United States
Environmental Protection
Agency
Office of Water
Washington, D.C.
EPA 800-S-94-001
March 1994
PRESIDENT CLINTON'S
CLEAN WATER INITIATIVE:
Analysis of Benefits and Costs
Executive Summary
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a large variety of benefit categories, the most important being recreational fishing and
swimming.
Estimates of the Initiative's impact were developed by the U.S. Environmental Protection
Agency (EPA) Office of Water in consultation with EPA's Office of Policy, Planning, and
Evaluation and other federal agencies, including the U.S. Department of Agriculture (USDA),
U.S. Department of the Interior (DOI), U.S. Department of Commerce (DOC) - National
Oceanographic and Atmospheric Administration (NOAA), U.S. Department of Defense (DOD),
and U.S. Department of Energy (DOE), as well as with the White House Office of Management
and Budget (OMB), Council of Economic Advisers (CEA), and National Economic Council
(NEC).
Baseline. Some provisions of the 1987 Clean Water Act Amendments have not yet been
implemented. Some provisions of the Initiative will impose new responsibilities and costs
beyond those called for in the 1987 Amendments. Others scale back obligations under the
Amendments and will save the private sector, municipalities, and the federal government
billions of dollars while not compromising environmental quality. Therefore, it is legitimate to
view the baseline from which costs of the Initiative are estimated in two ways: as increments
above current and pending spending or as reductions in costs from stringent interpretations of
the 1987 CWA. The stringent interpretations reflect the reading of the law proposed by various
outside groups but do not represent EPA's best interpretation of the law. However, while EPA
believes that these interpretations are stringent and inflexible, they could potentially be adopted
by a court in litigation challenging EPA's interpretation. This report carefully distinguishes
estimates from these two baselines.
Consistency in Benefit and Cost Estimation. To assure that urban area benefits and
costs are comparable, a number of steps were taken. The costs and benefits are presented in
annualized 1993 dollars. Benefits are discounted using three different discount rates (zero,
three, and seven percent), and assuming that they are fully in place in 15 years. This procedure
is necessary to account for the fact that benefits or costs experienced later in time are worth less
than those experienced sooner. The nature of environmental risks is that it will take time to
fully attain many of the projected water quality improvements and economic benefits. Costs are
annualized at seven percent. •
Uncertainties in Estimating Costs. To account for the uncertainty inherent in estimating
costs for various provisions, we have used ranges of likely values where possible. The cost
estimates are based on the best available evidence and best professional judgment about the
controls likely to be imposed. In some instances, however, these controls may be insufficient
to meet either current or future water quality standards, and additional more stringent controls
could be adopted. The cost estimates do not include any such additional controls because of the
difficulty of estimating their magnitude. To the extent that additional controls are needed to
meet water quality standards, there would be additional costs.
ES-2
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>
Sector-Specific Costs
Table ES-1 presents information on current and planned expenditures associated with the
current implementation of the existing CWA requirements. Table ES-2 summarizes the
incremental costs of the Initiative. Table ES-3 presents information on the potential cost savings
(or costs avoided) compared with a stringent interpretation of CWA requirements. Table ES-4
summarizes the current and potential spending under a stringent interpretation of CWA
requirements. The annual cost of major provisions is presented in Figure: ES-1.1 The highlights
from the tables are as follows:
> Private sources will likely incur incremental costs of $1.6 billion to $3.5 billion
per year, but these costs are substantially less than under existing statutory
requirements for storm water controls. The major new cost items, as shown in
Table ES-2, are the storm water controls ($345 to $1,670 million per year),
nonpoint source controls/watersheds ($233 to $388 million), groundwater
protection ($150 to $600 million per year) and the permit fee program ($290
million per year). These additional costs are much smaller than the projected
$15.7 billion to $17.5 billion in avoided storm water control costs for both Phase
I and Phase II (see Table ES-3). These savings represent the projected cost
difference between the Initiative and a stringent interpretation of the existing
CWA requirements. One area with potentially significant cost implications that
is not included in the current estimates is the cost of complying with future water
quality standards and toxic pollutant control. These costs are not estimated
because of the difficulty in predicting whether and how these provisions will be
implemented. Figure ES-2 presents this information graphically.
»> Agriculture will likely incur incremental costs of $595 to $985 million per year,
net of savings from reduced use of fertilizers and pesticides. Farmers will incur
these costs to control agricultural runoff by using best management practices on
farms that are located on impaired or threatened water bodies. Net increases in
costs are shown graphically in Figure ES-4.
> Municipalities will likely incur incremental costs of $1.2 billion to $2.1 billion
per year, as shown in Table ES-2, but they will realize savings from changes in
the storm water provisions. As shown in Table ES-3, the storm water control
provisions (Phase I and Phase If) will produce savings of between $0.76 billion
and $0.85 billion per year from a stringent interpretation of current CWA
requirements. The CSO provisions will codify the final CSO Policy (estimated
to cost $3.45 billion annually) and will save municipalities an estimated $10.7
billion per year compared with the projected compliance costs under a stringent
interpretation of the current CWA requirements. Total municipal cost savings or
1 Mid-points of ranges are used in preparing figures. The numbers in figures arid tables may not match due
to rounding. i
ES-3 i
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costs avoided are estimated at $11.5 billion to $11.6 billion per year. Figure ES-
3 presents this information graphically.
States will likely incur incremental costs of $416 million to implement numerous
new provisions. The two major cost elements are: $118 million for monitoring
and $188 million for NPDES enforcement and permitting. The states will receive
about $301 million annually in fees collected from National Pollutant Discharge
Elimination System (NPDES) permittees. Thus, the net increase in costs for
states is about $115 million per year, most of which is associated with implement-
ing the NPS provisions. See also Figure ES-5 for a graphical presentation.
Federal agencies will incur additional costs of approximately $118 to $210
million to implement and comply with the nonpoint source (NPS) and watershed
provisions.2 The Department of Energy estimated an overall incremental annual
cost of $520 million for the Initiative's provisions. Costs for remediating
abandoned mines are estimated to be between $330 million and $1,100 million
per year. These estimates are presented in Table ES-2. Major savings over
current CWA requirements will occur as a result of a more targeted approach to
remediation of abandoned mine sites that affect surface water quality. Net
impacts on federal agencies are a cost savings of between $1.1 billion and $3.5
billion annually compared with a stringent interpretation of existing law, as shown
in Table ES-3. Figure ES-6 presents this information graphically.
Provision-Specific Costs
The impacts of major provisions of the initiative are summarized below (see also Figure
ES-1):
Nonpoint Source Control/Watershed Approach - The implementation of the NPS
management programs for both agricultural and non-agricultural (urban) areas wilt cost private
entities and municipalities an estimated $828 million to $1.37 billion per year, net of cost
savings from reduced fertilizer and pesticides usage. States will oversee the development of
NPS programs at a cost of $92 million per year. Federal agency costs, meanwhile, are
estimated to be between $118 million and $210 million per year. Figure ES-4 presents
information separately for agriculture.
Storm Water - EPA estimates that the control of storm water discharges, under a
stringent interpretation of the 1987 CWA, would impose large costs on private sources
2 USDA's Soil Conservation Service has indicated that if implementation, is their responsibility, the cost would
range between $211 and $540 million per year to assist the fanners with implementing NPS control measures. Also
excluded are permitting costs that the Forest Service has estimated to apply to federal lands ($716 to $718 million)
under a provision of S. 1114 that required reissuance of all Forest Service permits on an accelerated basis. Under
the Initiative, permits would be reissued on existing schedules and therefore not result in a significant cost increase.
ES-4
-------
(approximately $20.2 billion) and municipalities (between $3.4 and $5.3 billion), as shown in
Table ES-4. The Initiative presents a more targeted storm water plan that, compared with the
stringent plan, would save private sources between $15.7 billion and $17,5 billion per year and
would save municipalities an estimated $0.76 billion to $0.85 billion per year for both Phase I
and Phase II. The total projected impacts of the storm water provisions, therefore, are savings
in the range of $16.5 billion to $18.4 billion per year.
CSOs - The current CSO Policy, negotiated with the municipalities, environmental
groups and states, is estimated to cost about $3.45 billion per year. Full implementation of the
CSO requirements, under a stringent interpretation of the CWA, could cost as much as $14.14
billion. The Initiative is proposing to codify the more cost-effective, site-specific CSO control
strategy that could potentially save municipalities about $10.7 billion per year in avoided costs.
Toxics Control - Under the Initiative's toxics provision, EPA would have additional
opportunity to limit releases of the most toxic and bioaccumulative pollutants in certain
circumstances. The Initiative would also refocus the development of water quality criteria and
standards. The Administration's approach would encourage examining multi-media strategies
to restrict or ban the discharge of toxic pollutants, which would allow the Agency the flexibility
to select the most cost-effective controls. The toxics provision is estimated to cost Federal
agencies, including EPA, between $66 million and $105 million per year.
Discharge Fees - The Initiative would require states (and EPA, in states administered by
EPA) to have in place a permit fee system that would produce sufficient revenues to fully fund
the NPDES, pretreatment, and sludge programs. EPA estimates that unfunded costs associated
with these programs total $394 million per year and would have to be collected from industrial
and municipal dischargers. States would receive approximately $301 million in revenues, with
the remainder going to EPA for the permits it issues.
Groundwater Protection - The Initiative acknowledges the connection between surface
water contamination and groundwater quality and establishes the protection of groundwater as
a specific goal of surface water programs. EPA believes that implementation of these provisions
will help protect groundwater and drinking water supplies from contamination originating from
surface water discharges. Costs to private sources responsible for this cleanup will average
between $150 million and $600 million per year.
Pollution Prevention Planning - The Initiative would give EPA and authorized States
the discretionary authority to require pollution prevention plans as a condition of NPDES permits
for industrial users. EPA estimates that at most 6,000 permittees each year would be required
to prepare such plans, at an annual cost of between $60 million and $120 million. The cost of
implementing such plans has not been estimated. States would be responsible for writing this
provision into NPDES permits and for reviewing plans prepared by the jperrnittees. Estimates
of these costs, however, are not available because not all facilities will be required to implement
such plans.
ES-5
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Domestic Sewage Exclusion - The Initiative would retain the domestic sewage exclusion
(DSE) for facilities subject to local limits set by publicly owned treatment works (POTWs),
national standards, or the 304(m) plan. Facilities subject to toxic reduction action plans
(TRAPs) by their POTWs would also be exempt, as would households and noncommercial and
nonindustrial facilities that discharge de minimis amounts of waste. EPA estimates that the
impacts of these additional measures on dischargers will average $282 million per year.
Enforcement - The enforcement provisions in the Initiative include a variety of measures
that provide additional incentives to assure compliance, to ensure that penalties more closely
match the economic benefits of noncompliance, and to facilitate the processing iof violation
cases. The Initiative also recommends a waiver of sovereign immunity for federal facilities in
violation of Clean Water Act provisions. Fines and penalties for violations are not economic
costs but instead are considered a transfer to the federal government. The new enforcement
provisions are estimated to cost States an additional $90 million per year.
State Revolving Fund/Construction Grants - The revised state revolving fund (SRF)
and construction grants program will impose limited additional costs. State costs are estimated
at $8 million per year.
Monitoring - The monitoring provisions will largely impact State governments, with an
estimated cost of $118 million per year. Federal agency impacts are negligible, with the
exception of the Forest Service, which will incur costs of approximately $37 million per year
to perform the monitoring function on federal lands managed by that agency.
Abandoned Mines - Under a stringent interpretation of the current CWA provisions, an
estimated 500,000 sites would require remediation at a cost of between $1.38 billion and $4.58
billion per year. Because a vast majority of these mines do not contribute to water quality
problems, the Initiative introduces a targeted approach so as to achieve the greatest environmen-
tal improvement for the limited federal resources that may be available. The costs of this
approach are estimated at between $330 million and $1,100 million per year. The net impact
of the Initiative is, therefore, a savings of between $1.1 billion and $3.5 billion per year.
To summarize, the annual incremental cost of the Initiative on all sectors ranges from
$5.0 billion to $9.6 billion. The annual cost savings (or costs avoided) by all sectors range
between $29.1 and $33.8 billion.
Potential Cost Savings From Economic Incentives - Effluent Trading
The Initiative contains provisions that would encourage the establishment of mechanisms
for trading pollution reduction among sources, similar to the trading provisions of the 1990
Clean Air Act Amendments. A preliminary analysis by EPA indicates that trading could achieve
pollution reduction at significantly lower costs. These potential decreases in costs should be
viewed as future costs avoided (or not incurred) because dischargers will not be installing
additional controls to meet new requirements. These potential cost savings should not be viewed
ES-6
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as decreasing other costs discussed in this report but instead would represent reductions in the
cost of additional controls needed for growth or to meet water quality standards. The decreased
costs of pollution prevention and control, by type of trading, were estimated as follows:
Point source/nonpoint source
Point source/point source
Nonpoint source/nonpoint source
Pretreatment
TOTAL
Physical Measures of National Benefits
$611 million to $5.6 billion
$8.4 million to $1.9 billion
Potential exists but limited data
$39 million
$658 million to $7.5 billion
This report contains summaries of the physical benefits of individual provisions contained
in the Initiative (e.g., toxics control, NFS prevention, abandoned mines, etc.). The benefits
descriptions for the individual provisions are intended to indicate the scope of the problems
addressed by the Initiative (in terms of water quality and human and ecological, impacts) and the
magnitude of the benefits obtained from addressing these problems. Results from these benefits
analyses indicate that the Initiative's provisions could cause substantial improvements in water
quality.
> NFS controls have a high or medium likelihood of producing measurable water
quality improvements in 52 percent of impaired or threatened rivers and 63
percent of impaired or threatened lakes acres based on data from 28 states. For
all 54 states and territories, EPA projects that about 156,200 river miles and 7.1
million lake acres will show measurable water quality improvements.
> Storm water control can reduce loadings of urban pollutants (sediment, toxics,
nutrients) by 75 to 80 percent in developing areas and by 15 to 25 percent in
areas already developed.
* Implementation of EPA's CSO Policy will provide adequate treatment for over
one billion gallons of raw sewage, urban runoff, and industrial wastewater that
are currently discharged without treatment during an average year (reducing
pollutant loadings of 2,050 million pounds of total suspended solids (TSS) and
445 million pounds of biological oxygen demand (BOD) annually).
> Further control over the discharge of toxic and/or bioaccumulative pollutants will
reduce impacts on human health and aquatic life impacts.
Monetized Benefits: Urban Areas
EPA estimates further that the aggregate benefits of pollution control in urban areas will
eventually produce quantifiable benefits of between $0.8 billion and $6.0 billion per year (Table
ES-6). The range recognizes the uncertainty associated with these estimates. For example, the
upper end of the range may be an underestimate in the extreme case where the new provisions
ES-7
-------
are 100 percent effective, households care very much about the resultant improvements relative
to the other waters in their state, and the unquantified benefits turn out to be significant relative
to the quantified benefits. Similarly, the lower end of the range may be an overestimate in the
extreme event that the new provisions fail to improve water quality to fishable and swimmable
levels, or the changes in water quality have no effect on the economic activities of consumers
and producers.
The benefit estimates are based on household valuation of clean water for a variety of
purposes. However, several important additional categories of benefits which are either not
quantified because relevant data are not available or are not amenable to estimation via
quantitative techniques will also accrue. Examples include:
* Enhanced recreational swimming and boating in marine waters.
*• Improved recreational hunting opportunities as watershed habitats improve.
> Avoided costs for water storage, flood control and water purification as natural
systems improve.
> Reduced dredging costs as watershed and wet weather programs reduce siltation.
* Lower costs for sediment remediation over time as toxics and permitting
provisions are adopted.
>• Increases in biodiversity and overall ecological integrity.
Limitations. The analysis of the economic benefits focusing on urban areas draws upon
information provided by a number of disparate data sources, and relies upon a number of
assumptions. The synthesis of information introduces considerable uncertainty into the final
numeric values. Major sources of uncertainty that limit our ability to be confident in the
numeric results include: (1) the actual extent of impaired waters; (2) the method of attributing
responsibility for impairment; (3) our assumptions about the efficacy of the provisions; and (4)
the reliance upon secondary sources of information when estimating the economic values of
environmental quality. The absence of reliable information on all of these elements plays a
critical role in our ability to draw conclusions about the benefits that will result from the
Initiative.
One of the more significant points of uncertainty in the analysis relates to the monetary
valuation of economic benefits for the dominant benefit category~the enhanced freshwater
recreation, aesthetics, and non-use benefits that ensue with the proposed water quality
improvements. The absence of alternative data sources constrained us to make use of a
published, yet dated, contingent valuation research study that measured a household's use and
non-use values for national and, by apportionment techniques, more localized improvements in
freshwater rivers and lakes. Criticism has been levied against the validity of empirical results
for non-use values derived using prior contingent valuation research methods. Several issues
raised in the ongoing debate about this valuation method bear directly upon the interpretation of
the numeric results provided by our source materials.
ES-8
-------
Independent of this debate, further uncertainties are introduced by transferring the
research results to the policies and environmental concerns addressed by the Initiative. The wide
range of values demonstrates an attempt to capture the impact of these uncertainties on the
numeric estimate. All told, it is difficult to conclude whether the presented numeric ranges
underestimate or overestimate the actual benefits. We suggest that the numerical results best
serve to indicate the overall order-of-magnitude of the benefits. Based upon our experience in
undertaking the analysis, we can further conclude that considerable gaps persist in our ability
to measure and evaluate the relationships between water quality conditions and economic
activities, even twenty years after the passage of the principal legislation designed to identify and
address water pollution problems. The Administration's Initiative contains provisions to help
rectify this situation in the future.
Costs: Urban Areas
Provisions in the Initiative that address urban areas are loosely defined to include storm
water Phase I and Phase II, CSOs and toxics controls. The annualized costs of these provisions
for all sectors is estimated to be between $9.9 billion and $13.9 billion, as shown in Table ES-5.
Net Benefits: Urban Areas
The monetized benefits of the Initiative ($0.8 billion to $6.0 billion), assuming benefits
are realized immediately, contrast with between $9.9 billion to $13.9 billion in incremental
annualized costs for urban areas.
However, benefits are unlikely to be realized immediately. To illustrate how the gradual
attainment of the benefits may influence the benefit-cost comparison, the figures in Tables ES-5
and ES-6 show the annualized monetary costs and benefits from control of urban sources under
proposed and pending spending. In Table ES-6, two of the three aggregate benefit estimates
provide for the gradual attainment of benefits, applying different discount rates to an assumed
future stream of benefits. The selection of the two discount rates reflects Administration
guidelines on the application of discounting to costs and benefits (seven percent), as compared
with the use of a social rate of time preference (three percent). The discounted annualized
benefits are some twenty to thirty percent lower than the annualized benefit estimate that fails
to account for the expected delays in achieving tangible water quality improvements. This
serves to demonstrate the sensitivity of the results to both the time and discounting features of
the analysis.
Comparing the annualized costs and benefits under any of the three annualized benefit
estimation scenarios, it is apparent that the range of estimated monetary costs and benefits do
not presently overlap. Despite information of this type, the Administration feels it is important
to proceed with the Initiative for several reasons. As stated throughout the text, and documented
in the supplemental materials, there are great uncertainties associated with both the cost and
benefit estimates that are not captured in the presentation of the numerical results. For example,
although the national cost estimates have attempted to account for targeting of watersheds in
ES-9
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need of improvement and emphasized prevention measures over command-and-control strategies,
there are uncertainties in the analysis because of the difficulty of fully accounting for the
consequences of providing flexibility in the identification of problems and solutions. There are
also a number of tangible benefits for which monetary estimates have not been developed. So
as to better inform decisionmakers and the public in the future EPA is proposing a comprehen-
sive benefit-cost study of the pollution controls in the CWA reauthorization. This study will
reduce the uncertainties surrounding the benefits and cost estimates.
Despite the uncertainties, an important contribution of the economic analysis has been
its ability to document the significant savings the Initiative is proposing compared with the
requirements called for in the existing legislation. In addition, considerable effort was given to
developing cost-effective policies where new efforts are needed to achieve the goals of the Clean
Water Act. Therefore, the Initiative demonstrates a genuine effort to achieve cost-effective
regulatory management approaches to improving the nation's polluted waters. Equally
important, the public's right to enjoy clean waters, and the demonstration of their preferences
through environmentally protective federal legislation, have served as inputs into the
development of Administration policy. Strong public support for additional pollution control
programs persists, and the Initiative will address what the Administration believes are the most
significant remaining problems. !
ES-10
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