegal_dumping/downloads/il-dmpng.pdf.

[35] Id.

[36] EPA has some limited enforcement under Section 7003 for sites posing an “imminent and substantial endangerment” and 4005(c)(2), but it has rarely been used.

[37] Resource Conservation and Recovery Act (RCRA) § 7003, 42 U.S.C § 6973 (2006).

[38] Illegal Dumping Prevention Guidebook, supra note 34, at 5.

[39] There are 565 tribal areas, counting Alaska.

[40] Nor would county involvement likely be desirable from either a tribal or county perspective. Tribes may be disinclined to invite the county onto tribal land, and counties have little incentive to spend county funds on tribal waste management.

[41] Region 9, U.S. Environmental Protection Agency, Solid Waste Management on Tribal Lands, http://www.epa.gov/region9/waste/tribal/solidwastecode.html (on file with the Harvard Law School Library).

[42] See Lauren Wenzel, Environmental Risk in Indian Country 22 (1992) (“For small tribes with limited resources, environmental management means diverting funds from other essential programs. Economies of scale argue against extensive environmental programs for small tribes.”).

[43] Zender, supra note 1, at 123.

[44] Paul H. Stuart, Organizing For Self-Determination: Federal and Tribal Bureaucracies in an Era of Social and Policy Change, in American Indians: Social Justice and Public Policy 83, 95 (Donald E. Green and Thomas V. Tonnesen eds., 1991).

[45] See, e.g., United States v. Navajo Nation, 537 U.S. 488, 506 (2003) (holding that the Nation could not recover compensation for alleged breach of trust).

[46] Exec. Order No. 13,175, 65 C.F.R. 218 at § 2(a) (Nov. 9, 2000) (“Since the formulation of the Union, the United States has recognized Indian tribes as domestic dependent nations under its protection. The Federal government has . . . a trust relationship with Indian tribes.”); Memorandum on Tribal Consultation, 74 C.F.R. 215 (Nov. 5, 2009) (affirming President Obama’s commitment to consultation and collaboration pursuant to Executive Order 13175), available at http://edocket.access.gpo.gov/2009/pdf/e9-27142.pdf.

[47] Mary Christina Wood, Protecting the Attributes of Native Sovereignty: A New Trust Paradigm for Federal Actions Affecting Tribal Lands and Resources, 1995 Utah L. Rev. 109, 141–42 (1995); see also William H. Rodgers, Jr., Environmental Law in Indian Country 228–29 (2005) (“Under the Indian trust doctrine the federal government has…a duty to protect against damage or destruction [of the environment].” (quoting White Mountain Apache Tribe v. United States, 11 Cl. Ct. 614, 672 (1987)).

[48] Region 3, U.S. Environmental Protection Agency, Summary of the EPA Municipal Solid Waste Program, http://www.epa.gov/reg3wcmd/solidwastesummary.htm (on file with the Harvard Law School Library).

[49] See Nat’l Solid Waste Mgmt. Ass’n, Residential Trash Collection: An Essential Service at a Bargain Price, available at http://www.environmentalistseveryday.org/docs/research-bulletin/Research-Bulletin-Service-At-A-Bargain.pdf.

[50] U.S. Envtl. Prot. Agency, Illegal Dumping Economic Assessment Cost Estimating Model, available at http://www.epa.gov/region09/waste/tribal/open-dump.html. Inputs/assumptions included: 1) fifty tons of waste; 2) 1,600 square feet of area; 3) a rural setting in a primarily residential area; and 4) sixty feet of fencing would need to be installed. The default values in the model for labor, equipment, disposal costs, etc., were used.

[51] For example, the Hoopa tribe routinely cleans up dumps in steep, unstable terrain; see Region 9: Waste Programs, U.S Environmental Protection Agency, Solid Waste Management on Tribal Lands, Success Stories, http://www.epa.gov/region09/waste/tribal/success.html (on file with the Harvard Law School Library). In 2007, Redding Rancheria had to use extensive hand-labor to close a 300 square-yard dump along a stream bank in Sacramento. See id.

[52] Illegal Dumping Prevention Guidebook, supra note 34, at 3.

[53] Harvard Project on Am. Indian Econ. Dev., supra note 15, at 179–91.

[54] Zender, supra note 1 at 133 (citing Workshop on Solid Waste Disposal on Indian Lands: Hearing Before the S. Select Comm. on Indian Affairs, 102nd Congress (1991)) (statement of Mervyn Tano, Council of Energy Resource Tribes).

[55] Region 10, U.S Environmental Protection Agency, Clean Water Act Section 106 Tribal Funding, http://yosemite.epa.gov/R10/TRIBAL.NSF/Grants/CWA-S106 (on file with the Harvard Law School Library).

[56] U.S. Envtl. Prot. Agency, Clean Water Indian Set-Aside Grant Program: Answers to Frequently Asked Questions (2007), available at www.epa.gov/owm/mab/indian/pdfs/tribal-faq-highres.pdf.

[57] For example, the Pit River Tribal Council was able to support an ongoing solid waste and recycling program for the Tribe once EPA funding ran out. See Region 9: Waste Programs, supra note 51. The Tule River Tribal Council was able to keep a tribal transfer station running long-term after start-up funding from Indian Health Services. See U.S Envtl. Prot. Agency, Tribal Solid Waste Program Costing Tool 14 (2009), available at http://epa.gov/region09/waste/tribal/pdf/Tribal-Solid-Waste-Program-Costing-Tool.pdf.

[58] See, e.g., Solid Waste Disposal and Site Hazard Reduction Act, Assem. B. 2448 (Cal. 1987) (establishing the Solid Waste Disposal Site Cleanup and Maintenance Account based on annual fees assessed to landfill facility operators per tons of waste disposed).

[59] U.S. Envtl. Prot. Agency, FY 2010 Annual Plan 53 (2010), available at http://www.epa.gov/ocfo/budget/2010/fy_2010_annual_plan.pdf.

[60] “Tribes and Intertribal Consortia may use General Assistance Program funds for planning, developing, and establishing environmental protection programs and to develop and implement solid and hazardous waste programs for Tribes.” 40 C.F.R. § 35.545 (2010).

[61] The grant application for 2010 currently reads, “Examples of non-eligible activities include . . . long-term, on-going operation and maintenance of solid waste collection and recycling facilities.” To adopt this proposal, EPA would merely need to remove this sentence from the grant application. Region 9, U.S. Envtl. Prot. Agency, supra note 24, at 2.

[62] EPA currently works to promote well-run tribal waste management collection and dump cleanup/prevention programs through publications, regional and national meetings, and award programs. See, e.g., U.S. Environmental Protection Agency, Waste Management in Indian Country: Case Studies, http://www.epa.gov/waste/wycd/tribal/tribprog.htm (on file with the Harvard Law School Library).

Introduction

Persons with disabilities can pose complex challenges to law enforcement officers charged with keeping the peace. Police officers are often the first responders to persons with mental disabilities in crisis.[1] These problematic, high-stakes encounters have drastically increased in frequency as a result of the gradual shift from institutional to community-based care.[2] The difficulties associated with this integration process have been exacerbated by insufficient funding for outpatient support services.[3] To make matters worse, many mental or developmental disabilities when untreated can produce behaviors that aggravate officers or members of the public. Some scholars have even argued that our laws have effectively criminalized the symptoms of disabilities.[4] As a result, persons with disabilities are in a vulnerable position: they need a robust set of protections in place to provide some measure of security and predictability in their interactions with law enforcement. This article analyzes how the Americans with Disabilities Act (“ADA”)[5] can help bring stability and justice to the interactions between law enforcement officers and persons with disabilities.

Part I describes how most courts have correctly reached the conclusion that law enforcement activities are covered by the ADA. Although there has been limited resistance to this doctrinal development, the plain language of the statute and the legislative history both support the prevailing jurisprudence.[6] As the federal courts have addressed an increasing number of ADA cases brought by arrestees with disabilities, judges have generally succeeded in effectuating the remedial purpose of the ADA. However, Part II identifies one place where the judiciary has gotten it wrong. Under Title II of the ADA, persons with disabilities are entitled to reasonable modifications[7] to a public entity’s services, programs, and activities to avoid discrimination. The Eleventh Circuit has held that to state a claim for failure to provide reasonable modifications, a plaintiff must have made a specific request for accommodation.[8] Part II discusses how a “specific request” requirement is itself discriminatory because it fails to protect persons who cannot articulate their need for reasonable accommodations.

This article argues that the ADA places an affirmative duty on law enforcement agencies to provide reasonable modifications in their policies and procedures. To satisfy this anti-discrimination command of Title II of the ADA, law enforcement officers should receive training in the provision of reasonable accommodations. Part III explores some of the issues that surround police interactions with persons with disabilities and discusses how those issues have precipitated innovative training programs. Many disability rights groups have already pushed for better police training, and many have succeeded at the local and even state level.[9] Using those successful efforts as a model, Part IV proposes a national mandate solidifying the affirmative duty to provide reasonable accommodations in law enforcement activities. This article submits two model regulations for the Department of Justice (“DOJ”) to consider issuing pursuant to its ADA Title II authority. The first clarifies that persons with disabilities are entitled to reasonable accommodations even absent a specific request.[10] The second attempts to consolidate and nationalize the scattered local programs that provide training to law enforcement officers for their inevitable interactions with persons with disabilities.[11] Finally, Part IV suggests that the DOJ issue tailored guidance for law enforcement agencies, setting out examples and best practices for the provision of reasonable accommodations to persons with mental and developmental disabilities.

I. Why the ADA Covers Law Enforcement Activities

When a unanimous Supreme Court decided Pennsylvania Department of Corrections v. Yeskey,[12] it opened the floodgates for prison inmates with disabilities seeking to vindicate their rights in federal court under the ADA. Given the penal system’s well-documented inadequacies in fairly and equitably treating persons with disabilities,[13] Yeskey was a watershed decision for disability rights advocates. In the wake of Yeskey, plaintiffs were finally able to remedy ADA violations against incarcerated persons with disabilities.[14] However, Yeskey left unanswered whether ADA protections extend to arrestees and pre-trial detainees.

The ADA prohibits a “public entity” from discriminating against a qualified individual with a disability on account of that disability.[15] To state a claim under Title II, a plaintiff must allege that (1) he is a qualified individual with a disability, (2) who was excluded from participation in or denied the benefits of a public entity’s services, programs, or activities, and (3) such exclusion, denial of benefits, or discrimination was by reason of a disability.[16] Courts have agreed that a law enforcement agency constitutes a “public entity.”[17] The only point of contention about the ADA’s coverage of arrestees is whether an arrest—or any other law enforcement activity—constitutes a “benefit” of a public entity’s services, programs or activities. Without guidance from the Supreme Court, the lower courts have generally answered this question in the affirmative, finding that qualified arrestees and pre-trial detainees with disabilities are covered under Title II of the ADA.[18]

Shortly after Yeskey was decided, the Eighth Circuit set a strong precedent when it held that arrestees and pre-trial detainees are not overlooked by the ADA. In Gorman v. Bartch, a paraplegic man was arrested and transported in a vehicle not equipped for wheelchairs; he fell from a bench in the vehicle and suffered a serious injury that required surgery.[19] The court allowed the plaintiff’s Title II claim to proceed based on the plain language of the statute and a judicious application of the Supreme Court’s holding in Yeskey.[20] With a few exceptions,[21] the lower courts have to come to this sensible conclusion that arrestees are entitled to ADA protection, including reasonable accommodations.[22] However, the existing jurisprudence has not fully addressed all of the complicated and sensitive issues that arise in the interactions between persons with disabilities and law enforcement. In particular, courts have not grappled with the reality that many persons with disabilities are incapable of articulating their needs to police officers.

II. The Specific Request Requirement: ADA Jurisprudence Gone Awry

This article focuses on an issue that has given the courts trouble: whether persons with disabilities must make specific requests for modifications to state discrimination claims for failure to provide reasonable accommodations. A Title II claim for compensatory relief requires a showing of discrimination. A plaintiff can proceed on theories of (1) intentional discrimination, (2) disparate treatment, or (3) failure to make reasonable accommodations.[23] The first two types of discrimination claims—intentional misconduct and disparate treatment—are more easily identifiable. But some forms of discrimination can come in the form of normal treatment, when special treatment is necessary. The failure to provide reasonable accommodations embodies this kind of latent discrimination, and the justice system must be more vigilant to protect against it.

The ADA provides this extra security by placing an affirmative duty on law enforcement agencies and other public entities to provide reasonable accommodations. The ADA expressly provides that it is discriminatory when an entity fails to “take such steps as may be necessary to ensure that no individual with a disability is excluded, denied services, segregated or otherwise treated differently than other individuals because of the absence of auxiliary aids and services.”[24] As the Fifth Circuit stated, a “plain reading of the ADA evidences that Congress intended to impose an affirmative duty on public entities to create policies or procedures to prevent discrimination based on disability.”[25] This positive duty is not an entirely new or extraordinary burden on law enforcement agencies: it is functionally similar to the policing requirements set forth by the Supreme Court in Miranda v. Arizona.[26] An unconditional duty to provide accommodations would present problems. It would interfere with an officer’s ability to protect public safety, and officers also might have difficulty identifying disabilities. However, the ADA addresses these concerns by (1) requiring only reasonable modifications, and (2) providing a defense for modifications that fundamentally alter the nature of an activity.[27]

Furthermore, courts have already developed public-safety and exigent-circumstances exceptions to the anti-discrimination command of the ADA. For example, the Fifth Circuit held that “Title II does not apply to an officer’s on-the-street responses to reported disturbances or other similar incidents, whether or not those calls involve subjects with mental disabilities, prior to the officer’s securing the scene and ensuring that there is no threat to human life.”[28] This narrow exception allows officers to function in their law enforcement capacity without the unreasonable burden of proactively accommodating persons with disabilities. The courts are well suited to develop and refine the contours of these exceptions in the time-honored common-law tradition.

Unfortunately, some courts have restricted the availability of discrimination claims based on the failure to provide reasonable accommodations. The Eleventh Circuit held in Rylee v. Chapman that “[i]n cases alleging a failure to make reasonable accommodations, the defendant’s duty to provide a reasonable accommodation is not triggered until the plaintiff makes a ‘specific demand’ for an accommodation.”[29] In Rylee, bad facts resulted in bad law and a dangerous precedent for persons with disabilities. The plaintiff, a man with a hearing impairment, filed suit alleging intentional discrimination under Title II of the ADA based on his treatment during an arrest, booking, interrogation, and appearance hearing.[30] He was arrested after his son and wife called 911 and reported that Rylee had physically assaulted and threatened to kill his wife.[31] In the course of that 911 call, Rylee’s wife had informed officers that Rylee did not know sign language but could read lips when spoken to slowly.[32] During Rylee’s arrest, he made no specific request for accommodations and the officers did not provide an interpreter or communicate in writing. While being booked, Rylee requested to communicate in writing, and the booking officer complied.[33] The court found that Rylee could not state an ADA Title II discrimination claim because he had not articulated any specific request for accommodation that the police officers had failed to provide during his arrest.[34]

The court in Rylee took this highly unfavorable set of facts and drove the doctrine of ADA Title II discrimination in the wrong direction. The court supported its reasoning by citing an Eleventh Circuit case, Gaston v. Bellingrath Gardens & Home, Inc.,[35] which it used to justify the invocation of a “specific demand” requirement. The court’s reliance on Gaston, an ADA Title I employment discrimination case, was misguided. Even if requiring a specific request was legitimate under the ADA in the employment context, the court should not have imported it into Title II’s coverage of law enforcement activities. Persons with disabilities seeking accommodations in the employment context generally have the time and resources to organize and articulate requests; in contrast, during arrests, interrogations, and other pressured law enforcement activities, persons with disabilities lack the time to collect their thoughts or seek outside assistance. The specific request requirement fails to protect fairly and adequately persons with disabilities during interactions with law enforcement.

The Rylee decision effectively dismembers the anti-discrimination power of Title II of the ADA. Persons with mental and developmental disabilities in particular could be left without a cause of action under this narrow reading of the statute.[36] The lower courts should revisit and reinterpret the definition of discrimination to resolve the Eleventh Circuit’s flawed framing of the doctrine.

III. The Challenges of Training Law Enforcement: State and Local Solutions

If courts confirm that law enforcement agencies have an affirmative duty to provide accommodations, the question becomes how agencies can feasibly train police officers to comply. This question has already been answered in part by proactive measures taken on the state and local level. Since the Supreme Court decided Olmstead v. L.C.,[37] more and more persons with disabilities are becoming active members of mainstream society. As a result of this deinstitutionalization process, persons with disabilities are interacting with law enforcement on a more consistent basis. [38] Persons with mental and developmental disabilities are particularly prone to interactions with law enforcement officers, in part because some symptoms can provoke police encounters.[39] The sheer number of police interactions is not the only challenge. The vast array of disabilities makes the project of training and sensitizing law enforcement officers to the particularized needs of every kind of disability virtually impossible. Moreover, some disabilities manifest themselves in behaviors that are difficult to detect, understand, and control. These obstacles have not stopped local and state movements from succeeding in training law enforcement officers.

Perhaps the most famous local law enforcement training program is Memphis, Tennessee’s Crisis Intervention Team (“CIT”). The program began before the enactment of the ADA in response to the tragic shooting of a mentally ill person by a police officer.[40] The Memphis CIT operates by specially training a small unit of police personnel who are dispatched to any calls that involve persons with mental illnesses.[41] Regular patrol officers receive basic training on how to handle these complicated interactions and benefit from their cooperative work with the CIT members. The Memphis CIT model has spread to other cities, often after an unfortunate interaction between law enforcement and a person with a disability.[42] For example, Chicago has adopted a similar CIT program that promotes training and awareness through cooperative ventures with groups like The Autism Program of Illinois.[43] The cooperation and support of disability rights groups minimizes the financial burden on law enforcement agencies and allows persons with disabilities to have a voice in the training programs. Local CIT programs have proven very successful; they provide model policies for other law enforcement agencies seeking to introduce training programs.[44] Moreover, some states have taken more concrete legislative steps to ensure appropriate training of law enforcement.[45] These measures are the result of targeted advocacy; their successes showcase the viability and importance of a national mandate. The spread of training programs should not depend on local tragedies that mobilize advocates.

The absence of a federal directive leaves persons with mental and developmental disabilities especially at risk. All disabilities present challenges, but mental and developmental disabilities “present a particular challenge in the context of police encounters, where misunderstood, socially atypical behavior may result in a dangerous situation for both the officer and the individual.”[46] The ADA should not deny protection to persons with disabilities who require more nuanced accommodations. The ADA was not intended to create a hierarchy of persons with disabilities or provide tiered protections based on the ease of accommodation. The success of state and local movements should signal to the courts and the DOJ that a national mandate is timely, feasible, and commanded by the ADA.

IV. Nationalizing the Solution: Proposed New and Amended Regulations for the Department of Justice

The U.S. Department of Justice serves as the congressionally-mandated enforcer of Title II of the ADA.[47] In this capacity, the DOJ has issued regulations “to effectuate subtitle A of title II of the [ADA], which prohibits discrimination on the basis of disability by public entities.”[48] The ADA and the DOJ regulations both require a public entity to “make reasonable modifications in policies, practices, or procedures when the modifications are necessary to avoid discrimination on the basis of disability, unless the public entity can demonstrate that making the modifications would fundamentally alter the nature of the service, program, or activity.”[49] Thus, the plain language of the existing DOJ regulation places the burden on a public entity to make reasonable modifications unless the entity can raise a fundamental alteration defense. The dangerous, misguided, and judicially created “specific request” requirement is contrary to the DOJ’s existing regulations. The DOJ should clarify that there is an affirmative duty on law enforcement agencies to provide reasonable accommodations by amending the existing regulation.[50]

The DOJ should also consider issuing new, tailored regulations that provide more specific guidance to law enforcement agencies in the training of police officers.[51] The proposed model regulations for law enforcement agencies appended to this article contain a number of important elements: (1) a general duty to train, (2) with all deliberate speed, and (3) an undue burden defense. The general duty to train flows directly from the affirmative duty to provide reasonable accommodations. Officers must be able to recognize and understand a broad spectrum of disabilities before they can know when to make accommodations proactively. Training programs will empower the police with the knowledge necessary to avoid inadvertent discrimination. The proposed regulations also set forth that training shall proceed with all deliberate speed. This language, inherited from the Supreme Court’s school-desegregation jurisprudence, is not new to disability law.[52] The inclusion of a flexible but still exacting time mandate will give teeth to these new regulations while recognizing that some law enforcement agencies are better equipped than others to implement new training procedures.

The proposed regulations also contain an undue burden defense.[53] Comprehensive training of police officers will be a substantial financial and administrative burden to law enforcement agencies. Under the DOJ’s existing Title II regulations, the undue burden defense is limited to the accessibility section. If the DOJ attaches a similar defense to these targeted regulations for law enforcement activities, it will address the possibility of unwieldy costs. An unconditional affirmative duty on law enforcement to train officers in the provision of reasonable modifications for all disabilities would be unfeasible. However, comprehensive training of law enforcement officers is not necessary to establish an enforceable baseline standard of training that the judiciary can refine over time on a case by case basis. The purpose of these regulations is to motivate training regimes that eventually set a minimum standard that persons with disabilities can expect in their interactions with law enforcement.

Law enforcement agencies would also benefit from a set of DOJ provisions addressing mental and developmental disabilities. Persons with mental and developmental disabilities pose a unique set of challenges for law enforcement; without specific protections, this class will remain vulnerable to discrimination and reckless ignorance. These individuals can face substantial hurdles in overcoming discrimination: many do not know their rights and cannot communicate their needs. As a result, they are at the mercy of a system that does not proactively accommodate them.

The ADA commands particularized protections for the provision of reasonable accommodations in law enforcement activities. Persons with mental and developmental disabilities require more than simple modifications, translators, or physical assistance. The DOJ has set an example by issuing a detailed and constructive set of guidelines for law enforcement officers interacting with persons who have hearing impairments.[54] In that document, the DOJ provides not only a well-articulated set of requirements for law enforcement officers but also a useful set of “Practical Suggestions for Communicating Effectively.” In the practical suggestions section, the DOJ sets forth the everyday ways in which law enforcement officers can provide reasonable accommodations for persons with hearing impairments. Some of these may seem obvious, like “try to converse in a well-lit area” or “face the person and do not turn away while speaking.”[55] However, they serve two important purposes: (1) they help remedy institutional ignorance about persons with disabilities; and (2) they provide a standard of care for persons with disabilities to expect. The DOJ should provide similar guidance for accommodating persons with mental and developmental disabilities such that those persons can expect a baseline standard of care in their interactions with law enforcement.

If the DOJ can mobilize a task force to create this tailored guidance, law enforcement agencies can integrate the guidance into their training programs. Eventually, disability training will become a small subset of the multifaceted law enforcement training procedures. As disability training continues to develop and spread, it will infuse the law enforcement system with institutional knowledge about persons with disabilities. This knowledge will foster sensitivity to the needs of persons with disabilities and should help reduce the frequency of tragic encounters. Thus, although there will be significant startup costs to a national training mandate, there will be counterbalancing benefits including the vindication of the rights of this marginalized group.

Conclusion

The growing population of persons with disabilities living in community settings presents significant challenges to law enforcement. The inadequacy of outpatient services often results in persons with disabilities receiving improper or insufficient treatment. These systemic failures leave persons with mental disabilities susceptible to committing crimes or otherwise encountering law enforcement officers. Although the ADA covers arrestees, there is no particularized framework set out to protect persons with disabilities in these dangerous and high-stakes situations. The goal of this article is not to suggest that police forces are acting with discriminatory animus against persons with disabilities. Instead, this article is intended to motivate a discussion about the best way to effectuate the ADA’s protections in the context of law enforcement activities. Police officers must receive notice and training before we can expect them appropriately to modify policies and procedures for persons with disabilities. Until there is a more robust set of protections in place, persons with disabilities remain vulnerable. The DOJ should remedy this systemic weakness by issuing new and amended regulations that solidify the ADA’s protection of law enforcement activities and nationalize the police training movement.

APPENDIX 1: Proposed Model Regulations

Proposal 1: Amendment of Existing Regulation to Correct the Specific Request Requirement

28 C.F.R. § 35.130 General prohibitions against discrimination.[56]

…

(7) A public entity shall make reasonable modifications in policies, practices, or procedures when the modifications are necessary to avoid discrimination on the basis of disability, unless the public entity can demonstrate that making the modifications would fundamentally alter the nature of the service, program, or activity. When reasonable modifications are necessary to avoid discrimination, a public entity shall make these modifications regardless of whether persons with disabilities specifically articulate a request for accommodation.

Proposal 2: New Regulation Tailored for Law Enforcement Agencies

28 C.F.R. § 35.XXX – Additional Requirements for Law Enforcement Agencies

(a) A law enforcement agency shall make reasonable modifications in policies, practices, or procedures when the modifications are necessary to avoid discrimination on the basis of disability. When reasonable modifications are necessary to avoid discrimination, a law enforcement agency shall make these modifications regardless of whether persons with disabilities specifically articulate a request for accommodation. A law enforcement agency shall take all reasonable steps to train officers in the provision of reasonable modifications for persons with disabilities.

(b) Law enforcement agencies should proceed with all deliberate speed in training officers in the provision of reasonable modifications to persons with disabilities. The reasonableness of a law enforcement agency’s training program depends on the following non-exhaustive list of considerations: (1) the population of a law enforcement agency’s jurisdiction; (2) the number of persons with disabilities in a law enforcement agency’s jurisdiction; (3) the financial and administrative burdens of training, including the availability of outside support in training;[57] (4) the number of officers in a law enforcement agency; (5) a law enforcement agency’s history of interactions with persons with disabilities; and (6) the length of time elapsed since the effective date of this section.

(c) This section does not require a law enforcement agency to take any action that it can demonstrate would result in a fundamental alteration in the nature of a service, program, or activity, or in undue financial or administrative burdens. In those circumstances where personnel of the law enforcement agency believe that the proposed action would fundamentally alter the service, program, or activity, or would result in undue financial or administrative burdens, a law enforcement agency has the burden of proving that compliance with 35.XXX(a) or (b) of this section would result in such alteration or burdens.

(d) Nothing in this section shall be construed to limit a state or local government or law enforcement agency from maintaining a training program that exceeds the minimum standards required by this section.

* J.D. Candidate, Northwestern University School of Law, May 2011. I would like to dedicate this article to the late Professor Barry McNamara, whose keen intellect and compassionate spirit I will remember throughout my career.

[1] See Heidi S. Vermette et al., Mental Health Training for Law Enforcement Professionals, 33 J. Am. Acad. Psychiatry & L. 42, 42 (2005).

[2] See, e.g., Gary Whitmer, From Hospitals to Jails: The Fate of California’s Deinstitutionalized Mentally Ill, 50 Am. J. Orthopsychiatry 65, 65–75 (1980) (finding through empirical research that deinstitutionalization was transplanting persons with mental disorders into the criminal justice system).

[3] See Betsy Vickers, U.S. Dep’t of Justice, Memphis, Tennessee, Police Department’s Crisis Intervention Team 3 (2000).

[4] See, e.g., Jennifer L.S. Teller et al., Crisis Intervention Team Training for Police Officers Responding to Mental Disturbance Calls, 57 Psychiatric Serv. 232, 232 (2006).

[5] 42 U.S.C. §§ 12101–12213 (2000).

[6] See H.R. Rep. No. 485, pt. 3, at 50 (1990) (noting that persons with disabilities, such as epilepsy, are “frequently inappropriately arrested and jailed” and “deprived of medications while in jail”); see also 136 Cong. Rec. 11,461 (1990) (statement of Rep. Levine).

[7] This article uses “modifications” and “accommodations” interchangeably. Whether equating the two is a sound interpretation of the ADA is an issue for another article.

[8] Rylee v. Chapman, 316 F. App’x 901, 906 (11th Cir. 2009).

[9] See, e.g., Vickers, supra note 3, at 5 (describing Memphis’s revolutionary Crisis Intervention Team); Illinois Police Training Act, 50 Ill. Comp. Stat. 705/1-12 (2005).

[10] See Appendix 1.

[11] See Appendix 2.

[12] Pennsylvania Department of Corrections v. Yeskey, 524 U.S. 206, 213 (1998) (holding that ADA coverage under Title II extends to prison inmates). Justice Scalia, writing for the unanimous Court, reasoned that “[s]tate prisons fall squarely within the statutory definition of ‘public entity,’ which includes any department, agency, special purpose district, or other instrumentality of a State or States or local government.” Id. at 210.

[13] See, e.g., Henry J. Steadman et al., The Mentally Ill in Jail: Planning for Essential Services (1989).

[14] See, e.g., United States v. Georgia, 546 U.S. 151 (2006) (finding that the confinement of an inmate with paraplegia to a cell so small he could not rotate his wheelchair and failure to provide him accessible bathroom facilities constituted a colorable claim under Title II of the ADA).

[15] 42 U.S.C. § 12131 (2006).

[16] See 42 U.S.C. § 12132; Robertson v. Las Animas County Sheriff’s Dep’t, 500 F.3d 1185, 1193 (10th Cir. 2007).

[17] See, e.g., Gorman v. Bartch, 152 F.3d 907, 916 (8th Cir. 1998); see also McCray v. City of Dothan, 169 F. Supp. 2d 1260, 1272–76 (M.D. Ala. 2001).

[18] See, e.g., Gorman, 152 F.3d at 916.

[19] Id. at 909–10.

[20] See id. at 913.

[21] See, e.g., Hainze v. Richards, 207 F.3d 795, 801 (5th Cir. 2000) (holding that the duties imposed by Title II do not extend to officers making instantaneous decisions in potentially dangerous situations); Rosen v. Montgomery Cnty., 121 F.3d 154, 156–57 (4th Cir. 1997) (upholding summary judgment against a deaf man who requested use of a Teletypewriter phone during a drunk-driving arrest because “calling a drunk driving arrest a ‘program or activity’ of the County . . . strikes us as a stretch of the statutory language and of the underlying intent”); Patrice v. Murphy, 43 F. Supp. 2d 1156, 1160 (W.D. Wash. 1999) (denying the existence of a cause of action under the ADA because “an arrest is not the type of service, program, or activity from which a disabled person could be excluded or denied the benefits”).

[22] See, e.g., Gohier v. Enright, 186 F.3d 1216, 1222 (10th Cir. 1999); Delano-Pyle v. Victoria County, Tex., 302 F.3d 567, 575–76 (5th Cir. 2002); Calloway v. Boro of Glassboro Dep’t of Police, 89 F. Supp. 2d 543, 555–56 (D. N.J. 2000); Jackson v. Inhabitants of Sanford, No. 94-12-P-H, 1994 WL 589617, at *6 (D. Me. Sept. 23, 1994).

[23] See Schwarz v. City of Treasure Island, 544 F.3d 1201, 1212 n.6 (11th Cir. 2008).

[24] 42 U.S.C. § 12182(b)(2)(A)(iii) (2006).

[25] Delano-Pyle, 302 F.3d at 575; see also Pena v. Bexar County, No. 08-CV-1016-XR, 2010 WL 2545418, at *5–6 (W.D. Tex. June 21, 2010) (finding a county had an affirmative duty under Title I of the ADA to institute policies and procedures to prevent discrimination against persons with seeing-eye dogs seeking access to the courthouse).

[26] See Miranda v. Arizona, 384 U.S. 436 (1966) (holding that the Fifth Amendment places an affirmative duty on law enforcement officers to warn a suspect of certain rights before conducting a custodial interrogation).

[27] 42 U.S.C. § 12182(b)(2)(A)(iii).

[28] Hainze v. Richards, 207 F.3d 795, 801 (5th Cir. 2000).

[29] Rylee v. Chapman, 316 F. App’x 901, 906 (emphasis added) (citing Gaston v. Bellingrath Gardens & Home, Inc., 167 F.3d 1361, 1363 (11th Cir. 1999)).

[30] Id. at 903.

[31] Id.

[32] Id.

[33] Id. at 904.

[34] Id. at 906.

[35] 167 F.3d 1361 (11th Cir. 1999) (upholding summary judgment against a woman with a physical disability who, without requesting any accommodation, resigned and filed an ADA Title I discrimination suit when her employer added heavy lifting to her job description).

[36] Persons with disabilities can still state claims for wrongful arrest if they are targeted because of their disabilities. See Rachel E. Brodin, Remedying a Particularized Form of Discrimination: Why Disabled Plaintiffs Can and Should Bring Claims for Police Misconduct under the Americans with Disabilities Act, 154 U. Pa. L. Rev. 157, 162 (2005).

[37] Olmstead v. L.C., 527 U.S. 581 (1999) (setting forth the circumstances under which the ADA requires deinstitutionalization and community integration of persons with disabilities).

[38] Gordon Frankle et al., Clozapine-Associated Reduction in Arrest Rates of Psychotic Patients with Criminal Histories. 158 Am. J. Psychiatry 270 (2001) (finding nearly fifty percent of the urban mentally ill receiving outpatient services have histories of arrest).

[39] See Linda Teplin, Keeping the Peace: Police Discretion and Mentally Ill Persons, Nat’l Inst. Just. J., July 2000, at 12.

[40] Sam Cochran et al., Improving Police Response to Mentally Ill People, 51 Psychiatric Serv. 1315, 1315 (2000).

[41] Id.

[42] See, e.g., Mike Tolson, Tense Encounters, Tragic Consequences: Advocates for Mentally Ill Say Police Training Can Defuse Potentially Deadly Standoffs, Hous. Chron., Sept. 26, 1999, at A1 (describing how the tragic deaths of persons with mental disabilities in interactions with law enforcement have led to successful local programs to train police officers).

[43] Press Release, Chicago Police Department, Chicago Police Crisis Intervention Team, Easter Seals, and The Autism Program of Illinois Sponsor Autism Safety Awareness Event (Apr. 17, 2009), available at http://www.chicagopolice.org/MailingList/PressAttachment/releaseautism.pdf (noting that “[a]utism is the fastest growing developmental disability and our police officers, as well as the community, must be aware of behavioral cues and be prepared to intervene with appropriate responses to these challenges”).

[44] See, e.g., The Florida Crisis Intervention Team Program Model, Fla. Partners in Crisis, available at www.flpic.org/images/Florida%20CIT%20Program%20document.pdf.

[45] See, e.g., Bob Meadours Act, 79(R) S.B. 1473 (2005) (codified as amended at Tex. Educ. Code Ann. § 96.641 (2009); Tex Occ. Code Ann. §§ 1701.253, 402 (West 2009)); Illinois Police Training Act, 50 Ill. Comp. Stat. 705/1-12 (West 2005) (requiring police training curriculum to “include a block of instruction aimed at identifying and interacting with persons with autism and other developmental disabilities, reducing barriers to reporting crimes against persons with autism, and addressing the unique challenges presented by cases involving victims or witnesses with autism and other developmental disabilities”).

[46] Elizabeth Hervey Osborn, What Happened to Paul’s Law?: Insights on Advocating for Better Training and Better Outcomes in Encounters Between Law Enforcement and Persons with Autism Spectrum Disorders, 79 U. Colo. L. Rev. 333, 334 (2008).

[47] See 42 U.S.C. § 12134 (2000).

[48] 28 C.F.R. § 35.101 (2009).

[49] 42 U.S.C. § 12182(b)(2)(A) (2006).

[50] See infra Appendix 1, Proposal 1.

[51] See infra Appendix 1, Proposal 2.

[52] See Corey H. v. Bd. of Educ., 995 F. Supp. 900, 918 (N.D. Ill. 1998).

[53] The undue burden defense is already well established in the ADA employment discrimination context. See 42 U.S.C. § 12111(10)(B) (2000) (setting forth factors for courts to consider in assessing the burden of providing reasonable accommodations).

[54] See U.S. Dep’t of Justice, Civil Rights Division, Communicating with People Who Are Deaf or Hard of Hearing—ADA Guide for Law Enforcement Officers, http://www.ada.gov/lawenfcomm.htm (on file with the Harvard Law School Library).

[55]Id.

[56] Proposed amendment appears in bold.

[57] This clause should accommodate rural or underfunded law enforcement agencies that lack both the resources to invest in specialized training and the connections to disability rights groups that have historically helped provide such training at little or no cost. See, e.g., Press Release, supra note 43 (describing a cooperative effort between a non-profit and law enforcement to train officers).

Introduction

Spurred to action by crisis in global credit markets, the United States Congress passed the Credit Card Accountability Responsibility and Disclosure Act of 2009 (“Credit CARD Act”).[1] In the Credit CARD Act, Congress turned away from more than thirty years of primarily disclosure-only regulation of credit cards. The first section of this article considers important arguments for increased consumer protection regulation of credit card contracts, focusing on market failures in the market for credit card contract terms. The second section explains many of the changes to credit card regulation brought about by the Act. This section outlines congressional action that sought both to create consumer protections for everyone and to limit access to credit cards by young adults. The third section discusses some advantages and disadvantages of the new regulations and suggests that Congress and regulators focus on issuer practices rather than perceived vulnerable groups when creating consumer protections. The final section concludes and outlines one recent additional modification to the landscape of consumer credit regulation.

I. Credit Cards and Market Failures: The Case for Substantive Federal Regulation

Beginning in the 1960s, Congress and the courts created a uniform system of federal regulation of credit card contracts. Congress created a disclosure-focused system intended to prevent outright deception and help consumers shop among credit offers.[2] At the same time, court rulings ensured that state governments could not step in to create substantive regulations limiting the terms card issuers offered to customers.[3] Federal regulations, bolstered by court decisions preempting state regulations to the contrary, created a market that permitted great flexibility in terms of freedom of contract between consumers and credit card issuers. So long as issuers made required disclosures, they could offer cards with almost any terms.

The basic economic argument for freedom of contract is that rational individuals acting freely upon their own preferences will make decisions that improve their overall economic situation.[4] This argument is based on 1) perfect rationality and 2) perfect information.[5] Market failures, like high transaction costs or significant information asymmetries, are real-world obstacles that confound straightforward economic theory and can weigh on the side of government intervention in some markets.[6] Psychological and economic research demonstrate that imperfect rationality and imperfect information contribute significantly to the propensity of consumers to enter into potentially detrimental contracts with onerous terms.[7] The problem of asymmetric information between consumers and credit card issuers is compounded by consistent patterns of “irrational” consumer behavior in the selection and use of credit products.[8]

When a consumer makes unrealistic assumptions about the future, he can make costly mistakes. Unrealistic assumptions about the future are demonstrated in two prominent theories in the field of behavioral economics: hyperbolic discounting and overoptimism about future events. Hyperbolic discounting is the well-documented finding that individuals tend to value, or “discount,” consumption in the present differently from consumption at points far in the future.[9] Under the assumptions of perfect rationality, a consumer would always make the same trade-offs over identical time periods regardless of when those trade-offs would occur.[10] For example, under the traditional model, a consumer would always make the same choice whether she was deciding between $100 tomorrow and $110 a week from tomorrow, or $100 fifty-two weeks from now and $110 fifty-three weeks from now.[11] Individuals tend not to make consumption decisions in this manner; rather, empirical evidence shows that individuals tend to discount closer to a model called hyperbolic discounting.[12] Under this model, small changes in time, in the near term, can lead to large changes in how an individual values consumption, while valuing tends to become more consistent when an individual considers times further in the future. [13] Using the example above, individuals might tend to choose $110 fifty-three weeks from now (over $100 in fifty-two weeks); while at the same time choosing $100 tomorrow (instead of the consistent choice of $110 one week from tomorrow).[14]

Thus, individuals will frequently be willing to defer consumption from one time in the future to another, yet have great difficulty shifting the same amount of consumption from tomorrow until the day after tomorrow. The first economist to publish the effects of a hyperbolic discounting model explained: “It seems very human for a person who decides that he ought to increase his savings to plan to start next month, after first satisfying some current desires; or for one to decide to quit smoking or drinking after the weekend, or to say that ‘the next one is the last one.’”[15]

Overoptimism similarly constitutes a powerful cognitive bias. Overoptimism is, however, easier to explain than hyperbolic discounting. Individuals consistently overestimate the likelihood that good things will happen to them and bad things will not.[16]

Credit card issuers vigorously market their products in ways that benefit from consumers’ demonstrated imperfect rationality and exacerbate consumers’ information problems. Perhaps the most common and well-studied credit card marketing technique in this regard is the low introductory interest rate. Consumers who are discounting their future expenditures differently from their present expenditures will be excited by the low interest rate in the short term and unconcerned with the interest rate increase six months away.[17] Overoptimistic consumers do not believe they will be in debt by the end of the introductory period and thus will be unconcerned with the rate increase in six months; they believe they will never end up paying the higher rates.[18] Experiments investigating the economic psychology of low introductory interest rates indicate that consumers frequently make choices that needlessly increase their costs and lower their overall welfare because they continue to carry balances on the same card after the rate increase.[19]

Other important credit card features that permit issuers to benefit from consumer confusion and imperfect rationality include late payment and other penalty fees, interest rate increases based on late payments on unrelated accounts (“universal default”), and the practice of using payments to pay down balances bearing a lower interest rate (such as balance transfers) before balances bearing higher interest rates (such as cash advances).[20] These credit card marketing and billing practices, along with others that allowed issuers to profit from demonstrated consumer weakness, helped motivate Congress to bring tighter regulation to credit card contracts.

Beyond the demonstrated imperfect rationality of the average consumer, advocates and academics argue that some groups are particularly susceptible to potentially deceptive credit card marketing practices. Some, including Professor Creola Johnson, point to college-age adults’ lack of understanding of credit card contracts and sometimes dangerous use of credit.[21] College students are less likely to be generally financially literate or to understand the terms of credit card contracts[22] and more likely to find themselves overwhelmed by debt than older adults. [23] College students are also more likely to consider drastic and harmful responses to heavy debt burdens.[24] Other critics make persuasive arguments along similar lines with regard to the elderly[25] and the mentally disabled.[26]

II. The Credit CARD Act

The Credit CARD Act brings tighter regulation to the substantive terms of all consumer credit card contracts and limits access to credit cards by eighteen- to twenty-one-year-olds.

A. New Regulation of Credit Card Issuer Practices for All Consumers

Congress created new, broad-reaching limitations on consumer credit card contracts. The Credit CARD Act takes on many of the marketing and billing practices discussed above that allow issuers to profit from demonstrated consumer weaknesses.

Perhaps the most important and most debated element of the legislation was the limit placed on credit card issuers’ ability to raise interest rates without notice.[27] The Act requires issuers to provide cardholders with forty-five days notice of any increase in interest rates.[28] To the extent a consumer can access lower interest rate credit cards or other forms of relatively inexpensive credit, the forty-five day notice may provide an opportunity to refinance debt at a lower interest rate.[29]

The Act also bans the longstanding industry practice of raising interest rates on a credit card based on a default or missed payment on an unrelated loan.[30] The Act goes further to name and tightly circumscribe the situations under which an issuer may increase interest rates.[31] The Credit CARD Act similarly bans “double-cycle billing.” Card issuers “double-cycle bill” by basing interest charges on a consumer’s average balance across two billing periods rather than looking only to the unpaid balance at the end of a single billing period.[32] This practice “eliminates the interest-free period of a consumer who moves from nonrevolving to revolving status.”[33] Under double-cycle billing, consumers would not receive any benefit from the interest-free grace period if they paid off most but not all of their monthly statement.[34] Other new regulations require that issuers apply payments to balances bearing higher interst rates before balances with lower interest rates,[35] accept all forms of payments equally,[36] mail bills twenty days before a payment is due,[37] and accept payments one business day later if due on a date when the “creditor does not receive or accept payments by mail” such as a weekend or holiday.[38]

Congress banned particular practices with regard to contracts for so-called “fee harvester” cards.[39] Under the Act, no credit card may accrue fees in excess of twenty-five percent of the credit available on the card in the first twelve months of the account, with a few exceptions.[40] The highly specific nature of the new billing rules reflects consumer frustration with particular industry practices. Similarly, these new rules appear to be a direct congressional response to concerns of consumer advocates.[41]

While Congress did not go so far as to cap the interest rate that credit card issuers can charge, some regulations appear to reach nearly every other revenue source available to issuers. Congress limited penalties and fees to those “reasonable and proportional to such omission or violation” committed.[42] This requirement recreates, at the federal level, some previously preempted state regulations.[43] Congress initially gave the power to set limits on credit card fees to the Federal Reserve Board (“Fed”). In its new regulations created under this statutory language, the Fed limited most late payment fees to $25 or $35, banned “inactivity fees,” and capped over-the-limit fees at $35.[44]

The Credit CARD Act created some new disclosure-oriented regulations in addition to new substantive regulations. One significant new disclosure requirement is that issuers must provide to consumers in their monthly statements the “number of months . . . that it would take to pay the entire amount of that balance, if the consumer pays only the required minimum monthly payments and if no further advances are made.”[45] Most credit card issuers had lowered the required minimum payments to two percent of the outstanding balance.[46] By requiring issuers to disclose the time it will take to pay off the debt, this new regulation will force consumers to face specific information about just how far into the future they will be burdening their consumption choices.[47] In spite of being, on its face, a disclosure regulation, this new regulation, like most of the new rules described above, reaches beyond just addressing practices which take advantage of asymmetric information to those premised on imperfectly rational consumer behavior.

B. New Regulations to Protect Young Adults

Title III of the CARD Act is “Protection of Young Consumers.” This Title limits the availability of credit cards to young adults and limits issuer marketing on college campuses. New limitations prevent consumers under the age of twenty-one from opening credit card accounts unless the consumer can provide either “the signature of a cosigner, including the parent, legal guardian, spouse, . . . having a means to repay debts . . . , indicating joint liability for debts incurred by the consumer” or “financial information . . . indicating an independent means of repaying any obligation arising from the proposed extension of credit.”[48]

The Act creates new disclosure requirements and other regulations for “affinity programs” between card issuers and colleges and universities.[49] Credit card issuers are banned from offering “any tangible item to induce” students to apply for credit cards on a university campus, near a university campus (as determined by the Fed), or at a university-sponsored event.[50]

III. What Is the Best Way Forward for Federal Credit Card Consumer Protections: Protecting Vulnerable Groups or Banning Deceptive Practices?

Congress created at least two different kinds of new substantive regulations in the Credit CARD Act: limitations on access to credit cards by eighteen- to twenty-one-year-olds and limitations on the billing and marketing practices issuers can use when offering credit to everyone. At least three significant problems arise when focusing new protections on perceived high-risk groups such as young adults,[51] including: 1) creating incentives for credit card issuers to shift dubious practices from group to group or location to location; 2) potentially forcing those in at-risk groups to take on even riskier or more expensive credit; and 3) making it more difficult for responsible individuals within protected groups to establish valuable credit histories.

If a significant percentage of eighteen- to twenty-one-year-olds can claim a separate source of income (all that might be needed to secure a credit card), then the exception for independent means of repayment might swallow the rule.[52] Similarly, moving marketing away from campus events and refocusing it on other events not sanctioned by universities, but with nearly identical audiences, may prove to be little protection for students or anyone else.

If the offering of trinkets at college sporting events is viewed as a deceptive practice that preys on students, how is the same offer of the same trinket at a professional sporting event different? Picking and choosing groups to protect might simply convince the issuer to refocus its marketing tactics on other targeted groups or locations. To the extent that Congress believes it has identified an unacceptable practice, it should ban that practice outright, as Congress did with the marketing of so-called “fee-harvester” cards[53] and the potentially deceptive use of the term “fixed rate.”[54]

Congress’s sharp limits on access to credit cards for eighteen- to twenty-one-year-olds could have the unintended consequence of forcing individuals in this age group to seek out more dangerous and expensive forms of credit and lose access to the valuable convenience of a credit card.[55] A survey of payday lending customers found that while slightly more than half of payday loan customers have access to credit cards, more than half of these customers said they had “refrained from using a bank card in the past year because their credit limit would have been exceeded.”[56] Lack of access to credit cards as a source of credit may form an important incentive for taking on expensive payday loans. Most payday loans are advertised as ten to thirty day credit, a period so short that a similar “loan” taken through a credit card is often free.[57] A typical payday loan immediately starts accruing interest and fees at nearly 400% APR.[58] Congress’s protections for eighteen- to twenty-one-year-olds may lead some in need of truly short-term credit into the market for payday loans and pawnshops when credit card debt could serve as a less expensive and more convenient alternative.[59]

By limiting access to credit cards for eighteen- to twenty-one-year-olds, Congress may be limiting the ability of responsible young people to establish valuable credit histories.[60] Credit cards are frequently the consumer’s first step in creating a credit history. Positive credit histories serve an important function for many consumers as the basis for credit scores that can lower the cost of car and home loans.[61] While some young people will be able to build their credit histories before twenty-one by having their parents as co-signers, many will not be so lucky. Young people with difficult relationships with their parents and those whose parents have poor credit histories will likely struggle to build responsible histories of their own.

Banning deceptive products and practices, where Congress can successfully identify them, will not create all the same problems as chasing targeted populations. Focusing protections on targeted groups may simultaneously overprotect groups perceived as vulnerable while underprotecting everyone else. Overprotecting a group from the dangers of credit card use can shut that group off from the convenience and value of credit cards. Whether Congress has done this to eighteen- to twenty-one-year-olds is yet to be seen, but the determining factor will likely be the stringency with which banks and regulators interpret the requirement that eighteen- to twenty-one-year-olds demonstrate an independent means of repayment.[62] The danger of underprotecting everyone else may come from a congressional sense of accomplishment in protecting the vulnerable from abuse by credit card agencies, which slows the prospects for future legislation with more general protections. The Credit CARD Act does not provide new protections focused on the elderly, the mentally handicapped, or other potentially vulnerable groups, which all possess some characteristics similar to those that led Congress to protect the eighteen- to twenty-one-year-old population.[63] The lack of protections in the Credit CARD Act for the mentally handicapped and elderly serves as an important reminder of groups left out. Whether or not Congress decides to provide protections to these groups, the next convoluted manipulation of billing periods akin to double-cycle billing will likely arise soon with a broad impact well beyond perceived high-risk groups.

Conclusion

In the Credit CARD Act, Congress began regulating the substantive terms of credit card contracts after more than thirty years of focusing on disclosure-only regulation. Congress likely moved further in the direction of substantive regulation with the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) in July 2010.[64] The Dodd-Frank Act created the Consumer Financial Protection Bureau (the “CFPB”) to regulate financial products offered to consumers.[65] Congress created the CFPB within the Fed but gave the new agency significant independence.[66] The Director of the CFPB will serve a five-year term, will be appointed by the President and confirmed by the Senate, and will only be removable for cause.[67] The Fed cannot make hiring or firing decisions within the CFPB, and the Fed cannot intervene in any matters before the CFPB’s Director.[68] The Dodd-Frank Act moves oversight authority for TILA and other similar consumer protection laws to the CFPB.[69] This shift in regulatory authority includes new rules created by the Credit CARD Act.

Congress gave the CFPB authority to prevent “unfair, deceptive, or abusive act[s] or practice[s] under Federal law in connection with any transaction with a consumer for a consumer financial product or service.”[70] The ability of the CFPB to ban particular practices, including those broadly defined as “deceptive,” should provide the new agency the power and flexibility to effectively address new problematic marketing and billing practices that issuers may attempt to substitute for those banned in the Credit CARD Act. On the other hand, the search for loopholes in new agency regulations or influence over the rule-making process may give issuers a new front to fight back against congressional incursion into their practices.

Congress changed course in the Credit CARD Act. It responded to the serious concerns of consumer advocates by attempting to prevent some deceptive practices and to limit young people’s access to credit cards. Consumer protection advocates will continue to argue for more protections and will direct their proposals at the CFPB.[71] Industry representatives and other supporters of freedom of contract will continue to argue that each new regulation will simply hurt consumers and the economy by raising the cost of credit. The true impact of Congress’s new rules on vulnerable consumers, consumers as a group, and the economy as a whole will only become clear with time.

* Northwestern University School of Law J.D. 2011. The author thanks Rebecca Luck for making sense out of the first draft of this article and dedicates this article to her. The author also thanks Sara Luck, Aaron Kabaker, and Joanna Lawler for invaluable suggestions and support.

[1] Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, Pub. L. No. 111-24, 123 Stat. 1734 (2009) (to be codified in scattered sections of 15 U.S.C.) (signed into law by President Obama on May 22, 2009).

[2] The history of federal credit card regulation falls largely outside the scope of this article. For a useful explanation of congressional action in this arena, beginning with the Truth in Lending Act of 1968, see Christopher L. Peterson, Truth, Understanding, and High-Cost Consumer Credit: The Historical Context of the Truth in Lending Act, 55 Fla. L. Rev. 807 (2003).

[3] For a helpful explication of court decisions consistently holding that federal disclosure regulations preempt state substantive regulation of consumer credit contracts, see Mark Furletti, The Debate over the National Bank Act and the Preemption of State Efforts to Regulate Credit Cards, 77 Temp. L. Rev. 425 (2004).

[4] See Marques Benton, Stephan Meier & Charles Sprenger, Overborrowing and Undersaving: Lessons and Policy Implications from Research in Behavioral Economics 4 (Dep’t of Pub. and Cmty. Affairs and Ctr. for Behavioral Econ. & Decision Making, Fed. Reserve Bank of Boston, Discussion Paper No. 07-4, 2007), available at http://www.bos.frb.org/commdev/pcadp/2007/pcadp0704.pdf (“Economics has primarily modeled saving and borrowing outcomes as optimal products of rational decision-making processes. There is, however, a growing body of evidence that high levels of debt and low levels of savings are actually considered by the decision makers themselves as being far from ideal.”).

[5] See Oren Bar-Gill & Elizabeth Warren, Making Credit Safer, 157 U. Pa. L. Rev. 1, 7–8 (2008).

[6] See Oren Bar-Gill, Seduction by Plastic, 98 Nw. U. L. Rev. 1373, 1377 (2004) (“Even in the absence of supra-competitive profits, legal intervention may be required to prevent the potentially significant welfare costs generated by the underestimation bias.”). But see Tom Brown & Lacey Plache, Paying with Plastic: Maybe Not So Crazy, 73 U. Chi. L. Rev. 63, 67 (2006).

[7] One study found overall welfare decreases resulting from the dramatic increase in consumer indebtedness during the 1980s and 1990s in models accounting for inconsistent (hyperbolic) discounting rates. Makoto Nakajima, Rising Indebtedness and Hyperbolic Discounting: A Welfare Analysis (Fed. Reserve Bank of Phila., Working Paper No. 09-25, 2009), available at http://www.philadelphiafed.org/research-and-data/publications/working-papers/2009/wp09-25.pdf.

[8] See Barr-Gill & Warren, supra note 5, at 33–38.

[9] See David Laibson, Golden Eggs And Hyperbolic Discounting, 112 Q. J. Econ. 443, 445 (1997) (“Research on animal and human behavior has led psychologists to conclude that discount functions are approximately hyperbolic . . .”); Stephan Meier & Charles Sprenger, Impatience and Credit Behavior: Evidence from a Field Experiment 25 (Fed. Reserve Bank of Boston, Working Paper 07-3, 2007), available at http://www.bos.frb.org/economic/wp/wp2007/wp0703.pdf (“The dynamic inconsistency inherent to present-biased time preferences indicates that some of this borrowing may be suboptimal, given individuals’ long-run plans.”).

[10] See Robert H. Frank, Departures from Rational Choice: With and Without Regret, in The Law and Economics of Irrational Behavior 13, 16–17 (Francesco Parisi & Vernon L. Smith eds., 2005).

[11] See id.

[12] See id.

[13] Standard economic theory, on the other hand, predicts that individuals on average discount money at the same rate at which the market discounts the present value of money, that is, prevailing interest rates. In other words, individuals on average theoretically value delaying the enjoyment of spending $10 for one year at the amount of money that a bank would be willing to pay that consumer in interest for holding $10 more dollars in their savings account for a year. See Robert H. Strotz, Myopia and Inconsistency in Dynamic Utility Maximization, 23 Rev. of Econ. Stud. 165, 172 n.1 (1956) (distinguishing one aspect of his novel explication of inconsistent discount rates over time from “the familiar proposition that the marginal rate of substitution between present and future consumption is determined in equilibrium by discounting at the market rate of interest.”).

[14] The fact that people tend to discount in a way that does not conform to traditional economic models of perfect rationality does not mean that people are necessarily acting irrationally. Individuals can have rational or irrational reasons for valuing consumption tradeoffs differently in the next few weeks as they would value those tradeoffs a few years down the road. See Frank, supra note 10, at 18.

[15] Strotz, supra note 13, at 177.

[16] See Neil D. Weinstein, Unrealistic Optimism About Future Life Events, 39 J. Personality & Soc. Psych. 806, 818 (1980).

[17] See Bar-Gill, supra note 6, at 1403.

[18] See id. at 1400.

[19] See Bar-Gill & Warren, supra note 5, at 33–37.

[20] See Bar-Gill, supra note 6, at 1374.

[21] See Creola Johnson, Maxed Out College Students: A Call to Limit Credit Card Solicitations on College Campuses, 8 N.Y.U. J. Legis. & Pub. Pol’y 191 (2004).

[22] Id. at 228–29 (“[A]pproximately one-third of the freshmen in the [survey of college students] know that they can be charged a higher interest rate on future loans due to a bad credit history, while 81% of the consumers in the [survey of the general population] know that a person’s credit history can impact the interest rate charged on a loan.”) (citation omitted).

[23] See id. at 222–23.

[24] Id. at 208–09.

[25] See Donna S. Harkness, When Over-the-Limit Is Over the Top: Addressing the Adverse Impact of Unconscionable Consumer-Credit Practices on the Elderly, 16 Elder L.J. 1 (2008).

[26] See, e.g., Zak Toomey, Note, Changing the FCRA Opt-Out into the FCRA Opt-In: A Proposal for Protecting Mentally Disabled Consumers From Manipulative Credit Card Marketing, 12 J. Gender Race & Just. 621 (2009).

[27] See H.R. Rep. No. 111-88, at 40 (2009).

[28] Credit CARD Act § 101, 123 Stat. at 1735–36.

[29] See Board of Governors of the Federal Reserve System, What You Need to Know: New Credit Card Rules Effective Feb. 22 (March 11, 2010), http://www.federalreserve.gov/consumerinfo/wyntk_creditcardrules.htm (on file with the Harvard Law School Library).

[30] See Hearing: Examining the Billing, Marketing, and Disclosure Practices of the Credit Card Industry, and Their Impact on Consumers Before the S. Comm. on Banking, Housing and Urban Affairs, 110th Cong. (2007) (statement of Professor Elizabeth Warren) at 3, available at http://banking.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=d4fcda94-c9d7-4df7-bf10-dd69ad008c0f.

[31] See H.R. Rep. No. 111-88, at 26 (2009).

[32] See U.S. Gov’t Accountability Office, Credit Cards: Increased Complexity In Rates And Fees Heightens Need For More Effective Disclosures To Consumers 46–51 (2006).

[33] Id. at 27.

[34] Id. at 49–51.

[35] Credit CARD Act § 104, 123 Stat. at 1741.

[36] Id. § 102 at 1740.

[37] Id. § 106(b) at 1742.

[38] Id. § 106 (a)(2) at 1742. Even this seemingly innocuous requirement has already sparked controversy. See Jessica Silver-Greenberg, The New Credit-Card Tricks, Wall St. J., July 31, 2010, at B7, http://online.wsj.com/article/NA_WSJ_PUB:SB10001424052748704895004575395823497473064.html (on file with the Harvard Law School Library) (“Mr. Condon . . . says [Discover] considered him late because he paid on June 14, instead of June 13, a Sunday . . . .‘We were in compliance with the Card Act,’ says Discover spokesman Matthew Towson. ‘The law states that if a creditor does not receive or accept payments on weekends or holidays, then the date is extended. But we accept payments seven days a week.’”).

[39] Credit CARD Act § 105, 123 Stat. at 1741–42.

[40] Id.

[41] Consumer advocates did not get everything they asked for, but they did win significant consumer protections on this issue. See Rick Jurgens & Chi Chi Wu, Nat’l Consumer Law Ctr., Fee-Harvesters: Low-Credit, High-Cost Cards Bleed Consumers (2007), available at http://www.consumerlaw.org/issues/credit_cards/content/FEE-HarvesterFinal.pdf (“Throwing a monkey wrench into the predatory business model of fee-harvesters requires that lawmakers and regulators recognize that much of that business has little or nothing to do with issuing credit . . . . Congress should: . . . Require that credit card issuers extend a minimum amount of credit . . . . Issuers should be required to extend at least $300 of available credit. In addition, initial upfront fees cannot consume more than 10% of the overall credit line.”).

[42] Credit CARD Act § 102(b), 123 Stat. at 1740.

[43] See, e.g., Smiley v. Citibank (South Dakota), N.A., 517 U.S. 735 (1996).

[44] Truth in Lending, 75 Fed. Reg. 37,526, 37,527 (June 29, 2010) (to be codified at 12 C.F.R. pt. 226). For a simplified explanation of the same rules, see Board of Governors of the Federal Reserve System, What You Need to Know: New Credit Card Rules Effective Aug. 22 (June 15, 2010), http://www.federalreserve.gov/consumerinfo/wyntk_creditcardrules2.htm (on file with the Harvard Law School Library).

[45] Credit CARD Act § 201(a), 123 Stat. at 1744.

[46] See Robin Stein, Secret History of the Credit Card: The Ascendancy of the Credit Card Industry (Nov. 2004), http://www.pbs.org/wgbh/pages/frontline/shows/credit/more/rise.html (on file with the Harvard Law School Library) (“[Financial industry consultant and founder of credit card issuer Providian Andrew] Kahr saw that credit lines could be increased by slashing the required minimum payment. This increased revenue in two ways. First, since it would take longer to pay off balances, each dollar of principal would generate more interest income. Second, the principal itself would be increased because cardholders would be able to take on more debt while maintaining the same monthly payments. With minimum payments cut from five percent to two percent, for example, a credit card company could increase a credit line to $5,000 from $2,000 and yet charge the same $100 minimum payment. Today, two percent is the standard minimum payment, a practice that critics say obscures the true cost of debt and keeps consumers dangerously leveraged.”).

[47] See Bar-Gill, supra note 6, at 1408 (“The practice of setting low amortization rates targets consumers’ underestimation of the period it will take them to repay their credit card debt. The hyperbolic discounting phenomenon, which accounts for the underestimation of future borrowing, also explains consumers’ underestimation of the repayment period. A hyperbolic discounter would anticipate a quick repayment schedule, but when actual payments need to be made, she might revert to the minimum payment, underestimating the resulting future finance charges.”).

[48] Credit CARD Act § 301, 123 Stat. at 1747–48.

[49] Id. § 305 at 1749–51.

[50] Id. § 304 at 1749.

[51] There are other recent precedents for federal consumer protection for particular groups. In 2006, Congress capped interest rates on loans offered to military service members and their families. See John Warner National Defense Authorization Act for Fiscal Year 2007, Pub. L. No. 109-364, § 670(a), 120 Stat. 2083, 2266 (2006) (to be codified at 10 U.S.C. § 987(b)) (“A creditor . . . may not impose an annual percentage rate of interest greater than 36 percent with respect to the consumer credit extended to a covered member or a dependent of a covered member.”); see also Christopher L. Peterson, Usury Law, Payday Loans, and Statutory Sleight Of Hand: An Empirical Analysis of American Credit Pricing Limits, 92 Minn. L. Rev. 1110, 1128 (2008).

[52] Even with the economy at its lowest point in decades, 37.7% of Americans aged sixteen to nineteen participated in the civilian labor force; in better economic times over 50% of this age group entered the labor force. Labor force participation is certainly even higher for twenty-year-olds. See Bureau of Labor Statistics, Current Population Survey, OneSearch Data Service, http://data.bls.gov/PDQ/outside.jsp?survey=ln (on file with the Harvard Law School Library).

[53] See supra note 41 and accompanying text.

[54] Credit CARD Act § 103, 123 Stat. at 1741.

[55] A study by Donald Morgan of the Federal Reserve Bank of New York found potential welfare increases from access to payday lending in spite of its high costs. Even if access to payday lending is a net benefit to consumers, consumers are still better off accessing credit from a cheaper source whenever possible. Cf. Donald Morgan, Defining and Detecting Predatory Lending (Federal Reserve Bank of New York Staff Reports No. 273, 2007).

[56] Gregory Elliehausen & Edward C. Lawrence, Payday Advance Credit in America: An Analysis of Customer Demand 43 (McDonough Sch. of Bus., Georgetown University, Monograph, No. 35, 2001), available at http://www.cfsa.net/downloads/analysis_customer_demand.pdf.

[57] Id. at 3.

[58] Id.

[59] See Todd J. Zywicki, Economics of Credit Cards 26-27 (George Mason Univ. Sch. of Law & Econ. Working Paper, No. 00-22, 2000), available at http://www.law.gmu.edu/assets/files/publications/working_papers/00-22.pdf (“Empirical evidence strongly supports the thesis that the growth in credit card use by low-income credit-constrained cardholders has been primarily a rational substitution towards credit cards and away from less attractive forms of consumer credit. Thus, credit cards have not so much increased the ability of credit-constrained consumers to increase their borrowing, as much as the cards have permitted those consumers to obtain access to previously unavailable credit, on more competitive and attractive terms.”). But see Nakajima, supra note 7.

[60] See Federal Trade Commission, Getting Credit: What You Need to Know about Your Credit 2, 4, available at http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre32.pdf, for a description of the importance of responsible credit card use targeted at young consumers.

[61] See id. For a description of the importance of credit scores to lowering the cost of credit and expanding access to homeownership, see Hollis Fishelson-Holstine, Credit Scoring’s Role in Increasing Homeownership for Underserved Populations, in Building Assets, Building Credit: Creating Wealth in Low-income Communities 173 (Nicholas P. Retsinas & Eric S. Belsky eds., 2005).

[62] See supra note 49 and accompanying text.

[63] Congress created some new regulations focused on a perceived vulnerable group in the Dodd-Frank Act. See Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, § 1013(g), 124 Stat. 1376, 1972 (2010) (creating the “Office of Financial Protection for Older Americans” within the Consumer Financial Protection Bureau).

[64] Dodd-Frank Wall Street Reform and Consumer Protection Act; see also President Barack Obama, Remarks by the President at Signing of Dodd-Frank Wall Street Reform and Consumer Protection Act (July 21, 2010), available at http://www.whitehouse.gov/the-press-office/remarks-president-signing-dodd-frank-wall-street-reform-and-consumer-protection-act.

[65] Dodd-Frank Wall Street Reform and Consumer Protection Act § 1011.

[66] Id.

[67] Id. § 1012.

[68] Id.

[69] Id. § 1100(A); see also Adam J. Levitin, The Consumer Financial Protection Agency 7–8 (Pew Financial Reform Project, Briefing Paper #2, 2009), available at http://www.pewfr.org/admin/project_reports/files/CFPA-FINAL-TF-Correction.pdf.

[70] Dodd-Frank Wall Street Reform and Consumer Protection Act § 1031.

[71] See, e.g., Ron Lieber, Some Suggestions for the New Consumer Chief, N.Y. Times, Sept. 18, 2010, at B1, available at http://www.nytimes.com/2010/09/18/your-money/18money.html (arguing for closing a perceived loophole in the Credit CARD Act’s application to cards issued to small businesses among a list of priorities for the CFPB).

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Photo by Flickr user borman818 used under a Creative Commons license.

By JUSTIN R. LA MORT

President Obama was able to pay off his student loans only after authoring two bestselling books and becoming a prominent figure on the national political scene.  This is not a strategy that can easily be replicated.  As our tax dollars are being spent to bail out AIG and GM, the government continues to ignore those who are drowning in student debt.  We can either rearrange the deck chairs as the band plays on, or we can seize this unique opportunity in time to provide a life preserver to some of our country’s best and brightest.

The American dream is that that, through education and hard work, one can accomplish anything.  Sadly, my generation will be less educated and in greater debt than the generation of my parents.[1] Never before has a college degree meant so much in competing in the global marketplace, yet never before has the financial barriers been so great to earning that degree.  This paradox must be resolved if our students and our country are to reach their full potential.  The present system restricts innovation among the entrepreneurs, inventors, and artists who can no longer risk taking a chance when facing five to six figures of debt.  Our society loses the talent of those unable to afford a career in public service.  These effects are especially true for the middle and working class who we most want to break from the cycle of poverty but whose best route is to enter modern-day indentured servitude.  We must change the way we pay for higher education if the United States is to uphold its promise.

This article will detail the pervasive effects of the student loan problem in America and will examine pragmatic solutions such as ending the Federal Family Education Loans (FFEL) program, removing unwarranted bankruptcy protection of student loans, and enacting loan forgiveness programs to reverse the receding economic tides.  The effects of these policies would stimulate the economy, create an environment conducive to innovation, and move our society closer to its meritocratic ideals.

I. The Debt Disaster

Our nation’s financial aid system is failing.  From 1982 to 2006 the average family income in America increased 147%.[2] While there has been much uproar over the skyrocketing costs of the healthcare system (251% increase from 1982 to 2006), that number pales in comparison to the 439% rise in the cost of a college education.[3] As the gap between income and cost grows, the burden falls upon students to make up the difference.  In 1983 a student could work full-time during the summer and pay two-thirds of his or her annual college costs.  In today’s climate, however, it would take a year working minimum wage if the student didn’t incur any other expenses.[4] Students are left with little choice but to take a loan or forgo college.  Education, though often seen as a silver bullet for future success, is in fact a double edged sword.[5]

This increased cost has led to increased debt for graduates.  Nationwide, the average debt for graduating seniors with loans rose from $18,650 in 2004 to $23,200 in 2008.[6] The burden is much greater for those who pursue graduate degrees.  For example, a Masters of Social Work graduate ends up with $49,017 in debt.  Future attorneys start $92,937 in the red while poor M.D.s are on average $127,272 in the hole.[7] These numbers do not include other debt such as the 92% of graduate students who use a credit card carrying an average balance debt of $8,612.[8]

It is easy to get lost in the dehumanized dollars and percents, but these are profound changes within a single generation.  The debt causes a brain drain away from public service and towards careers that pay more but provide less of a benefit to society.[9] Our current system incentivizes doctors to neglect inner-city and rural communities where they are most needed.[10] One can hardly blame medical students facing six-figured obligations for choosing to become specialists in affluent areas over general practitioners in underserved areas when the latter pays half as much.[11]

These problems were not created in a vacuum.  Servicing students is a big business; billions of dollars are at stake.  To protect this lucrative but failing system the industry has become adept at influencing Congress.  President Obama has said that “the banks and the lenders who have reaped a windfall . . . have mobilized an army of lobbyists to try to keep things the way they are.”[12] The top twenty loan providers have spent $14 million lobbying the federal government from January 2008 through June 2009.[13] These companies, because they employ thousands of people in different states, are able to leverage their national constituency to influence Congress.  Reform efforts, in order to succeed, must be able to surpass opposition from a powerful education-industrial complex.

Unfortunately, we cannot afford to wait any longer.  The effects of the status quo are already rippling through the economy.  Patrick M. Callan, President of the National Center for Public Policy and Higher Education, states, “the educational gap between our work force and the rest of the world will make it very hard to be competitive.  Already, we’re one of the few countries where 25 to 34-year-olds are less educated than older workers.”[14] The problem will only become more pronounced as baby boomers reach retirement, putting the country at a distinct economic disadvantage.  If current college graduate production rates continue, the U.S. will face a 16 million person shortage in college-educated adults by 2025.[15] The longer Congress remains inactive, the harder it will be to pass meaningful legislation.  This article both provides support for the federal government’s recent elimination of the wasteful FFEL program and advocates further reforms.

II. Eliminate the Middle Man in Providing Federal Loans

President Obama’s signing of the Health Care and Education Reconciliation Act ended four decades of corporate welfare known as the Federal Family Education Loans (“FFEL”) program.  Schools previously could offer federal loans through either the FFEL or direct loans.  The majority of loans were part of the FFEL program where the government paid a subsidy to lenders to distribute money to borrowers.  The government also reimbursed companies up to 97% of the cost of any loan that was not paid back.  In 1993 the government created the direct loan program as an alternative.  The crucial difference between the two programs is that with a direct loan the middle man is excluded.  The Office of Management and Budget estimates that a $3,000 FFEL cost the State $157 compared to $23 for a direct loan.[16] The Congressional Budget Office estimates elimination of the FFEL will save $61 billion dollars over the next ten years.

The money saved by eliminating this program will be diverted to increasing Pell Grants and Perkins Loans.  There are a few arguments against such action.  First, there is a claim that this is nothing more than a government takeover that will ultimately harm the free market.  This simply is not true.  The private sector will still be able to provide loans to students, but they will have to do so through the free market.  The FFEL is not and never was a part of the free market.  Lenders take money from the government and then pass it along to borrowers with virtually no risk.[17] The only parts “free” in the old system were the profits generated by the big banks.  Taxpayer money would be better spent providing access to education.

The more persuasive argument against such reform is that ending the FFEL program will eliminate jobs.  The student loan industry claims eliminating FFEL will cost upwards of 35,000 jobs.  This number, however, is seriously inflated.[18] The companies will still be allowed to offer private loans.  They will continue to service the FFEL loans they already handle.  They will still offer consultation services.  The government will still use the companies to service the direct loans.  The U.S. Department of Education has already bought $6.5 billion worth of student loans and the loan industry survived without massive firings.[19] What will be eliminated are the windfall profits that were made by the companies when all the risk was borne by American taxpayers.[20] Ultimately, increasing the efficiency of the federal student loan program will create jobs.[21]

Ending the wasteful FFEL program is not a question of big government—it is a question of good governance.  Spending billions on banks instead of needy students is not in the long-term interests of our economy and is a perversion of the purpose of federal student loans.  The elimination of FFEL will add billions of dollars to efforts to provide affordable education through grants and lower interest rates without costing taxpayers a dime more than they pay now.  For those who take out new loans after July 1, 2014, they will have to devote only 10 percent of their income to payments, down from the current 15 percent. Those who keep up their payments will have their loans forgiven after 20 years, reduced from the current 25.  Those in qualifying public service jobs could be debt free in as little as 10 years.  This law is a step in the right direction.  Still, much more needs to be done.

III.  Remove Unwarranted Bankruptcy Protection

Nearly every form of unsecured debt can be discharged through a rigorous bankruptcy process.  Student loan debt, however, is given special treatment.  Starting in 1976, federal student loans were no longer allowed to be discharged through bankruptcy except in narrow circumstances.  The rationale was that unlike traditional property, the knowledge gained in college is innate to the individual.  Since this is an investment of public money, the government decided to protect its investment.  The government also mitigated the harshness of this policy by allowing income-contingent repayment.   This allows for a monthly payment to be adjusted depending on income and family size.  Such flexibility permits borrowers to take lower paying public service jobs or to survive through economic downturns.  The problem with the bankruptcy protection is that while it logically made sense, it solved a problem that didn’t actually exist.  Research has shown that the feared abuses were not present then and are unlikely to occur now.[22] What did happen was that people who were suffering from undue hardship were left with little recourse.

This bankruptcy problem became worse in 2005, when private student loans were given the same bankruptcy protections as federal loans “without any rationale express or claimed” or any flexibility such as income-contingent repayment. [23] Private loans have become important as the rise in tuition exceeded income and federal government expenditures.  In 2007–2008, lenders provided about $17 billion in private loans, a 592% increase from a decade earlier.[24] Over the same period total federal aid only increased by 84%.[25] This change has led Sen. Dick Durbin to describe the present system in this way: “sky-high interest rates on private loans combined with questionable practices by lenders and the exponential growth of the private student loan market over the past decade have resulted in mountains of debt that can follow students from graduation to the grave.”[26]

Using private student loans is essentially no different than deciding to pay for college with a credit card except that the loan receives nearly the same protection from bankruptcy that is given to child support payments.[27] While the other categories make for sound public policy, this protection did little to increase credit access to poor students or any other recognizable social good.  Instead they have provided a cash cow to financial institutions.

The student loan industry uses this power forcefully to the detriment of students.  Elizabeth Warren, Chair of the Congressional Oversight Panel and Harvard Law Professor, quipped that “student-loan debt collectors have power that would make a mobster envious.”[28] The problem has reached a point where comparing 21^st century education financing to 17^th century indentured servitude cannot be dismissed out of hand.[29] Both persist from the lower and middle classes’ aspirations for a better life and have the effect of controlling their future labor through unsecured personal contracts that are bound to the person with limited recourse besides payment or death.[30]

Indentured servitude is neither sustainable as an economic policy nor acceptable to a moral society.  To qualify for bankruptcy the debtor must file a lawsuit against repeat players like banks who have more resources and familiarity with the system.  This is difficult for people who are already in a precarious financial position.  Student debtors then must meet an undefined “undue hardship” standard haphazardly used by the courts.[31] The system is difficult to maneuver and often arbitrary in its outcome.  We should try to add certainty to the law and allow people to get a fresh start by removing the bankruptcy protections from student loans.

Fears that people will cheat the system are misplaced.  The Bankruptcy Code already has provisions against using the system for abuse, and empirical studies show that the fears of fraud in discharging student loans are an unsubstantiated myth.[32] Furthermore, in 2005, Congress added a means test and counseling requirements that make it hard for consumers to qualify for bankruptcy.  The serious consequences of bankruptcy, from devastating a credit score to preventing employment, have empirically provided substantial disincentives to bankruptcy filings.[33]

It is time to end the financial system’s schizophrenic use of a “public-oriented approach to student-loan origination but a business-oriented approach to student-loan collection.”[34] The need to reconcile our student loan policy with our educational aspirations was best described in the House Report to the Bankruptcy Reform Act of 1978, which stated:

If the loans are granted too freely and that is what causing the increase in bankruptcies, then the problem is a general problem, not a bankruptcy problem.  The loan program should be tightened, or collection efforts should be increased.  If neither of those alternatives is acceptable, then the loan programs should be viewed as general social legislation that has an associated cost.  It is inappropriate to view the program as social legislation when granting the loans, but strictly as business when attempting to collect.  Such inconsistency does not square with general bankruptcy policy.[35]

Removing bankruptcy protection is even more important with loans from private lenders.  While protecting federal loans at least had a rational justification, the protection afforded to private loans seems like little more than a gift to big banks.  Unlike the government, private loan providers do not limit their interest rates or the amount of the loans, do not regularly provide relief such as cancellation or income-contingent repayment, and are far less regulated.  There is no principled reason to allow consumers to be forever burdened by this debt when nearly every other form of unsecured debt is dischargeable in bankruptcy.[36]

IV.  Loan Forgiveness

Instead of tax rebates or corporate welfare, the federal government should invest in some of our best and brightest.  Loan forgiveness would stimulate the economy, lessen the barriers to accepting employment in public service, reduce the risk to innovators and entrepreneurs in pursuing new possibilities, and move our country closer to allowing equality of opportunity in higher education.

Enacting loan forgiveness would have the immediate effect of acting as a stimulus package.  While most rebates are used to pay off debt, those liberated from the indentured servitude would be much more likely to use their newfound income in increased purchasing power to buy consumer goods, cars and homes.  This in turn would help create jobs at a time we need them the most.

Most importantly, loan forgiveness would spur entrepreneurship.  For the U.S. to remain competitive we need innovation, but the further into debt that potential entrepreneurs go, the less likely they are to go into business for themselves.  Removing this monthly burden would be a major push in giving people the option to go forth and create.  State and federal governments already have targeted loan forgiveness programs, but by expanding them to a larger scale, the impact to society would be far greater. Results would be visible in a relatively short period of time.

Some have argued that loan forgiveness would be unfair to those who have already paid their student loans.  Though true, such “unfairness” is common in government programs.  Those without children have property taxes directed toward schools; tax rebates have been given only to those who paid taxes in the given years regardless of whether they would have qualified in the past.  The reason such policies are enacted is that the effects, whether stimulating the economy or preparing the future workforce, benefit everyone.  Forgiving student loans would provide banks immediate money, which in turn should promote investment and help all sectors of the economy.

Others argue that a loan forgiveness program would create a moral hazard.  However, irresponsible borrowing is unlikely, and parameters can be set to lessen the risk.  The government currently limits how much a student can borrow from public loans, so the level of reasonableness has already been established.  The forgiveness program can be tied to factors such as limiting the number of semesters per degree, capping total awards per person, or setting maximum amounts forgiven per degree.  These are just a few of many examples that legislators could use to design a system that would diminish the potential moral hazard and keeps the costs of the program down.

Time is of the essence.  As the deficit becomes bigger, the likelihood of wholesale loan forgiveness diminishes.  The time to invest was ripe at the beginning of the credit crunch when banks needed the money and Congress was best in the position to spread the benefits of the bailout to also serve as a life preserver to those with student loans.  As that window comes to a close, the government can still expand upon preexisting programs.  Even small steps can promote job growth and keep careers in public service as a viable option to those with the skills and desire to serve.

Conclusion

Our country cannot afford to let our students and workforce fall further behind the world because of the well financed lobbying efforts of the education-industrial complex.  Reforming the way we pay to learn is the first step in reimagining higher education.  The current form of indentured servitude that lasts from graduation to the grave is not a sustainable economic policy and does not reflect the meritocratic principles fundamental to the American dream.  If we truly believe people should be able to pull themselves up by their bootstraps, we must first ensure we have given them boots and not cement blocks.  Enacting these policies would promote innovation and create an educated workforce to better compete in the global marketplace.  It would permit greater flexibility in career choice and allow for more of our country’s best and brightest to give back to their communities.  Most importantly, student loan reform would empower Americans to make a better life for themselves and their families.

[1] Falling Behind, Inside Higher Ed, Oct. 9, 2008, http://www.insidehighered.com/news/2008/10/09/minority.

[2] The Nat’l Ctr. for Pub. Policy and Higher Educ., Measure Up 2008: The National Report Card on Higher Education 8 (2008), available at http://measuringup2008.highereducation.org/print/NCPPHEMUNational Rpt.pdf.

[3] Id.

[4] Sandra Block, Students Suffocate Under Tens of Thousands in Loans, USA Today, Feb. 22, 2006, http://www .usatoday.com/money/perfi/general/2006-02-22-student-loans-usat_x.htm.

[5] Paul Krugman, The Uneducated American, N.Y. Times, Oct. 9, 2009, at A31, available at http://www.nytimes .com/2 009/10/09/opinion/09krugman.html.

[6] FinAid, Student Loans, http://www.finaid.org/loans/ (last visited Jan. 19, 2010).

[7] Id.

[8] Nellie Mae, Graduate Students and Credit Cards 2 (August 2007), http://www.nelliemae.org/pdf/ccstu dy_2006.pdf.

[9] See e.g., Jesse Rothstein & Cecilia Elena Rouse, Constrained After College: Student Loans and Early Career Occupational Choices (Nat’l Bureau for Econ. Research, Working Paper No. 13117, May 4, 2007); Erica Field, Educational Debt Burden and Career Choice: Evidence from a Financial Aid Experiment at NYU Law School, (Nat’l Bureau for Econ. Research, Working Paper No. 12282, June 2006).

[10] Philip Rucker, The Only Doctor in Town, Wash. Post, Dec. 5, 2009, http://www.washingtonpost.com/w p-dyn/content/article/2009/12/04/AR2009120404624.html.

[11] Robert Pear, Shortage of Doctors an Obstacle to Obama Goals, N.Y. Times, Apr. 27, 2009, at A1, available at http://www.nytimes.com/2009/04/27/health/policy/27care.html.

[12] David Stout, Obama Urges Colleges to Curb Rising Tuition, N.Y. Times, Apr. 24, 2009, http://thechoice.blog s.nytimes.com/2009/04/24/obama-urges-colleges-to-curb-rising-tuition/.

[13] Kelly Field, Student Lenders, Fighting to Survive, Spend Millions to Lobby Congress, Chron. of Higher Educ., Sept. 28, 2009, http://chronicle.com/article/Student-Loan-Companies-Spend/48609/.

[14] Tamar Lewin, College May Become Unaffordable for Most in the U.S., The N.Y. Times, Dec. 3, 2008, at A19, available at http://www.nytimes.com/2008/12/03/education/03college.html.

[15] Lumina Found. for Educ., A Stronger Nation Through Higher Education 2 (Feb. 2009).

[16] Cole Robertson, The Student Loan Bailout, The Nation, Jan. 2, 2009, http://www.thenation.com/doc/2009 0112/robertson.

[17] David M. Herszenhorn, Plan to Change Student Lending Sets Up a Fight, N.Y. Times, Apr. 13, 2009, at A1, available at http://www.nytimes.com/2009/04/13/us/politics/13student.html.

[18]Pedro de la Torre III, Are Student Loan Companies Playing Politics With People’s Jobs?, The Nation, Dec. 9, 2009, http://www.thenation.com/doc/20091221/de_la_torre.

[19] Robertson, supra note 16.

[20] Pedro de la Torre III, The Best Government Takeover Ever, Campus Progress, Nov. 30, 2009, http://www.campusprogress.org/cribsheets/4873/best-government-takeover-ever.

[21] Id.

[22] Rafael I. Pardo & Michelle R. Lacey, Undue Hardship in the Bankruptcy Courts: An Empirical Assessment of the Discharge of Educational Debt, 74 U. Cin. L. Rev. 405, 419-28 (2005).

[23] An Undue Hardship? Discharging Educational Debt in Bankruptcy: H. Subcomm. on Commercial and Administrative Law, 111^th Cong. 2 (Sept. 23, 2009) (statement of Rep. Steve Cohen, Chairman, H. Subcomm. on Commercial and Administrative Law).

[24] The College Board, Trends in Student Aid 6 (Oct. 28, 2008), available at http://professionals.college board.c om/profdownload/trends- in-student-aid-2008.pdf.

[25] Id.

[26] Christine Dugas, Graduates Saddled with Debt, Student Loans Can’t Easily Turn to Bankruptcy, USA Today, May 15, 2009, http://www.usatoday.com/money/perfi/2009-05-12-studentloans13_N.htm.

[27] 11 U.S.C. § 523 (2010).

[28] John Hechinger, U.S. Gets Tough on Failure to Repay Student Loans, Wall St. J., Jan. 6, 2004.

[29] Jeffrey J. Williams, Student Debt and the Spirit of Indenture, Dissent, Fall 2008, available at http://www.d issentmagazine.org/article/?article=1303.

[30] Id.

[31] Pardo, supra note 22, at 520.

[32] Pardo, supra note 22, at 432.

[33] U.S. Gov’t Accountability Office, Report to the Chairman, Subcommittee on Higher Education, Lifelong Learning and Competiveness, Committee on Education and Labor, House of Representatives, Proprietary Schools – Stronger Department of Education Oversight Needed to Help Ensure Only Eligible Students Receive Federal Student Aid 28 (Aug. 2009).

[34] Rafael I. Pardo & Michelle R. Lacey, The Real Student-Loan Scandal: Undue Hardship Discharge Litigation 83 Am. Bankr. L.J. 179, 235 (2009).

[35] See H.R. Rep. No. 95-595, at 134 (1977) reprinted in 1978 U.S.C.C.A.N. 5963, 6095.

[36] Deanne Loonin, Nat’l Consumer Law Ctr., Paying the Price: The High Cost of Student Loans and the Dangers for Student Borrowers, at 5 (Mar. 2008) available at http://www.studentloanborrow erassistance.org/uploads/File/Report_PrivateLoans.pdf.

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Photo by Flickr user robpastoor used under a Creative Commons license.

By IVANA DEYRUP*

I. Introduction

On June 25th of last year, the Supreme Court handed down its decision in Melendez-Diaz v. Massachusetts.[1] Justice Scalia’s majority opinion held that the admission of a drug analyst’s affidavit without live testimony over the defendant’s objection violated the Sixth Amendment’s Confrontation Clause.[2] Justice Scalia indicated that the practical effects of the decision would be limited, writing, “[T]he sky will not fall.”  However, some attorneys reached the opposite conclusion in the days immediately following the ruling.  This was especially true in states where affidavits without accompanying live testimony were a routine method of proving DUI and small-scale drug cases.  In Virginia, one Deputy Commonwealth Attorney said, “This is a devastating thing for us . . . defense counsel, at least for the next six months, are going to have a field day.”[3] Massachusetts Attorney General Martha Coakley went so far as to claim that holding drug analyst testimony subject to the Confrontation Clause would cause state misdemeanor prosecutions to “grind to a halt.”[4]

Nine months later, it appears that Justice Scalia was right—the criminal justice system continues to function.  However, there is no question that the case has been disruptive.  In Massachusetts, the average processing time for analyzing drugs jumped from 109 days in November 2008 to 177 days in November 2009.[5] Law enforcement officials are perhaps most concerned with the impact of Melendez-Diaz in cases where medical examiners are unavailable to testify as to their notes.  For example, the Third Circuit, citing Melendez-Diaz, reversed a conviction for attempted aggravated rape of an 11-year old girl because the medical examiner in the case was not available to testify at the trial and her notes were therefore held inadmissible.[6] Additionally, the costs of complying with Melendez-Diaz are significant and growing—the Chief of Law Enforcement for the Utah Attorney General wrote, “This case may well have the biggest financial impact in many years on the cost of policing and prosecution.”[7] Nevertheless, David Lowy, a Massachusetts Superior Court judge, commented at a recent conference that, “Melendez-Diaz is not the sky falling down.”[8]

The relative confidence of law enforcement officials in coping with the new Melendez-Diaz era is buoyed by the proactive measures that have been taken to limit the case’s practical effects, which include new legislation and creative methods of proving cases.  Despite these palliative measures, the questions raised by Melendez-Diaz are far from resolved, both because there will be legal challenges to these coping measures and because the holding of the case raised more legal questions than it answered. This Article will examine the major legal questions that Melendez-Diaz raised by exploring current federal and state cases on the Court’s decision.  Along the way, it will explore the practical impacts of the decision, which range from the time that will be spent resolving these legal issues to the difficulty faced by state and federal prosecutors in trying drug cases when forensic labs are overwhelmed with demands for their analysts to testify in court.  It will also present the benefits of the decision, which include allowing defendants the opportunity to challenge sometimes deficient analytic work.  The Article will ultimately conclude with the possibility that Melendez-Diaz may harm defendants in the long run, as courts accept evidence that is weaker than what they would have used prior to Melendez-Diaz to convict defendants.

II. Legal Issues Raised by Melendez-Diaz

Melendez-Diaz has created five significant legal issues that must be resolved.  First, courts are already grappling with the question of whether someone other than the analyst may testify in order to introduce the analyst’s forensic evidence in court if the defendant wishes to cross-examine a live witness.  Second, the status of statutes placing restrictions on the Confrontation Clause right was already controversial, and has only become more so after Melendez-Diaz.  Third, state and federal courts have divided over which documents can still be admitted without live testimony.  A fourth, and more easily resolved issue, is whether Melendez-Diaz applies to quasi-judicial proceedings like parole revocation hearings.  Fifth, while there has not yet been time for much litigation on the topic, there is every indication that successful attempts by law enforcement officials to reduce the practical effects of Melendez-Diaz by using circumstantial evidence and field tests to prove drug cases will be highly controversial.  This Article will address each topic in turn.

1. Which Analysts Must Testify?

Significant litigation already exists over who must testify in order to admit an affidavit from a forensic scientist into evidence should the defendant choose to exert his Confrontation Clause right after Melendez-Diaz.  There are three possible options.  First, courts could require the analyst who conducted the test to testify in order to admit his affidavit.  Alternatively, courts could hold that the analyst’s supervisor may testify in place of the analyst.  During oral arguments in Melendez-Diaz, Chief Justice Roberts recognized this possibility, saying, “I suppose it doesn’t have to be the analyst but whoever they decide to call.  So if you had a supervisor who runs the cocaine testing lab and he is the one whose report is submitted, I take it he is the one who would have to show up.”[9] Third, courts could allow someone with a reasonable nexus to the forensic evidence to testify in place of the analyst.

The second approach—allowing the supervisor of an analyst to testify in place of the analyst who actually conducted the forensic test—has gained the most initial support of courts around the country thus far.  For example, the Indiana Supreme Court in Pendergrass v. Indiana[10] upheld a conviction that was based on DNA evidence in a case where the supervisor of the DNA analyst testified in place of the technician.  In Pendergrass, prosecutors introduced two certificates signed by an analyst for the State Police Laboratory related to DNA test results. Neither certificate contained conclusions about the DNA results.  The analyst’s supervisor, who had contemporaneously reviewed the certificates, testified about how the tests were performed based upon the analyst’s notes.  The Indiana court found that under Melendez-Diaz “it [is] up to prosecutors to choose among the many ways of proving up scientific results, as long as the way chosen feature[s] live witnesses.”[11] Likewise, a California state appellate court allowed the supervisor of a nurse-practitioner to testify regarding the nurse-practitioner’s notes in a sexual assault case (although it forbade the supervisor from testifying about statements made by the victim that were included in the notes).[12] Another California appellate court came to a similar conclusion on a drug and toxicology report introduced through testimony of the analyst’s supervisor,[13] as did a California federal magistrate judge on a DNA test.[14]

Other courts seem to have adopted the third approach that anyone with a reasonable nexus to the forensic evidence may testify in place of the analyst.  For example, in People v. Benjamin,[15] a California state appellate court held that a DNA test could be admitted based on the testimony of an analyst who was a training coordinator in the lab where the test was performed.  Although the analyst had not participated in or supervised the test, the court found that she could testify about the report, the procedures used by the laboratory in preparing the test, and the accuracy of the test results.[16] A similar conclusion was reached in People v. Johnson,[17] where an Illinois state appellate court addressed the issue of whether an analyst with the Illinois State Police could testify to a report prepared by a private DNA testing facility.  The analyst had used the report from the private facility in conjunction with the State Police’s own DNA test to link a suspect to evidence left at a crime scene.  The court found that “the holding in Melendez-Diaz is distinguishable from instances in which a witness testifies at trial about scientific analyses in which he or she did not participate in the analysis.”[18] Interestingly, it is not clear who would be excluded from testifying under Johnson.  The case indicates that some circuits may hold that mere live testimony by any expert in the field is enough to admit a test result, regardless of whether that expert is actually connected with the test.

Although not a strict reading of the letter of the law laid down by Melendez-Diaz, merely requiring a live witness, whatever that witness’ nexus to the forensic test, might be sufficient to satisfy some of the practical concerns underlying the Supreme Court’s decision. As part of his rationale for Melendez-Diaz, Justice Scalia cited a recent report by the National Academy of Sciences.  That report, Strengthening Forensic Science in the United States,[19] made clear that “the state of forensic science in the criminal justice system is shockingly poor.”[20] Allowing the defense to cross-examine any expert about the affidavit of an analyst will provide the opportunity to bring out what Justice Scalia called the “[s]erious deficiencies . . . in the forensic evidence used in criminal trials.”[21]

However, allowing experts other than the analyst who performed the test to testify does not address Justice Scalia’s other major concern in Melendez-Diaz—the possibility that live testimony is necessary to force “the analyst who provides false results [to], under oath in open court, reconsider his false testimony.”[22] This concern is also drawn from the National Academy of Sciences report, which documented several cases of fraud involving forensic scientists.  Among others, the report cited a case in 1993 where a West Virginia police analyst created false evidence for criminal prosecutions.[23] Justice Scalia additionally mentioned a brief submitted by the National Innocence Network, which reported instances of “drylabbing” (or falsification of reports by forensic analysts).[24] Given these concerns, it is not surprising that at least one academic believes that Melendez-Diaz requires the analyst who conducted the test to testify in person to admit his lab results.  Richard Friedman, who writes The Confrontation Blog[25] (about, of course, a host of Confrontation Clause issues), has argued that Melendez-Diaz is the natural outgrowth of Crawford v. Washington.[26] Under that line of cases, “[a] witness has to testify about what the witness knows from personal knowledge. A supervisor can’t testify from personal knowledge to what happened with respect to a given test, unless the supervisor observed it.”[27]

The final wrinkle in this cluster of issues is the related question of how far the defendant’s right extends—can the defense claim the right to interview many people relating to the analyst’s report, or just one?  Justice Kennedy raised this question in his dissent to Melendez-Diaz. Writing for Chief Justice Roberts, Justice Breyer, and Justice Alito, Justice Kennedy said “a plausible case can be made for deeming each person in the testing process an analyst under the Court’s opinion.”[28] This suggests that under Melendez-Diaz, the defense can demand the right to cross-examine not only the analyst who conducted the test, but also the analyst’s supervisor and the lab technician who calibrated the machine.  However, in a footnote to the majority opinion, Justice Scalia wrote, “[W]e do not hold that . . . anyone whose testimony may be relevant in establishing the chain of custody, authenticity of the sample, or accuracy of the testing device, must appear in person as part of the prosecution’s case.”[29] While this indicates that the defendant’s right as to how many people he may call is limited, the footnote is somewhat ambiguous.  For example, Justice Scalia commented in the same footnote that if the prosecution wishes to introduce testimony about the chain of evidence, “what testimony is introduced must (if the defendant objects) be introduced live.”[30]

Given these possible clashing interpretations of the letter and spirit of the law of Melendez-Diaz, it is likely that there will be significant division among courts on this issue of who must testify.  Allowing someone other than the analyst to testify and prohibiting the defendant from demanding to cross-examine a variety of people associated with the test does significantly reduce the practical harms of Melendez-Diaz, as requiring prosecutors to produce specific analysts in person is a substantial burden.  However, as Justice Scalia points out in Melendez-Diaz, not being able to confront the actual analyst will prevent the defense from thoroughly investigating the possibility of fraudulent analysis.  It is not clear how soon the Court will resolve this question.  Immediately after issuing Melendez-Diaz, the Supreme Court denied a cert petition in People v. Geier.[31] In Geier, the California Supreme Court found that an analyst’s supervisor could testify in place of the analyst in order to admit that analyst’s report.  By rejecting the cert petition, the Supreme Court may have indicated that it approves of the California decision.  Of course, it is also extremely rare for the Supreme Court to take back-to-back cases on the same topic.  Either way, the Supreme Court’s rejection of cert in Geier suggests that the division over who should testify will continue without resolution in the immediate future.

2. What is the Status of Statutes that Limit this Confrontation Clause Right?

Melendez-Diaz also has thrown into doubt the constitutionality of statutes that limit the defendant’s right to confront forensic analysts who have prepared evidence to be used against him.  There are two types of such statutes: burden-shifting statutes and notice-and-demand statutes. The constitutionality of these statutes divided courts before Melendez-Diaz, and the trend seems likely to continue.  Burden-shifting statutes place the burden of subpoenaing the forensic analyst on the defendant, who also bears the risk that the analyst will not appear.  Notice-and-demand statutes place the burden of calling the witness on the government, but require the defendant to give notice within a certain number of days that he will exercise his Confrontation right.  Such statutes may also place other restrictions on whether a witness will be called.

The Supreme Court seems to have definitively ruled that burden-shifting statutes are unconstitutional in Briscoe v. Virginia,[32] which was decided shortly after Melendez-Diaz.  The Virginia statute in Briscoe provided that:

“The accused in any hearing or trial in which a certificate of analysis is admitted into evidence pursuant to § 19.2-187 . . . shall have the right to call the person performing such analysis or examination or involved in the chain of custody as a witness therein, and examine him in the same manner as if he had been called as an adverse witness.  Such witness shall be summoned and appear at the cost of the Commonwealth.”[33]

The defendants in Briscoe argued that under the terms of this statute, the burden is on the defense to call the analyst to trial, and that if the analyst fails to appear, the statute “shifts to the accused the risk that a competent witness will not appear to testify at trial.”[34] Rather than argue that burden-shifting statutes were constitutional, Virginia instead argued that the statute was not burden-shifting pursuant to an interpretation by its state Supreme Court.  The Supreme Court, after vigorous oral argument on this topic, reversed the Virginia Supreme Court in a one-paragraph opinion.

It is not surprising that Virginia was unwilling to defend the constitutionality of burden-shifting statutes, given that Melendez-Diaz itself involved a Massachusetts version of such a statute.  Under the relevant Massachusetts statute, “Petitioner . . . could have obtained a subpoena . . . or used his right to compulsory process, under both the state and federal constitutions, to compel the analysts to testify at trial.”[35] Writing in Melendez-Diaz, Justice Scalia rejected the statute as constitutionally insufficient.  He found that the power to subpoena the forensic analyst “is no substitute for the right of confrontation.”[36] In other words, the defendant should not have to run the risk of a subpoenaed witness not appearing in court.  Based on Justice Scalia’s reasoning, the Oregon Court of Appeals recently found unconstitutional a statute that allowed an affidavit of a forensic analyst to be submitted without live testimony while guaranteeing the right of the defendant to subpoena the analyst (at no cost to the defendant).[37]

Questions regarding notice-and-demand statutes have also been raised.  A simple notice-and-demand statute “require[s] the prosecution to provide notice to the defendant of its intent to use an analyst’s report as evidence at trial, after which the defendant is given a period of time in which he may object to the admission of the evidence absent the analyst’s appearance live at trial.” [38] Many states had such statutes prior to Melendez-Diaz (including Georgia and Texas), and as previously mentioned, at least one state, Virginia, has passed such a statue in the wake of the case.  Virginia held a special legislative session in August to pass a notice-and-demand statute after the number of subpoenas to drug analysts in the state increased from 43 in July 2008 to 925 in July 2009.[39] A similar notice-and-demand statute is pending in the Massachusetts State Legislature, and is now before the Joint Committee on the Judiciary.  That bill would require the defendant to exercise his Confrontation Clause right regarding a forensic report before the pre-trial conference.[40] The Supreme Court noted in dicta in Melendez-Diaz that such simple notice-and-demand statutes are constitutional, saying that there is “no conceivable reason why [the defendant cannot] be compelled to exercise his Confrontation Clause rights before trial.”[41] As with the question of who may testify under Melendez-Diaz, it is not clear when (or if) the Court will definitively resolve this issue.  The Court may have indicated it would uphold such statutes by denying cert in Hinojos v. People,[42] just four days after issuing Melendez-Diaz.  Hinojos involved the constitutionality of a Colorado statute requiring the defendant to give notice that he intends to exercise his right to confront a forensic analyst at least ten days before trial.

The status of more complicated notice-and-demand statutes is more controversial.  For example, the Kansas Supreme Court recently struck down part of the state’s notice-and-demand statute pursuant to Melendez-Diaz.[43] The statute required the defendant to give notice if he intended to exercise his Confrontation Clause right within ten days of being notified that the government intended to present affidavit evidence of a forensic analyst at trial.  This requirement was not controversial.  However, the statute also said that the affidavit would be admitted into evidence without live testimony over the defendant’s objection unless:

“it appears from the notice of objection and grounds for that objection that the conclusions of the certificate, including the composition, quality or quantity of the substance submitted to the laboratory for analysis or the alcohol content of a blood or breath sample will be contested at trial.”[44]

This constraint addressed a significant concern of Melendez-Diaz opponents that defendants would call analysts without intending to contest their scientific conclusions.  Indeed, this concern has been at least partially borne out in reality.  For example, Virginia’s Roanoke laboratory described the situation as follows: in responding to thirteen subpoenas, analysts “spent 74 hours out of the office, traveled 2,600 miles and testified only twice for a total of 10 minutes.  They were never questioned by the defense.”[45] However, the Kansas Supreme Court held in State v. Laturner[46] that the statute’s second constraint on the defendant’s Confrontation Clause right was unconstitutional and that a previous decision upholding the constitutionality of this statute was “no longer viable after Crawford and Melendez-Diaz.”[47] It did not find that the time limit constraint in the statue was unconstitutional, and a Kansas appellate court has subsequently upheld that portion of the statute.[48] In sum, the status of both burden-shifting statutes and simple notice-and-demand statutes seems fairly clear; following Melendez-Diaz the former is unconstitutional and the latter is constitutional.  However, as Laturner demonstrates, more complicated notice-and-demand statutes will be more problematic.  The letter of Melendez-Diaz suggests that they are unconstitutional, but it is unclear whether courts will strictly follow Justice Scalia’s reasoning with respect to this issue.

3. Which Documents Can Still Be Admitted Without Live Testimony?

A third significant question raised by Melendez-Diaz concerns those documents that do not require live testimony to be admitted in court even if the defendant asks to cross-examine a witness relating to the documents.  Melendez-Diaz, of course, made it clear that certificates prepared by forensic analysts are subject to the Confrontation Clause.  Debate has arisen over which other types of documents will be considered subject to the Confrontation Clause under Melendez-Diaz.  Courts have already begun to see cases regarding the admissibility of three types of documents: business records, certificates of non-record, and certificates of accuracy.

Business records have traditionally been considered not to be subject to the Confrontation Clause provided that they are “kept in the regular course of business” and are not the “production of evidence for use at trial.”[49] The majority opinion in Melendez-Diaz indicated that the Court intended to maintain this exception, writing, “Business and public records are generally admissible absent confrontation . . . because—having been created for the administration of an entity’s affairs and not for the purpose of establishing or proving some fact at trial—they are not testimonial.”[50] The lower courts appear willing to follow the Supreme Court’s dicta on this topic.  For example, the Fourth Circuit held in United States v. Gitarts[51] that Melendez-Diaz “explicitly reaffirms . . . that traditional business records are not testimonial evidence.”[52] Likewise, a Texas appellate court held that prison records kept in the regular course of business were not subject to the Confrontation Clause under Melendez-Diaz.[53]

While the traditional exception for business records remains intact, the admission without live testimony of certificates of non-record or certificates “attesting to the fact that the clerk had searched for a particular relevant record and failed to find it,”[54] has successfully been attacked. Before Melendez-Diaz, the Fifth, Seventh, Eighth, Ninth, and D.C. Circuits held that certificates of non-record (CNRs) were not subject to the Confrontation Clause.[55] However, in Melendez-Diaz dicta, Justice Scalia cited CNRs as examples of evidence subject to the Confrontation Clause right.[56] As a result, at least two states have overturned their precedents on CNRs.  In Tabaka v. District of Columbia[57] and Washington v. State of Florida[58] the D.C. and Florida state courts of appeals, respectively, held that CNRs were not admissible without live testimony should the defendant choose to exercise his Confrontation Clause right.  In Tabaka, the D.C. court of appeals found that a certificate that the defendant did not have a driver’s license in a drunk driving case “was inadmissible over objection without corresponding testimony by the DMV official who had performed the search”[59] under Melendez-Diaz.  Similarly, in Washington v. State of Florida, the Florida appellate court found that a certificate that the defendant was not licensed as a contractor could not be admitted when the defendant exercised his Confrontation Clause right and no one from the Florida Construction Industry Licensing Board testified.[60]

Cases have also already been brought regarding certificates of accuracy following Melendez-Diaz. Certificates of accuracy are frequently introduced without live testimony in order to prove the accuracy of law enforcement equipment, including breathalyzer tests and radar guns. The response of the circuits and states thus far has been to find that such tests are not subject to the Confrontation Clause and may therefore be admitted over the defendant’s objection without a live witness.  In United States v. Forstell,[61] United States v. Griffin,[62] and State v. Bergin,[63] two separate Virginia federal magistrate judges and an Oregon state appellate court, respectively, held that breathalyzer tests were not subject to the Confrontation Clause after Melendez-Diaz.  Similarly, in United States v. Bacas,[64] another Virginia federal magistrate judge held that the “certificates of accuracy for the tuning forks used to confirm the proper operation of the radar device” did not require testimony.[65] However, a Massachusetts defense attorney has said, “Massachusetts DUI lawyers are likely to launch Melendez-Diaz attacks on breathalyzer evidence in the near future.”[66]

4. Does Melendez-Diaz Apply in Quasi-Judicial Proceedings?

The application of Melendez-Diaz in quasi-judicial proceedings appears to be less complicated than the other issues addressed in this Article.  Quasi-judicial proceedings (like parole revocation hearings) are treated differently from criminal trials.  “[T]he full panoply of rights due a defendant in [a criminal proceeding] does not apply to parole revocations.”[67] Thus, prior to Melendez-Diaz, a number of circuits and state courts (including the First, Second, Eighth, Ninth and D.C. Circuits) held that Crawford, Melendez-Diaz’s predecessor, did not apply to quasi-judicial proceedings.[68] Similarly, courts have found that Melendez-Diaz does not apply to quasi-judicial proceedings.  Thus, a Missouri federal district court judge in United States v. Hibbert,[69] a South Dakota federal magistrate judge in United States v. Left Hand Bull,[70] and the Tennessee State Criminal Court of Appeals in State v. Walker[71] have all held that Melendez-Diaz does not apply to parole revocation hearings.  The Tennessee court wrote, “[N]othing in Melendez-Diaz indicates that it is to be applied in [quasi-judicial proceedings.]”[72] Thus, Professor Robert Friedman appears to be correct when he said at a recent conference that the Supreme Court’s holding would not “be a problem” in quasi-judicial proceedings.[73]

5. What Is the Status of Attempts to Use Circumstantial Evidence or Field Tests to Reduce the Practical Effects of Melendez-Diaz?

Finally, as previously mentioned, law enforcement officials and the courts have used a number of strategies to reduce the practical effects of Melendez-Diaz in drug cases.  Recent actions by courts and police officers in the Commonwealth of Massachusetts provide a good example of these (extremely varied) strategies.  First, Massachusetts courts have frequently found that violations of Melendez-Diaz involve harmless errors.  Indeed, Melendez-Diaz’s appeal itself is still pending in the state court system, where the error might also be found to be harmless.[74] To uphold these violations as harmless, Massachusetts courts often rely on circumstantial evidence in drug cases.  For example, the Massachusetts Supreme Judicial Court (SJC) held this November in Commonwealth v. Connolly[75] that although it had to strike the admission of drug certificates under Melendez-Diaz, the error was harmless because the case could be proved through circumstantial evidence.  The SJC relied on the testimony of police officers that the substance was cocaine, the jury’s inspection of the drugs and handling of that evidence, and the defendant’s own admissions to a confidential informant to find that there was enough to uphold the defendant’s conviction for trafficking between 100 and 200 grams of cocaine.[76] Similarly, a Massachusetts Court of Appeals refused to find an ineffective assistance of counsel claim pursuant to Melendez-Diaz because, even though the drug certificates had been disqualified, “where an adequate foundation is laid, an experienced police officer can testify that a substance is a particular controlled drug.”[77]

Second, Massachusetts law enforcement officials have also begun using circumstantial evidence or field tests by police officers to avoid calling in drug analysts.  In Commonwealth v. Martel, a police officer tested a substance while on the stand to determine whether it was heroin.[78] The officer said that he had received two hours of training online to administer the field test and had paid “less than $9.95” for his certification.[79] A Bristol County Assistant District Attorney said of Commonwealth v. Martel that, “We are going to get the analysts down in certain cases, but this case shows that we have other weapons in our arsenal, which include proving cases circumstantially.”[80]

Melendez-Diaz itself offers no specific guidance on the legality of such attempts to limit the practical impacts of its holding.  In Footnote 14, Justice Scalia wrote, “Today’s opinion, while insisting upon retention of the confrontation requirement, in no way alters the type of evidence (including circumstantial evidence) sufficient to sustain a conviction.”[81] While the overall tenor of Melendez-Diaz would probably disfavor these actions, federal and state courts will have to look outside the four corners of the case when reviewing actions like those taken in Massachusetts.  Given the enormous practical impacts of Melendez-Diaz, cases on this topic are likely to be extremely controversial.  Ironically, if courts decide that such actions are permissible, then the end result of Melendez-Diaz may be to make the quantum of proof used to convict defendants less, rather than more.  As one defense attorney put it, “The bizarre result here is that if judges start letting this happen, then you’re going to have trials decided with even less reliable evidence than before Melendez-Diaz, which was absolutely never intended by the Supreme Court.”[82]

III. Conclusion

While this article began by indicating that the effects of Melendez-Diaz thus far have not been catastrophic, it will end by arguing that attempts by both the defense and the prosecution to exploit the case could have a more dramatic impact.  The more courts accept arguments by defendants that the right granted in Melendez-Diaz should be interpreted strictly—e.g., the more the legal issues described above are decided against the government—the more difficulty law enforcement officials will have in proving cases.  This difficulty is likely to have two consequences.  First, prosecutors will be forced to dismiss some cases because of their inability to introduce evidence at trial.  This consequence is not necessarily negative.  One defense attorney has said that Melendez-Diaz may be an effective means of making the true costs of prosecuting minor violations, such as low-level drug cases, more apparent.[83] However, this effect is one that must be recognized.  There are limited numbers of forensic analysts, especially medical examiners, and the more strictly Melendez-Diaz is enforced, the more defendants will escape criminal prosecution because of the unavailability of forensic scientists.  Depending on how courts resolve these splits, Melendez-Diaz could even place a de facto statute of limitations on murders, if cases are no longer provable after medical examiners die or otherwise become unavailable.[84]

The second possible result (which is not exclusive of the first) is that law enforcement officials will begin to resort to circumstantial evidence and field tests to prove cases.  This will have the disquieting result that some defendants will be convicted on the strength of evidence that is less strong than that used prior to Melendez-Diaz.  Of course, these drug analyses will continue to be done—but it should matter that this evidence will not be accessible to the jury.  It is not clear that the practical benefits to defendants are worth this cost.  While the defense has increased its chances of getting an acquittal based on the inability of the forensic analyst to appear, there is little evidence that defense lawyers are using this opportunity to cross-examine witnesses about the unreliability of certain forensic tests and specific forensic scientists.

Justice Scalia, however, predicted that this effect would be limited: “[D]efense attorneys [will not] want to antagonize the judge or jury by wasting their time with the appearance of a witness whose testimony defense counsel does not intend to rebut in any fashion.”[85] It is too early to be certain about the actual empirical answer to this question.  If, however, some of the already significant number of cases concerning ineffective assistance of counsel claims, for failure to raise Melendez-Diaz objections, are decided in favor of the defendant, Justice Scalia may be proved wrong.  Research conducted prior to December 2009 revealed no cases in which the defendant prevailed in such a claim.  Indeed, courts will likely be very cautious about granting Melendez-Diaz inspired ineffective assistance of counsel claims.  But, it is not obvious that this caution will be enough to forestall defense attorneys from demanding to cross-examine forensic experts, given that a Melendez-Diaz objection can easily make the difference between acquittal and conviction.  This is especially true in murder and rape cases where the medical examiner is absent.

In large part motivated by concerns about these practical effects of Melendez-Diaz, twenty-six states have filed an amicus curiae brief in Briscoe asking the Supreme Court to overturn its decision last Term.  The brief states, “If there is any possibility that the Court might ever reconsider Melendez-Diaz, it is far better to do it now rather than wait for state criminal justice systems to be overwhelmed with demands for lab technicians to testify (needlessly) at trial.”[86] The Supreme Court declined this opportunity.  Thus, there is currently no easy answer to the Melendez-Diaz dilemma.  Overall, the practical effects of Melendez-Diaz should serve mainly to caution courts about the effects of interpreting the Confrontation Clause too strictly.  Particularly, should courts begin holding that analysts who conduct tests must themselves testify in person, or that simple notice-and-demand statutes are unconstitutional, the effect on our justice system would be considerable.  The sky has not fallen, but it may yet.

[1] 129 S. Ct. 2527 (2009), available at http://www.supremecourt.gov/opinions/08pdf/07-591.pdf.

[2] The Confrontation Clause provides that “in all criminal prosecutions, the accused shall enjoy the right . . . to be confronted with the witnesses against him.” U.S. Const., amend. VI. In recent years, the Supreme Court has created a revolution in Confrontation Clause jurisprudence. See, e.g., Crawford v. Washington, 541 U.S. 36 (2004); Davis v. Washington, 547 U.S. 813 (2006).

[3] Alan Cooper, Lawyers Jump on DUI Case, Va. Lawyers Weekly, July 6, 2009, available at http://valawyersweekly.com/blog/2009/07/06/lawyers-jump-on-dui-case/.

[4] Jenny Paul, Coakley: Forensics testimony a burden, Boston Globe, Nov. 11, 2008, available at http://www.boston.com/news/nation/articles/2008/11/11/coakley_forensics_testimony _a_burden/.

[5] This was despite Massachusetts’ recent de-criminalization of some marijuana possession, which presumably decreased the number of drug cases requiring analysis.

[6] Gov’t of the Virgin Islands v. Vicars, 340 Fed.App’x 807 (3d Cir. 2009).

[7] Ken Wallentine, 12 Supreme Court Cases Affecting Cops, PoliceOne.Com, Nov. 11, 2009, http://www.policeone.com/legal/articles/1964272-12-Supreme-Court-cases-affecting-cops.

[8] David Lowy, J., Mass. Super. Ct., Moderator of Admissibility of Forensic Evidence Panel at the New England Journal on Criminal and Civil Confinement Symposium: Confronting Forensic Evidence (Nov. 13, 2009).

[9] Transcript of Oral Argument at 4:3-8, Melendez-Diaz, No. 07–591 (Nov. 10, 2008), cited in Federal Evidence Review, Supreme Court Watch: Initial Questions Raised By The Melendez-Diaz Confrontation Clause Opinion (June 29, 2009), http://federalevidence.com/blog/2009/june/initial-questions-raised-melendez-diaz-confrontation-clause-opinion.

[10] 913 N.E.2d 703 (Ind. 2009).

[11] Id. at 708 (citing Melendez-Diaz).

[12] People v. Gutierrez, 99 Cal. Rptr. 3d 369, 374–78 (Cal. Ct. App. 2009).

[13] People v. Rutterschmidt, 98 Cal. Rptr. 3d 390 (Cal. Ct. App. 2009).

[14] Larkin v. Yates, No. CV 09-2034-DSF, 2009 WL 2049991 (C.D. Cal. July 9, 2009).

[15] No. B211183, 2009 WL 2933153 (Cal. Ct. App. Sept. 15, 2009).

[16] Id. at *6.

[17] No. 1-07-3372, 2009 WL 2999142 (Ill. App. Ct. Sept. 18, 2009).

[18] Id. at *9.

[19] Nat’l Research Council, Strengthening Forensic Science in the United States: A Path Forward (2009).

[20] Erin Murphy, What ‘Strengthening Forensic Science’ Today Means For Tomorrow: DNA Exceptionalism and the 2009 NAS Report, Law, Probability & Risk (forthcoming Apr. 2010) (manuscript at 1, on file with author).

[21] Melendez-Diaz v. Massachusetts, 129 S. Ct. 2527, 2537 (2009).

[22] Id.

[23] Nati’l Research Council, supra note 19, at 44.

[24] Melendez-Diaz, 129 S. Ct. at 2537.

[25] Richard Friedman, The Confrontation Blog, http://confrontationright.blogspot.com.

[26] Richard D. Friedman, Professor of Law, Univ. of Mich. Law Sch., New England Journal on Criminal and Civil Confinement Symposium: Confronting Forensic Evidence (Nov. 13, 2009).

[27] Email from Richard D. Friedman to author (Nov. 27, 2009) (on file with author).

[28] Melendez-Diaz, 129 S. Ct. at 2545.

[29] Id. at 2532.

[30] Id.

[31] 129 S. Ct. 1856 (2009).

[32] Magruder v. Virginia, 657 S.E.2d 113 (Va. 2008), cert. granted sub nom. Briscoe v. Virginia, 129 S. Ct. 2858 (2009).

[33] Va. Code Ann. § 19.2–187.1 (2000).

[34] Brief of Petitioner at 8, Briscoe v. Virginia, 129 S. Ct. 2858 (Sept. 1, 2009) (No. 07-11191).

[35] Brief of Respondent at 57, Melendez-Diaz v. Massachusetts, 129 S.Ct. 2527 (Sept. 2, 2008) (No. 07–591).

[36] Melendez-Diaz v. Massachusetts, 129 S. Ct. 2527, 2540 (2009).

[37] State v. Willis, 213 P.3d 1286 (Or. Ct. App. 2009).

[38] Melendez-Diaz, 129 S. Ct. at 2541.

[39] Sabri Ben-Achour, Virginia Holds Special Legislative Session to Respond to Court Ruling (American University broadcast Aug. 19 2009). The Commonwealth may also have passed this legislation to address concerns that the state’s former forensic evidence statute will be held unconstitutional in Briscoe.

[40] H. 4162, 2009 Gen. Assem., Reg. Sess. (Ma. 2009), available at http://www.mass.gov/legis/bills/house/186 /ht04/ht04162.htm.

[41] Melendez-Diaz, 129 S. Ct. at 2541.

[42] 169 P.3d 662 (Colo. 2007), cert. denied, 129 S.Ct. 2856 (2009).

[43] State v. Laturner, 218 P.3d 23 (Kan. 2009).

[44] Kan. Stat. Ann. § 22–3437(3) (2008).

[45] Alan Cooper, Prosecutors, analysts deal with Melendez-Diaz fallout, Virginia Lawyers Weekly, Nov. 30, 2009, available at http://valawyersweekly.com/blog/2009/11/30/prosecutors-analysts-deal-with-melendez-diaz-fallout/.

[46] 218 P.3d 23.

[47] Randall Hodgkinson, Melendez-Diaz in Kansas, Kansas Defenders, Oct. 9, 2009, available at http://kansasdefenders.blogspot.com/2009/10/melendez-diaz-in-kansas.html.

[48] State v. Murphy, 219 P.3d 1223 (Kan. Ct. App. 2009).

[49] Melendez-Diaz v. Massachusetts, 129 S. Ct. 2527, 2538 (2009).

[50] Id. at 2439–40.

[51] No. 08-500, 2009 WL 2705507 (4th Cir. Aug. 28, 2009).

[52] Id. at *3–*4.

[53] Grey v. State, 299 S.W.3d 902 (Tex. Ct. App. 2009).

[54] Melendez-Diaz, 129 S. Ct. at 2539.

[55] Washington v. State of Florida, No. 4D08-597, 2009 WL 3189188, *3 n.1 (Fla. Dist. Ct. App. Oct. 7, 2009).

[56] Melendez-Diaz, 129 S. Ct. at 2439–40.

[57] 976 A.2d 173 (D.C. 2009).

[58] 18 So.3d 1221 (Fla. Ct. App. 2009).

[59] Tabaka, 976 A.2d at 175–76.

[60] Washington, 2009 WL 3189188, at *2–*3.

[61] 656 F. Supp. 2d 578 (E.D. Va. 2009).

[62] No. 3:09MJ308, 2009 WL 3064757 (E.D. Va. Sept. 22, 2009).

[63] 217 P.3d 1087 (Or. Ct. App. 2009).

[64] 662 F. Supp. 2d 481 (E.D. Va. 2009).

[65] Id. at 483–84.

[66] Brian E. Simoneau, Massachusetts Breathalyzer Evidence Likely to Be Challenged, Massachusetts DUI Law, Nov. 22, 2009, http://www.massachusettsduiblog.com/.

[67] Morrissey v. Brewer, 408 U.S. 471, 480 (1972).

[68] See United States v. Rondeau, 430 F.3d 44, 47–48 (1st Cir. 2005); United States v. Aspinall, 389 F.3d 332, 342 (2d Cir. 2004); United States v. Ray, 530 F.3d 666, 668 (8th Cir. 2008); United States v. Hall, 419 F.3d 980, 985–86 (9th Cir. 2005); Ash v. Reilly, 431 F.3d 826, 829–30 (D.C. Cir. 2005).

[69] No. 4:09CR00244ERW, 2009 WL 2948460 (E.D. Mo. Sept. 14, 2009).

[70] No. CR 05-30106(01)-CBK, 2009 WL 2030544 (D.S.D. July 13, 2009).

[71] No. M2008-02824-CCA-R3-CD, 2009 WL 2433176 (Tenn. Ct. App. Aug. 10, 2009).

[72] Id. at *4.

[73] Friedman, supra note 26.

[74] Mary Rogers, Counsel of Record for Melendez-Diaz, New England Journal on Criminal and Civil Confinement Symposium: Confronting Forensic Evidence (Nov. 13, 2009). The Supreme Court said, “We of course express no view as to whether the error was harmless.” Melendez-Diaz v. Massachusetts, 129 S. Ct. 2527, 2542 n.14 (2009).

[75] 913 N.E.2d 356 (Mass. 2009).

[76] Id. at 374–376.

[77] Commonwealth v. Montina, 914 N.E.2d 362, at *2 (Mass. Ct. App. 2009).

[78] David E. Frank, Fall River District Court Drug Trial Raises Concern: Defense Bar Shocked In-Court Testing Allowed, Massachusetts Lawyers Weekly, Nov. 9, 2009.

[79] Id.

[80] Id.

[81] Melendez-Diaz v. Massachusetts, 129 S. Ct. 2527, 2542 n.14 (2009).

[82] Frank, supra note 78 at *1.

[83] Joseph King, Counsel of Record for Briscoe, New England Journal on Criminal and Civil Confinement Symposium: Confronting Forensic Evidence (Nov. 13, 2009).

[84] See, e.g., Gov’t of the Virgin Islands v. Vicars, 340 F. App’x 807 (3d Cir. 2009) for an example of dismissal of physician’s report in light of Melendez-Diaz.

[85] Melendez-Diaz, 129 S. Ct. at 2542. Cf. Judith Resnik, Managerial Judges, 96 Harv. L. Rev. 374 (1982).

[86] Brief for Indiana et al. as Amici Curiae in Support of Respondent at 32, Briscoe v. Virginia, 129 S. Ct. 2858 (Nov. 2, 2009) (No. 07-11191).

Richard Posner, A Failure of Capitalism: The Crisis of ’08 and the Descent into Depression, Harvard University Press, 346 pp., $23.95.

Richard Posner’s A Failure of Capitalism: The Crisis of ’08 and the Descent into Depression is about a macro-economic crisis.  It is also a surprisingly inward-looking book.  Richard Posner, a judge on the Seventh Circuit Court of Appeals and a law professor at the University of Chicago, has been a prominent figure in the law and economics movement, an effort to bring insights from economics into legal and policy discussions.  The sudden economic crisis in the fall of 2008 clearly took Posner, like most Americans, by surprise.  Any reader familiar with his reputation in law and economics will see that the 2008 crisis has forced Posner to challenge some deeply held ideological beliefs.

Posner’s disappointment with the economics profession in light of the 2008 economic crisis is understandable.  The profession’s unanimous failing in missing the housing bubble strikes at many of the principles that Posner had built his career around.  In A Failure of Capitalism, Posner begins looking in new directions and strives to wrap his head around the crisis: how did the market, the government, the professionals, and the experts all get this so wrong?  For a laissez-faire Chicago economist and the leading intellectual force behind the law and economics movement, Posner’s questioning of his own convictions represents an enormous turning point in the country’s intellectual climate.  His book is a testament to his versatility as a thinker and to his willingness to confront the 2008 crisis with the appropriate amount of seriousness and self-criticism.

A Failure of Capitalism is readable, thorough, and unforgiving toward all of the parties involved in producing the crisis.  No actors are left out—the banks, the sub-prime lenders and borrowers, the Fed, the lame-duck Bush administration, the executives with the wrong incentive-structures, the palpably absent regulators, and the American consumers who borrow endlessly and never save a penny. Posner also blames the risky new financial instruments, decades of laissez-faire faith in markets, and most of all, former Federal Reserve Chairman Alan Greenspan and low interest rates. No one gets a free pass.

This interconnected array of actors and complicated financial instruments does not lend itself to a linear narrative.  At times, Posner errs toward over-inclusiveness instead of orderliness, and he frequently veers off track with asides and peripheral economics lessons.  Yet through the frequent attempts at self-summary and the regular repetition of themes, a coherent non-technical account of the crisis begins to emerge.

The timing of A Failure of Capitalism is perhaps the clearest insight into its shortcomings.  Posner attempted to assay the destruction of the financial crisis before the dust had even settled, making the book feel as though it were written hurriedly in order to pull off a May 2009 release.  This rushed quality shows, both organizationally and in some of Posner’s bolder claims that have failed to pan out.  In particular, it is hard to reconcile Posner’s eagerness to label the crisis a “depression” and “a failure of government” with his admonitions that 2009 was too soon to initiate regulatory reform.  There is much the book does well, however, and its contents deserve public airing.  Unfortunately, it is too unkempt and alarmist to serve as more than a starting point for a more deliberate discussion of this crisis.  Indeed, less than a year later, Posner has already published a second book on the topic, The Crisis of Capitalist Democracy.

A Failure of the Market and an Absentee Government

Posner’s vision of what went wrong centers on low federal interest rates and leverage—the heavy use of debt to supplement investments.  A decade of cheap credit encouraged borrowing of all kinds, fueled spending, and pushed investors toward higher-return, riskier financial products.  It was not uncommon for institutional investors to be leveraged as much as 30-to-1 on investments, meaning that for every dollar they invested, they were investing another 30 dollars of borrowed money.  When this risk was aggregated into a small number of elite financial institutions, the first signs of instability were enough to send shockwaves through the economy.  While Posner paints a somewhat more disjointed picture, I have attempted to trace a line through what he calls the proximate causes of the crisis.

Above all, Posner blames (in a chapter unflinchingly titled Apportioning Blame) the Federal Reserve and its former chairman, Alan Greenspan, for setting interest rates dangerously low for an unprecedented span of years.  By setting interest rates low, saving became less valuable for consumers and investors, thus encouraging excessive spending and borrowing throughout the economy.  The traditionally steady housing market absorbed much of the excess credit as people sought out investment properties and an increasing number of people became first-time homeowners.  The growth in the housing market pushed mortgage brokers, urged on by financial institutions, to extend mortgages to riskier (sub-prime) borrowers and to offer complicated products like adjustable rate mortgages that became more expensive over the life of the loan.  This brought even more people into the housing market, thus fueling further price increases, and produced what is now well understood to be the “housing bubble.”  As it became evident that many of these borrowers were in houses they could not pay for, demand leveled off and home prices started to fall.  With no market demand, people were stuck with homes they either needed to flip or simply could not afford, and they started defaulting on their mortgages.

The bursting consumer housing bubble quickly spilled over into the financial markets, where banks and other financial institutions had invested heavily in new financial products tied closely to the consumer housing market.  Relying on credit agency ratings and using historic models of mortgages as safe investments, financial institutions staked billions of leveraged dollars on mortgage-backed securities.  These securities were comprised of groups of mortgages, whereby investors would receive returns as payments were received on the underlying mortgages. Posner emphasizes that it was not mortgage-backed securities themselves that produced the fundamental instability of the financial institutions.  Leverage and the extent to which institutions had become interdependent were far more precarious.  If the price falls far enough, the ability to repay that borrowed capital is called into question, which in turn makes lenders less likely to recover on their loans.  The risk inherent in such an arrangement can spread quickly throughout the entire financial sector.  Like a sinking ship, one failing firm can quickly pull down everything in its proximity.

When consumers started defaulting on their mortgages, mortgage backed securities quickly declined in value and investors rushed to unload them.  With no market to buy the securities, these investments quickly became unpriceable and soon earned the name ‘toxic assets’.  Investment banks like Lehman Brothers held vast sums of these securities, previously worth billions, that were suddenly hard to price.  This rendered the entire value of the company uncertain and set off a cascade of investors trying to liquidate their investments for cash, producing essentially a bank run on Lehman Brothers.  Lehman was forced into a fire sale and could not scrounge up enough cash to cover its debts quickly enough.  This quickly turned into a chain reaction.  Other institutions dealing with Lehman were unable to call in their investments and suddenly confronted a similar threat.  If they didn’t get rid of their mortgage-backed securities and get their money from Lehman, they wouldn’t be able to cover their own debts.  The whole financial system lurched.

This story is, as Posner insists in numerous passages, a series of market failures enabled by an absent government.  Although the government might have contained the damage by preventing the Bear Sterns or Lehman Brothers collapses, Posner sees untrammeled markets as the root cause of the disaster.  Even in evaluating the government’s culpability, the central failing is the dearth of political will and an ideological faith in markets.  Washington left Wall Street relatively free to set its own rules, and many preexisting rules were stripped away during the 1990s and early 2000s.  Posner also finds fault with the government’s unprepared, improvised response to the collapse of both Bear Stearns and Lehman Bros.  But according to Posner’s version of the story, the government’s primary failing was its glaring absence—an absence which enabled a race to the bottom as market actors invented new, riskier ways to gamble.

In retrospect, according to Posner, the 2008 crisis could have been averted, or at least mitigated, in any number of ways: higher federal interest rates, enhanced capital requirements for institutional investors, limitations on leveraged investments, derivatives regulations, more stringent mortgage requirements, compensation packages that do not incentivize excess risk-taking, etc.  Unfortunately, prior to 2008, hardly anyone seriously contemplated any of these options.  The government failed to provide a sufficient regulatory regime, but investors and academics were similarly blindsided by the crash.  Faith in the infallibility of markets provided the backdrop to the entire calamity.

Posner writes, “[T]he depression has shown that we need a more active and intelligent government to keep our model of a capitalist economy from running off the rails.”  It is hard, however, to know exactly what Posner has in mind.  Any call for a more active government role is undermined by Posner’s own concerns about the costs of regulatory reform and the book’s refrain that “a depression is not the right time for regulatory innovations beyond the bare minimum essential for recovering from the depression.”  My view is that we should be done by now with the idea that a market without a government is possible.  Such a thing has never existed.  The more appropriate question is how we should balance the two.  We need to learn how we can use government to encourage healthy market growth while preserving stability and innovation.

An Ideological Failure

While never excusing the oversight, Posner acknowledges that there are plenty of plausible reasons why nobody, not even the economic profession, saw the crisis coming.  Our frame of reference in a market system tends to be on the winners and losers only in the very recent past.  Even the most sophisticated computerized models lacked historic data about many of the forms of risk being traded.  Many models accounted for the possibility of individual defaults, but few considered the possibility of mass foreclosures or other forms of system-wide risk.  But academics and financial analysts were not the only ones looking in the wrong directions.  The Republican Party had invested politically in a free-market ideology, and fiscal conservatism was becoming increasingly common even among political moderates and socially liberal Americans.  Ideologically, the entire nation was blinded by its preconceptions about the ability of free markets to self-correct.

The dearth of political will in Washington, while blameworthy in hindsight, can be explained at least partially by our democratic process.  Americans were doing well financially, and there had not been a serious financial collapse in nearly 80 years.  Wall Street was coming up with innovative investment products faster than Congress or a dedicated agency would have been able to follow.  The SEC, though understaffed, failed on its duties to police corruption, nowhere more evident than in its failure to prosecute the Madoff ponzi scheme that had been brought to its attention on several occasions. Neither the financial professionals with billions at stake nor the relatively more insulated economics experts anticipated any system-wide threat.  Economic regulation had almost no political salience, and any connotations it did have were mostly negative.

Even to the extent warning signs were present, our political and financial incentives are currently structured in such a way that there is little to be gained by spotting a bubble early. As Posner writes, “virtually all warnings are premature.”  Until a bubble is at its crest, it is still possible for rational economic actors to make money in the short term.  Particularly when everyone else in the economy is profiting off of a growing bubble, the pressures to ride the wave are overwhelming.  This, I believe, provides one of Posner’s most devastating critiques of our market arrangements and one of his strongest cases for governmental regulation. Information cascades and the absence of regular feedback have given us an economic system that regularly generates bubbles that can only be identified in retrospect.  If investing in a bubble is rational from an individual investor’s standpoint, we need a mechanism for pricking them before they grow large enough to create systemic risk.

Posner notes that there is a related problem in the political and academic arenas that make them similarly unlikely to identify bubbles in advance.  There are inadequate incentives for spotting or preventing a crisis before it happens—if an intervention prevents the crisis from happening, nobody knows how bad things would have been had the intervention not taken place.  Posner writes, “The point I want to emphasize is that it is very difficult to receive praise, and indeed avoid criticism, for preventing a bad thing from happening unless the probability of its happening is known.”  If someone had proposed policies that would have averted the “housing bubble,” it is very likely that they would become politically unpopular, perceived as anti-competitive or as offering only theoretical benefits.

In one of the most provocative portions of the book, Posner argues that what went wrong was not caused by investors or consumers behaving irrationally.  He maintains that the financial crisis was a result of ‘rational’ market actions within a poorly regulated economic structure.  The distinction is important for a few reasons.  When investors behaving rationally in pursuit of profits still produce catastrophic bubbles, the problem is structural and not attributable to any particularly greedy or wayward actors.  The inability of markets to stop this process is a typical common resource problem, when individually rational decisions become collectively irrational.  This is a clear instance of a predictable market failure and a standard case for government intervention.  If bubbles are an inevitable byproduct of rational actors within our market economy, then absent appropriate regulation, it is only a matter of time before the next crisis hits.

Posner is less forgiving of the economics profession, though he does offer several reasons that most economists missed the warning signs.  It has been a long time since the country last confronted the possibility of depression.  Moreover, the trend toward mathematical and statistical analysis in economics has not produced much fruitful research about depressions, since very little historical data is available.  In addition, fragmentation within the profession has encouraged tunnel vision, as financial economists rarely communicate with macroeconomists in their work and often do not even write with the same vocabulary.  Political and intellectual factionalism within the profession has also disrupted consensuses and made it more difficult for policymakers to obtain neutral information about the economy.  But above all, according to Posner, economists fell victim to the same ideological preconceptions that blinded those in government and the private sector—their faith in the functioning of free-markets meant that many economists simply could not imagine the possibility of an economic crisis.

Posner praises the lone economists, such as Nouriel Roubini, Raghuram Rajan, Dean Baker, and Paul Krugman, who spotted the housing bubble and predicted the financial crisis before it hit.  But without consensus among economists, these warnings were too scattered to have the necessary effects on prominent actors in government or the banking industry.  The social costs of economic crisis or a protracted recession are unacceptably high, and the fact that something of this magnitude could go largely undetected delegitimizes the entire economics profession.  Posner suggests a more centralized way for information about the economy and the financial sector to be collected and analyzed so that economists and regulators can begin to contemplate the way risks interact and accumulate to affect system-wide stability.

Depression Obsessed

Posner’s eagerness to diagnose the economic and financial crisis of 2008 as a full-fledged depression provides one of the book’s most curious features.  While in 2008, the financial crisis may have looked like a bottomless pit, a year later the worst of the crisis does appear to be over.  At a time when policy-makers were terrified that the very mention of the word “depression” might turn into a devastating self-fulfilling prophecy, why was Judge Posner so impatient to label the 2008 economic crisis a depression?

Posner’s fear of depression stems from the fact that, like the Great Depression of the 1930s, the 2008 economic crisis originated out of a crisis in the financial sector.  A financial crisis creates a lending freeze that makes it difficult if not impossible for the Federal Reserve to stimulate the economy by expanding the money supply.  At the time Posner was writing, it was still unclear that the bailout was enough to ensure that banks would start extending credit to one another or to anyone but the most qualified borrowers.  Without banks lending, consumer spending would decline, demand would fall, and the market would quickly enter a deflationary spiral.  This situation, fortunately, has been averted, but at the time Posner was writing it did not seem like the most unlikely of outcomes.  There is something ironic about this stance, however, considering that Posner spends an entire chapter arguing that it is too early to regulate or inject the government into the market.  Consider this passage:

“It is a temptation, but I think it would be a mistake, for the new [Obama] administration to try to emulate Franklin Roosevelt’s astonishing first 100 days.  The United States fortunately is in less desperate straights today and American government and the American economy, and specifically the American banking system, are all immensely more complex than they were in 1933. [...] Let the comprehensive structural solution await calmer days.”

There may be something to the view that the most sensible thing to do right now is to see how things unfold, but the view is undercut by Posner’s own doom-saying elsewhere in the book.  One could understand the urge to be on the right side of history by being the first to spot a depression.  But if that’s the stance Posner wants to take, it’s a little disingenuous to hedge with a mild endorsement of the bank bailout and nothing but wait-and-see policy suggestions.

To his credit, Posner acknowledges in his introduction that the spring of 2009 was too early to fully assess the economic fallout precipitated by the financial and economic crisis.  It is unfortunate that he so quickly dispenses with this humility.  But then again, Posner’s lack of humility is probably what made this book possible on such short notice.  Far more harmful, however, is Posner’s insistence that it is not appropriate to press for enhanced regulations mid-recession or mid-depression.  Not only is he demonstrably wrong to characterize all possible regulations as market-destabilizing, his call for regulatory postponement ignores a basic political reality: the further we get from the economic crisis, the less likely any significant government regulation will ever get passed.

“Having differences of opinion .  .  .  it’s absolutely essential.  It’s only through the process of disagreement and debate that bad ideas get tossed out, and good ideas get refined and made better.  And that kind of vigorous back and forth .  .  .  is at the heart of our democracy.”[1] – President Barack Obama

Introduction

Over the course of 2010, the President and Congress will face significant policy challenges that touch upon deeply partisan disagreements about America’s future.  With health care reform, climate change legislation, and financial reform, America stands at the dawn of a new day of policy decisions.  During this period of exceptionally polarized politics, there is an overwhelming need for political commentary that is founded upon rational inquiry and the sincerity to follow that inquiry to its logical end, regardless of the political philosophy it might validate.[2]

This essay proposes that a political commentator should view her job as that of a judge of the public forum (“JPF”).  To fulfill this role, a political commentator should strive to produce articles based upon comprehensive factual analysis that she communicates through well-reasoned writing that states all propositions clearly and succinctly.[3] I argue that this is desirable because if political commentary were to be “judge-like,” or based solely on comprehensive factual analysis communicated through well-reasoned writing that states all propositions clearly and succinctly, then articles would become effective tools in the forum of open and honest political debate.[4] This would in turn lead to better decision-making by voters and policymakers alike.

This essay will proceed in two parts.  Part I discusses the current status of political commentary in America, and argues that a new approach to the traditional model of partisan discourse is needed.  Part II explains the JPF concept, and demonstrates how a JPF might analyze a given policy issue.  I then conclude with a few brief comments on the future of political discourse in America.      

I.  The Challenges We Face: The Objective, the Subjective, and the Unquantifiable

The enormous policy tasks ahead for the President and Congress consist of a tangled web of competing concerns, including the objective and quantifiable, such as economic interests and environmental objectives,[5] as well as the deeply personal and emotional, such as women’s reproductive health, the proper role of the government in American society, and the “War on Terror.” The latter issues complicate the public discourse because they involve cultural, religious, and personal factors that are less prone to rational analysis and logical debate, and are therefore easy to exploit for the benefit of a partisan political agenda.

For example, when President Barack Obama bowed to Japanese dignitaries in 2009, there was an outcry in the media accusing the President of “appearing weak” before the Japanese, and of embarrassing America on the international stage.[6] This vague assertion of “appearing weak,” however, is difficult to refute using logic.  Making rational arguments in favor of deferential behavior and highlighting the importance of following the cultural norms of other countries cannot dispel a nonspecific assertion of national weakness in the same way that factual assertions can dispel inconsistencies in an economic theory or in environmental data.

Emotionally laden partisan theatrics can take a general conception of national weakness outside the realm of reasonable discussion by creating a level of hysteria that impedes productive discourse.[7] By acquiring the relevant facts and logically analyzing them, however, political commentators are able to provide meaningful guidance to voters and policymakers about the impact of the decisions they make.  Political commentary premised upon prepackaged conclusions, on the other hand, only further entrenches decision-making that is based on partisanship rather than on societal benefit.

Furthermore, electronic mediums such as online newspapers and iPhone applications provide widespread access to political commentary, which means commentators making divisive, simplistic statements have a great and ever-increasing influence on public discourse.  With the proliferation of partisan political blogs, periodicals, and 24-hour cable news, people can easily find a medium that confirms their preexisting political beliefs, which only serves to reaffirm voting patterns based upon partisan preferences.  Thus, a different approach is needed.

II.  The Judge of the Public Forum

A.  The JPF’s Job Description

Due to the problems described in Part I, it is incumbent upon political commentators to approach their writing in a way that will help keep the American public correctly informed while at the same time encouraging a meaningful debate over the best government policy decisions, rather than further perpetuating America’s partisan divide.  With this in mind, I recommend that political commentators begin viewing their roles as that of judges of the public forum.

To fulfill this role, political commentators must strive to produce articles based on comprehensive factual analyses communicated through well-reasoned writing that states all propositions clearly and succinctly.  When political commentators deliver opinion pieces premised upon prepackaged conclusions and marshal the story of the day to support these conclusions, there is little for the reader to gain; this practice only further perpetuates pre-existing personal bias and partisanship.  When political commentary communicates a rational belief based upon factual analysis and logical reasoning, however, it adds to the general marketplace of ideas, and enables readers to compare competing views in a direct, straightforward manner that allows them to make informed decisions about important issues.

B.  The Requirements for Becoming a JPF

The foundation for assuming the JPF role is a political commentator’s ability to detach herself from the desire to perpetuate any partisan political agenda before she investigates an issue.  This is a prerequisite to the honest and vigorous pursuit of all reasonably accessible facts.  The JPF must then evaluate the facts to the best of her ability, with a healthy skepticism about the source and its reliability.  Quality of review must predominate over quantity of output.  Since there is no shortage of opinions in the current marketplace of ideas, the JPF will be able to rest assured that the public can wait for her final ruling.

While all JPFs should be similar in their ability to perform comprehensive factual analysis and communicate the results in an intelligible, straightforward manner, not all JPFs reach the same outcomes.  Different JPFs will likely weigh the facts differently; this is no different than the way well-respected judges legitimately ascribe different weight to a single witness’s testimony or to what constitutes an objectively reasonable expectation of privacy.[8] In fact, it is this diversity of perspectives that makes reading different political commentaries, similarly grounded in rational thought, a fruitful endeavor.

C.  The JPF in Action

For an example of how a judge of the public forum might operate in practice, let us look to the recent debate regarding climate change.  First, the JPF must pursue, collect, and evaluate the veracity of statistical evidence underlying the claim that climate change is an important issue with societal consequences.  For this type of analysis, the prudent JPF should contact her equivalent of “law clerks”:  those disinterested individuals with expertise in a given area who are similarly non-partisan and skeptical.  Although the results of this stage of analysis are inextricably linked to the vested political interests that are part and parcel with climate change legislation, the JPF should set aside her own individual political leanings to analyze the data and come to a rational, well-reasoned conclusion.

Assuming that the JPF determines that the facts support the assertion that climate change is a significant problem, she should then approach other issues related to climate change with a similar level of prudence.  For example, if she writes on emissions targets, she should list all reasonable competing environmental and economic interests inherent in such targets, and should attempt to specifically identify at what point, if ever, the economic costs of reform start to outweigh the environmental benefits.

The JPF might also evaluate the more subjective aspects of climate change, such as whether special obligations should be imposed on more developed countries for their historical share of climate impact.  Recognizing that this issue has moral and ethical implications that go beyond the realm of quantitative analysis, the JPF should be careful to maintain the same level of reason and measured skepticism that she brings to more objectively cognizable topics.  The JPF should be aware that questions of morality touch upon emotional sensibilities that are easy to exploit at the expense of meaningful discourse, so she should be measured in her language and should avoid hyperbole.  She should strive to provide a variety of perspectives before choosing her own, and she should give ample explanation for how she arrives at her final recommendation.  Finally, the JPF should be careful to acknowledge the limitations of her analysis, and should identify any information she was unable to include in her opinion, so that her readers understand what data might aid their future investigations.

Whatever the topic of the JPF’s analysis, from family planning to economics, it should be comprehensive, logical, and skeptical.  Her final opinion should state all the steps in the chain of reasoning clearly, and should explain how they support her conclusion.  The JPF’s primary concern should not be the political ramifications of her conclusion, but rather that she arrived at that conclusion on nonpartisan, rational grounds.  And although different JPFs will come to different conclusions, this divergence in opinion is socially beneficial because it continues to add to the marketplace of ideas.  This variety of perspectives on pressing issues allows people to make better-informed decisions about their own beliefs.

Proponents of the partisan approach to political commentary might argue that although their form of discourse is different from the JPF’s work, it too is valuable and worth preserving.  For centuries, partisan political commentary has demonstrated its ability to entertain, persuade, and unify political support when necessary.  However, the benefits of a partisan approach are substantially outweighed by the harm caused by disabling the electorate’s ability to evaluate the merits of a political commentator’s conclusions.

When political commentators distort or disregard a thorough factual analysis, opinions inspired by ulterior motives, such as prejudice, self-interest, or the perpetuation of a given political ideology unattached to its societal benefit, appear as legitimate policy recommendations.  The JPF’s rational analysis, however, provides a safeguard by limiting the realm of discussion to that which can be logically connected to good policy outcomes.  Furthermore, disclosure of facts empowers the reader to evaluate a policy perspective on its own merits, rather than taking the political commentator at her own word.  In this way, the American electorate is more likely to base its policy preferences on demonstrably logical arguments than on the politically charged opinions of those who speak the loudest.  Over time, this might lessen the polarization of political ideology, and remove the impediment to future political compromise that is intended to achieve good policy outcomes.

III.  Conclusion

In sum, if political commentary were “judge-like,” articles would be more likely to stimulate meaningful conversation, and to be effective tools in the forum of open and honest political debate.  When opinion pieces are based upon prepackaged conclusions, rather than upon factual analysis and rational argumentation, however, the lack of factual sufficiency and supportable propositions to substantiate those conclusions is immediately apparent.  Those arguments are quickly debunked through rigorous questioning, and nothing is gained except for the intellectual exercise of seeing the hole in the argument.[9]

If a variety of JPF opinions were presented, however, the marketplace of ideas would be a place filled with critical analysis and different perspectives.  This would allow society’s knowledge to progress, with every mind playing an integral role in moving the public debate toward better policy decisions.  Therefore, this article suggests that political commentators should be willing to approach policy issues with rational inquiry and the sincerity to follow the conclusions from that inquiry to their logical end, to whatever end of the political spectrum they may lead.

[1] President Barack Obama, Remarks by the President at GOP House Issues Conference (Jan.  29, 2010), in Political Knowledge in an Era of Ungovernability: Obama, GOP and Tea Baggers, Humble Piety, Feb.  20, 2010, http://humblepiety.com/2010/02/20/political-knowledge-in-an-era-of-ungovernability-obama-gop-and-tea-baggers/.

[2] This essay refers to political commentators of all ideologies.  It does not purport to criticize a specific political party, or to blame a single news source or commentator for the extreme polarization of the public discourse.

[3] In reality, judges may not be the rational, disinterested arbiters that this article suggests political commentators should strive to be.  Nonetheless, this is the role judges are expected to assume, and therefore so too should political commentators.

[4] See Bruce Bueno de Mesquita, The Methodical Study of Politics, in Problems and Methods in the Study of Politics 227, 227 (Ian Shapiro et al. eds., 2004) (“[R]esearch benefits from efforts to establish the rigorous logical foundation of propositions as it is exceedingly difficult to interpret and build upon commentary or analysis that is internally inconsistent.”); see also Leo Groarke, Informal Logic, in The Stanford Encyclopedia of Philosophy (Edward N.  Zalta ed., 2008), http://plato.stanford.edu/archives/fall2008/entries/logic-informal (arguing that informal logic aims to inform and improve public reasoning, discussion, and debate by promoting models of education that emphasize critical inquiry).

[5] This is not to say that economic and environmental policy issues do not spur hugely complex debates that are wrought with uncertainty, contentious assumptions, and incomplete information.  Topics like economic and environmental policy, however, are more prone to arguments based on facts and statistical analysis than topics regarding vague, irrefutable notions that include arguments such as “appearing strong in the eyes of the world.”  Furthermore, although many economists and environmentalists likely have deep emotional attachments to their theories, the disputes are intellectual by their nature.  This is fundamentally different from the often emotional religious and cultural tensions underlying such issues as the Israeli Wall, abortion, and the sex trade.

[6] See Brian Montopoli, Official: Reaction to Japan Bow Left Obama “Speechless,” CBS News, Nov. 23, 2009, http://www.cbsnews.com/blogs/2009/11/23/politics/politicalhotsheet/entry5749826.shtml (“President Obama’s bow to Japan’s Emperor Akihito in Tokyo .  .  .  ignited anger from some conservatives who complained, in the words of blogger Donald Douglass, that the United States ‘now willingly prostrates itself before the rest of the world.’”).

[7] See supra note 5 for further discussions of the impact rational analysis has on society.

[8] Compare Florida v. Riley, 488 U.S. 445 (1989) (holding that the accused did not have a reasonable expectation that his greenhouse was protected from aerial view), with Florida v. Riley, 488 U.S. 445 (1989) (Brennan, J., dissenting) (arguing on the same facts that the accused did have a reasonable expectation of privacy).

[9] While this article has argued that the JPF’s work is much-needed and is socially beneficial, it has not dealt with whether it is economically viable.  To put it another way, are we, the readers, listeners, and viewers of America, interested enough in­ what JPFs would have to offer that the media companies employing those JPFs could stay alive?  While I lack a definitive answer to this question, the constant refrain of “coming to the middle” and “bipartisanship” that we find in our current public discourse would seem to point to at least some interest in multiple perspectives and moderation.  As an example, on January 29th, the President visited a House Republican retreat where both parties engaged in an open discussion of policy issues, airing their different perspectives on multiple topics, and engaging in a rational discourse about America’s future.  It was celebrated by the media and generated a substantial amount of public interest.  See Patrick O’Connor & Tim Grieve, President Obama Rumbles with House GOP, Politico, Jan.  29, 2010, http://www.politico.com/news/stories/0110/32225.html (describing an “extraordinary back-and-forth” between Obama and Republicans).  Political commentators able to reproduce such an open dialogue in their writing might similarly find success.

The Kyoto Protocol—despite its successes[1]—has not put the world on a path toward climate stabilization.  Global greenhouse gas (GHG) emissions grew four times faster between 2000 and 2007 than during the previous decade, at a rate above even the “worst-case scenario” predicted by the International Panel on Climate Change.[2]

Under the Kyoto Protocol’s global cap-and-trade system, industrialized countries (“Annex I countries”) committed themselves to binding GHG emission “caps,” which they could achieve either by reducing their own emissions or by “trading” for reduction credits from other entities.[3] Developing countries (“non-Annex I countries”), on the other hand, did not accept caps—a compromise that recognized that developing nations did not contribute to the majority of historical emissions and ensured that GHG restrictions would not impede their economic development.  Developing countries did, however, agree to participate in the Clean Development Mechanism (“CDM”), a flexible mechanism that allows industrialized countries to invest in ventures that reduce emissions in developing countries as an alternative to more expensive emission reductions in their own countries.

Administered by an Executive Board under the auspices of the U.N. Framework Convention for Climate Change (“UNFCCC”), the CDM has grown rapidly since its inception in 2004.  To date, the Executive Board has approved more than 1,800 offset projects. During the 2008-2012 Kyoto compliance period, these projects are expected to produce about 300 million tCO₂ of offsets per year, representing roughly half the reductions needed to reach the system’s total cap of 5 percent below 1990 baseline emissions.[4] Six and a half billion dollars flowed to offset projects through the CDM system in 2008 alone, and secondary sales of CDM-derived credits—i.e., buying and re-selling by investors and aggregators—accounted for another $25 billion in financial transactions.[5] However, the CDM is also one of the most maligned features of the Kyoto scheme.  Critics take issue with its administrative inefficiencies, questionable environmental benefits, and inequitable distribution of funds. These concerns will only grow as the developed world broadens and deepens its mitigation commitments, increasing demand for carbon offsets.

In December 2009, Parties to the UNFCCC met in Copenhagen, Denmark, to continue negotiating a successor to the Kyoto Protocol, which expires in 2012.  This Paper proposes that these Parties consider replacing the Clean Development Mechanism with a Clean Development Fund.[6] We argue that a centralized, publicly administered Fund would improve the CDM’s structure in three ways, and we allocate one Part to each improvement.[7] Part I examines the high transaction costs and administrative inefficiency that are implicit in the complex CDM structure and argues that the Fund’s simpler, streamlined approach would deliver more mitigation per offset dollar.  Part II summarizes the serious concerns about the environmental credibility of CDM offsets and argues that a fund-based reform would increase the percentage of funds successfully directed toward projects that represent real GHG reductions.  Part III explains that a Fund model could better target funds to projects that promote sustainable development, one of the original goals of the CDM.  We conclude with a political reality check.  While the wholesale replacement of mechanism-based offsetting faces large political hurdles, support for a fund of some kind is gathering momentum and deserves more attention from academics and policymakers.

I. A Fund Approach Will Improve Efficiency of the Offsetting Process

Many commentators have voiced dissatisfaction with the CDM’s high transaction costs and long administrative lag times.[8] In this Part, we trace the CDM’s inefficiency to its mechanism structure and argue that a fund-based offset system could improve efficiency.

A.  The Structure of the Carbon Market Under the Mechanism-Based Offsetting

CDM offset projects require several complex interactions and rely on a number of different supporting players.  First, the developer of a potential GHG-reduction project in a non-Annex I country must quantify the project’s emission reductions using a scientific methodology approved by the Executive Board—a task that typically requires the developer to contract with a consultant that specializes in CDM applications.  The project and its consultants then submit the project proposal to a Designated Operational Entity (“DOE”), one of the organizations on which the CDM’s Executive Board relies for project validation.  If the DOE validates the project’s conclusions, the project is entitled to registration by the Executive Board as a matter of course unless the Executive Board requests review.  Review requests often result in rejection of the project or a request for clarification by the project developer.  If the project achieves registration, the Executive Board issues Certified Emission Reduction credits (“CERs”) on a yearly basis, subject to the DOE’s validation of ongoing monitoring reports.

Once it receives its CERs, the project developer will sell them to a buyer who wants offset credits for cap-and-trade compliance.  Since it is not easy for buyers and sellers to find each other, this transaction typically occurs via an intermediary.  In some cases, the intermediary may act as a broker, taking a percentage of the sale price in exchange for linking the two parties.  In other transactions, intermediaries will instead hold the credits on their own balance sheet, thereby taking on the additional role of credit aggregator.[9] Aggregators are important to the CDM market because neither project developers nor credit purchasers want to accept the risk of project failure.[10] Aggregators enter the transaction between the parties, buying relatively risky undelivered credits under a forward contract with the project developer.  They pool these credits into a portfolio with credits expected from other projects, thereby reducing the variability in the expected yield of the whole portfolio[11] and allowing them to sell “guaranteed” credits to compliance buyers.  Aggregators are typically compensated for their risk reduction and risk assumption by the price spread between the risky credits they buy and the guaranteed credits they sell.  For example, early-stage CDM projects sell their credits for about €7, and compliance buyers buy guaranteed credits for around €10, with the difference going to the intermediaries and aggregators that stand between the two parties.[12]

Other entities support the crediting and sale transactions, too.  For instance, the financial intermediary need not deliver the credits directly to a compliance buyer; it may also sell them to speculators interested in betting on the price of carbon.  In evaluating the riskiness of their credit portfolios, both speculators and aggregators rely on rating agencies, which rate carbon assets in the same way that Moody’s or Standard & Poor’s rates traditional assets.[13] Finally, many of these transactions require negotiated contracts with terms governing price, delivery, and risk allocation for several dimensions of risk.  This implicates yet another category of supporting players: lawyers.

B.  Structural Complexity and Inefficiency in the Mechanism Model Cause High Transactions Costs and Lag Times

Existing estimates of transactions costs in the CDM vary widely, ranging from less than 2 percent of total offset spending to over 50 percent of total spending, with most estimates hovering around 4 to 6 percent of total costs.[14] Unfortunately, these estimates are based on self-reported data from early (and therefore possibly non-representative) CDM projects.  They also employ widely variant transaction cost definitions, making it difficult to assess their accuracy.

The magnitude of some CDM costs, however, is obvious without a detailed study.  For example, as discussed above, the price spread between “primary” offsets and guaranteed offsets is around 30 percent of total offset investment.  From the perspective of compliance buyers, this is the largest single cost of using the CDM system.[15] Moreover, these costs are exacerbated by the non-pecuniary—but no less real—cost of administrative time delays. Project applicants wait an average of over 300 days for DOE validation and another 200 days for Executive Board certification.[16] Indeed, there is a queue of thousands of projects backed up behind the certification bottleneck.  Some commentators predict that delays will grow even longer as offset demand increases.[17]

These transaction costs and lag times might be worth tolerating if we believed that decentralized, market-based coordination of economic activity is inherently superior to a centralized, publicly-administered alternative.[18] Our own view, however, is that the boundary between markets, firms, and governments can only be set on an industry-by-industry basis, according to the characteristics of each industry.[19] One need look no further than the 2008 implosion of the mortgage industry—where market trading of securities to discipline capital allocation decisions bears a striking resemblance to the structure of the carbon offsets industry—for evidence in support of our perspective.[20] If the traditional financial industry’s experiment in allocating capital via a securitization mechanism was so unsuccessful, can we really expect the new “carbon finance” industry to do any better?

C.  How Fund-based Offsetting Would Work

We argue that a fund-based model would allocate developing country offset funds at least as well as the current, decentralized system, and at a lower cost.  At the core of the system would be an investment fund run by an international public-sector organization analogous to the present day Executive Board.  Projects in developing countries would measure their expected emissions reductions in the same way as they do under the CDM, but they would apply to the Fund for funding, not certification.  On a yearly basis, the Fund’s managers would select the most attractive projects and disburse grants, low-interest loans, loan guarantees, or equity.

On the buyer side of the offset market, the Fund would continue to function as a cost-control mechanism by issuing offset credit that Annex I countries can use to meet their compliance obligations.  Under the fund model, however, each participating entity would receive offsets in proportion to its contribution to the Fund rather than purchase them from a project or third-party aggregator of credits from several projects.[21]

D.  How a Fund-Based Structure Would Reduce Complexity and Increase Efficiency

The Fund model has at least two significant efficiency advantages over the mechanism model.  First, the Fund achieves directly what a mechanism achieves indirectly.  An offset mechanism makes marginal clean development projects viable by inventing a notional commodity, awarding the commodity to projects, and thereby allowing the projects to generate a supplemental stream of offset income to attract loans.  An offsetting fund would reach the same result via a more direct route—it would simply invest in the project.  Where the mechanism requires two transactions (an approval transaction and a sale transaction), the Fund requires only one (the approval transaction).  In this way, the Fund would halve the mechanism’s negotiation, contracting, and other search costs.  At the same time, its simplicity arguably would make it less susceptible to the kind of unforeseen shocks that periodically rock other complex, interdependent financial systems.

Second, the  Fund itself would operate as an intermediary and risk pool.  This would be a boon to capped entities because it would obviate the need for the private-sector aggregation and intermediation services that account for the lion’s share of transaction costs under the present-day CDM.  When a capped entity needs an offset, it would simply purchase it at the government window.

II.  A Fund Model Will Improve the Environmental Accuracy of Offset Awards

A.  Environmental Criticism of CDM-Approval Decisions

CDM critics have convincingly argued that up to two-thirds of emission credits generated under the CDM do not reflect real GHG emission reductions.[22] Early criticism from the environmental community focused on the CDM’s disproportionately large awards to the destruction of trifluoromethane (HFC-23), a potent GHG and byproduct of refrigerant manufacturing.[23] Because simple technological fixes could cut HFC-23 emissions at a relatively cheap cost, refrigerant manufacturers were able to earn nearly twice as much from selling CDM credits as they could from selling their actual product.[24] This created the perverse incentive for investors in China to build new refrigerant plants simply to cash in on the CDM-credit windfall—thereby adding to global GHG emissions, instead of actually reducing them.

More recent environmental criticism centers on the related problem of determining the “additionality” of a proposed project—that is, whether project investment would have occurred in the absence of the CDM.  The Kyoto Protocol specifies that only “additional” projects merit CDM credits, not projects that would have happened anyway under “business as usual.”  If emission reductions are not additional, the thinking goes, then they do not “offset” other emissions and should neither receive funding through the CDM nor be used for CDM compliance.  The additionality concept is itself is uncontroversial, but devilishly difficult to apply in practice: which industrial practices, exactly, would prevail in the counterfactual “business as usual” world?  Would a proposed wind farm replace a (relatively dirty) coal plant or a (relatively clean) natural gas plant?  And what rate of return would be sufficient to make an investment attractive even without the CDM incentive?

With these thorny questions in mind, several studies have estimated that up to 40 percent of all projects certified by the CDM are not additional.[25] Some critics go even further, arguing that no viable method of measuring additionality exists, as the idea of additionality presupposes the ability to measure emission reductions in a counterfactual, hypothetical state of the world.[26]

B.        Environmental Concerns Can Be Traced to the Mechanism Model

We recognize the intractability of the counterfactuality problem but argue that the CDM’s existing structure exacerbates its severity.  Mechanism-based offsetting casts the system regulator in a passive role, limiting it to making a “yes” or “no” decision on the environmental benefits of project applications.  This has four implications:

First, mechanism regulators have limited access to information about the projects they evaluate.  They must rely on the claims of the project developers, which are not cross-examined by any other interested party and are not easily compared against claims by similar projects competing for funding.

Second, this project-by-project perspective can lead to results that are reasonable on the individual level but nonsensical in the aggregate.  As others have noted, it is plausible that any given Chinese non-coal power plant is additional, but it is not plausible that every new non-coal power plant is.  Yet, the CDM has awarded funding to virtually all new non-coal capacity in China.[27]

Third, mechanism regulators have a limited ability to respond to the unintended consequences of system design flaws.  The HFC-23 projects, which funded the destruction of a refrigerant byproduct with 11,700-times the greenhouse potential as CO₂, are a case in point. Because HFC-23 mitigation was credited at 11,700 times more per ton than CO₂ mitigation, but did not cost 11,700 times more, HFC-23 projects dominated the early CDM market.  The project developers reaped windfall profits well in excess of any reasonable estimate of the incentive needed to convince them to implement their projects.  The affair was an example of the mechanism’s perverse incentives in action.

Fourth, the mechanism model makes it relatively difficult to fund programmatic activity such as changes to environmental laws and policies or efforts to speed the diffusion of clean technologies like cook stoves in rural areas.  Despite strong interest in funding such activities, the CDM has had a difficult time developing procedures to govern them.[28] One explanation for the delay is that such projects are often unique efforts more suited to an individualized approval process than to the CDM’s mechanistic methodology and additionality requirements.

C. A Fund-Based Model Will Improve the Environmental Soundness of Funding Decisions by Recasting Passive Regulators as Active Fund Mangers

A Fund model would recast the CDM’s passive regulators as active fund managers.  This active role would give them the ability to compare projects side by side, scrutinizing the additionality claims of project developers.  Indeed, project developers would compete for funding, and fund managers would have the luxury of choosing only the projects that are most environmentally sound, rather than approving all projects that purport to meet the CDM’s substantive criteria.  Fund managers would also benefit from a holistic perspective. In making their yearly funding decisions, they could more easily note that a large percentage of Chinese power plants claim additionality, and thus re-calibrate their funding decisions accordingly.   For example, they might choose to take a “programmatic” approach to incentivizing the Chinese power plant sector by contracting with the Chinese government to set technology standards or to limit the expansion of coal in certain regions—an approach that would fit more naturally in the flexible, managed fund model than in the mechanism model.  Finally, fund managers would be better able to correct design flaws in real time.  For example, instead of overcompensating the HFC-23 developers, managers negotiating a funding contract could have incentivized those projects’ emissions reductions at reasonable rates with grants.

Of course, there are also dangers implicit in the fund model. The mechanism uses investors’ self-interest to ensure that funds flow to the projects that achieve the most mitigation per dollar.  The fund structure contains no such automatic discipline.  In other words, there is nothing to stop fund managers from making bad decisions, whether those bad decisions are the result of willful political cronyism or an innocent inability to effectively compare all investments.

We take this concern seriously, but believe that internal management structures can effectively control and standardize manager decisions.  Specifically, we propose that allocation of funds through a reverse auction could rationalize the award process and ensure that funding continues to flow to the projects that get the most “bang for the buck.”[29] Under our proposal, on a quarterly basis, project developers would offer emission reductions to the Clean Development Fund at a price of their choosing.  For example, a wind project in China may offer 100,000 tCO₂e of emission reductions in exchange for a €1m grant; a solar project in Bolivia may offer the same quantity of emission reductions in exchange for an €800,000 grant.  The fund managers would rank the two projects (along with all other projects submitted) according to the cost per tCO₂e of their estimated emission reductions.  In this case, the Bolivian project, with a cost of $8/tCO₂e, is ranked ahead of the Chinese project, with reductions costing $10/tCO₂e.  The Fund will award funding to projects in the order of their cost per tCO₂e rank until its funds are exhausted, such that only the most cost-effective emissions reductions proposals are funded.

The reverse auction, in other words, would partially “mechanize” the Fund.  Like the current CDM, it would target funds toward the projects that achieve the lowest-cost emission reductions.  Unlike the CDM, however, the reverse auction would not award a final right to CDM funding but rather would serve as a tool to assist fund managers.  In this way, it would preserve enough flexibility to allow the Fund to operationalize the advantages of the fund model discussed above—that is, it preserves fund managers’ power to (1) scrutinize projects side by side (indeed, this is the auction’s core purpose); (2) take a holistic perspective on the offset market as a whole during each funding cycle; (3) pursue attractive programmatic activities outside of the context of the auction; and (4) respond aggressively to design flaws.

III.  A Fund Model Will Achieve the CDM’s Sustainable Development Goal

The Kyoto Protocol set out two purposes for the CDM: (1) helping developed countries cost-effectively comply with their mitigation obligations; and (2) assisting developing countries in achieving sustainable development.[30] Significantly less academic attention has focused on the performance of the CDM’s second goal than on its first, but there are several reasons to believe that the CDM does a poor job of incentivizing true sustainable development.  A large percentage of CDM credits to date came from HFC-23 and hydroelectric projects, which critics argue do not represent sustainable development.[31] Funding for projects with strong social or equity aspects—such as rural cook stove projects—has been scarce, even though credits derived from such projects attract premium prices.[32] Moreover, projects of all classes are geographically concentrated in a relatively small number of nations. CDM investment in Africa is particularly low.[33]

The Fund would improve offsetting’s sustainable development performance in largely the same way as it would improve its environmental performance.  By giving fund managers more discretion over the targeting of funds, a fund would make it easier to direct money to the projects with the greatest sustainable development characteristics and other co-benefits.  The reverse auction system could incentivize this targeting by using priority weighting factors that allow fund managers to fine-tune the auction with objective numerical factors to alter a project’s auction rank.  For example, fund managers could severely discount projects with high social costs not represented in the pecuniary cost figure reported by the project.  This would make a large dam project with high human rights risks less competitive in the reverse auction.  Similarly, fund managers could apply positive weighting factors to incentivize desirable but under-funded classes of projects.  For example, transactions costs and other market imperfections may lead to sub-optimal funding of projects in Least Developed Countries or renewable energy projects which are otherwise limited by high equipment cost and low CER return.

Once established, these transparent numerical weighting factors would send a clear price signal to investors and applicants, incentivizing the types of projects that would further the oft-overlooked “sustainable development” purpose of the global offset system.  Further, fund managers could establish an open and inclusive process to develop the appropriate numerical factors, which would bring to the forefront human rights and other concerns that are often under-represented in climate change policy discussions.

Conclusion

Each of this Paper’s three sections presents a problem inherent to the Kyoto Protocol’s mechanism model.  The mechanism’s inefficient Rube Goldberg-esque design encourages offset developers to game the system.  As a result, the system’s referee (the Executive Board) must make expenditures in administrative controls.  Though well intentioned, these administrative hurdles have destructive consequences: they are only partially effective in excluding undesirable projects; they unfairly exclude some desirable projects; they are expensive for all parties involved; and they have undesirable equity characteristics.

We argue that a fund-based reform has the potential to rationalize the offsetting process by eliminating expensive, unnecessary, and dangerous structural complexity and by re-casting passive regulators as active, responsive fund managers who will make funding decisions that are more environmentally sound and that do justice to their sustainable development mandate.

At this stage in the ongoing climate negotiations, however, we would be remiss to focus only on a fund’s operational advantages while ignoring the question of its political viability. The Fund faces at least two big political hurdles.  First, sheer inertia and the political power of current carbon markets participants—who derive much of their projects from the CDM’s large transaction costs—may make it difficult to jettison the mechanism concept. The International Emissions Trading Association is an influential voice in the international debate, and investment banks and other financial-sector firms have a strong capacity to influence decisions in Washington D.C.  Second, debate over the management of the Fund is likely to be extremely controversial.  Within the United States, many will object to government-directed investment.  At the international level, the management question will likely provoke tension between the developed and developing worlds.  Annex I nations will want to control the Fund, since they are the source of its capital.  But non-Annex I nations will want control in order to ensure that funding is targeted to their developmental priorities.

At the same time, there is reason for cautious optimism about the political viability of the fund approach.  For one thing, efficiency is the least controversial value.  By increasing the percentage of each dollar of funding that achieves mitigation, the Fund approach benefits everyone (but the middlemen), and should have a broad constituency.  Similarly, while environmental soundness arguably is not in offset participants’ short-term interest (buyers and sellers just want to complete the transaction), it is in everyone’s long-term interest.

Click here for a pdf version of the article, including the appendix.

[1] The Kyoto Protocol secured the participation of every nation except Somalia, Afghanistan, Western Sahara, and the United States.

[2] See Global Carbon Project, Carbon Budget 2008 Policy Brief 2 (2009), available at http://www.globalcarbonproject.org/carbonbudget/08/files/091115 USU-PB10 CARBON 2 BasseDEF.pdf.

[3] The Kyoto Protocol sets national level caps and permits credit trading between nations. However, most of the nations capped by Kyoto have chosen to implement their caps by creating or joining a cap-and-trade system binding on firms within their jurisdiction. Thus, as a practical matter, credit trading occurs at the firm-to-firm level, not at the nation-to-nation level.

[4] Karan Capoor & Philippe Ambrosi, World Bank, State and Trend of the Carbon Markets 2009, at 1 (2009), available at http://wbcarbonfinance.org/docs/State___Trends_of_the_Carbon_Market_2009-FINAL_26_May09.pdf (estimating 300 million tCO₂ of offsets per year); United Nations Framework Convention on Climate Change, Annual compilation and accounting report for Annex B Partied under the Kyoto Protocol 9 (Dec. 1 2008), http://unfccc.int/resource/docs/2008/cmp4/eng/09r01.pdf (showing “base year” Annex 1 emissions of 12.03 billion tCO2); Unep-Riso Centre, CDM/JI Pipeline Analysis and Database, http://cdmpipeline.org/overview.htm (last visited Jan. 26, 2010).

[5] Capoor & Ambrosi, supra note 4, at 1.

[6] Our suggestions about the CDM are relevant to the design of other offset systems, particularly as the United States contemplates using a CDM-like offsetting system in its domestic climate change legislation. See Office of Atmospheric Programs, EPA, EPA Analysis of the American Clean Energy and Security Act of 2009 H.R. 2454 in the 111th Congress (2009), http://www.epa.gov/climatechange/economics/pdfs/ HR2454_Analysis.pdf; Written Testimony of Michael Wara to the U.S. Senate Committee on Energy and Natural Resources 8 (Sept. 15, 2009), available at http://energy.senate.gov/public/_files/ WaraTestimony091509.pdf [hereinafter Wara Testimony] (concluding that more than half of all reductions through 2030 under the bill would come from offsets, not direct reductions).

[7] This fund would be modeled after the widely praised multilateral fund used by the Montreal Protocol to reduce depletion of the ozone layer. Montreal Protocol on Substances that Deplete the Ozone Layer, Sept. 16, 1987, 26 I.L.M. 1550. Former U.N. Secretary General Kofi Annan referred to the Montreal Protocol as “[p]erhaps the single most successful international agreement to date.” U.S. Dep’t of State, The Montreal Protocol on Substances that Deplete the Ozone Layer, http://www.state.gov/g/oes/env/83007.htm (last visited Jan. 21, 2010). We are also indebted to the work of Professor Michael Wara at Stanford University. Michael W. Wara & David Victor, A Realistic Policy on International Carbon Offsets 9 (Program on Energy and Sustainable Dev., Working Paper #74, 2008), available at http://iis-db.stanford.edu/pubs/22157/WP74_final_final.pdf.

[8] See, e.g., Capoor & Ambrosi, supra note 4, at 45-51; International Emissions Trading Association, State of the CDM 2008: Facilitating a Smooth Transition into a Mature Environmental Financing Mechanism 7–9 (2008), available at http://www.ieta.org/ieta/www/pages/getfile.php?docID=3111.

[9] See Tyler McNish et al., Sweet Carbon: An Analysis of Sugar Industry Carbon Market Opportunities Under the Clean Development Mechanism, 37 Energy Pol’y 5459, 5465–66 (2009).

[10] The credit purchasers prefer to buy credits under a contract that guarantees delivery, so that they will not be exposed to spot market prices in the event that the seller fails to deliver.  However, the project developers typically loathe to write such guarantees, as they need a guaranteed stream of future income in order to secure the debt financing for the project itself.

[11] The principle behind this pooling is the same as that behind the aggregation of mortgages by Fannie Mae and Freddie Mac.

[12] Capoor & Ambrosi, supra note 4, at 39–40.

[13] See Carbon Rating Agency: Overview, http://www.carbonratingsagency.com/about-us/overview/index.html (last visited Jan. 21, 2010).

[14] See Axel Michaelowa & Frank Jotzko, Transactions Costs, Institutional Rigidities, and the Size of the Clean Development Mechanism, 33 Energy Pol’y 511, 521 (2005); Hannah Mari Ahonen & Kari Hamekoski, Transactions Costs Under the Finnish CDM/JI Pilot Programme (University of Helsinki Dep’t of Econ. & Mgmt, Discussion Paper No. 12, 2005), available at http://www.mm.helsinki.fi/mmtal/abs/DP12.pdf; Camille Antinori & Jayant Sathaye, Assessing Transaction Costs of Project-Based Greenhouse Gas Emissions Trading 31 (2007), available at http://are.berkeley.edu/~antinori/LBNL-57315.pdf; Mattias Krey, Transaction Costs of Unilateral CDM Projects in India: Results from an Empirical Survey, 33 Energy Pol’y 2385, 2391 (2004); Bruce Chadwick, Transaction Costs and the Clean Development Mechanism, Natural Resources Forum (2006) (unpublished draft manuscript), available at http://www.bruce.chadwick.org/Assets/ Chadwick-CDMdocV2.1d.pdf.

[15] Capoor & Ambrosi, supra note 4, at 39–40.

[16] Id. at 46.

[17] See, e.g., Wara Testimony, supra note 6, at 5–7.

[18] For the canonical articulation of this idea, see F.A. Hayek, The Road to Serfdom (1944).  Indeed, the CDM’s design may reflect policymakers’ belief that market organization of economic behavior is superior to government organization. See David M. Driesen, Sustainable Development and Market Liberalism’s Shotgun Wedding: Emissions Trading Under the Kyoto Protocol, 83 Ind. L.J. 21, 23–25 (2008).

[19] See generally Ronald H. Coase, The Nature of the Firm (1937), in Oliver E. Williamson & Sidney G. Winter, The Nature of the Firm Origins, Evolution, and Development 18, 19 (1993); Oliver Williamson, Public and Private Bureaucracies: A Transactions Cost Economics Perspective, 15 J.L. Econ. & Org. 306 (1999).

[20] Michelle Chan, Friends of the Earth, Subprime Carbon: Rethinking the World’s Largest New Derivatives Market 2 (2009), available at http://www.foe.org/pdf/SubprimeCarbonReport.pdf.

[21] How, exactly, the Fund would distribute credit is a question beyond the scope of this article. For our present purposes, it suffices to note that the Fund would have to choose between at least three broad approaches, all of which have advantages and disadvantages. First, each Fund participant could receive a share of the annual emissions reductions actually achieved by the Fund equal to its contribution to the Fund. This system would preserve the environmental integrity of the system by issuing offsets only after actually achieving emissions reductions, but it would force Annex I entities to either contribute money to the fund without first knowing exactly how many offset credits it would receive per dollar, or to pay an intermediary to accept the risk by standing between the Fund and the entities. Second, the Fund could sell or auction offsets credits ex ante, using the proceeds to fund projects. This system would allow the capped entities to buy “safe” offsets, but would potentially undermine the environmental integrity of the system by preventing the Fund from ensuring ex ante that the money it collects for each 1 tCO₂ offset would allow it to achieve emissions reductions of 1 tCO₂. Third, the Fund could implement a hybrid system by using “head start” funding from governments to invest in projects before the beginning of the compliance period and then selling or auctioned the resulting offsets to buyers. These three approaches also vary in their viability as a “supply response” or “price safety valve” to demand spikes inside the cap-and-trade system.

[22] See Patrick McCully, The Great Offset Swindle: How Carbon Credits Are Gutting the

Kyoto Protocol, and Why They Must Be Scrapped, Dams, Rivers & People 2008, at 3, available at http://www.internationalrivers.org/files/DRP2English2008-521_0.pdf.

[23] Michael Wara, Is the Global Carbon Market Working?, 445 Nature 595, 595–96 (2007).

[24] Id. at 595.

[25] Lambert Schneider, Is the CDM Fulfilling its Environmental and Sustainable Development Objectives? 9 (2007), http://www.oeko.de/oekodoc/622/2007-162-en.pdf (stating additionality of 40 percent of projects is “unlikely or questionable”); Axel Michaelowa & Pallav Purohit, Additionality Determination of Indian CDM Projects: Can Indian CDM Project Developers Outwit the CDM Executive Board?  4 (2007), http://www.noe21.org/docs/Michaelowa-teripress-2007 (explaining less than 50 percent of projects in India provide adequate additionality information); Christoph Sutter & Juan Parreño, Does the Current Clean Development Mechanism (CDM) Deliver Its Sustainable Development Claim? An Analysis of Officially Registered CDM Projects, 84 Climatic Change 75, 86 (2007) (finding additionality is “unlikely” for 11 out of 16 projects analyzed).

[26] Wara & Victor, supra note 7, at 17.

[27] Id. at 13–14.

[28] See Capoor & Ambrosi, supra note 4, at 50–51.

[29] On reverse auctions for climate change mitigation, see Michael Wara, Measuring the Clean Development Mechanism’s Performance and Potential, 55 UCLA L. Rev. 1759 (2008).

[30] Kyoto Protocol to the United Nations Framework Convention on Climate Change, art. 3, Dec. 10, 1997, 32 I.L.M. 22.

[31] See, e.g., Axel Michaelowa & Katharina Michaelowa, Does Climate Policy Promote Development?, 84 Climatic Change 1 (2007).

[32] Capoor & Ambrosi, supra note 4, at 50.

[33] Id. at 35 (showing that Africa’s share of the CDM market by volume is 2 percent).

Shortly after 9:30 a.m. on January 15, 2009, Senator Patrick Leahy gaveled the Senate Judiciary Committee to order. Seated before the Committee was Eric Holder, then President-elect Barack Obama’s nominee to become the eighty-second Attorney General of the United States. As Senator Leahy used his opening statement to sing the nominee’s praises, the senator seated to Leahy’s right—ranking member Senator Arlen Specter—had only one name on his mind: Marc Rich. Senator Specter’s initial round of questioning focused entirely on Holder’s role in the controversial, last-minute pardon President Clinton granted to the wealthy financier and Democratic fundraiser during his final hours in office. Undoubtedly, Specter was not the only one with questions, as many Americans questioned whether Holder truly represented the change for which the nation had voted. The reemergence of the Marc Rich story during the Holder confirmation hearings once again cast the limelight on the current presidential pardoning structure’s vulnerability to abuse. This article seeks to explore the pardoning process and—consistent with the Obama Administration’s focus on making government more transparent—to propose a solution by which the unchecked power of the President to pardon might be reformed.

Article II, Section 2, Clause 1 of the Constitution grants the President of the United States the “Power to Grant Reprieves and Pardons for Offenses against the United States, except in Cases of Impeachment.” The Framers’ vesting of this broad authority, coupled with Supreme Court decisions affirming the near-limitless nature of this power, has imbued the Office of the President with tremendous discretion to grant federal offenders pardons, conditional pardons, commutations of sentence, remissions of fines, reprieves, and amnesties. While clemency power is by no means unique to the American system of government, the seemingly unchecked nature of this power establishes executive clemency as somewhat of a constitutional anomaly outside the system of checks and balances. Eric Holder’s confirmation hearings revived the public’s memory of President Clinton’s notorious Marc Rich pardon. Other recent controversial pardons include President George H.W. Bush’s pardon of six White House officials involved in the Iran-Contra scandal8 and the commutation of I. Lewis “Scooter” Libby’s sentence by President George W. Bush. Additional criticism of executive clemency has highlighted the declining use of the presidential pardon, despite the Framers’ intent for clemency to serve a vital role in the criminal justice system.

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The wide cast of characters whose behavior shapes the creation of federal laws in the United States, from congressional leaders to committee chairs, from lobbyists to constituents, from the President to the media, can all be seen as engaged in a complex, multiparty negotiation. The negotiation has only two possible outcomes: a deal or no deal, the passage of a new bill into law or the maintenance of the legal status quo. This paper attempts to make the case for the viability of interest-based legislative negotiation strategies at the federal level.

What is interest-based, also sometimes called “principled,” negotiation? In a nutshell, it is a set of techniques that attempts to improve the quality and likelihood of negotiated agreement by providing an alternative to  traditional “positional” bargaining techniques.  The positional or hard-bargaining approach views negotiation on the model of haggling in a market. Each side adopts an extreme position, knowing that it will not be accepted, and then employs a combination of guile, bluffing, and brinksmanship in order to cede as little as possible before reaching a deal. Positional bargainers conceive of negotiation as a process of distributing a fixed amount of value.

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