Project Description

THE MINIG ACT OF 1872: THE ANIMAS RIVER CONTAMINATION & THE EFFECTS REAL PROPERTY VALUES

Abstract: The mining act of 1872 has played a role in the effectiveness of managing mining activity and clean-up of mines in the US. This act does not assign liability for cleanup and results in abandoned mines becoming the responsibility of the federal government that lacks sufficient funds to cleanup.

The Gold mine spilled into the Animas river watershed brought to light the shortfalls in creating a comprehensive plan by the federal government and states. We review the Gold King mine spill and the potential effects on real property. We then provide the results of a survey on the potential for stigmatizing the watershed willing to pay for a solution to the US mining dilemma.

The Animas River Wastewater Spill and the Abandoned Mine Issue

On August 5th, 2015, more than three million gallons of wastewater, triple the amount of what was originally reported, spilled from the Gold King Mine located ten miles north of Silverton, CO, flowed from Cement Creek into the Animas River. The metal-laced water was accidentally unplugged from the Gold King Mine, one of over 200 abandoned mines in San Juan County, Colorado, when an Environmental Protection Agency (EPA) crew was attempting to add a tap to the tailing (mine waste) pond for the mine. More than 880,000 pounds of heavy metals, including lead, iron, arsenic, cadmium, beryllium and mercury flowed into the river within 3 million gallons of wastewater, 9 football fields spread out at one foot deep. The water flowed down the Animas River in southwest Colorado, through the northwest corner of New Mexico, the territory of the Navajo Nation, southern Utah, and eventually into Lake Powell between Utah and Arizona. Due to the presence of iron in the spilled wastewater, the river water was turned into a red-orange color. When iron settles into the water, it turns the water into yellow, which was referred to as “yellow boy” by the old-time miners. As more water is mixed in, iron and other metals become more dilute, causing them to settle onto the riverbed and remain there, long after the river water passes state testing for use.

The local people from the City of Durango and the Town of Silverton, two Colorado communities directly downstream from the mine, have been grievously affected. Silverton is the only incorporated municipality in San Juan County, directly downstream from the Gold King Mine. Durango is the most populous municipality of La Plata County, with a population of more than 17,000 people. The largest town affected by the spill, Farmington, New Mexico, with a population of 45,000, is located at the confluence of the Animas and San Juan Rivers. The Navajo Nation land, near the Town of Shiprock, NM downstream from Farmington, is also affected.

There are over 5,000 abandoned mines in the State of Colorado and about 230 of them have been discharging wastewater into state rivers, thus polluting over 40% of the western river headwaters. In New Mexico, there are almost 4,000 abandoned mines. The numbers for the other two affected states, are even higher, over 10,000 in Utah and over 24,000 in Arizona, respectively, according to Bureau of Land Management’s data of 2015. Acid mine drainage from the numerous abandoned mines is a chronic issue, not only in the Upper Animas River watersheds, but across the whole mid-west region; those mines, including Gold King, have been leaking hundreds of gallons of wastewater per minute into waterways. Gold King itself has been spitting out toxic water at a rate of 50 to 250 gallons per minute.

A Review of the Mining Law of 1872 and a Law in Need of Reformation

Colorado has over 120 years history of hard rock mining, from 1871 to 1991, including gold, silver, lead, zinc, and copper, and generated roughly 8.6 million tons of mine tailing over the years. Gold King Mine was operational for 35 years, from 1887 to 1922.

One major purpose of the general mining law of 1872 was to encourage people to settle the west. Based on this main goal, the 1872 law allows mining companies to lease and extract public lands for no more than $5 per acre. It also requires no royalties from mining companies and no liability for environmental cleanups afterwards. Under this 143-year-old law, the federal government cannot decline a mining proposal if the company holds a mining claim, even if the proposal may cause a devastating environmental disaster, sometimes to America’s most precious places. When a mine goes bankrupt, taxpayers often times get stuck with the cleanup costs. They end up paying billions of dollars each year, cleaning up those abandoned mines, and even more for the mines that are currently operating. Essentially, the obsolete law serves as a promotion to mining companies to extract billions of dollars of hard-rock mineral on public lands for free with impunity, and a rip-off to the taxpayers. Because of it, more than 40% of the western river headwaters are polluted by wastewater leaked from over 230 abandoned mines throughout Colorado.

In order to protect the communities that settled in the West from environmental contaminations such as a wastewater spill, the old mining law is in desperate need of reformation. New legislation will have to include terms regarding royalty payments, reclamations for abandoned mines, rental payments for using federal lands, requests for mining permits, etc. The reformed legislation should hold mining companies, not the taxpayers, accountable for cleanups for their own mess. Although parts of this law were amended in 1981, requiring new mines to be cleaned by mine companies, old ones still remain for the government to administer. Currently, abandoned mines in Colorado are still not funded for clean-ups unless the EPA designates money for them. In order for the EPA to do so, a mine has to be designated as a superfund site.

Effects on Real Property Values and Stigma

This environmental disaster has a negative impact on the value of the properties along the Animas River. The river has served as not only a scenic destination but also a way of living for those local people. They go for rafting, kayaking, boating, swimming, and also fishing in the river. The recreational and cultural value of the river has been one of the most important and desirable amenities of the river-front properties and therefore it has served as the biggest value add to those properties. However, due to the contamination, the river has lost recreational and cultural value, therefore causing a certain decrease in property value, especially for those proximity to the river. Besides the impaired recreational value, the practical value of supplying clean and drinkable water, on which local people’s lives depend, is also in jeopardy due to the highly toxic contaminants in the water. The river front is no longer a desirable location and the river-front property owners have lost their quiet enjoyment of the river, and therefore, suffered a loss in property value. Blowouts like this have dangerous long-term effects such as “Stigma”. Stigma is a “perceived risk” by the public that can potentially lower the marketability and financability of the properties at risk. There are several criteria to identify the phenomenon of stigma for contamination and if an event meets most of the conditions, then mostly likely there is an environmental stigma.

Mundy, in a series of articles described various factors of stigma damages in terms of real risks and perceived risks by the public, they are (1992a):

  1. Responsibility—Is someone or some company specifically shouldering the blame?
  2. Exposure—Has there been a risk amplification, such as in the media?
  3. Disruption—Does the contamination impact daily lives?
  4. Concealability—Is the risk hidden?
  5. Aesthetic effect—Can the contamination be seen, felt, or smelled?
  6. Prognosis—Will the contamination be cleaned up in the near future?
  7. Peril—Is there a health risk?
  8. Fear—What is the general concern level associated with this contamination?
  9. Involuntary—Are the property owners themselves innocent in this contamination?

These criteria are the conditions for environmental stigma. Mundy also established the prevailing formula for valuation of contaminated property, analogous to the method well established in the eminent domain appraisal literature:

Value Unimpaired
Minus Value Impaired
Equals Diminution in Value

For the event of the Animas River wastewater spill, the following critical criteria can be examined. Responsibility: The spill was caused by a blast in Gold King Mine while EPA was performing a detection, therefore, the mine owner and EPA should be directly responsible for the accident: Exposure: the spill is in the national news such as New York Times, therefore, it is heavily exposed by the media; Disruption: the contamination has drastically disrupted local people’s daily lives, such as pumping drinking water from the river, swimming, and fishing, etc; Aesthetic effect: the bright yellow-orange ribbon of runoff, also known as “yellow boy”, can be seen, felt, and smelled; Prognosis: the cleanup, even with sufficient funding, will take an extensive amount of time and efforts; Peril: the local governmental officials had to close the river fearing that there might be a health risk due to the contaminants in the water; Fear: people are concerned about the sediments lingering in the river even after cleanups and potential future mine blowouts. Involuntary: in this case, the river-front property owners are the victim not the cause, therefore, they are innocent in this contamination.

Our survey results show some concerns of the use of the river, such as swimming, rafting, and fishing, while the EPA deemed recreational rather than residential standards are appropriate for water testing and decided to reopen the river for recreational use within one week after the spill. There was a debate regarding which standards should be used between the EPA and local officials in the affected areas in New Mexico.

The local people from Silverton were concerned about the Stigma attached to designating Gold King Mine area a superfund site; they are worried that with the designation, it could potentially adversely affect the image of Silverton being a popular tourists’ destination.

 

The disastrous wastewater spill might also have a negative impact on Real Estate sales. Colorado Real Estate Network’s data show that overall residential sales in October of 2015 in La Plata County went down 34.2% from the previous year, an even bigger drop in the sales of homes with higher values. There were 90 homes that are over 1 million dollars on the market in La Plata County last November, only one got under contract. Research has shown that higher-end homes tend to have more discerning buyers, who are less price-sensitive but more sensitive about risk-avoidance and stigma.

Methodologies to Evaluate the Impaired Properties

There are several methodologies that can be utilized in valuation of impaired properties: Use of a Control Areas, Case Studies, Survey Research, Hedonic Regression Modeling, and Depreciation Analysis. These methods all attempt to value the difference between properties “with” and “without” contamination. Survey research is one of the most frequently used methodologies to value a recreational amenity. It has shown to be extremely useful when determining the discounted value of such properties, in this case, the contaminated river-front properties. A “Contingent Valuation” approach, which involves directly asking the survey takers to state their willingness-to-accept to give up certain environmental amenities in return for certain amount of compensation, will be used in the survey research methodology. Sometimes, instead of asking the survey takers to state their willingness-to-accept, they will be asked to state their willingness- to-pay for specific environmental amenities. It is called “contingent” because their willingness- to-accept or willingness-to-pay is contingent on a specific scenario and a specific set of environmental amenities. In this case, a sample question from the survey could be: as a river- front property owner, how much compensation would you like to get in order to give up the recreational value or quiet enjoyment of the river; or how much would you like to pay for the recreational value or quiet enjoyment of the river.

Conclusion

In order to protect the future of the home owners in the affected areas in the state of Colorado, a long term plan is desperately needed to be put in place. New legislations, such as the Hard-rock Mining and Reclamation Act of 2015, can be of great help. It is also essential to understand how such environmental disaster can impact the value of the properties at risk, both in the short term and in the long run, such as “stigma damages”.

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