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Model Report

Evaluating Claims of Inability to Pay from Corporations and Partnerships

Last Revision Date: 07/11/2011 View as PDF
General Information Back to Top
Model Abbreviated Name:

Model Extended Name:

Evaluating Claims of Inability to Pay from Corporations and Partnerships
Model Overview/Abstract:
Since its development in 1986, EPA staff have used the ABEL computer model extensively to evaluate claims from defendants that they cannot afford to pay for compliance, clean-up and civil penalties. ABEL evaluates inability to pay claims from corporations and partnerships by looking at a party’s tax return data. ABEL also requires the user to input the cost of compliance, clean-up and a proposed civil penalty amount. The model first conducts a cash-flow analysis of the company. Then it performs a statistical projection of the probability the firm can afford compliance costs, clean-up costs and civil penalties. It does not require any knowledge of accounting, finance or computers. The model is designed for settlement negotiations. Should EPA and a party fail to agree on what the party can afford, the EPA would use an expert witness to testify about the party's ability to pay in a trial or hearing.
Keywords: Ability to pay
Model Technical Contact Information:
Agency Contact:
Jonathan D. Libber
Office of Enforcement and Compliance Assurance (OECA)
Office of Civil Enforcement
Special Litigation and Projects Division (SLPD)
U.S. EPA/OECA (Mail Code: 2248-A)
(202) 564-6102
Model Homepage: http://www.epa.gov/compliance/civil/econmodels/index.html
Substantive Changes from Prior Version: Annual update of the model’s financial values (completed July 2008)
Plans for further model development: Just an annual update of the financial values which should occur in about a year from now.

User Information Back to Top
Technical Requirements
Computer Hardware
Able to run Windows 95 or more recent version of Windows
Compatible Operating Systems
Windows 95 or more recent version of Windows.
Other Software Required to Run the Model
Model has GUI.
Download Information
ABEL can be downloaded from the U.S. EPA, Office of Enforcement and Compliance Assurance (OECA), Office of Regulatory Enforcement (ORE), Special Litigation and Projects Division (SLPD).
Using the Model
Basic Model Inputs
All data is taken from the company’s tax returns. Once that is completed, the user has the option of adding compliance expenditures that were not considered in the tax returns and any proposed civil penalty.
Basic Model Outputs
The model will recreate the company’s balance sheets, income statements and statement of cash flows from the tax data entered. It also calculates a series of balance sheet ratios (debt to equity, current, EBIT, Beavers, and Altman’s Z score. Finally it displays what the party can afford to pay.
User Support
User's Guide Available?
Documentation can be downloaded.

The help system provides an overview of the model and provides a comprehensive explanation of the model’s inputs, related model issues, and how to understand the model’s outputs. The help system can be read in advance and/or accessed at any time the model is being used be pressing the F1 key. Once accessed, the help system will open up the topic most relevant to the part of the model the user is currently working on.

Availability of User Support
Federal, State and local enforcement agency personnel can contact the Helpline at 888 326-6778. Private parties can contact Jonathan Libber of the EPA at (202) 564-6102
User Qualifications
User needs only moderate level of technical education and/or modeling experience. While users can self teach themselves using the on-line help system. A 3.5-hour training course is recommended to ensure that inputs are correct and that output is understood, but this course is only available for Federal, State or local government personnel.

Model Science Back to Top
Problem Identification
Many of the defendants in our enforcement actions are corporations and partnerships. Most of them will at some time claim that they cannot afford the compliance costs, penalties and/or environmental clean up. Since most of our enforcement professionals do not have the capability of reviewing a business’ financial records to determine the validity of this inability to pay claim, EPA developed a relatively simple tool that can help us evaluate these claims.
Summary of Model Structure and Methods
The model first looks at the claimant’s financial resources and expenses to determine the company’s excess annual cash flow. Then it looks at the firm’s ability to fund that compliance cost, penalty payment and/or clean up cost from that excess cash flow over the next five years.

Model Evaluation
Contractor verified that calculations were similar to those an independent financial analyst might perform.

Key Limitations to Model Scope
While the model is very helpful, it has some important limitations. First, it does no data quality checks. All expenses are accepted at face value even if they might be unreasonable (e.g. company that sells fill dirt claims annual entertainment expenses of $60,000). Second, it only looks at excess cash flow. It does not look at a firm’s ability to borrow money. It does not evaluate whether any firm assets could be liquidated (e.g. a 3,000 acre piece of prime development land worth $10,000,000 would not be included in an ABEL analysis). Third, it assumes the firm’s income over the next 5 years will be substantially similar to the information submitted. If the firm’s lone facility burned to the ground after the last tax year closed, and it was an uninsured loss, the model will give an ability to pay that is artificially high. Fourth, it does not take into account the financial strength of related entities (e.g. the firm we are suing is in poor financial condition, but it is a wholly owned subsidiary of General Electric.)

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