Will the Asbestos Trust Fund Need Taxpayer Help?

The resurrection of a bill that calls for an asbestos trust fund has rekindled the debate over whether the fund will have the wherewithal to finance the billions of dollars in compensation claims likely to be filed in the coming years.

A June 7 hearing held by the Senate Judiciary Committee which is chaired by Sen. Arlen Specter, R-Pa., one of the bill's sponsors produced some of the most notable criticism.

Douglas Holtz-Eakin, the former director of the Congressional Budget Office, asserted that the "Fairness in Asbestos Injury Resolution Act of 2006," or FAIR Act, "is a puzzling initiative" that likely would put a strain on the U.S. Treasury and eventually would fall short of the total asbestos claims.

Although Holtz-Eakin cautioned that long-term projections are difficult to make, he noted that the Congressional Budget Office has estimated that legitimate asbestos claims could reach $150 billion over the next 50 years a total that does not include debt service and administrative expenses.

"When FAIR Act benefits exceed fund resources, a future Congress and administration are … likely to turn to the taxpayer for the shortfall," Holtz-Eakin said.

One reason that the maximum revenues collected could fall short of total asbestos claims over the next 50 years, according to Holtz-Eakin, is that "very little is known regarding the viability of firms over such a long period."

He added that the fund likely would experience a shortfall in the first 10 years, requiring the fund administrator "to borrow funds to bridge the shortfall."

"This borrowing will exacerbate Treasury borrowing at a time when the retirement of the baby boom generation and the demands of existing mandatory spending programs especially Medicare, Medicaid and Social Security will likely already by straining federal fiscal policy," Holtz-Eakin said.

Commitment to Using Private Funds is "Ironclad"

Faced with such criticism, Specter counters that "the commitment to using private, non-taxpayer funds is ironclad."

"The trust fund … is capitalized exclusively by defendant companies, insurers and existing bankruptcy trusts that have known asbestos liabilities," Specter said May 26 on the Senate floor.

He added that S. 3274 includes a sunset provision that would send asbestos cases back to the court system if the trust fund were to dry up.

"Unlike the Black Lung Program or other federal compensation programs for that matter, the asbestos trust fund will affirmatively sunset once the $140 billion is used or if the fund cannot pay claims," Specter said. "The sunset enables victims to pursue their claims in court but in a more equitable tort environment that prohibits forum shopping and use of junk science to prove an asbestos claim."

Holtz-Eakin, however, said he is skeptical of the sunset clause, asserting that a future Congress "faced with the precedent of having paid awards, an unexpected need to sunset the fund and the prospect of transparent inequities among claimants will choose to modify the legislation and avoid a sunset."

Mixed Reactions at Judiciary Hearing

While S. 3274 drew concerns and criticism from Holtz-Eakin as well as other speakers such as Liberty Mutual Group Chairman, President and CEO Edmund Kelly who contended that the bill is "not the solution" to asbestos litigation reform it was praised by industry representatives such as National Association of Manufacturers President John Engler.

Engler told the Senate Judiciary Committee that the asbestos trust fund "will ensure fair, fast and certain compensation to victims" while boosting the economy by preventing firms from going bankrupt under an avalanche of asbestos claims.

The bill also was lauded by Dennis Cullinan of the National Legislative Service of the Veterans of Foreign Warns and Jim Grogan, general president of the International Association of Heat and Frost Insulators and Asbestos Workers.

"Many ask why our union is involved in this legislation," Grogan testified. "They say there are remedies in the courts through the tort system. They also say people are being taken care of. While it is true that there is an asbestos litigation system out there, the system is broken. Many who cannot identify where they were exposed to asbestos recover nothing. The asbestos crisis is a national tragedy and we need a national legislative solution that is fair and equitable to all. That is what S. 3274 provides."

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