Money and Cooperative Federalism: Evidence from EPA Civil Litigations

• In Event: Federalism, Governance, and Accountability

Abstract

The federalism structure of the US government requires active cooperation from state governments to successfully enforce federal regulations. The importance of cooperative federalism is particularly salient when implementing environmental regulations. State governments provide resources and local information to the Environmental Protection Agency (EPA) and state environmental agencies conduct a significantly important share of the enforcement actions of major environmental statues. An active role of state governments become more important when it comes to the EPA’s civil litigations against private firms which represent the most significant civil and cleanup cases and settlements. In the EPA’s civil litigations, affected states are clearly defined but not every affected state joined the EPA in the agency’s legal action. In this paper, we examine the role of campaign contributions by firms accused of environmental violations to state politicians on the probability of state governments’ joining the EPA’s lawsuits against those firms as a plaintiff. The involvement of state agencies helps the EPA collect local-level information on the nature of the violations and could affect the legal outcome in the court as well as the potential penalties that the defendant firms must pay in the settlement. Despite a potential benefit of state governments’ involvement, the EPA does not always have the support of state environmental agencies. What explains state governments’ participation in the Environmental Protection Agency (EPA)’s lawsuit against private firms that are accused of violating major environmental statue? We argue that the political connections that firms have with state politicians through campaign contributions affect a state government’s decision to join the EPA in its litigation and this could affect court outcomes on federal regulations.

To empirically test our argument, we construct a novel dataset on the EPA’s civil cases and settlements for the period 1998 – 2021. For 782 cases, we have rich information on the names of defendants, contents of violations, locations of the violations, total civil penalties, the court in which the final settlements were made, as well as names of state agencies that were involved in the case as plaintiffs. For each firm involved in the EPA civil cases, we collected its campaign contributions made to governors and state legislators. We show that there is an interesting heterogeneity by partisan connection: State environmental agencies are less likely to join the EPA in court when the firms sued by the EPA contributed to Republican state politicians in the previous election cycle, but we do not find the same pattern when firms have political connections with Democratic legislators. The results are robust to inclusions of various fixed effects, including EPA statue, state, and court. We also investigate whether the involvement of state environmental agencies affects the legal outcome. We show that state involvement in litigation is associated with higher penalties imposed on the violating firms. In many cases, penalties are not the main cost for the involved firms. The court often orders guilty firms to implement environmental projects and investments to compensate for damages that the private firms caused in the affected areas. Using the sum of money required to implement environmental projects as an outcome, we show that state agencies’ involvement is associated with more environmental provisions in the judicial outcomes. Our paper highlights how state politics can be an avenue for special interest groups to exert influence to change the outcome of federal regulations.

Authors

• Hye Young You, New York University

• Juan Pablo González, New York University