&EPA
             United States
             Environmental Protection
             Agency
              Office of Water
              (4303)
EPA-623-B-95-002
March 1995
interim Economic Guidance
for Water Quality Standards

Workbook
                      "... to restore and maintain the chemical,
                      physical, and biological integrity of the Nation's
                      waters."

                             Section 101 (a) of the Clean Water Act
      Appendix M to the
      Water duality Standards Handbook - Second Edition

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             UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
                        WASHINGTON, D.C. 2V0460
                          r-r'K 2 7 1950                EPA-823-B-95-002
                                                           OFFICE OF
                                                            WATER

MEMORANDUM

SUBJECT:  Economic  Guidance for Water Qualify S^aj^dards^--Workbook

FROM:     Tudor T.  Davies,  Director
          Office  of Science and Technology

TO:       Water Management  Division Directors
          Regions I -  X

PURPOSE

     The purpose  of this memorandum is to transmit the  Interim
Economic Guidance for  Water Quality Standards Workbook  for use  by
the States and Regions in considering economics at various points
in the process of setting or revising water quality standards.

POLICY IMPLEMENTATION:

     We recommend the  subject  guidance,  including the various
screening levels  and measures  presented,  be implemented as
reference points  and used as guides by the States and Regions.
The measures outlined  in the guidance are not intended  to  be
applied as absolute decision points.  States may  use other
economically defensible approaches in lieu of those suggested in
this interim guidance.

     This guidance  is  designed for use in the water quality
standards program and  does  not represent Agency guidance outside
of that program.

BACKGROUND:

     Economic factors  may be considered at several different
points in the water quality standards program.  The water  quality
standards regulation provides  for such consideration in the
following areas:

     Section 131.10--Designation of Uses  (also applies  to
     variances)
          (g)(6)  Controls  more stringent than those required by
          Sections  301(b)  and 306 of this Act would result in
          substantial  and widespread economic and social impact.


                                                     Recycled/Recyclable
                                                     Primed with Soy/CanoU Ink on papwthat
                                                     contains at toast 50% nKyctoO fibor  ,

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     Section 131.12--Antidegradation
          (a)(2)...allowing water quality is necessary to
          accommodate important economic or social development in
          the areas in which the waters are located...

     Since publication of the water quality standards  regulation
in 1983 we have produced extensive guidance on the interpretation
and application of the various regulatory requirements.  None of
this guidance,  however, dealt extensively with the economic
considerations.

     This guidance workbook is intended to fill that gap.  It is
anticipated that the guidance will be revised from time to time
to reflect State and Regional experience in its application.  For
example we intend to add case studies as appendices to the
guidance to reflect real-world experiences in its application.
In addition, the Agency is considering revising the water quality
regulation.   If revisions to the regulation are made with respect
to economic considerations,  the applicable guidance will be
revised accordingly.  However, it is likely to be at least 3
years before any revisions to the regulation are finally
promulgated and no way of anticipating whether any changes will
be made in the economic provisions.

     This guidance is presented to assist States and EPA Regional
Offices, along with other interested parties,  in understanding
the economic factors that may be considered, and the types of
tests that can be used to determine: (1)  if a designated use
cannot be attained, (2) if a variance to an individual discharger
can be granted, or  (3)  if degradation of high-quality water is
warranted.

     The regulatory requirement that must be met is that
attaining a designated use or obtaining a variance would result
in substantial and widespread economic and social impacts.  The
regulatory requirement for antidegradation is that it  must be
shown that lower water quality is necessary to accommodate
important social and economic development. This guidance provides
a framework for making these determinations.

     The measures and tests suggested in this guidance are
standard economic analytical tools,  but the States are free to
provide other kinds of analysis to support their position.
The guidance does provide information on the kinds and types of
analysis that are appropriate and how the information can be
assembled in order to make a decision.  It is not an exhaustive
description of all appropriate economic analysis.  Additional
information and tests may be necessary and/or desirable in
certain circumstances.

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     The economic impacts to be considered are those that result
from treatment beyond that required by technology-based
regulations.  All economic analyses of water quality standards
should address only the cost of improving the water to meet water
quality standards or the cost of maintaining water quality in
high-quality waters.

     Although EPA is responsible for approving a State's water
quality standards, the State is responsible for interpreting the
circumstances of each case and determining where there are
substantial and widespread economic and social impacts, or where
important economic and social development would be
inappropriately precluded.

     Various drafts of this guidance were reviewed by EPA
headquarters and regional offices,  States, and other
organizations.  State and Regional staff should feel free to
contact the Economic and Statistical Analysis Branch in the
Office of Science and Technology for advice and assistance
regarding this guidance or related concerns.  We would appreciate
receiving feedback from the users of this guidance so that it can
be improved as necessary.  As with all guidance related to the
water quality standards program, this document is considered to
be part of the Water Quality Standards Handbook--Second Edition.
cc:   Lee Schroer ,  OGC
     Jim Pendergast,  OWM
     John Meagher,  OWOW
     William Painter, OPPE
     Regional WQS Coordinators, Regions I - X

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 J                 INTERIM ECONOMIC GUIDANCE
                 FOR WATER QUALITY STANDARDS

^                           WORKBOOK
                    Economics and Statistical Analysis Branch

                       Office of Science and Technology


                             Office of Water


                     U.S. Environmental Protection Agency



                              March 1995
                                                         Agency

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   ECONOMIC GUIDANCE FOR WATER QUALITY STANDARDS WORKBOOK
                            TABLE OF CONTENTS
1. INTRODUCTION	  1-1
      1.1    Designated Uses, Variances, and Antidegradation	  1-3
      1.2    Pollution Sources  	  1-5
      1.3    Substantial Impacts  	  1-6
      1.4    Widespread Impacts	  1-8
      1.5    Antidegradation 	  1-9
      1.6    Organization of the Rest of the Workbook	   1-10

2.    EVALUATING SUBSTANTIAL IMPACTS:
      PUBLIC SECTOR ENTITIES	  2-1
      2.1    Verify Project Costs and Calculate the Annual Cost of the Pollution
            Control Project	2-5
      2.2    Calculate Total Annualized Pollution Control Costs Per Household .  . .   2-10
      2.3    Calculate and Evaluate the Municipal Preliminary Screener Value  .  . .   2-14
      2.4.   Apply Secondary Test  	   2-15
      2.5    Assess Where the Community Falls  in the Substantial Impacts Matrix  .   2-28

3.    EVALUATING SUBSTANTIAL IMPACTS: PRIVATE-SECTOR
      ENTITIES	3-1
      3.1    Verify Project Costs and Calculate the Annual Cost of the Pollution
            Control Project	  3-4
      3.1.b  Calculate the Annual Costs of the Pollution Control Project  	  3-5
      3.2    Financial Impact Analysis   	  3-6
      3.3    Interpreting the Results	   3-32

4.    DETERMINATION OF WIDESPREAD IMPACTS	  4-1
      4.1    Define Relevant Geographical Area  	  4-2
      4.2    Determine Whether Impacts are Widespread: Public-Sector Entities ....  4-2
      4.3    Determine Whether Impacts are Widespread: Private-Sector Entities  ...  4-5
      4.4    Estimate Multiplier Effect	'	   4-11
      4.5    Economic Benefits of Clean Water	   4-12

      4.6    Summary of Financial Capability and Determination of Whether
            Impacts are Substantial and Widespread	   4-13

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5.     ANTIDEGRADATION: ROLE OF ECONOMIC ANALYSIS	   5-1
      5.1    Verify Project Costs and Calculate the Annual Cost of the Pollution
            Control Project	  5-5
      5.2    Financial Analysis to Determine if Lower Water Quality is
            "Necessary"	  5-14
      5.3    Determine if Economic and Social Development would
            be Important  	  5-33
      5.4    Summary  	  5-35
APPENDIX A: Data Resources and Reference Materials  	A-l
APPENDIX B: Table of Annualization Factors	B-1
APPENDIX C: Conceptual Measures of Economic Benefits	C-l

WORKSHEETS A through AB

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        ECONOMIC GUIDANCE FOR WATER QUALITY STANDARDS

                                 WORKBOOK
 1.  INTRODUCTION
    As  presented  in  the  Water  Quality  Standards
Regulation, economic factors are taken into consideration
at various  points in the process of setting, enforcing, or
changing  Water Quality  Standards    This  guidance is
presented to assist States and applicants in understanding
the economic factors that may be considered, and the types
of tests that can be used to determine if a designated use
cannot be  attained, if a variance  can  be granted, or if
degradation of high-quality water is warranted. In order to
remove a designated use or obtain a variance, the State or
discharger  must demonstrate that attaining the designated
use would  result hi substantial and widespread economic
and social  impacts.  Likewise,  if a degradation hi high-
quality water is proposed,  it must be  shown that lower
water quality is necessary to accommodate important social
and economic development.

   This workbook provides guidance for those seeking to
document that uses meeting the  fishable/swimmable goals
of the Act  are  not attainable, obtain  a  variance  based on
economic considerations, or to  lower water quality in a
high-quality water.  In addition, it provides guidance to
States and EPA regions responsible for reviewing requests
for  variances,   modifications   to  fishable/swimmable
designated  uses,  documentation that  fishable/swimmable
uses are not attainable, and for approval of antidegradation
analyses. The guidance describes the  types of information
and analyses that should be considered by applicants  and
reviewers.   The guidance,  however,  is not an exhaustive
description  of  appropriate  economic  impact  analyses.
Additional  information and  tests may  be necessary and/or
desirable hi certain circumstances.

   The economic impacts considered  are those that result
from treatment  beyond that required  by technology-based

Economic Guidance for Water Quality Standards
1-1

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 regulations.  Since water quality cannot be lower than that
 resulting from technology-based limits applied to direct and
 indirect point source discharges, these are considered to be
 the  baseline.   All economic  impact analyses  of water
 quality standards should, therefore, address only the cost of
 improving the water to  meet fishable/swimmable uses or
 the cost of maintaining water quality in high-quality waters.

    Although EPA is responsible for approving  a State's
 water  quality standards,  the  State  is  responsible  for
 interpreting the circumstances of each case and determining
 where there  are substantial and widespread economic and
 social impacts,  or where  important social  and economic
 development  would be inappropriately precluded.   Each
 analysis of economic impacts must demonstrate:

    •  that the polluting entity, whether privately or pub-
       licly   owned,  would   face  substantial  financial
       impacts due to the costs of the necessary  pollution
       controls (substantial impacts or would interfere with
       development), and

    •  that  the  affected  community will bear  significant
       adverse impacts if the  entity is required to meet
       existing  or  proposed   water quality   standards
       (widespread impacts or  important development).

    This Workbook supplements the  description contained
 in the Water Quality Standards Handbook, which should be
 read first as  it  contains many  important definitions and
 descriptions of the regulations.  Specific attention should be
 paid  to  Chapters  2  (Designation  of   Use)   and  4
 (Antidegradation), which describe the context in which this
 guidance is  to be used.  This Workbook is designed as a
 series of worksheets and accompanying guidance to be used
 when actually calculating the impacts of pollution control.
   The intent  of this workbook  is to point States and
dischargers  in the  right  direction.   It does  not give
definitive answers  as to whether or  not an entity has
demonstrated   substantial,   widespread,   or  important
Economic Guidance for Water Quality Standards
1-2

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economic and social impacts.  If a State or discharger has
difficulty with any part of the analysis presented in this
workbook, they should consider seeking the assistance of
a financial expert.   In addition,  State and  regional EPA
water  quality  staff  should  feel  free to  contact  EPA
headquarters' Economic and Statistical Analysis Branch in
the Office of Water for advice and assistance.

    The  remaining  sections  of  Chapter  1 provide  an
overview of the analysis and describe various factors and
concepts that generally apply to analyzing  the economic
impacts of compliance with water quality standards. The
following four chapters provide detailed guidance.

    Throughout  this  Workbook,  the  term  "financial
impacts" refers to impacts on the entity or party  that will
pay  for  the   pollution  control,   whereas  the  term
"socioeconomic impacts" refers to changes  in the social
and/or economic conditions  of the  affected community.
For public-sector  entities, such  as  a  publicly owned
treatment works  (POTW),  substantial  impacts  include
financial  impacts   on  the  community,   taking  into
consideration   current   socioeconomic   conditions.
Widespread, on the other  hand, refers to changes in the
community's socioeconomic conditions.  By contrast, for
private-sector entities, substantial impacts refer to  financial
impacts  and widespread impacts refer to socioeconomic
impacts on the surrounding community.  In addition, the
term "applicant" refers to whomever will actually complete
the economic impact analysis, whether it be the State, an
individual discharger, a consultant, or some other organiza-
tion.
1.1    Designated Uses, Variances, and Antidegradation

   Pursuant to the Water Quality Standards Regulation (40
CFR 131), States must define statewide water quality goals
by:   1) designating  water uses and  2)  adopting water
quality  criteria that protect the designated uses.   When
designating uses,  States must consider the use and value of
the waterbody for  public water supplies,  protection and
Economic Guidance for Water Quality Standards
1-3

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propagation of fish, shellfish and wildlife, recreation in and
on the water, agricultural, industrial,  and other purposes
including navigation. The designated use may or may not
coincide with the existing use, but it cannot reflect lower
water quality than the existing use.  As described in the
Water Quality Standards Handbook, if the designated use
of a water body is also an existing use, the designated use
cannot be downgraded to one that requires less stringent
water quality criteria.  If, however, the designated use is
not  an  existing  use  the  States  may,  under  certain
circumstances, remove the designated use,  create  new
subcategories of the use, or grant a water quality standard.

   Before  a  designated  use  is removed  a State  or a
discharger  must  conduct and submit a use  attainability
analysis to EPA.  Briefly, a use attainability analysis is an
assessment of the physical, chemical, biological  and,  if
necessary,  economic factors affecting  the attainment  of a
use.  If the analysis shows that, based  on any one of these
factors, conditions exist which make the use unsuitable or
impossible to achieve, then  the  State may remove the
designated use.

   In many  cases,  a designated  but unattained use  for a
stream segment need not be removed.  Instead, individual
dischargers  may be granted  variances  from  the water
quality standards for a limited time with the expectation
that  they will be  able  to comply  with  water  quality
standards by  the time their variance  expires  or  that an
adjustment in the applicable  standards is  warranted.  A
variance is  preferable to a removal of a designated use
since other  dischargers,  who  are capable of meeting the
standards, must comply with  the standards through their
permits.   In  cases  where a  discharger can meet water
quality based permit limits for  some parameters, a variance
would not be granted for  those parameters.  The variance
procedure is designed to lead to the attainment of the water
quality goals of the  Clean Water Act within a reasonable
timeframe.

   States are also  required to  adopt an antidegradation
policy to protect existing uses, high-quality waters, and
Economic Guidance for Water Quality Standards
1-4

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water  quality  in  waters  that  are  considered  to be
outstanding national resources. The antidegradation policy
allows States to lower  water quality  in higher-quality
waters (that  are not ONRWs)  only  if it  is necessary to
accommodate important economic or social development.
The use of the term "important"  communicates a general
sense of the level of economic and social development.
Under no circumstances,  may water quality fall below that
required  to protect existing or designated uses.

    For each of the circumstances described above, the
Water Quality Standards Regulation allows the applicant to
take economic considerations into account.  When applying
for a change in a designated use or for  a variance, the
applicant   must   demonstrate   that   meeting   the
fishable/swimmable goals of the Act will cause substantial
and widespread economic and social impacts.  The antide-
gradation provision requires that the applicant demonstrate
that important economic  or social development would be
prevented unless  lower water quality is allowed.  In all
three  cases, the same general tests of impacts are used.
1.2    Pollution Sources

   The choice of methods used to evaluate the economic
impacts of meeting water quality standards depend, hi part,
on  whether pollution  control is  the responsibility of  a
privately or a publicly owned entity.  Since the polluting
entity or party may not be the one to pay for reductions,
the analyses focus  on the party  that pays  for pollution
control.   Some of the  more common  privately  owned
entities include, but are not  limited to:  manufacturing
facilities,  agricultural  operations, shopping  centers and
other commercial development, residential developments,
and  recreational developments.   Publicly owned entities
include: publicly owned sewage treatment works,  roads,
and other municipal infrastructure.
Economic Guidance for Water Quality Standards
1-5

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determines not  only who  will pay for the  necessary
pollution control, but also the types of funding mechanisms
available.  For example, in the case of a privately-owned
entity, the facility can raise the money  through loans and
equity funds but may try to pass some or all of the cost on
to the consumer in the form of higher prices. In the case
of a publicly-owned entity, the community can float bonds
to pay for the capital costs, with the cost of the bonds and
operating expenses  covered  by  user  fees  and/or tax
revenues. The different impact measures are addressed in
two separate chapters. Chapter Two provides guidance on
public-sector entities and Chapter Three provides guidance
on private-sector entities.

   Whether publicly or privately owned, polluting entities
can be point (direct discharge) or nonpoint (runoff and
erosion) sources  of pollution. Attainment of water quality
standards is not limited to controls placed on point sources.
Water quality standards are applicable to nonpoint sources
of pollution despite the  fact that there may  be no direct
implementation  mechanisms   for   nonpoint   sources.
Although pollution control approaches  used  by nonpoint
sources may differ substantially from approaches typically
employed  by point  sources,   analysis  of  the ensuing
economic impacts  still depends upon whether the entity
providing the pollution control is privately or publicly
owned.

1.3    Substantial Impacts

    A  financial  analysis  of the  discharger should  be
conducted to determine if the capital and the operating and
maintenance  costs  of  pollution control will  have  a
substantial impact.  This analysis is typically performed by
the discharger and reviewed by the State, although there
may  be  cases  where the  State  or some  other  group
completes the analysis on behalf of the discharger.   The
first step is to estimate  the capital and the operation and
maintenance costs of the necessary pollution control (see
Figure 1-1).   The second step is to determine how the
entity will finance the necessary reductions.  If the entity
is publicly-owned  (e.g. a  municipal  sewage  treatment
Economic Guidance for Water Quality Standards
1-6

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                                     Figure 1-1:
                      Steps in the Economic Impact Analysis
       Determining Whether Impacts Will Be Substantial and Widespread
                      Determine whether entity or group of entities is
                             publicly - or privately - owned
                                                           Estimate costs of complying
                                                                  withWQS
 Estimate costs of complying
        withWQS
                                                          Use ratio analysis to determine
                                                              if impact on entity is
                                                                  substantial
    Allocate costs among
residential and non-residential
           users
                                    Non-Residential
                 Residential
     Determine if impact is
          substantial
 Widespread
  Impacts
                                                              Determine if impact is
                                                                  widespread
   Determine if impact is
        widespread
                                                               Determine remedy
     Determine remedy
Economic Guidance for Water Quality Standards

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plant), the households in the community will bear the cost
either through an increase in user fees, an increase in taxes
or a combination of both.  The burden  to  households
resulting from total annual pollution control costs must be
estimated.  In addition, the financial impact analysis must
consider the community's ability to obtain financing and the
general economic health of the  community.

   If the entity is privately-owned (e.g. a manufacturing
facility), the analysis should consider factors  such  as the
entity's ability to secure financing and the degree to which
it will be ible to pass the cost of pollution control on to its
customers in  the form of higher prices.   The financial
impact analysis of private-sector entities employs a variety
of financial ratios and tests. Some of these ratios and tests
include benchmark values to help in the analysis.

   Demonstration of substantial financial  impacts  is not
sufficient reason to modify a use or grant a variance from
water quality standards.  Rather, the applicant must also
demonstrate  that  compliance  would  create  widespread
socioeconomic impacts on the affected community.

1.4    Widespread Impacts

   States and  dischargers  will  need to consider the
possibility that financial impacts could cause far reaching
and serious impacts to the community. An important factor
in determining the magnitude of these impacts is defining
the geographical area affected.  The affected area might be
a town, city, region, county or some combination of these
geographical units.

   Equally  important are the types of impacts that might
occur.  There are  no economic ratios or tests per se  to
evaluate  socioeconomic impacts.   Instead,  the relative
magnitude of a group of indicators should be taken into ac-
count.  For public-sector entities, the applicant will need to
estimate the change in socioeconomic conditions that would
occur as a result of compliance.  Of particular importance
are  changes in factors such as median household income,
unemployment, and overall net debt as a percent  of full
 Economic Guidance for Water Quality Standards
1-8

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market  value  of taxable property.   For private-sector
entities,  the  assessment of  widespread impacts  should
consider many of the same socioeconomic conditions.  The
analysis should also consider the effect of decreased tax
revenues if the  private-sector entity  were to go  out of
business, income losses to the community if workers lose
their jobs, and indirect effects on other businesses.

   In some instances, several entities potentially may suffer
substantial impacts.  For example, this situation can arise
where several facilities are discharging to a stream segment
that is being considered for a change in designated  use.
While a separate financial analysis should be performed for
each facility, the impacts on all the  facilities should be
considered jointly in the analysis of widespread impacts.

1.5    Antidegradation

   As with removing a use or granting a variance,  eco-
nomic impacts are considered as part of an antidegradation
review.  While the terminology  is different, the tests are
basically the same.  In the first case (discussed in Chapters
2, 3, and  4),  a finding of substantial  and widespread
economic impacts can be the basis for granting a variance
or  changing  a  designated  use.    In  the case of
antidegradation,  the analysis  must show  that maintaining
"high-quality waters" will preclude important economic and
social development.  As such, the two cases can be thought
of as  two  sides  of  the  same coin.    Variances  and
downgrades refer to situations where additional treatment
to meet standards  may result in declining economic and
social conditions, while antidegradation refers to situations
where lowering water quality may result in improved social
and economic conditions.

   When performing an antidegradation analysis, the first
question is  whether the costs  of the pollution controls
needed  to maintain  the high-quality water will interfere
with the development.  If not, then lower water quality is
not "necessary" for the development to take place.  If, on
the  other  hand,   the   costs  will  interfere  with   the
development and lower water quality is "necessary"  for the
Economic Guidance for Water Quality Standards
1-9

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development to take place, then the analysis must show that
the development would be an  important economic and
social development.  These two steps rely on the same test
as  the  determination  of  substantial  and   widespread
economic and social impacts.

1.6    Organization of the Rest of the Workbook

   The  remainder  of  this  Workbook  addresses  the
measurement of economic impacts. In Chapter 2, guidance
is presented to  assist applicants in  evaluating financial
impacts  on public-sector entities.    Chapter 3 presents
guidance on evaluating financial impacts on private-sector
entities.  Chapter 4 provides a discussion of how to assess
whether impacts are widespread as well as substantial. This
discussion includes both public-sector and private-sector
entities.   Chapter  5 applies  the concepts developed in
Chapters 2,3, and 4 to antidegradation.

   Worksheets are included in each chapter that will assist
the reader in calculating potential impacts. Chapters 2 and
3 include worksheets for: 1) estimation of annualized costs
of pollution control, and  2)  evaluation of  the financial
burden of pollution control.  Chapter 4 includes worksheets
that  can  be used in the evaluation of whether the impacts
on the entity(ies) will result in widespread economic and
social  impacts.    Chapter 5 includes  worksheets  for
determining if important social and economic  development
might  be lost.

   In  addition to presenting step by step guidance on how
to estimate impacts, several  of the worksheets provide
benchmark comparisons that allow an  assessment of the
magnitude and  relative importance of  potential impacts.
These worksheets,  however,  should  not  be used  in
isolation.   Discussion of  key sources  of  information,
important  entity   and   community   attributes,   and
interpretation of results are found only in the accompanying
text.  Applicants, and  State Water Quality  staff charged
with reviewing  the application, should be sure to read all
text accompanying  the worksheets.   While Chapter 2
addresses  public-sector  treatment  requirements,  if  a
 Economic Guidance for Water Quality Standards
1-10

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substantial portion of the costs of a public facility is borne
by a private entity (such as a manufacturing facility that
pays  substantial  user  charge  fees  to  a POTW), both
Chapters 2 and 3 should be referred to.

   In all cases, the determination of economic and social
impacts must be made on a  case  by case basis.  This
determination, therefore, requires the application of good
judgement as well as use of the guidance provided in this
workbook.   Additional information and  tests may  be
required in  order to measure the size and  extent of the
impacts.  Applicants should be  aware  that they will  be
required to supply documentation to substantiate their claim
of substantial and widespread economic and social impacts.
In addition  to background data,  however, this documen-
tation should include a brief written description of why the
applicant believes economic and social impacts will occur.
Economic Guidance for Water Quality Standards
1-11

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      2. EVALUATING SUBSTANTIAL IMPACTS:
         PUBLIC SECTOR ENTITIES
         Public entities seeking relief from meeting water quality
       standard requirements must demonstrate that the cost of
       required water pollution control will  result  in substantial
       impacts and that there will be "widespread" adverse social
       and economic impacts if they are required to meet these
       standards.  For the purposes of this  workbook, a public
       entity refers to any governmental unit that  must comply
       with pollution control requirements in order to meet water
       quality standards.    The most common example is a
       municipality or  sewage  authority operating  a publicly
       owned treatment works (POTW) that must be upgraded or
       expanded. Municipalities, however, may also be required
       to  control other point sources or nonpoint  sources  of
       pollution within their jurisdiction.  The procedures outlined
       in  this chapter apply to all types of publicly financed
       projects  that may be  required  to  meet  water quality
       standards.     Throughout   this   chapter,   the  term
       "State/discharger" refers to whoever will actually conduct
       the  financial and  socioeconomic  impact analysis for the
       public entity, whether it be the State, the municipality, a
       consultant or some other organization.

         The remainder of this chapter details methodologies and
       sources  of  information  for  determining  the  financial
       viability of publicly financed projects.  Several worksheets
       are  presented that will  assist in demonstrating substantial
       impacts.  States/dischargers are referred to Chapter 4 for
       guidance  on demonstrating widespread impacts.   Readers
       should keep hi mind that the guidance  hi this chapter is not
       meant to be exhaustive.  The State and/or EPA may require
       additional information or tests in order to evaluate whether
       substantial and widespread impacts will occur. In addition,
       the  State/discharger  should  feel free  to  include  any
       additional information they think is relevant.

         As mentioned in Chapter 1, the evaluation of substantial
       impacts resulting from public entity compliance with water
       quality standards  includes two   elements,   1)  financial
Economic Guidance for Water Qualify Standards

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      impacts to the public entity and 2) current socioeconomic
      conditions  of the community.   Governments have  the
      authority to levy taxes and distribute pollution control costs
      among households and businesses according to the tax base.
      Similarly, sewage authorities charge for services, and thus
      can recover pollution control costs through users fees.  In
      both cases,  a substantial  impact  will usually   affect the
      wider community.  Whether or not the community faces
      substantial impacts depends  on both  the cost of  the
      pollution control  and  the  general financial  and economic
      health of the community.

         If the public entity passes  a significant portion of the
      pollution control costs along to private facilities or firms,
      then the review procedures outlined in Chapter 3 of this
      workbook should  also be consulted to determine the impact
      on the private entities.  Both public and private entities
      should consult Chapter 4  for guidance on how to estimate
      potential widespread impacts on the community.

         This chapter focuses on ways to determine  if the costs
      of the proposed  project  will  likely result  in  substantial
      impacts.  To make this determination the State/discharger
      will need to  complete a five step analysis.  As shown in
      Figure 2-1 the first step in the process is to estimate the
      cost of the pollution control project and calculate the annual
      cost of the proposed pollution control project.  The second
      step is to calculate the total annual pollution control cost
      per household, which includes the cost of the  project and
      existing  pollution control costs.   In the third step, the
      Municipal Preliminary  Screener  is  calculated,   which
      quickly identifies entities that clearly will not experience
      substantial impacts  due  to  the cost of  the necessary
      pollution control. If it is not  clear whether there will be
      substantial impacts, entities should proceed to the  fourth
      step, which  is the calculation of the Secondary Test.  In
      this step public entities will need to provide financial and
      socioeconomic information.  For example, the ability of the
      community to finance the project may depend on existing
      financial  conditions in the  community such as debt per
      capita  and   the  community's  bond   rating.      The
      socioeconomic health  of the community  prior to the
Economic Guidance for Water Quality Standards
2-2

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       project's construction will also be an important indicator of
       whether the pollution control would impose a substantial
       impact on  the community.   The fifth and  final step  of
       determining whether impacts are "substantial" is evaluating
       where the community falls in the impacts matrix.   This
       matrix takes into consideration the Municipal Preliminary
       Screener and the Secondary Test score. Later, in Chapter
       4,  estimated changes in socioeconomic health indicators
       will be reviewed to evaluate the extent to which  the impacts
       can be considered widespread.

          The  remainder of this chapter is divided into five
       sections that detail the essential steps of an  evaluation of
       substantial impacts for publicly financed projects. Figure
       2-1 illustrates the steps and decision points in this process.
       The five steps are:

          •  Verify Project Costs and Calculate the Annual
             Cost of the Pollution Control Project  -  This
             section discusses factors that should be considered
             when selecting a pollution control project. It also
             describes the type of general information about the
             proposed project that should be  provided.   In
             addition, it discusses how to annualize capital costs
             of the project and calculate total annual costs of the
             pollution control project.

          •  Calculate Total Annualized Pollution Control
             Costs Per Household  - This section outlines the
             calculation of total annual pollution  control costs
             per  household.  The costs of the proposed project
             and existing pollution control are included.

          •  Calculate   and   Evaluate  the    Municipal
             Preliminary  Screener  Score   -  This  section
             explains the "screener" which identifies only those
             communities  that   clearly  will   not   face  any
             substantial impacts.

          •  Apply the  Secondary Test  - This  measurement
             incorporates a characterization of the community's
             current financial  and socioeconomic well-being.
Economic Guidance for Water Quality Standards
2-3

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                                                 Figure 2-1:
                                    Measuring Substantial Impacts
                                              (Public Entities)
  Use guidance in Chapter 3 if
    non-residential costs are
  anticipated to be substantial
                                Non-
                             Residential
                                Costs
                                              Capital Cost & Annual
                                              O&M Cost of Exiting
                                              and Proposed Pollution
                                                    Controls
                                               * * ,"^1S;
                                             JIIIBS^ Total RiUatimi
                                             Annual Cost of Existing
                                              and Proposed Pollution
                                                  Reductions
                                                     i
AOocate Total PoDutkm
                                              Residential, Industrial,
                                               Commercial, Others
                                                        Residential! Costs
                                            Is it clear that municipality
                                             will not face substantial
                                               economic impacts?
                                                                       Yes
                                                                                            Request Rejected
                                                         No
                                               Determine whether
                                             municipality will incur
                                           substantial impacts based on
                                            the cost of pollution control
                                            and the characterization of
                                              municipality's current
                                           financial and socioeconomic
                                                  well-being
                                                     1
                                                                      No Substantial
                                                                        Impacts
                                                                                            Request Rejected
            Substantial Impacts
                                              Proceed to analysis of
                                              widespread impacts in
                                                   Chapter 4
Economic Guidance for Water Quality Standards

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       2.1
Assess  where  the community  falls  in  The
Substantial  Impacts  Matrix  -  This  matrix
evaluates whether or not communities are expected
to incur substantial economic impacts due to the
implementation of the pollution control costs. If the
applicant cannot demonstrate substantial  impacts,
then they will be required to meet existing water
quality standards.   If impacts are expected to be
substantial,  then   the  applicant   goes   on  to
demonstrate whether they are also expected to be
widespread.

Verify Project Costs and Calculate the Annual
Cost of the Pollution Control Project.
         Before the impact analysis can be performed, the project
       costs should be verified and then annual costs calculated.

       2.1.a  Verify Project Costs

         The first step of an economic analysis of a publicly
       financed project is an evaluation of the proposed project.
       Public entities should consider a broad range of discharge
       management options including pollution prevention, end-of-
       pipe treatment, and upgrades or additions to  existing
       treatment.  Specific types of pollution prevention activities
       that should be considered are:
             Public Education;
             Change in Raw Materials;
             Substitution of Process Chemicals;
             Change in Process;
             Water Recycling and Reuse; and
             Pretreatment Requirements.
         Many of these approaches are particularly relevant to
       industrial  indirect  discharges  to  the  public  system.
       Whatever the approach, the applicant must demonstrate that
       the  proposed  project  is the most  appropriate means of
       meeting water quality standards and must document project
       cost estimates.  If at least one of the treatment alternatives
Economic Guidance for Water Quality Standards
                                                                     2-5

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       that  meets  water  quality  standards  will  not  have  a
       substantial financial impact, then the community should not
       proceed with the  analysis presented in the rest of this
       workbook.   General information regarding  the proposed
       pollution control project  and other projects  considered
       should be supplied in Worksheet A.

         The  most cost-effective approach  to meeting  water
       quality  standards  should  be  considered.   Submissions
       should  include   assumptions  about   excess  capacity,
       population  growth,  and  consideration  of  alternative
       technologies  where  appropriate.    The  most  accurate
       estimate of project costs may be  available from  the
       discharger's design engineers.  If site-specific engineering
       cost estimates are  not available, preliminary project cost
       estimates can be  derived from a comparable project  in the
       State or from the judgement of experienced water pollution
       control  engineers.   (See  Appendix A for  sources  of
       engineering  cost information.)   Capital, operation and
       maintenance  (O&M),  and  other  project costs  can  be
       summarized  using Worksheet B.     For  comparative
       purposes, cost estimates (e.g. capital, O&M, other project
       costs) for each  alternative being considered should  be
       presented  in  the same units (typically annualized  costs,
       $/yr) and  for the same year.  The next section explains
       how to annualize project costs.

         For  illustrative  purposes,  the  example of  a  local
       government upgrading their existing wastewater treatment
       facility in order to meet water quality standards is used
       throughout this chapter.  Details of this example may differ
       significantly from other projects undertaken to meet water
       quality  objectives.   Other types of public-sector  water
       pollution control, however, would be analyzed in a similar
       fashion using the worksheets included in this chapter.

       2.1.b Calculate the  Annual Costs  of the Pollution
       Control Project

         Since capital  costs typically will  be paid over several
       years,  annualized costs are used  in  the evaluation  of
       economic burden to the community. The capital portion of
Economic Guidance for Water Quality Standards
2-6

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                                       Worksheet A
                   Pollution Control Project Summary Information
  Current Capacity of the Pollution Control System
  Design Capacity of the Pollution Control System
  Current Excess Capacity                                                                   %
  Expected Excess Capacity after Completion of Project                                        %
  Projected Groundbreaking Date
  Projected Date of Completion
Please describe the pollution control project being proposed below. (Attach additional page if necessary).
Please describe the other pollution control options considered, explaining why each option was rejected.
(Attach additional page if necessary).

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                                       Worksheet B
                    Calculation of Total Annualized Project Costs
A. Capital Costs
 Capital Cost of Project                                                     $
 Other One-Time Costs of Project (Please List, if any):
 Total Capita] Costs (Sum column)                                          $             (1)
 Portion of Capital Costs to be Paid for with Grant Monies                      $             (2)
 Capital Costs to be Financed [Calculate: (1) - (2) ]                             $             (3)
 Type of financing (e.g., G.O. bond, revenue bond, bank loan)
 Interest Rate for Financing (expressed as decimal)                                            (i)
 Time Period of Financing (in years)
                                                                          	(n)
 Annualization Factor = 	1	  + i (or see Appendix B)
                        0+0  "  l                                         	(4)
 Annualized Capital Cost [Calculate: (3) x (4) ]
                                                                                         (5)
B. Operating and Maintenance Costs
 Annual Costs of Operation and Maintenance (including but not limited to: monitoring, inspection,
 permitting fees, waste disposal charges, repair, administration and replacement.) (Please list below)
 Total Annual O & M Costs (Sum column)                                  $              (6)
C. Total Annual Cost of Pollution Control Project
 Total Annual Cost of Pollution Control Project [ (5) + (6) ]                     $           (7)

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       project costs is typically financed over approximately 20
       years, by issuing a municipal debt instrument  such as  a
       general  obligation  bond  or a  revenue  bond.    Local
       governments may also finance capital costs using bank
       loans,  state  infrastructure loans  (revolving funds), or
       federally subsidized loans (such as those offered  by the
       Fanners' Home Administration).

          It should be noted that  interest rates used to annualize
       costs are dependent on the type of debt instrument used as
       well as the  recipient's  credit standing.   For example,
       revenue bonds typically  are financed at a slightly higher
       interest rate because of their dependence on revenues from
       services as opposed to being guaranteed  by  the full faith
       and credit of the jurisdiction.  Because interest rates affect
       the interest payment and thus the annualized capital cost of
       the project, it is important that the interest  rate used on
       Worksheet B reflects the  debt instrument (i.e.  municipal
       bond, commercial bank loan, state revolving fund loan, or
       other instrument) likely to be used by the municipality.

          The calculation of total annualized cost of the project is
       presented in Worksheet B.  First, capital costs are summed
       and the portion of costs  to be paid for with  grant monies
       are deducted, as these costs will not need to be financed.
       Next, the  annualization  factor  is  calculated  using the
       formula supplied on  Worksheet B, or the  annualization
       factor is found in Appendix B.  Annualized capital cost is
       then calculated by multiplying the total capital costs to be
       financed  by the annualization factor.

          Next,  annual operating  and maintenance  costs  are
       summed, and the total is added to the annualized capital
       cost.  These costs should include the costs of monitoring,
       inspection, permitting fees, waste disposal charges, repair,
       administration, replacement, and any other recurring costs.
       All recurring costs should be stated in terms of dollars per
       year.   The sum of the  annualized capital cost and total
       annual operating and maintenance costs is the total annual
       cost of the project.  In  the next section, the annualized
       costs paid by households in the community are calculated.
Economic Guidance for Water Quality Standards
2-9

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      2.2    Calculate Total  Annualized Pollution Control
             Costs Per Household

         In order to assess the burden that total pollution control
      costs are expected to have on households, an  average
      annualized pollution control cost per household should be
      calculated for all households in the community that would
      bear project costs.  In order to evaluate substantial impacts,
      therefore, the analysis must establish which households will
      actually  pay for  pollution control as well  as   what
      proportion of the costs will be borne by households. These
      apportioned  project costs  are  then added to  existing
      pollution control costs paid by households.

         It is important to first define the affected community.
      The  "community"  is  the  governmental  jurisdiction
      responsible  for paying compliance  costs.   In practice,
      pollution control projects may serve several communities or
      just portions of a community.   In  the  case  of a sewage
      agency serving several communities, once project costs are
      allocated to  each community served, the  economic analysis
      is conducted on a community by community basis. In the
      case  of a community in  which only  a portion of the
      community is served, the affected community is defined as
      those who will pay  the compliance costs. In such cases, it
      may be difficult to  obtain socioeconomic data for just part
      of the community and  data for the entire community may
      be used instead.  The area that is affected may not be the
      same  as  the area  that  is  paying, therefore it  may  be
      appropriate  to evaluate widespread impacts,  described in
      Chapter 4,  over a  community that is defined  differently
      than the paying community.

          If project  costs  were estimated for  some prior year,
      these costs  should  be  adjusted upward  to reflect current
      year  prices using the  average  annual national Consumer
      Price Index  (CPI) inflation rate for the period.  The CPI
      inflation  rate  is available from  the  Bureau  of Labor
      Statistics. An additional source reporting the CPI inflation
      rate is the CPI Detailed Report, which is published monthly
      by the U.S.  Department  of  Labor,  Bureau of Labor
      Statistics.
Economic Guidance for Water Quality Standards
2-10

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         The ratio of the current CPI to the CPI for the year of
       the cost estimates indicates how much costs have increased
       over the  period.  This ratio can be applied to the cost
       estimates to  "bring  them  up  to  current  year costs."
       Likewise, there are engineering cost indices that can be
       used for this purpose.

         If project costs are not distributed simply according to
       wastewater flow or tax revenues, then consideration should
       be given to separately analyzing the impacts on users who
       pay a disproportionate share of the costs.  This situation
       can arise, for example, where  industrial dischargers to a
       sewer system are assessed pollutant surcharges to pay for
       their share of the  cost of advanced treatment necessitated
       by the presence of their pollutants. Remaining costs would
       then be split among households according to wastewater
       flow or tax revenues, whichever is appropriate.  The total
       amount of the pollution control project to be recouped by
       surcharges should, therefore, be removed from  the total
       project cost  before  costs  are  allocated  according to
       wastewater flow or tax revenues.

         In calculating the total annual cost of pollution control
       per  household, current costs of pollution control must be
       considered along  with the projected annual costs of the
       proposed pollution control project.  The existing cost per
       household usually can be obtained from the most recent
       municipal records. For example, it can be found in the
       sewer  enterprise  fund  accounts for communities that
       maintain a separate enterprise fund.  It is not necessary, in
       such cases,  to sum all the cost  components.  Instead, use
       the most recent operating revenues, divided by the number
       of households served. In cases where the community does
       not maintain a separate enterprise fund for sewers, the cost
       elements  can be summed from  the consolidated statement
       for the community. If the portion of proposed project costs
       that households are expected to pay is known or is expected
       to remain unchanged, then use  Worksheet C to calculate
       the total annual cost of pollution control per household.  If
       the  portion paid by  households is based on flow, then
       should refer to Worksheet C: Option A as well.
Economic Guidance for Water Quality Standards
2-11

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                                     Worksheet C
                Calculation of Total Annual Pollution Control Costs
                                    Per Household
A. Current Pollution Control Costs:
 Total Annual Cost of Existing Pollution Control
 Amount of Existing Costs Paid By Households
 Percent of Existing Costs Paid By Households
 Number of Households*
 Annual Cost Per Household [Calculate: (2)/(4) ]
* Do not use number of hook-ups.
_$_
 $
(1)
(2)
                          (4)
                          (5)
B. New Pollution Control Costs
Are households expected to provide revenues for the new pollution control project in the same proportion
that they support existing pollution control? (Check a, b or c and continue as directed.)
D a) Yes [fill in percent from (3) ]
D b) No, they are expected to pay
           percent. (6a)
           percent. (6b)
D c) No, they are expected to pay based on flow. (Continue on Worksheet C, Option A)

 Total Annual Cost of Pollution Control Project [Line (7), Worksheet B]   $
 Proportion of Costs Households Are Expected to Pay [ (6a) or (6b) ]
 Amount to Be Paid By Households [Calculate: (7) x (8) ]               $
 Annual Cost per Household [Calculate: (9)/(4) ]                       $
                            (7)
                            (8)
                            (9)
                           (10)
C. Total Annual Pollution Control Cost Per Household
 Total Annual Cost of Pollution Control Per Household (5) + (10)  f$
                      (11)

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                              Worksheet C:  Option A

       Calculation of Total Annual Pollution Control Costs Per Household
                                   Based on Flow
A. Calculating Project Costs Incurred By Households Based on Flow


 Expected Total Usage of Project (eg. MGD for Wastewater Treatment)                    (1)

 Usage due to Household Use (MGD of Household Wastewater)                           (2)
 Percent of Usage due to Household Use [Calculate: (2)/(l) ]                            %(3)
 Total Annual Cost of Pollution Control Project                          $              (4)
 Industrial Surcharges, if any                                         $              (5)
 Costs to be Allocated [Calculate: (4) - (5) ]                             $              (6)
 Amount to Be Paid By Households [Calculate: (3) x (6) ]                  $              (7)
 Annual Project Cost per Household [Calculate: (7)/Worksheet C, (4) ]       $              (8)


C. Total Annual Pollution Control Cost Per Household


 Annual Existing Costs Per Household [Worksheet C, (5) ]                 $           (9)
 Total Annual Cost of Pollution Control Per Household [ (8) + (9) ]        |$           (io)

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         The  cost  per  household as  a percent  of median
       household income is used in Section 2.3 as a screener to
       quickly identify those communities that clearly will not face
       substantial impacts due to pollution control.  For guidance
       in  estimating  impacts  on  non-household users  (e.g.,
       industrial, commercial), refer to Chapter 3.

       2.3    Calculate    and   Evaluate   The   Municipal
             Preliminary Screener Value

         Whether or not  the community is expected to incur
       "substantial" economic impacts due to the pollution control
       project is determined by jointly  considering the results of
       two tests. The first test is a "screener" to establish whether
       the  community can clearly  pay for the project without
       incurring  any  substantial   impacts.    The Municipal
       Preliminary Screener  estimates the total annual pollution
       control  costs per  household (existing costs plus those
       attributable to the proposed project) as a percentage of
       median  household  income.  The screener  is written as
       follows:

              Municipal Preliminary Screener =

       Average Total Pollution Control Cost per Household
                 Median Household Income
         Median  household  income  information  for  many
       municipalities  is  available  from the  1990  Census  of
       Population.  If median household income is not available
       for the current year, it should be estimated for the current
       year by using the CPI inflation rate for the period between
       the year that median household income is available and the
       current year.  To calculate  the inflation rate  over the
       relevant period, use the "percent change from the previous
       annual average" (annual inflation rate) presented in the CPI
       Detailed Report.  For example, if the current year is 1993,
       1990 is the most recent year that median household income
       is available, and  the  percentage changes for the  1990,
       1991, and 1992 annual  averages respectively are: 5.2, 4.1
       and 2.9, the adjustment factor equals:
Economic Guidance for Water Quality Standards

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         Adjustment Factor = 1.052 * 1.041 * 1.029 =  1.13

         Adjusted Median Household Income =
             Median Household Income * Adjustment Factor
         Depending on the results of the screener, the community
      is expected to incur little, mid-range, or large economic
      impacts due to the proposed project (see Worksheet D).
      If the total annual cost per household (existing annual cost
      per  household  plus the incremental  cost related  to the
      proposed  project) is  less than  1.0  percent  of median
      household  income, it is assumed that the project is not
      expected to impose a  substantial economic hardship on
      households. The screener is therefore set at 1.0 percent of
      median household income.  Communities with screener
      results  of less than  1.0  but  still fairly close to  1.0,
      however, may still want to proceed to the Secondary Test.

         Communities are expected to incur mid-range impacts
      when the ratio of total annual compliance costs to median
      household income is between 1.0 and 2.0 percent.  If the
      average annual cost per household exceeds 2.0 percent of
      median household income, then the project may place an
      unreasonable financial burden on many of the households
      within the community.  In either case, communities move
      on to the Secondary affordability Test to  demonstrate
      substantial impacts.  For example, assume that Community
      XYZ has  a screener of 2.3 percent.   Although it appears
      that the community faces large impacts, substantial impacts
      have not necessarily been demonstrated and the community
      must proceed to  the next step and apply the Secondary
      Test.  Dischargers with screener values well below 1.0
      percent are assumed to be able to pay  for pollution control
      without incurring any substantial economic impacts and are
      required to meet existing water quality standards. They do
      not need to proceed to the Secondary Test (see Figure 2-1).

      2.4,   Apply Secondary Test

         The Secondary Test is designed to  build upon the
      characterization of the financial burden  identified in the
Economic Guidance for Water Quality Standards
2-15

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                                    Worksheet D
                          Municipal Preliminary Screener
The Municipal Preliminary Screener indicates  quickly whether  a  public entity  will not incur any
substantial economic impacts as a result of the proposed pollution control project.  The formula is as
follows:
                Total Annual Pollution Control Cost per Household
                           Median Household Income *
                                                                                   (D
                                                                                   (2)
A. Calculation of The Municipal Preliminary Screener

 Total Annual Pollution Control Cost Per Household [Worksheet C, (11) or
 Worksheet C, Option A (10) ]

 Median Household Income*
 Municipal Preliminary Screener (Calculate: [(l)/(2)] x 100)
B. Evaluation of The Municipal Preliminary Screener
If the Municipal Preliminary Screener is clearly less than 1.0%, then it is assumed that the cost will not
impose an undue financial burden. In this case, it is not necessary to continue with the Secondary Test.
Otherwise, it is necessary to continue.
Benchmark Comparison:
                   Little Impact

                  Less than 1.0%
                                    Mid-Range Impact

                                       1.0%-2.0%
  Large Impact

Greater than 2.0%
                 Indication of no
                 substantial
                 economic impacts
                                   Proceed to Secondary Test
  1990 Census adjusted by CPI inflation rate if necessary.

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       Municipal Preliminary  Screener.   The  Secondary Test
       indicates the community's ability to obtain financing and
       describes the socioeconomic  health of  the community.
       Indicators describe precompliance debt, socioeconomic, and
       financial management conditions in the community.  Using
       these indicators and the scoring system described below,
       the impact of the cost of pollution control is estimated.
       Specifically,  applicants  are  required  to  present  the
       following six indicators for the community:

       Debt Indicators

         •   Bond Rating (if available) - a  measure of credit
             worthiness of the community;

         •   Overall Net Debt as a Percent of Full Market Value
             of Taxable Property - a measure of debt burden on
             residents within the community;

       Socioeconomic Indicators

         •   Unemployment Rate - a measure of the general
             economic health of the community;

         •   Median Household Income -  a  measure of the
             wealth of the community;

       Financial Management Indicators

         •   Property Tax Revenue as a Percent of Full Market
             Value  of Taxable Property - a  measure of the
             funding capacity available to support debt based on
             the wealth of the community; and

         •   Property Tax Collection Rate -  a  measure of how
             well the local government is administered.

         A more detailed description of the six indicators, as well
       as  alternative  indicators  for states  with property  tax
       limitations, are presented below.  Table 2-1 summarizes the
       indicators and  what is considered  to be a  strong, mid-
       range, or weak rating.
Economic Guidance for Water Quality Standards
2-17

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      Debt Indicators

         Bond Rating

         Current ratings for the community summarize a bond
      rating  agency's  assessment  of a  community's credit
      capacity.   The ratings generally reflect current financial
      conditions.  If security enhancements like bond insurance
      have been used for the bond issue, however, the bond
      rating on  a  particular  issue  may be  higher than local
      conditions justify.   Only  ratings for uninsured  bonds,
      therefore, should be used.

         Many  small and medium sized communities have  not
      used debt financing for projects  and, as a result, have no
      bond rating.  The absence of  a bond  rating does  not
      indicate strong or weak financial health.   When a bond
      rating is not available, this indicator should not be included
      in the analysis of substantial impacts. When available, the
      rating for the most recent general obligation bond should be
      used.   If a general obligation bond has not been issued
      recently, the most recent rating for a sewer bond should be
      used.  Recent bond ratings are included in municipal bond
      reports from rating agencies (e.g., Moody's Bond Record,
      Standard and Poor's Corporation).

         Overall Net Debt as a Percent of Full Market Value of
         Taxable Property

         Overall Net Debt is  debt repaid by property taxes.  It
      excludes  debt that is  repaid  by special user  fees (e.g.
      revenue debt).  This indicator provides a measure of debt
      burden on residents within the community and measures the
      ability of local government jurisdictions to issue additional
      debt.   It includes  the debt issued directly by the local
      jurisdiction and debt of overlapping entities, such as school
      districts.   It compares  the level of debt owed  by  the
      community with the full market value of real property used
      to  support that  debt  and  serves as a  measure  of  the
      community's wealth.
Economic Guidance for Water Quality Standards
2-18

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         Debt information is  available  from  the  financial
       statement of each community.   In  most cases,  recent
       financial statements are  on file with the State (e.g., State
       Auditor's Office).  Overlapping debt  may or may  not be
       provided  in  a  community's  financial statements.    The
       property assessment data (assessment  ratio)  should be
       readily available through the community or  the State
       Assessor's  Office.   The  boundary  of the  affected
       community generally conforms to one or more community
       boundaries.  Therefore, prorating community data to reflect
       specific service area  boundaries is not normally necessary
       for  evaluating  the  general  financial capability of the
       affected community.

       Socioeconomic Indicators

         Unemployment Rate

         The unemployment rate is defined as  the percent of a
       community's labor force currently unemployed.  If the
       unemployment rate in the service area is not available, the
       encompassing county's rate may  be used as a substitute.
       The Bureau of Labor Statistics (BLS) maintains current
       unemployment rate figures for municipalities and counties.
       National unemployment data is also needed for comparison
       purposes. This information can be obtained from the BLS
       are available by request at (202) 606-6392. A community's
       unemployment rate is considered to be below the national
       average if it is more  than 1 % below the national average.
       Similarly, a community's unemployment rate is considered
       to be  above  the national average if it is more  than 1 %
       above the national unemployment rate. If the community's
       employment  rate  is equal  to  the national  average
       unemployment  rate, plus  or  minus  1%,   then the
       community's unemployment rate is assessed as being equal
       to the national rate.

         Median Household Income

         Median household income (MHI) is defined  as the
       median of the total income dollars received per household
       during a calendar year in a  given area.  It serves as an
Economic Guidance for Water Quality Standards
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      overall indicator of community spending capacity.  Median
      household income, which was also used in the screener
      process, is available from the 1990 Census or through state
      data centers. The state value is also needed for comparison
      purposes. If a community's median household income is
      more than  10%  below the state's  median  household
      income, then  it is considered  to be below  the state's
      median.  If a  community's median household income is
      more than 10%  above  the  state's  median,  then  it is
      considered  to  be  above  the state median  value.   If,
      however, the community's median household income is
      equal to the state median, plus or minus 10%, then the
      community's median household income is assessed as being
      equal to the state's median household income.

      Financial Management Indicators

         Property Tax Revenues as a Percent of Full Market
         Value of Taxable Property

         This indicator can be referred to as the "property tax
      burden" since it indicates the funding capacity to support
      new expenditures, based on the  wealth of the community.
      Some states and local jurisdictions may have established
      legal limits on  the amount of property taxes  that can be
      levied as a percent of full market or assessed value of real
      property.   Property assessment data should be  readily
      available through the community or the State  Assessor's
      Office.     Property  tax  revenues  are  available  in
      communities' annual financial statements.

         Property Tax Revenue Collection Rate

         This rate is an indicator of the efficiency  of the tax
      collection  system and  a measure of how well the local
      government is administered. It compares the actual amount
      collected  from  property taxes to  the  amount  levied.
      Property taxes levied can be computed by multiplying the
      assessed  value  of real  property by the property tax rate,
      both of which are available from a community's financial
      statements  or the State  Assessor's Office.
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          Alternative Indicators for States with
          Property Tax Limitations

          Two of the indicators may not be appropriate
          in states with statutory limits on property tax
          collections and/or rates, or where data on full-
          market value of taxable property are not
          available.

          The first of these indicators — The  Overall Net
          Debt as Percent of Full Market Value of
          Taxable Property ~ can be replaced with:

          Overall Net Debt Per Capita

          In calculating the Secondary Score, the
          following ratings for Overall Net Debt Per
          Capita should be used:

          Greater than $3,000 =  weak       =  1
          $1,000-$3,000     =  mid-range  =  2
          Less than $1,000    =  strong      =  3

          The second of these indicators — Property Tax
          Revenues as a Percent of Full-Market Value of
          Taxable Property — has no appropriate
          substitute in cases where property taxes are at
          their limit or where full-market value of
          taxable property cannot be estimated.  In such
          cases, this indicator should be dropped and the
          other five factors are assigned equal weights.
         These six indicators are then used to form a composite
       assessment of the community's economic health and the
       financial impact of the required project.  Worksheet £ can
       be used to record each indicator.  For  each  of the six
       indicators, the community is rated as weak, mid-range, or
       strong, based on the  thresholds presented in Table 2-1.
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                                      Worksheet E
                           Data Used in the Secondary Test
Please list the following values used in determining the Secondary Score.  Potential sources of the data
are indicated.
A. Data Collection

          Data                       Potential Source                      Value


Direct Net Debt             Community Financial Statements
                           Town, County or State Assessor's Office
                                                               $	(1)
Overlapping Debt            Community Financial Statements
                           Town, County or State Assesor's Office  $                       (2)

Market Value of Property     Community Financial Statements
                           Town, County or State Assessor's Office
                                                               $	(3)

Bond Rating                Standard and Poors or Moody's
                                                                                       (4)
Community Unemployment   1990 Census of Population
Rate                       Regional Data Centers                                        %(5)

National Unemployment      Bureau of Labor Statistics
Rate                       (202) 606-6392                       	%(6)

Community Median          1990 Census of Population
Household Income                                               $                       (7)

State Median Household      1990 Census of Population
Income                                                        $                       (8)

Property Tax Collection      Community Financial Statements
Rate                       Town, County or State Assessor's Office                        %(9)

Property Tax Revenues       Community Financial Statements
                           Town, County or State Assessor's Office $                       (10)

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                               Worksheet E, Continued
B. Calculation of Indicators
       1. Overall Net Debt as a Percent of Full Market Value of Taxable Property


Overall Net Debt (Calculate: (1) + (2))                           $                     (11)
Overall Net Debt as a Percent of Full Market Value of Taxable
Property (Calculate: [(ll)/(3)] x 100)
       2. Property Tax Revenues as a Percent of Full Market Value of Taxable Properly
Property Tax Revenues as a Percent of Full Market Value of Taxable
Property (Calculate: [(10)/(3)] x 100)
*(13)

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       For example, if a community's median household income
       equals $15,000 and the state's median household income
       equals $17,000, the community would be considered weak
       on this measure.  If,  however, the community's median
       household income were  $19,000, then  the  community
       would be considered strong on this measure.

          Next, a Secondary Score is calculated for the community
       by weighting each indicator equally and assigning a value
       of 1 to each indicator judged to be weak, a 2 to  each
       indicator judged to be mid-range, and a 3 to each strong
       indicator.  A cumulative assessment score is arrived at by
       summing the individual scores and dividing by the number
       of factors used.   Worksheet F, provided at the end of
       Section 2.4, guides the applicant through this  calculation.
       The cumulative assessment score is evaluated as follows:

             •      less than 1.5 is considered weak
             •      between 1.5 and 2.5 is considered mid-range
             •      greater than 2.5 is considered strong

       For example, consider a Community XYZ, which has:

             •      a weak ratio  of overall  net debt to  full
                    market value of taxable property = 1,
             •      a weak bond rating = 1,
             •      a mid-range unemployment rate = 2,
             •      a mid-range median household income  = 2,
             •      a strong property tax collection rate = 3,
                    and
             •      a strong ratio of property  tax revenues to
                    full market value of taxable property = 3.

                    [(1  + 1+2-1-2-1-3 + 3)/6]  = 2

       The Secondary Score  for Community XYZ,  equal to 2,
       falls into the mid-range category.

          If the applicant is not able to develop one or more of the
       six indicators, they must provide an explanation as to why
       the indicator is not appropriate or not available.  Since the
       point of the analysis is to measure the overall burden to the
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2-24

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                                                           Wot    »et F
                                                Calculating The Secondary Score

Please check the appropriate box in each row, and record the corresponding score in the final column. Then, sum the scores and compute the average.
Remember, if one of the debt or socioeconomic indicators is not available, average the two financial management indicators and use this averaged value as
a single indicator with the remaining indicators.

Indicator
Bond Rating
Worsksheet E, (4)
Overall Net Debt as Percent
of Full Market Value of
Taxable Property
Worksheet E, (12)
Unemployment
Worksheet E, (5)& (6)
Median Household Income
Worksheet E, (7) & (8)
Property Tax Revenues as a
Percent of Full Market
Value of Taxable Property
Worksheet E, (13)
Property Tax Collection
Rate
Worksheet E, (9)
Secondary Indicators
Weak*
Below BBB (S&P)
Below Baa (Moody's)
D
Above 5%
n
Above National Average
D
Below State Median
D
Above 4%
D
< 94%
D
Mid-Range*
BBB (S&P)
Baa (Moody's)
D
2%-5%
D
National Average
D
State Median
D
2%-4%
D
94% - 98%
D
«. ***
Strong
Above BBB (S&P) or
Baa (Moody's)
D
Below 2%
D
Below National Average
D
Above State Median
D
Below 2%
D
> 98%
D
                                                                                                                Score
                                     * Weak is a score of 1 point

                                    '* Mid-Range is a score of 2 points
   SUM
                                        Strong is a score of 3 points
AVERAGE

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       community, the debt and socioeconomic  indicators  are
       assumed to be better measures of burden than the financial
       management indicators.   Consequently, if one of the debt
       or  socioeconomic   indicators   is   not  available,   the
       State/discharger  should  average   the   two   financial
       management indicators and use this averaged value as a
       single  indicator with  the remaining  indicators.   This
       averaging is necessary so that undue weight  is not given to
       the financial management indicators.
Economic Guidance for Water Quality Standards

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                                     Table 2-1
                                Secondary Indicators

Indicator
Bond Rating
Overall Net Debt .
as Percent of Full
Market Value of
Taxable Property
Unemployment
Median Household
Income
Property Tax
Revenues as a
Percent of Full
Market Value of
Taxable Property
Property Tax
Collection Rate
Secondary Indicators
Weak
Below BBB (S&P)
Below Baa
(Moody 's)
Above 5%
More than 1 %
above National
Average
More than 10%
below State Median
Above 4%
< 94%
Mid-Range
BBB (S&P)
Baa (Moody's)
2%-5%
National Average
State Median
2%-4%
94% - 98%
Strong
Above BBB (S&P)
or Baa (Moody's)
Below 2%
More than 1 %
below National
Average
More than 10%
above State Median
Below 2%
> 98%
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      2.5    Assess Where the  Community  Falls  in The
             Substantial Impacts Matrix

         The results of the two tests are considered jointly in
      determining whether the  community is expected to incur
      substantial impacts due to the proposed pollution control
      project.

         In the following matrix, the cumulative assessment score
      for  the  community  is  combined  with  the  estimated
      household burden.  The combination of factors establishes
      whether impacts can be expected to be substantial.  In the
      example  of Community XYZ, their screener  equaled 2.3
      percent and their cumulative assessment score equaled 2.
      They are,  therefore,  in the middle cell in the far right
      column and  thus have a rating of "X"  in the  matrix
      presented below (Table 2-2).

         In the matrix, "X" indicates that the impact is likely to
      be substantial.  The closer the community  is to the upper
      right hand corner of  the matrix, the greater the impact.
      Similarly, V" indicates that the impact is not likely to be
      substantial.  The closer to the lower left hand corner of the
      matrix, the smaller  the impact. Finally, the "?"  indicates
      that the impact is unclear.
Economic Guidance for Water Quality Standards
2-28

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                                         Table 2-2
                          Assessment of Substantial Impacts Matrix
Secondary
Score
Less than 1.5
Between 1.5 and
2.5
Greater than 2.5

Municipal Preliminary Screener
Less than 1.0 Percent
?
/
/
Between 1.0 and
2.0 Percent
X
7
/
Greater than
2.0 Percent
X
X
7
         For communities that fall into the "?" category, if the
       results of both the Secondary  Test and the Municipal
       Preliminary Screener are borderline, then the community
       should move into the  category  closest to it.  Take, for
       example, a community that falls into the center box, with
       a cumulative assessment score of between 1.5 and 2.5 and
       a percent of median household income (MHI) between 1.0
       and 2.0.  If the cumulative score was 1.6 and the percent
       of MHI was 1.8, then the community should be considered
       to fall into one of the adjacent  "X" categories.  If results
       are not borderline, other factors such as the impact on low
       or fixed  income households, the presence  of a failing local
       industry, and other projects the community would have to
       forgo  in order to  comply with water quality standards
       should be considered.   Relevant additional information
       might include information collected from interviews with
       municipal financial officers,  special reports on industry
       trends that may  affect local  employers,  and specific
       financial and economic indicators.   The State/discharger
       should provide any additional  information they feel is
       relevant. This additional information will be critical where
       the matrix results are not conclusive.

         EPA  will  interpret  a "S*  rating  to mean  that the
       community is not expected to incur substantial impacts as
Economic Guidance for Water Quality Standards
2-29

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       a result  of the  pollution control project.   Communities
       falling into this category not be able to justify water quality
       standards  providing  for   less   protection   than  the
       fishable/swimmable goals of the Act, and will not be able
       to justify  degradation of high quality  waters.   If the
       applicant State/discharger disagrees with  the results of the
       Secondary Test,  they may present additional information to
       the Regional EPA Administrator documenting the unique
       circumstances of the community. Since the impacts are not
       substantial,  there is no need to demonstrate  widespread
       impacts.  EPA will interpret a "X" rating to mean that the
       community will  incur substantial impacts. Before a water
       quality standard  is modified or changed or a high quality
       water  (other than  an   ONRW)  degraded,  however,
       communities falling into  this category must demonstrate
       that impacts are  also widespread. For those communities
       rated  "?", EPA's interpretation will rely  on the additional
       information presented by the State/discharger. It should be
       noted that,  in this  case,  there is  no  "correct" set  of
       information.   It will be  up  to the applicant to collect
       whatever information they feel is relevant in describing the
       unique circumstances  affecting their  community.   For
       example, the  matrix  may suggest  that the community's
       financial  condition is strong.  At the same time, however,
       a local industry may be  failing.   In such a  case,  it is
       important to determine the importance of that  industry to
       the local  economy (as measured by its contribution to area
       employment, payroll, and tax revenues)  and whether the
       industry  itself  would  be   affected  by   the  project.
       Communities falling into either the "X" or the "?" category
       should proceed  to  Chapter 4 to determine whether the
       impacts are also  expected  to be widespread.
Economic Guidance for Water Quality Standards
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3. EVALUATING   SUBSTANTIAL
   PRIVATE-SECTOR ENTITIES
IMPACTS:
   For facilities  owned by the private sector, measuring
substantial impacts requires estimating the financial impacts
on the entities that will pay for the pollution controls.  For
example, compliance with water quality standards may
require that a particular facility, perhaps a factory, install
additional wastewater treatment. After estimating the cost
of the additional wastewater treatment, the next step is to
measure the ability of the factory to pay for the additional
treatment.  If the analysis shows that the entity will  not
incur any substantial impacts due to the cost of pollution
control (e.g., there will be no significant changes in  the
factory's level of operations nor profit), then the analysis
is completed.  If, on the other hand, the analysis shows that
there will be substantial  impacts on the entity,  then  the
resulting impacts on the surrounding community must be
considered  (e.g. the impact of lost employment on  the
community's  employment base, or the impact on  the
overall  economy of the community).   Impacts to  the
surrounding community, referred to as widespread impacts,
are addressed in Chapter 4.

   The following sections describe the  steps involved in
evaluating whether impacts will be substantial. These steps
are outlined in Figure 3-1.  This chapter explains how to
adapt each of the steps to a range of data sources and
provides worksheets to assist the discharger in working
through each  step.  The analytic approach presented here
can  be  used for a variety of private-sector  entities,
including  commercial,   industrial,   residential   and
recreational land uses, and for point and nonpoint sources
of pollution.    The guidance  provided  in  this chapter,
however, is not meant to  be exhaustive.  The State and/or
EPA may require additional information or tests in order to
evaluate  whether substantial and widespread impacts will
occur. In addition, the applicant should feel free to include
any additional information they feel is relevant.  The steps
described in further detail in the rest of the chapter are:
Economic Guidance for Water Quality Standards

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                                            Figure 3-1:
                                Measuring Substantial Impacts
                                        (Private Entities)
                                            aie Costs of Pollution
                                       Coatrotl-fcceMarrtoMeet
                                          Capital Cost, Annual
                                              O&M Cost
                                                I
                                         Annual Cost of Proposed
                                           Pollution Reduction
                                                i
                                        Determine whether private
                                        entity will incur substantial
                                        impacts based on primary
                                        and secondary measures of
                                            financial health
                                                                    No
                                                                 Substantial
                                                                  Impacts
                                                   Substantial Impacts
                                          Proceed to analysis of
                                          widespread impacts in
                                              chapter 4
                                                                                    Request Rejected
Economic Guidance for Water Quality Standards

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   •   Verify Project Costs and Calculate the Annual
       Cost  of  the Pollution Control Project  -  This
       section discusses factors that should be considered
       when  verifying that the proposed pollution control
       project is the  most appropriate solution to the
       pollution problem.  It also describes the type of
       general information that should be provided about
       the proposed project. In addition, it discusses how
       to  annualize  capital  costs of the  project  and
       calculate total annual costs of the pollution control
       project.

   •   Financial Impact Analysis - This section describes
       the types of financial tests  that should be applied to
       measure the impact on  the applicant.  The primary
       measure is profitability.  The secondary  measures
       include  indicators  of  liquidity,  solvency,   and
       leverage.

   Most of this chapter is'written in terms of evaluating
whether there will be a substantial impact on a particular
discharger.  This type of analysis is necessary whenever
there is a request  for a  variance.    These same tests,
however, can be used to analyze the impact on a group of
dischargers,  as  might be the case in  a use attainability
analysis. For example, there may be several  facilities that
would confront similar requirements to improve their waste
water discharges in order to meet a higher water quality
standard under  consideration.   The  same primary  and
secondary tests would be used  to measure substantial
impacts in the  dischargers.   The difference would be,
however,   when  the  analysis   moved   to  measuring
widespread impacts.  Here the impacts on the total group
of dischargers  (or all dischargers in the relevant reach)
would be used to measure whether or not the impacts are
considered widespread.
Economic Guidance for Water Quality Standards
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3.1    Verify Project Costs and Calculate The Annual
       Cost of the Pollution Control Project

   Before the impact analysis can be performed, the project
costs should be verified and the  annual costs calculated.

3.1.a  Verify Project Costs

   The first  step  in  the financial  impact analysis is an
evaluation of  the proposed  pollution  control  project.
Private entities should consider a broad range of discharge
management options including pollution prevention, end-of-
pipe treatment, and  upgrades  or  additions  to  existing
treatment.  Specific types of pollution prevention activities
to be considered include:

   •   Change in Raw Materials;
   •   Substitute Process Chemicals;
   •   Change in Process;
   •   Water Recycling and Reuse; and
   •   Pretreatment Requirements.

Whatever the approach, the discharger must demonstrate
that the proposed project is the most appropriate means of
meeting water quality standards and  must document project
cost  estimates.  If at least one of the treatment alternatives
that  allows the applicant to meet water quality standards
would  not impose substantial  impacts, then they are not
able  to demonstrate  substantial impacts  and  should not
proceed with the analysis presented in the remainder of this
workbook.

   Since the  most cost-effective approach to meeting the
fishable/swimmable   goals  of  the Act  and  avoiding
degradation of high quality waters  should be  considered,
submissions should  list  their assumptions  about excess
capacity,   future  facility   expansion,   and  alternative
technologies.  The most accurate estimate of project costs
may be available from the discharger's design engineers.
These  estimates can  be compared  to estimates available
from EPA.
Economic Guidance for Water Quality Standards
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3.1.b  Calculate  the Annual Costs  of the  Pollution
       Control Project

   In order to perform the economic tests, the cost of the
pollution control needed to meet the fishable/swimmable
goals of the Act and avoid degrading high quality waters
must be calculated and  converted to an annualized cost.
Initially, pollution control costs are expressed in two parts:
(1)  the  capital costs of purchasing and  installing  the
equipment and  (2) the yearly operating and maintenance
(O&M) costs.  Both the capital and  O&M cost estimates
should be provided by the discharger requesting relief.  To
assess whether the costs represent the most cost effective
means of meeting  the water quality standards, they should
be compared  to costs at  comparable entities that meet the
same standards.   For  dischargers  covered  by  effluent
guidelines, compliance costs nave been calculated by the
Agency and are available for comparative purposes.  (See
Appendix A.) Costs for nonpoint sources are less readily
available.
   Instead of assuming that the total capital costs will be
paid in the first year of  operation, these costs are usually
annualized.  By assuming that costs are spread  out over
several years, annualization calculates the amount that will
be paid each year, including the financing costs.  In order
to allow for comparisons across cases, the analysis should
assume that the applicant will borrow the capital for the
pollution control equipment and repay the loan in even
annual installments over a 10 year period.  The assumption
of ten years  is based on the likely life of the equipment.
The assumption of even annual  installments is made  for
convenience.   The  interest rate  on the  loan should be
equivalent to  the rate the applicant pays when it borrows
money.  If it borrows from the parent firm,  the interest
charge should be equivalent to the interest charged by the
parent firm.  If the parent firm would lend the entity
money without interest, then the interest payments should
be equivalent to the interest rate the applicant would pay to
borrow  from a bank or on its  line of credit.   If it is
impossible to determine  the appropriate interest  rate,  the
analysis should assume an interest rate equal to the prime
rate plus one percent.
Economic Guidance for Water Quality Standards
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   The financial tests discussed below compare the costs of
compliance to other costs and revenues of the applicant.
Compliance costs and other costs  and  revenues  must,
therefore, be comparable. In other words, they should be
calculated for the same year.  If compliance costs are
estimated assuming construction several years in the future,
they should be deflated back to the year of the  financial
data.  This can be done by assuming that the inflation rate
over the last five years will continue into the future.  See
discussion in Section 2.2, and Appendix A for references
to inflation/deflation  indices.   Likewise, if  costs  were
estimated for an earlier  year, they  should be inflated to
current  year costs.   The Annualized  Cost of  Pollution
Control can be calculated using Worksheet G.

3.2    Financial Impact Analysis

   The purpose of the financial impact analysis is  to assess
the extent to which existing or planned activities and/or
employment will be reduced as a result  of meeting the
water  quality standards.   The tests  described in this
Workbook are not designed to determine the exact impact
of pollution  control costs  on an entity.   They merely
provide indicators of whether pollution control costs would
result in a substantial impact.

   Four general categories of financial  tests are presented
in the following sections.   As indicated  below,  the four
categories are divided  into a primary measure of financial
impacts and three secondary measures of financial impacts:

   Primary Measure

   •   Profit — how  much will profits  decline due to
       pollution control expenditures?

   Secondary Measures

   •   Liquidity — how  easily can an entity pay  its short-
       term bills?
   •   Solvency — how  easily can an entity pay its fixed
       and long-term bills?
Economic Guidance for Water Quality Standards
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                                       Worksheet G

                     Calculation of Total Annualized Project Costs
Capital Costs to be financed (Supplied by applicant)                          $               (1)
Interest Rate for Financing  (Expressed as a decimal)                                         (i)
Time Period of Financing (Assume 10 years*)                                     10 years   (n)
Annualization Factor**  *=  	1	  + i                                                 (2)
                          (1+i)10 - 1
Annualized Capital Cost [Calculate: (1) x (2) ]                               $               (3)
Annual Cost of Operation and Maintenance
(including but not limited to monitoring, inspection, permitting fees, waste
disposal charges, repair, administration and replacement)***                   $               (4)
Total Annual Cost of Pollution Control Project [ (3) + (4) ]
(5)
    While actual payback schedules may differ across projects and companies, assume equal annual
    payments over a 10-year period for consistency in comparing projects.
    Or see Appendix B for calculated annualization factors
    For recurring costs that occur less frequently than once a year, pro rate the cost over the relevant
    number of years (e.g., for pumps replaced once every three years, include one-third of the cost in
   each year).

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   •   Leverage  —  how  much money can  the entity
       borrow?

Profit  and solvency ratios  are  calculated both with and
without  the additional  compliance costs  (taking  into
consideration the entity's ability, if any, to increase its
prices  to cover part or all of the costs).  Comparing these
ratios to each other and to industry benchmarks provides a
measure of the impact on the entity.

   For all of the tests, it is important to look beyond the
individual test results and evaluate the total situation of the
entity.   While  each test addresses a  single  aspect  of
financial  health,  the results of the four tests  should be
considered jointly to  obtain an  overall  picture  of  the
economic health  of the  applicant and the impact of the
water  quality standards requirement on  the  applicant's
health. The results should be compared with the ratios for
other entities in the same industry or activity.  In addition,
the ratios  and tests should be calculated for several years of
operations.    This will  allow  long-term  trends  to be
differentiated from short-term conditions.

   The structure, size, and financial health of the parent
firm should  also  be considered.   An  important  factor,
which may not be reflected in the preceding measures, is
the value of an  applicant's product or operations to its
parent firm.   For  example, if a facility produces an
important input used by other facilities owned by the firm,
the firm  may be likely  to  support the  facility even if  it
appears to have only borderline profitability. The results
of these tests and other relevant factors,  can  be  used to
make a judgement as to  the likely actions of the applicant
(e.g. shut down entirely, close one or more product/service
lines,  shift to other products/services, not proceed with an
expansion, continue operations at current levels) faced with
the pollution control investment.

   Each type of  test  measures a different aspect of a
discharger's  financial  health.   The  primary measure
evaluates  the extent to which an applicant's profit rate will
change, and compares the profit level to typical profits in
Economic Guidance for Water Quality Standards
3-8

-------
that industry.  The secondary measures provide additional
information about specific  impacts that  the discharger
would bear if required to meet water quality standards. In
some cases, the tests might indicate that the discharger
would remain profitable (Profit) after investing in pollution
control, but would have trouble borrowing the needed
capital (Leverage). This situation would indicate a need to
work with the discharger in choosing the technology and
schedule used to meet the regulations. In other cases the
tests  might show  that the  discharger  has  a short-term
problem with meeting the financial obligation imposed by
the standards, but could handle it in the long-run (Liquidity
vs. Solvency).   This  is  important information  when
considering whether or not  to grant a variance  so as to
allow more time for compliance.

   Since it is the discharger that will have to pay for the
wastewater treatment, the financial tests presented in this
Workbook use data about the discharger's operations. This
data,  however,  may  not be  readily available  for  the
discharger itself, and  if available,  the discharger  may
consider the information to be confidential.  It  is EPA
policy,  however, that applications  based  on economic
considerations  must  be  accompanied  by  data  that
demonstrate the impacts.

   If the  information is  not available  at  the discharger
level, it can be estimated from the balance sheets or income
statements of the firm that owns or controls the discharger.
Estimates  can  be made  in a  variety of  ways.   One
commonly used approach is to compare the discharger's
sales or revenues to the firm's sales or revenues and apply
this ratio  to other financial factors.  For example,  if the
discharger is  responsible for  20  percent  of its firm's
revenues,  than it is assigned  20  percent  of the firm's
current  assets and  current  liabilities.  In  some cases,
particularly with manufacturing facilities, the discharger
may not sell its production directly, but may ship it to
another facility owned by the same firm. In this case, the
discharger's  share  of  sales  should  be  calculated  by
determining the market value of the goods produced by the
Economic Guidance for Water Quality Standards
3-9

-------
discharger,  using  market  prices  for the  year  being
analyzed.

   The  primary and  secondary measures  are described
below, along with an example of specific tests to be used.
While there are several ratios that could be used for each
test, to  simplify the presentation only one ratio per test is
described  in detail.   All four primary  and secondary
measures, however, should be used  in the analysis.

   In  most  cases,  interpreting   the  results  requires
comparisons with typical values for the industry.  Among
the sources that provide  comparative information are:
Robert  Morris  Associates'  Annual  Statement Studies,
Moody's Industrial Manual,  Dun and Bradstreet's Dun's
Industry Norms, and Standard & Poor's Industry Surveys.
The Annual Statement Studies, Dun's Industry Norms , and
Standard & Poor's Industry Surveys provide composite
statistics for firms grouped into  various manufacturing and
service  industries.     The  Moody's  Industrial Manual
provides detailed financial information on individual firms
that can be  used for comparison  purposes.  Although
benchmarks are available  for most financial tests, EPA
emphasizes  that  the  discharger  should  consider  these
benchmarks as indicators of financial health and not as
definitive measures.
3.2.a
Primary Measure: Profitability
   The Profit  Test  measures  what will happen to the
discharger's  earnings  if  additional pollution control is
required.   If the discharger is making a profit now but
would lose money with  the pollution control,  then the
possibility of  a total  shutdown  or  the closing  of  a
production line must be considered.  Greatly reduced, but
still positive, profits are also of concern.  Likewise in the
case  of a proposed  facility or  proposed expansion; if
estimated profits would drop considerably with pollution
control, then the development might not take place.

   Two pieces of information are needed for the Profit
Test. The first piece is the total annual cost of the required
Economic Guidance for Water Quality Standards
                                                               3-10

-------
pollution control from Worksheet G. The second piece is
the earnings information from the entity's income statement
(Worksheet H).
         Profit Test = Ea"an^ B^ore  Taxes
                              Revenues
   The Profit Test should be calculated with and without
the cost of pollution  control.   In the former case,  the
annualized cost of pollution control (including O&M) is
subtracted  from  the discharger's earnings before  taxes
(revenues minus costs excluding income taxes) for the most
recently completed fiscal year.  Profits before pollution
control investments have been made should be examined to
determine whether the discharger was already in trouble
(either not profitable or profits far below industry norms)
before pollution  control investments  were made.  If the
discharger is already not profitable, it may not claim that
substantial impacts would  occur due to compliance with
water quality standards.

   The Profit Test can be calculated using Worksheets H,
and I.  Earnings before taxes (EBT) should be calculated
for at least the  three previous fiscal years hi  order to
identify any trends or  atypical  years.   Earnings with
pollution control costs should be  calculated for the latest
year with  complete financial information.  Arguably, as
long as  the applicant  maintains positive  earnings, it  can
afford to pay for the pollution control.  Over the long run,
however, the owner is likely to shift  operations to more
profitable facilities, if possible.  The workbook, therefore,
guides  the applicant through a more thorough  analysis,
which  compares  the  EBT, with and without  pollution
control, to total revenues to yield a profit rate  and change
in the profit rate due to pollution control. (Use Worksheet
I.)  These profit rates should be compared to those for
facilities in similar lines of business.  As with  other tests,
it may not be possible to  compare the discharger's rate
directly with the rates of similar facilities.  In such cases
the discharger's profit rate should be compared  with that of
firms that  concentrate in similar businesses, using data in
Economic Guidance for Water Quality Standards
3-11

-------
                                     Worksheet H

                        Calculation of Earnings Before Taxes
                     With and Without Pollution Control Project Costs
A. Earnings Without Pollution Control Project Costs
                            EBT = R -  CGS - CO
Where:
EBT =
R =
CGS =

CO =
Earnings Before Taxes
Revenues
Cost of Goods Sold (including the cost of materials, direct labor, indirect
labor, rent and heat)
Portion of Corporate Overhead Assigned to the Discharger (selling,
general, administrative, interest, R&D expenses, and depreciation on
common property)
 R

 CGS

 CO
                                 Three Most Recently Completed Fiscal Years

                              19	            19	            19	
$
$
$
$
$
$
$
' $
$
(1)
(2)
(3)
EBT [ (1) - (2) -(3) ]
                                                                    (4)
Considerations: Have earnings before taxes changed over the three year period? If so, what would a
"typical" year's EBT be? Please explain below.

-------
                             Worksheet H, Continued

B. Earnings With Pollution Control Project Costs


                           EWPR  = EBT - ACPR
Where:       EWPR =     Earnings with Pollution Control Project Costs
             EBT =       Earnings Before Taxes (4)
             ACPR =      Total Annual Costs of Pollution Control Project [Worksheet G, (5) ]
                                                 19	*

                     EBT (4)                      $           (5)
                     ACPR [Worksheet G, (5)]       $           (6)
                     EWPR [ (5) - (6) ]             $          (7)
* The most recently completed fiscal year
Considerations: Is the discharger expected to have positive earnings after paying the annual cost of
pollution control?    D Yes     D No
Additional Comments:

-------
                                    Worksheet I

                            Calculation of Profit Rates
                With and Without Pollution Control Project Costs
A. Profit Rate Without Project Costs

                                 PRT = EBT -s- R
Where:
PRT
EBT
R =
Profit Rate Before Taxes
Earnings Before Taxes
Reveneus
EBT [Worksheet H, (4)]

R [Worksheet H, (1)]


PRT = Calculate: [(l)/(2)]
                                 Three Most Recently Completed Fiscal Years
                                 19
                                      19
                                           19
                                                                     0)

                                                                     (2)


                                                                     (3)
Considerations: How have profit rates changed over the three years?
Is the most recent year typical of the three years?   D  Yes   D No
(If not, you might want to use an earlier year or years for the analysis)

How do these profit rates compare with the profit rates for this line of business"? Please discuss
below.

-------
                               Worksheet I, Continued


B. Profit Rate With Pollution Control Costs


                                PRPR = EWPR + R
Where:        PRPR =  Profit Rate With Pollution Control Costs
              EWPR =  Before-Tax Earnings With Pollution Control Costs
              R =     Reveneus
                                                       The Most Recently
                                                          Completed
                                                          Fiscal Year

                                                            19	

            EWPR [Worksheet H, (7)]                $                    (4)
            R [Worksheet H, (1)]                     $                    (5)
            PRPR [Calculate: (4)/(5)]                                      (6)
Considerations:

What is the percentage change in the profit rate due to pollution control costs ? Calculate as follows:
(PRPR  - PR)/PR x 100
How does the profit rate with pollution control compare to the profit rate of this line of business?

-------
Moody's Industrial Manual, Dun  & Bradstreet's Industry
Norms  and  Key  Business Ratios, Standard &  Poor's
Industry Surveys, or Robert  Morris's Annual Statement
Studies.  If the discharger's ratio compares favorably with
the median or upper quartile  ratio for similar businesses,
the discharger is considered to be financially healthy.  A
typical  income  statement, like those found  in  Moody's
Industrial Manual, has been included in Exhibit 3-1.  The
appropriate data have been underlined.

   Although  complicated, the  analysis should  consider
whether the discharger or firm would be able to raise  its
prices in order to cover some or all of the pollution control
costs.  In such  a case, revenues increase and earnings fall
by an amount less than the costs of pollution control.  The
degree to which the discharger is able to raise prices is
difficult to  predict,  and  depends  on  many factors.
Considerations  should include the level of competition in
the industry,  the likelihood of competitors' facilities facing
similar project  costs, and the  willingness of consumers to
pay more for the product.

3.2.b  Secondary Measures

   The following secondary  measures  provide additional
important  information about  the  financial  health  of the
discharger.   All primary and  secondary measures will  be
included in the analysis.  -It is not sufficient to conclude
that  the discharger will  be  unprofitable  after pollution
control investments. In addition, the applicant should feel
free to  include  any  additional  information about  the
discharger's financial health that they feel is relevant.

   Liquidity

   Liquidity  is a measure of how easily a discharger can
pay its  short-term bills.   One measure of liquidity is the
Current Ratio, which compares current assets  with current
liabilities.  Current assets include cash and other assets that
are or could  reasonably be converted into cash during the
current year.   The following items are considered to  be
current assets:
Economic Guidance for Water Quality Standards
3-16

-------
                                                    .Exhibit 3-1

XYZ, INC.
CONSOLIDATED
STATEMENTS OF
INCOME AND
RETAINED EARNINGS
(DEFICIT)
FOR THE YEARS ENDED SEPTEMBER 30,  1988, 1987, 1986
                                                                   1988
                                  1987
1986
Nat sales
Cost of sales
Gross profit
Setting, general and administrative expenses
Income from operations
Other income (deductions)
Interest income
Interest expense
Other investment income - net
Miscellaneous
Total other income (deductions) - net
Income before income taxes
Provision for income taxes
Net income
Retained earnings, beginning of year
Stock dividend
Cash dividend ($.11 per share, 1988; $.08 per
share, 1987; $.06 per share, 1986)
Common stock acquired and retired
Retained earnings (deficit), end of year
Weighted average number of shares outstanding
Earnings per common share
35.981 .363
6,408,594
3.957.771
2,450,823
441,891
(10,985)
55.066
485.972
4,936,795
1,139.118
1,797,677
1,157,528
(2,610,888)
(391,960)
(2591)
$ (50.234)
3593,048
$50
$#,294,962
26.405.930
6,889,032
3.876.206
3,012,826
347,613
(22,513)
48.660
373,760
3356,586
i.620.012
1,766,574
1,726,292
(1,952,645)
(300,693)
(82.000)
S 1.157.528
3,630,652
f.49
24.972.185
5,758,583
3.824.226
1,934,357
362,295
(46,467)
134,690
93,654
544.172
1.150,949
1,327,580
1,983,007
(1,365,590)
(218,705)
$ 1,726,292
3.637,798
$.36
See accompanying Notes to Financial Statements
INDEPENDENT
AUDITORS'
REPORT
To the Shareholder* of XYZ, Inc.:

 We have audited the consolidated balance sheets of XYZ, Inc. at September 30,
1988 and 1987, and the related consolidated statement* of income and retained
earnings (deficit), and cash flows for each of the three yean in me period ended
September 30, 1988. These financial statements arc the responsibility of the
Company's management  Our responsibility is to express an opinion on these
financial statements  based on our audits.

 We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements ue free of material
misstatement An audit include* examining, on a test basis, evidence supporting
the amounts and disclosures in the  financial statements.  An audit also includes
assessing the accounting principles  used and significant estimates made by
management, as well as evaluating  the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

 to our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the  financial position of the companies at
September 30, 1988 and 1987, and the results of their operations and their cash
flows for each of the three years in the period ended September 30, 1988 in
conformity with generally accepted accounting principle!.
DELOITTE HASKTNS * SELLS
Mmneapolii, Minnesota
December 5, 1988

-------
   •   Inventories — finished products, products in the
       process  of being  manufactured,  raw  materials,
       supplies, fuels, etc.;

   •   Prepaid expenses — expenses paid in advance of
       use such as prepaid rent;

   •   Short-term  investments  —  savings  accounts,
       certificates of deposit;

   •   Accounts receivable;

   •   Marketable securities; and

   •   Cash.

Likewise, current liabilities are items that  must be paid
within the  current  year.    The following  items  are
considered to be current liabilities:

   •   Accounts payable — purchases of goods for resale
       and services  received in  the normal  course of
       business;

   •   Wages payable;

   •   Short-term notes  payable  — any  debt initially
       incurred and due in the current year;

   •   Accrued expenses  — expenses that have  been
       incurred but have not yet  been paid at the end of
       the accounting period;

   •   Taxes; and

   •   Current portion of any long-term debt.

A more stringent test is the Quick Ratio, also known as the
Acid  Test,  which   compares  current  assets  without
inventories to  current  liabilities.  It  does not include
inventories since they may take time to convert to cash and

Economic Guidance for Water Quality Standards
3-18

-------
may be valued on the discharger's books for more than
they could be sold.

   The Current Ratio should be calculated for each of the
last  three  full fiscal  years  for  which  there  are  data.
Comparing ratios for three years will identify any trends
that  are developing and will ensure that the most recent
year is not an unusual year that might distort the results of
the analysis.

   The  Current Ratio is  calculated by  dividing current
assets by current liabilities.
          Current Ratio =
  Current Assets
Current Liabilities
The Current Ratio can be calculated using Worksheet J.
The general rule is that if the Current Ratio is greater than
2,  the  entity  should  be  able  to  cover its short-term
obligations.   Frequently,  lenders  require this  level  of
liquidity as a  prerequisite for lending.  While a Current
Ratio of greater  than  2  indicates that  the entity can
probably cover its short-term obligations,  the impact of a
major capital  investment such  as  the  pollution control
project must be judged in conjunction with the other three
financial tests  described in this guidance.

   In addition, this rule (Current Ratio  > 2) may not  be
appropriate for all types of private  entities covered  by
Water Quality  Standards.    The Current Ratio  of the
discharger in question should be compared with ratios for
other dischargers in the same line of business. It may not
be  possible, however, to compare  the  discharger's  ratio
directly  with  other  similar  dischargers because  this
information frequently is unavailable at the facility level or
is  considered  confidential.   In cases where  a direct
comparison cannot be made, the discharger's Current Ratio
should  be  compared  with the ratio for  firms  that
concentrate in similar businesses. If the discharger's ratio
compares favorably with the median or upper quartile ratio
for similar businesses, it should be able  to cover it's  short
Economic Guidance for Water Quality Standards
                                                  3-19

-------
                                      Worksheet J

                           Calculation of The Current Ratio


                                    CR  = CA -s- CL
Where:        CR =  Current Ratio
              CA =  Current Assets (the  sum  of inventories,  prepaid  expenses,  and  accounts
                     receivable)
              CL =  Current Liabilities (the sum of accounts payable, accrued expenses, taxes; and
                     the current portion of long-term debt)
                                    Three Most Recently Completed Fiscal Years

                               19	                 19	                19_

CA

CL


CR [Calculate: (l)/(2)]
$
$
$
$
$
$
(1)
(2)

II II 1 II l»
Considerations:

Is the most recent year typical of the three years?   D Yes  D  No
(If not, you might want to use an earlier year or years for the analysis)

Is the Current Ratio (3) greater than 2.0?  D Yes   D No

How does the Current Ratio (3) compare with the Current Ratios for other firms in this line of business?

-------
term  obligations.    Among the  sources  that  provide
comparison  information are:  Robert Morris Associates'
Annual Statement Studies, Moody's Industrial Manual, and
Dun and Bradstreet's Dun's Industry Norms.  The Annual
Statement Studies and  Dun's  Industry  Norms  provide
composite  statistics  for   firms  grouped  by  different
manufacturing  and  service  industries.   The Moody's
Industrial Manual provides detailed financial information
on individual firms.  Pages from both of these sources are
displayed in Exhibits 3-2 and 3-3, with the appropriate data
indicated.

   Solvency

   Solvency is a measure of an entity's ability to meet its
fixed and long-term obligations.  These obligations are bills
and  debts that  are owed on a  regular basis for periods
longer than one year. Solvency tests are commonly used
to predict financial problems that could lead to bankruptcy
within the next few years.  Since any single year of data
can easily be distorted by unusually high or low net income
or by the timing of debt, solvency tests must be considered
over at least three years of data in order to reveal  long-
term trends.

   As with  liquidity,  there are several possible tests for
solvency. One commonly used solvency test (called Times
Interest Earned) compares income before interest and taxes
to interest expenses.  Another solvency test, the Beaver's
Ratio, compares cash flow to total debt. This test has been
shown  to  be  a   good  indicator  of the  likelihood of
bankruptcy.
             Beaver /s Ratio =
Cash Flow
Total Debt
   The Beaver's Ratio can be calculated using Worksheet
K.  Cash Flow is a  measure of the cash the entity has
available to it in a given year.  Since depreciation is an
accounting cost  - a  cost that  does not use any currently
Economic Guidance for Water Quality Standards
                                             3-21

-------
                                                                Exhibit 3-2
                          MANUFACTURERS • GAMES, TOYS & CHILDREN'S VEHICLES; EXCEPT DOLLS & BICYCLES.  «ic t 3944
           Comparative Hiatorioal Data
                                                          Currant Data Sorted by Sato.
i;
11
2
17
4/1/80-
3/31/81
ALL
47
%
7.1
27.0
31.6
2.1
68.1
18.2
4.2
8.6
1OO.O
16.4
3.4
11.7
.7
8 1
40.3
13.2
1.2
2.6
42.4
100 0
10O.O
36.6
28.E
6.8
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3 7
' ?.*
Vt
: t£
1.4
.8
e
3A 10.6
66 6.6
8E 4.3
62 6.9
104 3.6
146 2 6
21 17.0
28 12.4
60 7.3
3.8
7.6
7.1
1441 2.4
1.O
8.9
(23) 2.8
.2
.6
.8
.8
2.0
3.0
34.8
I4EI 16.2
-1.1
11.7
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20.1
8.8
6.E
2.1
1.6
1.1
(36} 2.1
2.8
1.8
(12) 4.3
1 63766 1M
18
21
7
1
20
4/1/81-
3/31(82
AU.
es
%
8.8
30.8
30.4
1.8
72,1
17.6
3.7
6.7
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12.6
2.3
13.1
.8
8.0
38.0
13.4
.E
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42.8
10OO
1OO.O
37.2
28.3
7.8
1.8
6 1
. ' . ,..?**
• \ ""»»
'; 1,S
1.7
1.1
7
31 11.6
48 7.4
•B 4.3
66 6.6
86 4.3
162 24
21 17.7
27 13.3
47 7.8
3.4
6.2
10.8
10.1
(66) 3.4
1.6
134) 13.3
3.3
.2
.4
.8
.8
1.6
3.3
B2.8
(BE) 26.1
7.0
20.6
10.8
1.8
44.3
1B.6
7.3
2.6
2.O
1.6
.8
(611 1.7
3.3
2.4
(231 4.1
8.E
1883467M
1168O8BM
1
18
24
14
18
4/1/82-
3/31/83
ALL
76
%
7.2
31.8
3B.3
1.7
78.1
16.7
3.1
4.1
10O.O
14.0
3.0
14.6
.6
11.1
43.2
12.2
.4
3.E
40.6
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36.0
30.2
6.8
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4 g
. .- '' ' '•'«*
. • •• :.. . : IJr
• '•• •••*,»
1.4
.8
e
34 10.8
66 6.E
•6 4.3
63 6.8
84 3.8
146 2 6
18 20.1
30 12.3
• 1 6.0
3.3
6.3
13.8
8.0
168) 3.6
1.6
(24) 13.1
2.8
1.2
.1
.6
1.0
1.0
1.8
3.3
38.8
(70) 22.8
4.6
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7.6
1.6
3E.8
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7.6
2.6
2.0
1.6
.7
161) 1.6
2.8
2.7
130) 4.6
7.8
1840680ft
11388B8M
* Poatratiramant Banafita
Typa of Statamant
Unqualified
Reviewed
Compiled
Tax Returns
Other
NUMBBt OF STATEMENTS
ASSETS
Caah & Equivalents
Trada Raceivablaa - (nat)
Inventory
All Other Currant
Total Currant
Fixed Aaaata (net)
Intangibles (nat)
All Other Non-Currant
Total
U ABILITIES
Notes Payable Short-Term
Cur. M.t.-UT/D
Trade Payable*
Income Taxes Payable
All Other Current
Total Currant
Long Term Debt
Deferred Taxes
All Other Non-Current
Net Worth
Total liabilities and Net Worth
INCOME DATA
Net Sale*
Groaa Profit
Operating Expenaes
Operating Profit
All Other Expenses (net)
Profit* Before Taxes
; •' -:-.. «wnoa
.' Y • . -Buna*
Quick
Salea Receivables
Coat of Salea/lnvantory
Cost of Sales/Payable*
Sales/Working Capital
EBrT/lnterest
Net Profit + Depr.. Dap..
Amort./Cur. Mat.UT/D
Fixed /Worth
Debt/Worth
% Profit Before Taxes/Tangible
Net Worth
K Profit Before Taxes/Total
Aasats
Sales/Net Faced Aeeacs
Salea/Total Aaaets
% Depr., Dap., Amort ./Sales
% Officers', Directors',
Owners' Comp/Selas
Net Sates l«)
Total Assets (t)
1 3
3 6
2 B
17(4/1/-»V30/92)
0-1MM 1-Smm
• 13
% %
7.4
24.6
47.4
.6
78.8
16.1
1.8
2.3
100.0
13.8
4.6
14.6
.6
6.6
38.8
1B.E
.1
2.2
43.4
100.0
100.0
36.6
28.8
B.7
1.1
4 6
' **
i.3
•.*,*'
1.7
.6
.E
14 2E.2
S7 10.0
78 4.7
78 4.6
12« 2.8
1*6 2.2
10 38.1
27 13.3
40 8.1
2.6
4.4
14.0
6.8
(121 1.8
.8
4
7 10
3
2
68 110/1/82-3/31/83)
3-6MM 6-10MM
• 17
% %
13.3
32.0
31.0
2.2
78.6
14.4
2.2
4.8
100.0
12.3
3.6
12.0
.6
10.8
38,2
8.4
.6
2.1
48.8
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100.0
33.6
28.2
6.3
.4
4.8
*»
1,*
'"*£
2.0
.8
.6
31 1 1 .8
•6 6.6
•8 4.1
43 8.6
78 4.7
14O 2.6
12 30.2
22 16.4
33 11.0
3.0
6.6
11.6
8.2
114) 4.6
1.3
4
2
1
1
10-26MM
8
%




M
72
88
•8
•6
118
28
38
M
•
(21)
11
1
2
8
26MM * OVBt
22
%
6.8
36.0
28.3
2.7
72.7
17.2
6.4
4.7
100.0
11.8
.7
16.E
.7
11.8
41.7
11.8
.8
1.7
44.3
100.0
100.0
36.8
28.6
7.2
1.8
6.3
**
r x
M.
1.C
.7
6.6
6.1
3.7
6.4
4.3
3.1
12.6
8.4
6.E
3.3
6.1
, . J6.P-..
14.6
4.3
2.8

.1
.4
1.2
.7
1.6
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61.2
8.2
-2.8
21.1
3.3
-.8
64.6
36.8
8.6
2.8
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1.7
.4
(11) .8
2.6
.1
.3
.7
.6
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6.6
42.8
(16) 27.4
3.2
18.6
0.6
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42.7
16.1
7.3
2.6
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1.6
.8
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2.9


(211




.2
.6
1.0
.7
1.7
«••
37.8
27.8
17.2
14.2
8.2
3.8
21.4
11.2
7.2
2.1
1.8
1.4
1.4
2.e
3.2

3283M 27202M
1848M 13736M
38782M 116678M
20040M 727E7M
116773M
62873M
164O862M
B746S8M
• Robert Morns Associates 1893
         M = (thousand  MM - (million
See Pases 1 through IB for Explanation of Ratios and Data

-------
                                   Exhibit 3-3
-XYZ, we.
CONSOLIDATED
BALANCE
SHEETS
SEPTEMBER 30, 1988 AND 1987

ASSETS Current Assets:
Cash and cash equivalents
Cash investments
Trade receivables - less allowance for doubtful
accounts: 1988, $85,352; 1987, $135,353
Inventories
prepaid expenses and other
Total current attete
Property, Plant and Equipment:
Land
Buildings and Improvements
Machinery and equipment
Transportation equipment
Office furniture and equipment
Total
Less accumulated depreciation
Property - net
Other Assets:
Intangible assets - less accumulated amortization:
1988, $197,437; 1987, $239,281
Insurance trust
Other
Total other assets
Total
LIABILITIES AND Current Liabilities:
SHAREHOLDERS' Current portion of long-term debt
EQUITY Accounts payable - trade
Accrued income taxes
Accrued payroll and employee benefits
Container deposits
Other accruals
Total eun*« liabilities
Long-term debt
Deferred income taxes
Shareholders' Equity:
Common stock - authorized 4,000,000 shares of $.05
par value, issued: 1988, 3,592,673; 1987,
3,268,337
Additional paid-in capital
Retained earnings (deficit)
Total shareholders' equity
Total
Sec accompanying Notes to Financial Statements
1988
$ 2,944,964
2,244,061
5,025,964
4,109,264
725.964
15,050,217
356,217
5,476,155
2,160,671
1,866,005
463.750
10,322,798
4.705580
5,617,218
226,728
1,122,796
89.287
1,438,811
$22.106.246
$ 17,902
5,049,234
681^69
' 1,054,373
198.477
7,001,355
53,706
249,900
179,634
14,671,885
(50.234)
14,801,285
$22.106.246
1987
$ 1,459,475
3,369,289
4,171,421
3,335,251
122.370
I£,45?,*06
296,217
4,837,392
1,546,476
1,705,107
483.769
8,868,961
4,207.598
4,661,363
252,884
1,066,964
77.778
1,397,626
$18.516.795
$ 32,405
2,686,669
21,400
678,752
1,199,263
178.736
xmjaa
71,608
242,200
163,417
12,084,817
1.157.528
13,405,762
$18.516.795

-------
available  revenues -  it is added  back to reported net
income after taxes to get cash flow. Total debt is equal to
the current  debt for the current year plus the long term
debt, since current debt includes that part of long-term debt
that is due in the current year.

   If the Beaver's Ratio is greater than 0.20 the discharger
is considered  to be solvent (i.e.,  can  pay its long-term
debts).  If the ratio is less than 0.15 the discharger may be
insolvent  (i.e., go  bankrupt). If the ratio is between 0.15
and 0.20,  then  future  solvency  is  uncertain.   The
discharger's Beaver's Ratio should  be compared  with the
ratios  of  similar dischargers.  However,  as with  other
ratios, it may  not be possible to compare the discharger's
ratio  directly  with other similar dischargers.   In  cases
where  a  direct  comparison  cannot  be  made,  the
discharger's Beaver's Ratio should  be compared with that
of  firms  that  concentrate  in  similar  businesses,   using
information from income accounts  and balance sheets in
Moody's  Industrial Manual.   If  the  discharger's  ratio
compares favorably with similar businesses, it should be
able to meet its fixed and long term obligations. A typical
balance sheet and income statement have been included in
Exhibits  3-4  (for  calculating  total debt)  and 3-5 (for
calculating cash flow).  The appropriate data from them has
been underlined.

    Leverage

    Leverage tests measure the extent to  which a firm
already has fixed  financial obligations and thus indicate
how much more money a firm is  capable of borrowing.
Firms that rely heavily on debt may find  it difficult and
expensive to borrow additional funds. Most leverage tests
compare equity to some measure of debt or fixed assets.
The Debt to  Equity  Ratio is  the  most commonly used
method of measuring leverage.  Unlike the ratios discussed
above, the debt to equity ratio cannot be easily calculated
for a single facility;  it  must  be calculated for the  firm,
since it is usually the  firm, not the facility, that borrows
money.   The ratio measures how much the firm has
borrowed (debt) relative to the amount  of capital which is
Economic Guidance for Water Quality Standards
3-24

-------
                                     Worksheet K
                            Calculation of Beaver's Ratio

                                   BR =  CF -5- TD
Where:              BR = Beaver's Ratio
                    CF = Cash Flow
                    TD = Total Debt

                                Three Most Recently Completed Fiscal Years
                               19	              19	             19	
Cash Flow:
   Net Income After Taxes   $	    $	    _$	    (1)
   Depreciation             $                  . $                  $                 (2)
   CF [Calculate: (1) + (2)]  _$	    _$	    _$	    (3)

Total Debt:
  Current Debt             $	    $	     $	    (4)
  Long-Term Debt          $                  $	     $	    (5)
  Total Debt               $                  $                  $                 (6)
Beaver's Ratio:
  BRK3)/(6>1             I	I    »              a   L_	I    OT
Considerations:
Is the most recent year typical of the three years?   D Yes   D No
(If not, you might want to use an earlier year or years for the analysis)
Is the Beaver's Ratio for this discharger greater than 0.2?  EH Yes  D No
Is the Beaver's Ratio for this discharger less than 0.15? D Yes   D No
Is the Beaver's Ratio for this discharger between 0.2 and 0.15?  D Yes   D No
How does this ratio compare with the Beaver's Ratio for other firms in the same business?

-------
                                        Exhibit 3-4
XYZ, INC.
CONSOLIDATED
BALANCE
SHEETS
SEPTEMBER 30, 1988 AND 1987
ASSETS
LIABILITIES AND
SHAREHOLDERS'
EQUITY

Current Assets:
Cash and cash equivalents
Cash investments
Trade receivables - less allowance for doubtful
accounts: 1988, $85,352; 1987, $135,353
Inventories
prepaid expenses and other
Total current assets
Property, Plant and Equipment:
Land
Buildings and Improvements
Machinery and equipment
Transportation equipment
Office furniture and equipment
Total
Less accumulated depreciation
Property - net
Other Assets:
Intangible assets - less accumulated amortization:
1988, $197,437; 1987, $239,281
Insurance trust
Other
Total other assets
Total
Current Liabilities:
Current portion of long-term defer
Accounts payable - trade
Accrued income taxes
Accrued payroll and employee benefits
Container deposits
Other accruals
Total current liabilities
LoflfrtCT^t&fo
Deferred income taxes
Shareholders' Equity:
Common stock - authorized 4,000,000 shares of $.05
par value, issued: 1988, 3,592,673; 1987,
3,268,337
Additional paid-in capital
Retained earnings (deficit)
Total shareholders' equity
1988
$ 2,944,964
2,244,061
5,025,964
4,109^64
725.964
15,050,217
356,217
5,476,155
2,160,671
1,866,005
463.750
10,322,798
4.705.580
5,617,218
226,728
1,122,796
89087
1,438,811
$22.106.246
*•"-«£»
5,049,234
681369
1,054^73
198.477
7,001,355
1&JK6
249,900
179,634
14,671,885
(50.234)
14,801^85
1987
$ 1,459,475
3,369,289
4,171,421
3,335,251
122.370
12,457,806
296,217
4,837,392
1,546,476
1,705,107
483.769
8,868,961
4,207,598
4,661,363
252,884
1,066,964
1,397^626
$18.516.795
*;*»»*»
2,686,669
21,400
678,752
1,199,263
178.736
4,797,225
71,60?
242,200
163,417
12,084,817
1.157.528
13,405,762
                      Total

                   See accompanying Notes to Financial Statement!
$18.516.795

-------
                                                      Exhibit 3-5
XYZ, me.
CONSOLIDATED
STATEMENTS OF
INCOME AND
RETAINED EARNINGS
(DEFICIT)
FOR THE YEARS ENDED SEPTEMBER 30, 1988, 1987, 1986
                                                                   1988
                                   1987
1986
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Income from operations
Other income (deductions)
Interest income
Interest expense
Other investment income - net
Miscellaneous
Total otter income (deductions) - net
Income before income taxes
Provision for income taxes
KetiwxwrK!
Retained earnings, beginning of year
Stock dividend
Cash dividend ($.11 per share, 1988; $.08 per
share, 1987; $.06 per share, 1986)
Common stock acquired and retired
Retained earnings (deficit), end of year
Weighted average number of shares outstanding
Earnings per common share
$42,389,957
35.981363
6,408,594
3.957.771
2,450,823
441,891
(10,985)
55.066
485.972
2,936,795
1.139.118
!»TS>7,«77
1,157,528
(2,610,888)
(391,960)
(2591)
$ (50.234)
3,593,048
$.50
$33,294,962
26,405.930
6,889,032
3.876.206
3,012,826
347,613
(22,513)
48.660
373.760
3,386,586
1.620.012
j,7«^?4
1,726,292
(1,952,645)
(300,693)
f82.000)
$ 1.157.528
3,630,652
£.49
$30,730,768
24.972.185
5,758,583
3.824.226
1,934,357
362,295
(46,467)
134,690
93.654
544.172
2,478,529
1.150.949
M27.580
1,983,007
(1,365,590)
(218,705)
$ 1,726.292
3.637,798
$.36
See accompanying Notei to Financial Statements
INDEPENDENT
AUDITORS'
REPORT
To the Shareholder! of XYZ, Inc.:

  We have audited the consolidated balance iheett of XYZ, Inc. at September 30,
1988 and 1987, and the related consolidated natemenu of income and retained
earnings (deficit), and cash flows for each of the three yean in die period ended
September 30, 1988. These financial statements are the responsibility of the
Company's management.  Our responsibility it to express an opinion on these
financial statements baaed on our audits.

  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform me audit to obtain
reasonable assurance about whether the financial statements are free of material
miaftatemenL An audit includes examining, on a teat basis, evidence supporting
the amounts and disclosures in the financial statements. An audit alto includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe mat our audits provide a reasonable basis for our opinion.

  In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of the companies at
September 30, 1988 and 1987, and the remits of their operations and their caab
flows for each of the three yean in the period ended September 30, 1988 in
conformity with generally accepted accounting principles.
DELOITTE HASIONS A SELLS
Minneapolis, Minnesota
December 5, 1988

-------
owned by its -stockholders (equity).  Since values for the
Debt to Equity Ratio vary widely by the type of enterprise,
the ratio should be compared wittt the ratio for firms in
similar lines  of business.    The ratio also should be
calculated with at least three years of data.

   The Debt  to Equity  Ratio is equal to  Long-Tenn
Liabilities (long-term debt such as bonds, debentures, and
bank debt, and all other noncurrent liabilities like deferred
income taxes)  divided by Owners' Equity. Owner's Equity
is the  difference between total assets and total liabilities,
including contributed or  paid in capital  and  retained
earnings.  For publicly held firms, use  Net Stockholders
Equity (which is the equivalent of Total Stockholder Equity
minus  any Treasury  Stock).
      Debt/Equity Ratio  =
                                -Term Liabilities
                              Owners / Equity
The  Debt  to  Equity  Ratio  can  be calculated using
Worksheet L.   Since there are no  generally accepted
Debt/Equity  Ratio  values  that  apply to  all  types of
economic activity, the ratio should be compared with the
ratio  of firms in similar businesses.  If the entity's ratio
compares favorably with the median or upper quartile ratio
for  similar  businesses, it  should  be able  to  borrow
additional funds.  These ratios can be calculated using data
in Robert  Morris Associates' Annual Statement Studies,
Moody 's Industrial Manual, and Dun & Bradstreet's Dun 's
Industry Norms.   Pages  from these  sources have been
included in Exhibits 3-6 and 3-7,  with the  appropriate data
indicated.

   For entities with  special sources of funding, leverage is
not an appropriate measure of their ability to raise capital.
Examples  are agriculture and affordable  housing, where
special loan programs may be available. In these cases, an
analysis  of the probability that the project would receive
this money is appropriate.
Economic Guidance for Water Quality Standards
3-28

-------
                                      Worksheet L
                                  Debt to Equity Ratio
                                  DER =  LTL +  OE
Where:        DER =   Debt/Equity Ratio
              LTL =    Long-Term Liabilities (long-term debt such as bonds, debentures, and bank
                        debt, and all other noncurrent liabilities such as deferred income taxes)
              OE =     Owner  Equity (the  difference  between total  assets and  total liabilities,
                        including contributed or paid in capital and retained earnings)
                          Three Most Recently Completed Fiscal Years
LTL

OE
                        19
19
19
                                    0)

                                    (2)
DER
                                    (3)
Considerations:

Is the most recent year typical of the three years?   D Yes   D No
(If not, you might want to use an earlier year or years for the analysis)
How does the Debt to Equity Ratio compare with the ratio for firms in the same business?

-------
                                                                 Exhibit 3-6
                           MANUFACTURERS • GAMES. TOYS & CHILDREN'S VEHICLES; EXCEPT DOLLS & BICYCLES.  «IC * 3944
            Compar«tiva Historical Data






34
66
86
62
104
146
21
29
60

(44)
I23)


I46)



(36!
(12l

11
57
•4H/80
3/31/91
AU.
47
7.1
27.0
31.9
2.1
68.1
19.2
4.2
8.6
100.0
16.4
3.4
11.7
.7
8.1
40.3
2.B
42.4
100.0
36 .E
286
6.9
3.3
3.7
2.6
1.7
1.2
1.4
.8
- 	 6
10.6
6.6
4.3
6.9
3.6
2.6
17.0
12.4
7.3
3.9
7.6
17 6
7.1
2.4
1.0
8.9
2.8
.6
.2
.6
.8
.9
2.0
3.0
34.6
16.2
-1.1
11.7
6.6
-.4
20.1
a.e
6.6
2.1
1.6
1.3
1.1
2 1
2 8
1.8
4.3
6 7
1E37661M
1002333M
19
21
7
1
20
4/1/91-
3/31/92
ALL
68
8.8
30.9
30.4
1.9
72.1
17.6
3.7
6.7
100.0
12.6
2.3
13.1
.9
9.0
38.0
134
6.3
42.9
100.0
37.2
28.3
7.9
1.8
8.1
2.8
1.9
1.3
1.7
1.1
.7
31 11.6
49 7.4
86 4.3
66 6.6
86 4.3
162 2.4
21 17.7
27 13.3
47 7.8
3.4
6.2
10.8
10.1
168) 3.4
1.6
(34) 13.3
3.3
1.8
.2
.4
.8
.8
1.6
3.3
62.8
166) 26.1
7.0
20.E
10.8
1.9
44.3
16.8
7.3
2.6
2.0
1.6
.8
(91) 1.7
3.3
2.4
(23) 4.1
9.6
1883467M
11 6908 6M
1
19
24
14
18
4/1/92-
3/31/93
ALL
76
7.2
31.8
36.3
1.7
78.1
16.7
3.1
4.1
10O.O
14.0
3.0
14.6
.6
11.1
43.2
3.6
100.0
36.0
30.2
6.8
1.2
48
2.9
1.8
1.3
1.4
.8
•6
34 10.8
6* 6.6
86 4.3
63 6.8
94 3.9
146 2.6
18 20.1
30 12.3
61 6.0
3.3
8.3
13.8
9.0
169) 3.6
1.6
(24) 13 1
2.8
1.2
.1
.6
1.O
1.0
1.8
3.3
39.6
(70! 22.8
4.6
17.0
7.6
1.6
36.8
17.1
7.6
2.6
2.0
1.6
.7
(611 1.6
2.8
2.7
ISO) 4.6
78
1840680M
1136968M
f Poetretif ement Banefha
Type of Statement
Unqualified
Reviewed
Compiled
Tax Return.
Other
NUMBER OF STATEMENTS
ASSETS
Caah & Equivalent*
Trade Receivable. - (net)
Inventory
All Other Currant
Total Current
Fixed Aaeett (net)
Intangible* (net)
All Other Non-Current
Total
LIABILITIES
Note* Payable Short-Term
Cur. Mat.-L/T/D
Trade Payable*
Income T.axe* Payable
All Other Current
Total Current
Long Term Debt
All Other Non-Current
NetWorth
Total UabfflloJTncTlm Worth
INCOME DATA
Net Sale*
Gram Profit
Operating Expenea*
Operating Profit
All Other Expenaa* (net)
RATIOS
Currant
Quick
Sale* Receivable.
Coat of Salaa/lnventory
Coat of Salaa/Payable*
Salea/Working Capital
EBIT/lnteraat
Net Profit + Depr., Dap..
Amort./Cur. Mat.LT/D
Fixed/Worth
Debt/Worth
% Profit Before Taxea/Tanglble
NetWorth
% Profit Before Taxea/Total
Aaaeta
Salea/Net Rxed Aaaet*
Salea/Total Aaaet*
* Depr.. Dap., Amort./Sala.
% Officer.', Director.',
Owner*' Comp/Salea
Net Sale* I*)
Total Aaaata («)
1 3
3 6
2 6
1 7(4/1 /-9/30/92)
0-1MM 14mm
6 13
7.4
24.6
47.4
.6
79.8
16.1
1.8
2.3
10O.O
13.9
4.6
14.6
.6
6.6
38.8
2.2
43.4
10O.O
36.6
29.9
6.7
1.1
4.6
4.6
2.3
1.6
1.7
.6
.6
14 26.2
37 10.0
78 4.7
78 4.6
126 2.9
166 2.2
10 38.1
27 13.3
40 9.1
2.6
4.4
14.0
6.8
(12) 1.9
.8
7
2
3-4BMM





31
66
89
43
78
140
12
22
33

(14)
4 4
10 2
3 1
1
68(10/1/92-3/31/93)
6-10MM 10-26MM
17 8
13.3
32.0
31.0
2.2
78.6
14.4
2.2
4.9
12.3
3.6
12.0
.6
10.8
39.2
2.1
48.8
100.0
33.6
26.2
6.3
.4
4.9
2.8
1.9
2.0
.8
.6
11.9 66
6.6 72
4.1 99
8.6 68
4.7 86
2.6 118
30.2 2»
16.4 39
11.0 «6
3.0
6.6
11.6
9.2
4.6 (21)
1.3
11
1
2
8
26MM*iOVER
22
6.8
36.0
28.3
2.7
72.7
17.2
6.4
4.7
11.8
.7
16.6
.7
11.8
41.7
V7
100.0
36.8
28.6
7.2
1.8
2.8
1 -
1.,
1.0
6.6
6.1
3.7
6.4
4.3
3.1
12.6
9.4
6.6
3.3
6.1
16.0
14.6
4.3
2.9

.1
.4
1.2
.7
1.6
3.0
61.2
9.2
-2.8
21.1
3.3
-.8
64.6
36.8
9.6
2.9
2.0
1.7
.4
(111 .8
2.6


116)




.1
.3
.7
.6
1.1
6.6
42.8
27.4 (21)
3.2
18.6
9.6
1.6
42.7
16.1
7.3
2.6
1.8
1.6
.8
2.3
2.9
.2
.6
1.O
.7
1.7
2.6
37.9
27.8
17.2
14.2
8.2
3.9
21.4
11.2
7.2
2.1
1.9
1.4
1.4
2.6
3.2

3293M 27202M
1948M 13736M
M782M
2W46M
116678M 116773M
727E7M 62973M
164O962M
•74688M
• Boben Morni Araociatei 1993
                                             M > tthoueand  MM - (million
                                    See Pagea 1 through 16 for Explanation of Ratioa and Data

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                                  Exhibit 3-7
XYZ, inc.
CONSOLIDATED
BALANCE
SHEETS
SEPTEMBER 30, 1988 AND 1987
ASSETS
LIABILITIES AND
SHAREHOLDERS'
EQUITY

Current Assets:
Cash and cash equivalents
Cash investments
Trade receivables - less allowance for doubtful
accounts: 1988, $85.352: 1987. $135,353
Inventories
prepaid expenses and other
Total current assets
Property, Plant and Equipment:
Land
Buildings and Improvements
Machinery and equipment
Transportation equipment
Office furniture and equipment
Total
Less accumulated depreciation
Property - net
Other Assets:
Intangible assets - less accumulated amortization:
1988, $197,437; 1987, $239,281
Insurance trust
Other
Total other assets
Total
Current Liabilities:
Current portion of long-term debt
Accounts payable - trade
Accrued income taxes
Accrued payroll and employee benefits
Container deposits
Other accruals
Total current liabilities
Long 'tetjn debt
Deferred income taxes
Shareholders' Equity:
Common stock - authorized 4,000.000 shares of $.05
par value, issued: 1988, 3,592,673; 1987,
3,268,337
Additional paid-in capital
Retained earnings (deficit)
Total shareholder!;1 equity
Total
S« accompanying Notei to Financial Statements
1988
$ 2.944,964
2.244,061
5,025,964
4,109,264
725.964
15,050,217
356,217
5,476,155
2,160,671
1,866,005
463.750
10422,798
4.705580
5,617^18
226,728
1,122,796
89487
1,438,811
$22.106.246
$ 17,902
5,049434
681369
1,054373
198.477
7,001355
53,706
249,900
179,634
14,671,885
(50434)
14^01485
$22.106.246
1987
$ 1,459,475
3,369.289
4,171,421
3,335,251
122.370
12,457,806
296,217
4,837,392
1,546,476
1,705,107
483.769
8,868,961
4.207,598
4,661,363
252,884
1,066.964
_ ^77478
1,397,626
$18,516,795

$ 32,405
2,686,669
21,400
678,752
1,199,263
178.736
4,797.225
71,608
242,200
163,417
12,084,817
1.157.528
£MO$,?«2
$18.516.795

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3.3    Interpreting the Results

   The financial analysis should be used to determine if
there will be a substantial adverse impact on the applicant.
As indicated above, the Profit Test should be considered
first.   The Profit Test measures what will happen to the
discharger's earnings  if additional pollution control is
required.   If the discharger is making  a  profit now but
would lose money with the pollution  control,  then the
possibility  of  a total  shutdown  or the  closing  of  a
production line must be considered. Likewise in the case
of a proposed facility; if it would make money without the
pollution control but would make much less or even lose
money with it, then the development might not take place.
In either case, there is the chance that employment will be
lost  and  local  purchases  by  the discharger  reduced.
Whether  or  not  these   impacts  will  be  considered
widespread is addressed in  Chapter 4.

   There are several  more complicated  scenarios that all
involve making a judgement as to the likely impacts on the
discharger,   including  questions  of  the   timing of
compliance. For example, the Profit Test may indicate that
the applicant will continue to maintain profit levels typical
for its industry after compliance, but the Debt/Equity Ratio
may indicate that they will have trouble raising the required
capital through  debt.   This  problem may be solved by
giving them more time to meet the regulations (a variance),
so  that  they  can restructure  their  debt and/or  find
alternative sources of funds. In another case, the applicant
might argue that while they will still make money and be
able to raise the needed capital, they would alternatively
spend those funds on  an  expansion  which  would  have
resulted  in increased employment and income for the
community.  This is a more difficult situation to analyze,
and will depend on judgments about the relative importance
of water pollution control versus economic growth. These
issues are discussed in more detail in Chapter  4.

   Another possible scenario is that the  discharger may
shift to an  alternative economic activity (e.g., manufacture
another product or produce a different  crop).  While the
Economic Guidance for Water Quality Standards
3-32

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 applicant will not have gone out of business, this shift may
 result in reduced profits, employment, and purchases in the
 local community that must be considered.  In each case, it
 is important to take the entire picture presented by the four
 ratios into account in judging whether or not the discharger
 will  incur substantial impacts due to the cost  of the
 necessary pollution reductions.

    Using the guidance presented in this chapter,  applicants
 that feel they have demonstrated substantial impacts should
 proceed  to  Chapter  4: Determination  of  Widespread
 Impacts.   If  dischargers  are  not  able  to demonstrate
 substantial impacts, the entity must will  not be able  to
 justify water quality standards providing for less  protection
 than the fishable/swimmable goals of the Act, and will not
 be able to justify degradation  of high quality waters. If a
 group of dischargers within the community will experience
 the  substantial  impacts  resulting  from  meeting the
 fishable/swimmable   goals  of  the  Act  and   avoiding
 degradation of high quality waters, these impacts should be
 considered jointly  when assessing  whether  or not the
 impacts will be widespread.
Economic Guidance for Water Quality Standards
3-33

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      4. DETERMINATION OF WIDESPREAD IMPACTS

         The financial impacts of undertaking pollution controls
      could   potentially   cause  far-reaching   and  serious
      socioeconomic impacts.  If the financial tests outlined in
      Chapter  2 and  3 suggest that a  discharger (public  or
      private) or group of dischargers will have difficulty paying
      for pollution controls, then an  additional analysis must be
      performed to demonstrate that there will  be widespread
      adverse impacts on the community or surrounding area.
      There  are  no  economic  ratios  per  se  that  evaluate
      socioeconomic impacts. Instead, the relative magnitudes of
      indicators such as increases in unemployment, losses to the
      local economy, changes in household income, decreases in
      tax  revenues,  indirect effects on  other businesses, and
      increases in sewer fees for remaining private entities should
      be taken into account when deciding whether impacts could
      be considered  widespread.   Since EPA  does  not have
      standardized tests and benchmarks with which to measure
      these impacts,  the following guidance is provided  as  an
      example  of the types of  information that should  be
      considered when reviewing impacts  on the surrounding
      community.

         In certain circumstances, the information presented here
      may not adequately address all potential impacts.  At a
      minimum, however, the analysis must define the affected
      community (the geographic area where project costs pass
      through  to  the local  economy),  consider  the  baseline
      economic health of the community,  and finally evaluate
      how the proposed project will affect the socioeconomic
      well-being of the community.  Applicants should feel free
      to consider additional measures not mentioned here if they
      judge them to be relevant. Likewise, applicants should not
      view this guidance  as  a  check list.   In  all  cases,
      socioeconomic   impacts   should   not   be   evaluated
      incrementally,  rather, their  cumulative  effect on  the
      community should be assessed. More detailed guidance on
      the factors that should be considered when evaluating the
      socioeconomic  impacts to communities of meeting water
      quality standards is given below.
Economic Guidance for Water Quality Standards

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      4.1    Define Helevant Geographical Area

         One important factor in determining the magnitude of
      these impacts is defining the geographical area in which
      they occur.  In  some cases, one community's loss may be
      another community's gain, as in the case of a plant moving
      to another community.  In the case of municipal pollution
      control projects, the affected community is most often the
      immediate municipality.  There are, however, exceptions
      where the  affected community includes  individuals and
      areas outside the immediate community.   For example, if
      business activity in the region is concentrated in a nearby
      community and not in the immediate community, then the
      nearby community may also be affected by loss of income
      in the immediate community and should be included in the
      analysis.  If business activity of the region is concentrated
      in the immediate community, then outlying  communities
      dependent   upon   the   immediate   municipality   for
      employment, goods,  and services should also be included
      in the analysis.  Similarly, if a large number of workers
      commute  to an  industrial facility  that  is  significantly
      affected by the  costs, then the affected community should
      include the home communities of commuters as well as the
      immediate community.

         The relevant  geographic  area   for  evaluating  the
      socioeconomic  effects  of compliance by private entities
      varies with each situation. For impacts from actions by a
      private entity, the area will typically be determined by the
      area in which the  majority of its workers live and where
      most of the businesses that depend on it are located. There
      are  no simple rules for defining the relevant  area  or
      community; the decision is based on the judgement of the
      discharger and  state, subject  to EPA review.

      4.2    Determine Whether  Impacts are  Widespread:
             Public-Sector Entities

         In demonstrating  that impacts  will be substantial, the
      applicant will  have  shown  mat compliance with water
      quality standards would be burdensome to the community.
      To demonstrate that  impacts will also be widespread, the
Economic Guidance for Water Quality Standards
4-2

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      applicant   must  examine  the   estimated  change  in
      socioeconomic  conditions  that  occur  as  a  result  of
      compliance.

         There are no explicit  criteria by  which to evaluate
      widespread impacts.  It is recommended, however, that
      changes in the  socioeconomic indicators listed below  be
      considered.  For each indicator listed, the applicant should
      estimate   the   potential   change  from precompliance
      conditions  if the  community were to  adopt  pollution
      controls.

         •   Median Household Income;
         •   Community Unemployment Rate;
         •   Overall Net Debt as a Percent of Full Market Value
             of Taxable Property;
         •   Percent of Households Below Poverty Line;
         •   Impact on Community Development Potential; and
         •   Impact on Property Values.

      Precompliance estimates of the first three indicators  were
      considered in Chapter 2 in the Secondary Test.  Estimated
      changes should be described qualitatively in Worksheet M.
      Depending on the size and type of impacts on  industrial
      and commercial discharges, these estimated changes may
      be relatively large  or  small.  In addition to changes in
      income,  unemployment, and debt, affected communities
      may be faced with impaired development opportunities if
      pretreatment requirements or significantly higher user fees
      are  imposed by the POTW.   The  municipality  should
      therefore assess the potential for the loss of future jobs and
      personal income to the community if businesses would
      chose  not  to  locate  in  the affected community.   The
      potential for impaired development opportunities  can  be
      judged, in part, by comparing post-compliance costs to
      costs in neighboring communities.  The cost of pollution
      control may also have an adverse effect on property values.
      Where property taxes are used  to finance the project,
      property values may  fall in  response  to  higher taxes.
      Similarly, if the project will be financed through user fees,
      demand  for property  in  the community may  fall, thus
      decreasing the value of property in the community.
Economic Guidance for Water Quality Standards
4-3

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                             Worksheet M

             Qualitative Description of Estimated change
                      in Socioeconomic Indicators
                     due to Pollution Control Costs
Estimated change
in Median
Household
Income (MHI)
Estimated change
in the
unemployment
rate
Estimated change
in overall net debt
as a percent of
full market value
of taxable
property
Estimated change
in % of
households below
the poverty line
Impact on
commercial
development
potential
Impact on
Property Values

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         The  extent  to  which  estimated  changes  can  be
       interpreted as  significant,  however, will  depend on the
       health of the community before compliance. It is therefore
       not  possible   to  identify  acceptable  or  unacceptable
       estimated changes for each indicator.  For example,  if
       Community XYZ  were  determined  to be in  a weak
       condition before compliance.  As defined in Chapter 2, but
       the evaluation of widespread impacts suggests that all of the
       indicators listed above  will remain virtually unchanged,
       then  widespread impacts  have  not been demonstrated.
       Alternatively,  if Community XYZ were very healthy, the
       estimated change in the indicators listed above would have
       to be very large in order for widespread impacts to occur.

         In  addition, there  may be  secondary  impacts (not
       captured  by the  primary and  secondary tests)  to the
       community.  Secondary  impacts might include depressed
       economic activity  in a community resulting  from loss of
       purchasing power by  persons losing  their  jobs  due to
       increased user fees.  The next section describes secondary
       impacts in greater  detail.

       4.3    Determine Whether Impacts  are Widespread:
             Private-Sector Entities

         If the financial tests  suggest that  a private entity or
       group of entities will have difficulty paying  for pollution
       controls, then an additional analysis must be  performed to
       demonstrate that there will be  widespread adverse impacts
       on the community  or  surrounding area.   The  current
       economic condition of the affected community and the role
       of the affected entities within the community should first be
       considered  when   determining  whether   the  affected
       community will be able to absorb the impacts  of reduced
       business activity or closures.  Through property taxes and
       employment, the entity(ies) may be a key contributor to the
       economic base of  the  affected  community.   In  this
       situation, reductions in employment caused by  compliance
       with  the  water quality standards could be widespread  if
       workers have no other employment opportunities nearby.
       Impacts  may also be significant  where the entity(ies) is a
Economic Guidance for Water Quality Standards
4-5

-------
      primary producer of a particular product or service upon
      which other nearby businesses or the affected community
      depend.   The  impacts  of reduced business  activities or
      closure will be far greater in this case than if the products
      are sold elsewhere.  These two examples illustrate how the
      interdependence between  the affected entity(ies) and the
      affected community is a major factor in demonstrating that
      the impacts are not only substantial, but also widespread.

         As important as the extent of socioeconomic impacts is
      the type of impacts that might occur.  A worksheet has
      been provided to assist applicants in their evaluation of
      socioeconomic impacts. Worksheet N is designed as a list
      of the factors applicants should consider in determining
      whether   impacts  are  not  only  substantial  but  also
      widespread.  The worksheet is organized to follow the text
      below. To make the most efficient use of this worksheet,
      applicants should read the remainder of Section 4.3  and
      then   collect  the   data  suggested  in  the  worksheet.
      Applicants should feel free, however, to use anecdotal
      information   to  describe  any    current    community
      characteristics or anticipated impacts that are not listed in
      the worksheet.

         Potentially, one of the  most serious  impacts on the
      affected community's economy is the loss of employment
      caused by a reduction in business activity or closure. The
      size of this impact is dependent on the number of jobs lost
      relative to the total number of jobs in the community, and
      to  the job  opportunities  available  in  the  community.
      Typically, a decline in employment leads to a decline in
      personal  income in the affected community.  The total
      amount of income lost by the affected community  will
      depend, in part, on the future job prospects of those losing
      their jobs.   If employees  leave  the area  in search of
      opportunities, all of their income will be lost to the affected
      community.  Workers who are unable to market the full
      range of their skills to a new employer will receive lower
      wages in subsequent jobs.  If employees  stay in the area
      and  find lower paying jobs or  receive unemployment
      benefits,  the  loss  of income to the affected community
      would be equal to the difference between  existing and
Economic Guidance for Water Quality Standards
4-6

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                                                       Worksheet N
           Factors to Consider in Making a Determination of Widespread Social and Economic Impacts

Define the affected community in this case; what areas are included.          	   (1)
Current unemployment rate in affected community (if available).             	   (2)
Current national unemployment rate.                                     	   (3)
Additional number of persons expected to collect unemployment in affected                                                      (4)
       community due to compliance with water quality standards.	
Expected unemployment rate in the affected community after compliance with                                                    (5)
       water quality standards (Current # of persons collecting unemployment
       in affected community  4-  (4)/labor force in affected community.	
Median household income in affected community.                          	   (6)
Total number of households in  affected community.                        	   (7)
Percent of population below the poverty  line in affected community.          	   (8)
Current expenditures on social  services in affected community.                  ,	   (9)
Expected expenditures on social services due to job losses in the affected                                                        (10)
       community.
Current total tax revenues in the affected community.	   (11)
Tax revenues paid by the private entity to the affected community.	•  (12)

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                                                      Worksheet N, continued


Tax revenues paid by the private entity as a percentage of the affected                                                              (13)
       community's total tax revenues.*                                   	

Current statewide unemployment rates.                                     	   (14)

Additional number of persons expected to collect unemployment in the State                                                        (15)
       due to compliance with water quality standards.                      	

Expected statewide unemployment rate, after compliance with water quality                                                         (16)
       standards (Current # of persons collecting unemployment in State +
       (15)/labor force in State.                                           	

Current expenditures on social services in State.                             	   (17)

Expected statewide expenditures on social services due to job losses.              •	   (18)
* In some cases, the affected community will include more than just the municipality in which the private entity is located.  If so, the analysis
should consider the private entity's tax revenues as a percentage of the tax revenues for only the municipality in which the entity is located.

-------
       future  income; the  cost  of unemployment  benefits is
       calculated as a government expense or an expense borne
       someplace else, whichever is appropriate to the situation.

         To assess the net impact on employment in the affected
       community, the existing rate of unemployment should be
       considered as an indicator of worker mobility between jobs.
       When the unemployment rate is very high in  an affected
       community, workers will have a difficult time finding other
       jobs  in that community.  Where  possible, comparisons
       should be made between industry employment levels in the
       community and the nation.as a  whole.  If employment
       levels in the industry as a whole are falling,  the industry
       may be in decline regardless of the burden placed on them
       by water quality standards regulations.  If it is clear that a
       private-sector entity will go out of business regardless of
       water quality standards, the impact of the pollution controls
       should not be viewed as substantial.  If the entity is in a
       marginal position, however, the effect that meeting water
       quality standards will have on the entity and the community
       should be considered.   Applicants  should also consider
       whether the lack of alternative employment opportunities
       may  lead to an increased need for social services in the
       affected  community.   If  the costs of increased  social
       services will be  borne by the affected community, they
       should be included in the assessment  of widespread  and
       substantial impacts.

         Socioeconomic impacts may also include effects on the
       local government(s) such as loss of property tax revenues.
       If the financial tests in Chapter 3 suggest that an entity or
       group of entities  will close, then  the assessed value of
       property and tax revenues will fall. If the entities are a
       major source of revenue for the affected community,  this
       loss in tax revenue may be significant. One example might
       be water quality standards  that affect farming practices in
       an agricultural region.  Compliance with these standards
       might lower the profitability of many  farms, even to the
       point of forcing them to cease operations.  To assess the
       impact, the loss in property tax  revenues  should  be
       compared to total property tax revenues in  the affected
       community to  determine the relative size of the loss.  In
Economic Guidance for Water Quality Standards
4-9

-------
      general, a drop of 1 percent in property tax revenues would
      be considered significant.

         If compliance is evaluated in the  context of a public
      investment for which the private entity  is paying a share
      (e.g., a factory's share of the cost to upgrade a municipal
      treatment plant), then the analysis of widespread impacts is
      more complicated. If the financial analysis shows that the
      entity or group  of entities cannot pay their share of the
      cost, then the socioeconomic and public entity  analysis
      should  include  this additional  burden on other users.
      Likewise, if the entity or group of entities are  significant
      users of the local utilities, then a  reduction in business
      activity or closure may lead to a  lowered demand and
      possible decreased efficiency  for  local  utilities.   For
      example,  a water  supply system  may be designed with  a
      large industrial user in mind.  If much of the  demand is
      eliminated, the system may become excessively expensive
      for the remaining users.

         Affected communities may also be faced with impaired
      development opportunities if the need to comply  with water
      quality standards discourages other businesses from locating
      in the area.  In situations where the affected facility has not
      been built,  additional  expenditures  on water pollution
      controls may delay  or cancel  the  construction.   The
      applicant should, therefore, consider  not only the loss of
      potential jobs and personal  income to the community if the
      entity is not built, but the future losses in jobs, personal
      income and tax revenues from other businesses  that would
      choose  not to locate in the affected community.

         There may be some cases in which the socioeconomic
      impacts of  implementing pollution  controls  are  large
      enough that they are felt at the state level.  For example,
      the  State may lose tax revenues from lost production and
      lost income if a  business closes.  This will be of particular
      importance if the business is a major employer in the State
      and/or  the  State is  experiencing  a period of  high
      unemployment and fiscal distress.  At the same time, the
      State   may  encounter   increased    expenditures   for
      unemployment  compensation  and  social  services.   In
Economic Guidance for Water Quality Standards
4-10

-------
      reviewing state level impacts, the applicant should consider
      the degree to which decreases in employment and personal
      income in one area of the State are offset by increases in
      employment and  personal income in  other parts of the
      State.   In most cases,  impacts at the state level will be
      relatively minor.  If not, then impacts are widespread.

      4.4    Estimate Multiplier Effect

         The effects of increased  unemployment,  decreased
      personal income,  and reductions in local expenditures by
      the entity or group of entities (public and private) will be
      compounded as money  moves through the local economy.
      Some portion of the lost income would have been spent in
      the local  economy for the purchase  of other goods and
      services and thus for the salaries of other local employees.
      These  local employees, in turn, would  have spent some
      portion of their  income  in  the  local  economy.   This
      multiplier effect means that each dollar lost to an employee
      results  in the  loss of more than  one dollar to the local
      economy.

         The U.S.  Department  of Commerce, Bureau  of
      Economic   Analysis   (BEA)   has   developed  several
      multipliers to estimate the  effect of reduced economic
      activity  on output (sales),  earnings,  and employment.
      These  multipliers  are available by industry sector for 39 or
      531 different  industry  classifications, depending on the
      level of detail required.  Applicants that are interested in
      using  these multipliers are advised to consult a  copy of
      RIMS  II Regional Multipliers: A User Handbook of the
      Regional Input-Output Modeling System, available  from the
      National Technical Information Service (NTIS).  The NTIS
      document number is #PB-86-230-216 and orders can be
      placed by calling NTIS  at (703) 487-4650.  Additional
      information on using multipliers is available from  the BEA
      at (202) 606-5343.
Economic Guidance for Water Quality Standards
4-11

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      4.5    Economic Benefits of Clean Water

      Benefit-cost analysis is  not required  to demonstrate
      substantial and widespread effects under the Federal
      Water Quality Standards regulation.

         In many cases,  there  may be economic benefits  that
      accrue to the affected community from cleaner water.  For
      example, in a rural community where the primary source
      of employment is agriculture, the reduction of fertilizer and
      pesticide runoff from farms would reduce the cost of
      treating  irrigation  water to downstream users.   Another
      example might  be an industrial  facility discharging  its
      wastewater into a stream that otherwise could  be used for
      recreational cold-water fishing.  Treatment or elimination
      of the industrial wastewater would provide a benefit to
      recreational fishermen by increasing the variety of fish in
      the stream.  In both cases, the economic benefit  is the
      dollar value associated with the increase in beneficial use
      or potential use of the waterbody. The types of economic
      benefits  that might be realized will depend on both the
      characteristics of the polluting entity and characteristics of
      the affected  community,  and should be considered on a
      case by case basis.

         Since the assessment  of benefits requires  site-specific
      information, it will be up to States to determine the extent
      to which benefits can be considered in the economic impact
      analysis.   This determination should be  coordinated with
      the EPA Regional Office.  A more detailed description of
      the types of benefits  that might be considered is given in
      Appendix  C.  This appendix is not intended to provide in-
      depth guidance on how  to estimate economic  benefits;
      rather, it is intended to give States an idea of  the types of
      benefits  that might be relevant in a given situation.
Economic Guidance for Water Quality Standards
4-12

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       4.6    Summary   of   Financial   Capability    and
              Determination   of   Whether   Impacts   are
              Substantial and Widespread

          Using  the  guidance described in this document, the
       applicant  must  demonstrate  that  the  pollution control
       measures  needed to meet the fishable/swimmable goals of
       the Act are not affordable.  In addition, the applicant will
       have to show that there will be widespread adverse impacts
       to the community if it is required to meet standards.  A
       summary  checklist of the steps required in this process is
       presented in  Table 4-1.  This checklist also presents the
       type of data  the applicant will need to collect.to support
       e,ach step. Whether or not  the applicant has successfully
       demonstrated that substantial and widespread economic and
       social impacts would occur, however, will depend upon the
       EPA Regional Administrator's review of the application.

          If  the  EPA  Regional Administrator determines  that
       substantial and widespread  economic and  social impacts
       have not been demonstrated, then the discharger must meet
       the fishable/swimmable goals of the Act.  Alternatively, if
       substantial and widespread  economic and  social impacts
       have been demonstrated, then the discharger will not have
       to meet the water quality standards.  The discharger will,
       however,   be  expected  to   undertake  some  additional
       pollution control.  The criteria outlined in Chapters 2 and
       3 should be used to determine the most protective pollution
       control technique that  would  not  impose  a substantial
       impact on the entity.  In addition,  the discharger should
       check with EPA and the State regularly to determine what
       else will be required of them. It is then up to the State to
       revise  the standards  hi the water body to reflect the uses
       that would be achieved if the discharger adopts the next
       most protective pollution control technique.  The State will
       also have  to revise its water quality criteria to protect the
       newly  attainable uses.   The discharger's NPDES permit
       will then  be  revised to reflect the  new limits associated
       with revised criteria.  Finally, federal regulations require
       that water quality standards be reviewed every three years
       to determine if there is any new information or technology
Economic Guidance for Water Quality Standards
4-13

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       that allows attainment of the goal uses of the Act without
       causing substantial and widespread social  and economic
       impacts.
Economic Guidance for Water Quality Standards
4-14

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                                                            Tabk
                                           Demonstration of Substantial and Widespread
                                   Economic and Social Impacts of Attainment of Designated Uses

                                                          CHECKLIST
STEPS
 INFORMATION   THAT   WILL   BE   REQUIRED   FROM
 APPLICANT
1.  Demonstrate that designated use is a potential use and not an existing   Data from State Water Quality Assessment Documents and water quality
   use.                                                            standards regulations.
2. Demonstrate that entity will incur substantial economic impacts.

   a.   Identify all reasonable pollution reduction options,
 Information  on end-of-pipe treatment,  possible treatment  upgrades,
 additions to existing  treatment,  and pollution  prevention activities
-including the following:
   •   change in raw materials,
   •   substitution of process chemicals,
   •   change in process,
   •   water recycling, reuse and efficiency,
   •   pretreatment requirements, and
   •   public education.
   b.   Evaluate costs of all reasonable pollution reduction options,       Assumptions about water demand, treatment capacity, expansion plans,
                                                                  population growth, and effectiveness of control in reducing pollution for
                                                                  each option.  Estimate of project costs from design engineers, costs of
                                                                  comparable projects in the State, or judgement of experienced water
                                                                  pollution control engineers.

   c.   Identify lowest cost pollution reduction option that allows entity   Information on treatment efficiencies for alternative pollution reduction
       to meet water quality standards.                               techniques. Cost estimates for all alternatives.

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                                                 Table 4-1 CHECKLIST (Cont'd.)
STEPS
INFORMATION   THAT   WILL   BE   REQUIRED   FROM
APPLICANT
3. Evaluate entity's financial health (Public Entities Only):

   a.   determine method of financing,



   b.   annualize pollution reduction project costs,
Information on user fee financing mechanisms such as Revenue Bonds.
Information on  tax based  financing mechanisms  such  as General
Obligation Bonds.

Information on appropriate interest rates and period of financing.
   c.   allocate project costs,


   d.   apply Municipal Preliminary Screener test,
Information on  user  groups,  wastewater flow by  user  group,  and
surcharges on industrial users.

Information on average total annual pollution control cost per household
and median household income.
   e.   Depending on the results of the Municipal Preliminary Screener  Information on results of Municipal Preliminary Screener test, overall
       test, apply Secondary Test.                                   net debt as a percent of full market value of taxable property, median
                                                                  household income, bond rating, community unemployment rate, property
                                                                  tax collection rate, and property tax revenues as a percent of full market
                                                                  value of taxable property.
4. Evaluate entity's financial health (Private Entities Only):

   a.   annualize pollution reduction project costs,

   b.   Primary Measure:

             profitability,
Information on appropriate interest rates and period of financing.
Information that will allow evaluation of whether an entity will remain
profitable after incurring the cost of pollution reduction including:
   •   revenues,
   •   cost of goods sold,

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                                                 Table 4-1 CHEl    1ST (Cont'd.)
                                                                             •
STEPS                                                           INFORMATION   THAT   WILL   BE   REQUIRED   FROM
                                                                  APPLICANT


                                                                     •   portion of coiporate overhead assigned to the entity, and
   c.   Secondary measures:                                            •   total annualized pollution reduction project costs.

             solvency,                                             Information that will allow evaluation of the  entity's ability to meet its
                                                                  fixed and long-term obligations including:
                                                                     •   long-term debt,
                                                                     •   current debt,
                                                                     •   net income after taxes,  and
                                                                     •   depreciation.

             liquidity, and                                         Information that will allow evaluation of how easily an entity can pay its
                                                                  short-term bills  such as:
                                                                     •   current assets,
                                                                     •   current liabilities, and
                                                                     •   total annualized pollution reduction project costs.
             leverage.                                             Information that will allow evaluation of the extent to which a firm
                                                                  already has fixed financial obligations and therefore  how much money
                                                                  it will  be able  to borrow including, long-term  liabilities  and owner
                                                                  equity.

5. Determine whether impacts are widespread (Public Entities Only):

   a.   Evaluate change in socioeconomic conditions that occur as a   Information  on changes  in  median  household  income,  community
       result of compliance.                                         unemployment rate, overall net debt as a percent of full market value of
                                                                  taxable property, percent of households below the poverty line, impact
                                                                  on community development potential, and impact on community property
                                                                  values resulting  from compliance.

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                                                  Table 4-1 CHECKLIST (Cont'd.)
STEPS
INFORMATION   THAT   WILL   BE   REQUIRED   FROM
APPLICANT
6. Determine whether impacts are widespread (Private Entities Only):
   a.   Define community,
Information on the geographical boundary of the  area  in which the
majority of the entity's workers live and where most of businesses that
depend on the entity are located.
   b.   Evaluate effect on employment,
   c.   Evaluate effect on tax revenues,
Current unemployment, change in unemployment due to investment in
pollution reduction.

Information on the likely  effect on assessed value of property  tax
revenues if the entity must adopt pollution reductions.
   d.   Assess impairment of development opportunities,
Information on the likelihood that the need to adopt pollution reductions
in the affected community would discourage other  businesses from
locating in the area in the future.
   e.   Collect any  relevant additional information that  demonstrates   Any additional information that suggests that there are unique conditions
       widespread socioeconomic impacts.                            in the affected community that should also be considered.
7. Evaluate economic benefits of cleaner water.
8. Public comment and debate period.
Information on potential benefits of cleaner water including enhanced
recreational opportunities, reduced treatment costs for downstream users
and increased property values.

Be prepared to supply backup information on the application to modify
or change a designated use to the public.

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                                                  Table 4-1 CHE    LIST (Cont'd.)
STEPS
INFORMATION   THAT   WILL   BE   REQUIRED   FROM
APPLICANT
9. If  substantial  and widespread  economic  and social  impacts  are  Information on the cost and efficiency of affordable pollution reduction
   demonstrated, determine which pollution reduction option should be  alternatives.
   implemented.
10.    Redesignate uses.
Uses will be determined by the level of "affordable" pollution reduction.
11.     Standards will be adopted to protect new uses.
12.    Effluent limits and permits will be modified.
13.   Re-evaluate water quality standards in three years.
Once uses are established, standards should be revised to protect those
uses.

Limits will be modified to reflect effluent concentrations associated with
the "affordable" pollution reduction technique.

Per federal regulations,  water quality standards must be revised every
three years to determine if there is any new information or technology
that allows attainment of the full designated uses without causing a
substantial and widespread economic and social impact.

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 5.  ANTIDEGRADATION: ROLE  OF  ECONOMIC
    ANALYSIS

    Under the Water Quality Standards program, each State
 must develop, adopt and retain a statewide antidegradation
 policy and establish  procedures  for its implementation.
 The antidegradation policy is intended to maintain existing
 uses  and the level of water quality necessary to protect
 those uses.  In only limited cases, economic grounds can be
 used to allow  for a  lowering  of water  quality.   In
 particular,  if the quality of the water exceeds  levels
 necessary to support the propagation of fish,  shellfish, and
 wildlife  and recreation hi and  on the  water (i.e.  "high-
 quality water"), then economic considerations can be taken
 into account (unless  the  water has been designated an
 ONRW.).  Before any lowering of water quality hi high-
 quality waters, however,  an antidegradation review must
 determine  that  the lowering is  necessary  in order to
 accommodate important economic or social development in
 the area  in which the  waters are located.

    Antidegradation is not a "no growth"  rule and  was
 never designed nor intended to be one.   It is a policy that
 allows the public to make decisions about important
 environmental actions. Where the State intends to provide
 for development,  it may  decide that  some lowering of
 water  quality hi  "high-quality waters"  is  necessary to
 accommodate important economic or social development.
 Any such reduction in water quality, however, must protect
 existing  uses fully and  must satisfy the requirements  for
 intergovernmental coordination and public participation.

    While  the  terminology  is  different,  the  tests  to
 determine  substantial  and  widespread  economic impacts
 (used when removing a use or granting a variance) are
 basically the same as those used to determine if there might
 be  interference  with  an important  social and economic
 development (antidegradation).  As such, antidegradation
 analysis  is the mirror image of the analyses described hi
 Chapters 2, 3 and 4.  Variances and downgrades refer to
 situations  where  additional  treatment  needed to meet
standards may result  hi worsening  economic conditions;
Economic Guidance for Water Quality Standards

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while antidegradation refers to situations where lowering
water quality may result in improved social and economic
conditions.

   When performing an antidegradation review, the first
question  is whether the  pollution  controls  needed to
maintain  the high-quality  water will interfere with  the
proposed  development.  If not, then the lowering of water
quality  is not  warranted.   If, on the other hand,  the
pollution controls will interfere with development, then the
review  must show  that the  development  would  be an
important economic and social one.  These two steps rely
on the same tests as the determination of substantial and
widespread impacts.  It should be stressed at the outset that
substantial economic impacts does not mean driving profits
to zero, nor precluding  all other municipal expenditures.

   The following sections describe the steps involved in
performing  an economic impact analysis as part  of an
antidegradation review.  These steps are outlined hi Figure
5-1.  The  analytic approach presented here can be used for
a  variety  of public-sector  and private-sector  entities,
including  POTWs, commercial, industrial, residential and
recreational land uses, and for point and nonpoint sources
of pollution.   The  guidance  provided in  this chapter,
however,  is not meant to be exhaustive.  The State and/or
EPA  may require additional  information  or  tests.   In
addition,  the applicant  should  feel free to include any
additional information they feel is relevant.   The  steps
described  hi further detail in the rest of the chapter  are:

   •   Verify Project Costs  and Calculate the Annual
       Cost of  the Pollution  Control Project - This
       section  describes  the  factors  considered  when
       verifying that the proposed pollution control project
       is  the most appropriate  solution and the type of
       information that should be provided  about  the
       proposed project.   It discusses  how to annualize
       capital costs of the project and calculate total annual
       costs of the pollution control project.
Economic Guidance for Water Quality Standards
5-2

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                                              Figure 5-1:
                                    Antidedgradation Review
                                           Capital Cost, Annual
                                         O&M Costs, Interest Rates
                                                 I
                                           Annual Cost, Median
                                            Household Income,
                                              Financial Data
                                          Yes
I
                                             Socio-economic
                                        characteristics of community
                                          Yes
                                          Quality of water may be
                                         reduced as long as existing
                                          and designated uses fully
                                                protected
                                                                      No
                                                                                       No Degradation
                                                                                         Allowed
                                                                      No
                                                                                       No Degradation
                                                                                         Allowed
Economic Guidance for Water Quality Standards

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   •  Determine if Requirements would Interfere with
      Development  (i.e.,  lower  water  quality   is
      "necessary") - This section  describes the types of
      financial tests that should be used to determine if
      maintaining the high-quality water would interfere
      with the development.

   •  Determine if Economic and Social Development
      would be Important - This section presents factors
      to  be  considered  in  determining whether the
      development would be important from an economic
      and social point of view.

   These  steps  closely  parallel  the analytic  techniques
presented in Chapters 2, 3, and 4.  These chapters should
be read  for more detail.
Economic Guidance for Water Quality Standards
5-4

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5.1    Verify Project Costs and Calculate The Annual
       Cost of the Pollution Control Project.

   Before  the impact analysis can  be performed,  the
project  costs  should be verified  and  the  annual costs
calculated.   Both private-sector and public-sector entities
should consider  a broad  range of  discharge management
options  including   pollution  prevention,   end-of-pipe
treatment, and upgrades or additions to existing treatment.

   Whatever approach, the discharger must demonstrate
that the proposed project  is the most appropriate means of
meeting water quality standards and must document project
cost  estimates.  If there  is  at least one of the treatment
alternatives  that  allows the  applicant to  maintain high-
quality water  without incurring substantial impacts,  then
they have  failed to show  that the  requirements  would
interfere with the development. Cost information, and the
assumptions  underlying  the cost  estimates,  should  be
supplied on Worksheet O.

   The following two sections (5.1.a and S.l.b) discuss
analyzing public-sector projects.  Section  S.l.c discusses
private sector projects.

S.l.a  Public-Sector  Developments:   Calculate   the
       Annual Costs of the Pollution Control Project

   Since capital costs typically will be paid over several
years,  annualized costs  are used in die evaluation  of
economic burden to the community. The capital portion of
public-sector  project  costs  is  typically  financed  over
approximately 20 years, by issuing a  municipal  debt
instrument  such as a general obligation bond or a revenue
bond.

   The calculation of total annualized  cost of the project is
presented in Worksheet P.  First, capital costs are summed
and the portion of costs to be paid for with grant monies
are deducted,  as these costs will not need to be financed.
Next,  the  annualization factor is calculated using the
formula  supplied on Worksheet P,  or the  annualization
Economic Guidance for Water Quality Standards
5-5

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factor is found in Appendix B.  Annuitized capital cost is
then calculated by multiplying the total capital costs to be
financed by the annualization factor.

   The interest rates used to annualize costs are dependent
on the type of debt instrument used as well as the issuer's
credit  standing.   Therefore,  the interest  rate  used  on
Worksheet P reflects the debt instrument (i.e. municipal
bond, commercial bank loan, state revolving fund loan, or
other instrument) likely to be used by the municipality.

   Next, annual operating and maintenance costs are added
to the annualized capital cost.   O&M costs should include
the costs of monitoring, inspection, permitting fees, waste
disposal charges, repair, administration,  replacement, and
any  other recurring costs.   All recurring costs should be
stated  in  terms of dollars per year.   The sum of the
annualized capital cost and total  annual operating  and
maintenance costs is the total annual cost of the project.

S.l.b  Public-Sector  Developments:  Calculate  Total
       Annualized   Pollution   Control   Costs   Per
       Household

    To assess  the burden that  total pollution control  costs
are expected to have on households, an average annualized
pollution control cost per household should be calculated
for all households in the community that would bear project
costs.  In order to evaluate substantial impacts, therefore,
the analysis must establish which households will actually
pay for pollution control and what proportion of the costs
will be borne by  households.  Then, these apportioned
project costs are added to existing pollution control costs
paid by the households.

    It is important to define the affected  community.  The
"community"   is  the   governmental   jurisdiction   or
jurisdictions responsible for paying compliance costs.

    If project costs were estimated for  some prior  year,
these costs should be adjusted upward  to  reflect current
year prices using the average annual national Consumer
 Economic Guidance for Water Quality Standards
5-6

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Price Index (CPI) inflation rate for the period.  The CPI
inflation rate  is  available from the Bureau of Labor
Statistics.  An additional source reporting the CPI inflation
rate is the CPI Detailed Report, which is published monthly
by the  U.S. Department  of Labor, Bureau of Labor
Statistics.

   In calculating the total annual cost of pollution control
per household, current costs of pollution control must be
considered along  with the projected annual costs of the
proposed pollution control project. The existing cost per
household usually can be obtained from  the most recent
municipal records.   For  example,  use the most recent
operating revenues of the sewer enterprise fund, divided by
the number of households served.   If the portion  of
proposed project costs that households are expected to pay
is known  or is expected to remain unchanged, then use
Worksheet Q to calculate the total annual cost of pollution
control per household. If the portion paid by households
is based on flow, then  should  refer to Worksheet  Q:
Option  A as well.

S.l.c Private-Sector  Entities: Calculate the Annual
      Costs of the Pollution Control Project

   As with public-sector investments, the total capital costs
are usually spread out over several years.  Annualization
calculates the amount that will be paid each year, including
the financing costs.   In  order to allow for comparisons
across cases, the analysis should assume that the applicant
will borrow the capital and repay the loan in even annual
installments over a 10 year period. The assumption of ten
years is based on the likely life of the equipment.  The
assumption  of even annual  installments  is  made  for
convenience.  The interest rate  on the loan should  be
equivalent to the rate the applicant pays when it borrows
money.

   The  financial tests discussed below compare the costs of
compliance to other  costs and revenues of the applicant.
Compliance costs  and  other  costs and  revenues  must,
therefore, be calculated for the same year. See discussion
Economic Guidance for Water Quality Standards
5-7

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in  Section  2.2,  and Appendix  A  for  references  to
inflation/deflation  indices.   The  Annualized  Cost  of
Pollution  Control  for  a  private-sector  entity can be
calculated using Worksheet R.
 Economic Guidance for Water Quality Standards
5-8

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                                       Worksheet O

                                Pollution Control Project
                                  Summary Information
 Design Capacity of the Pollution Control System
 Expected Excess Capacity after Completion of Project                                         %

 Projected Groundbreaking Date

 Projected Date of Completion
Please describe the pollution control project being proposed.  Include description of all pollution
prevention activities included in the project.  (Attach additional page if necessary).
Please describe the other pollution control options considered, including pollution prevention activities.
Explain why each option was rejected. (Attach additional page if necessary).

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                                      Worksheet P
                            Public-Sector Pollution Control
                    Calculation of Total Annualized Project Costs
A. Capital Costs
 Capital Cost of Project
 Other One-Time Costs of Project (Please List, if any):
 Total Capital Costs (Sum column)                                         $             (1)
 Portion of Capital Costs to be Paid for with Grant Monies                      $             (2)
 Capital Costs to be Financed [Calculate: (1) - (2) ]                             $             (3)
 Type of financing (e.g., G.O. bond, revenue bond, bank loan)
 Interest Rate for Financing (expressed as decimal)                                            (i)
 Time Period of Financing (in years)                                                       (n)
 Annualization Factor  = 	1	  •»- i (or see
                        (l+i)n - 1                                                       <4>
 Appendix B)
 Annualized Capital Cost [Calculate: (3) x (4) ]                                             (5)
B. Operating and Maintenance Costs
 Annual Costs of Operation and Maintenance (including but not limited to: monitoring, inspection,
 permitting fees, waste disposal charges, repair, administration and replacement.) (Please list below)
 Total Annual O & M Costs (Sum column)                                  $             (6)
C. Total Annual Cost of Pollution Control Project
 Total Annual Cost of Pollution Control Project [ (5) +  (6) ]                   (
                                                                         "

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                                     Worksheet Q
                Calculation of Total Annual Pollution Control Costs
                                    Per Household
A. Current Pollution Control Costs:
 Total Annual Cost of Existing Pollution Control
 Amount of Existing Costs Paid By Households
 Percent of Existing Costs Paid By Households
 Number of Households*
 Annual Cost Per Household [Calculate:  (2)/(4) ]
* Do not use number of hook-ups.
£
 $
(i)
(2)
                          (4)
                         (5)
B. New Pollution Control Costs
Are households expected to provide revenues for the new pollution control project in the same proportion
that they support existing pollution control? (Check a, b or c and continue as directed.)
D a) Yes [fill in percent from (3) ]
D b) No, they are expected to pay
           percent. (6a)
           percent. (6b)
D c) No, they are expected to pay based on flow. (Continue on Worksheet Q, Option A)

 Total Annual Cost of Pollution Control Project [Line (7), Worksheet P]   $
 Proportion of Costs Households Are Expected to Pay [ (6a) or (6b) ]
 Amount to Be Paid By Households [Calculate: (9) x (10) ]             • $
 Annual Cost per Household [Calculate: (11)/(4) ]                      $
                            (7)
                            (8)
                            (9)
                           (10)
C. Total Annual Pollution Control Cost Per Household
 Total Annual Cost of Pollution Control Per Household (5) + (10)
                      (11)

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                              Worksheet Q:  Option A


       Calculation of Total Annual Pollution Control Costs Per Household
                                   Based on Flow
A. Calculating Project Costs Incurred By Households Based on Flow


 Expected Total Usage of Project (eg. MOD for Wastewater Treatment)                     (1)
 Usage due to Household Use (MGD of Household Wastewater)                           (2)
 Percent of Usage due to Household Use [Calculate: (2)/(l) ]                             %(3)
 Total Annual Cost of Pollution Control Project                          $              (4)
 Industrial Surcharges, if any                                         $              (5)
 Costs to be Allocated [Calculate: (4) - (5) ]                             $              (6)
 Amount to Be Paid By Households [Calculate: (3) x (6) ]                  $              (7)
 Annual Project Cost per Household [Calculate: (7)/Worksheet Q, (4) ]       $              (8)



C. Total Annual Pollution Control Cost Per Household



 Annual Existing Costs Per Household [Worksheet Q, (5) ]                  $           (9)
 Total Annual Cost of Pollution Control Per Household [ (8) 4- (9) ]          $           (io)
                                                                 I!                 'I

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                                      Worksheet R

                              Private-Sector Development
                    Calculation of Total Annualized Project Costs
Capital Costs to be financed (Supplied by applicant)
          (1)
Interest Rate for Financing  (Expressed as a decimal)
Time Period of Financing (Assume 10 years*)
          (i)
10 years   (n)
Annualization Factor  =
                          (Ui)10 - 1
          (2)
Annualized Capital Cost [Calculate: (1) x (2) ]

Annual Cost of Operation and Maintenance
(including but not limited to monitoring, inspection, permitting fees, waste
disposal charges, repair, administration and replacement)***
          (3)
          (4)
Total Annual Cost of Pollution Control Project  [ (3) + (4) ]
          (5)
    While actual payback schedules may differ across projects and companies, assume equal annual
    payments over a 10-year period for consistency in comparing projects.

    Or see Appendix B for calculated annualization factors

***  For recurring costs that occur less frequently than once a year, pro rate the cost over the relevant
    number of years (e.g., for pumps replaced once every three years, include one-third of the cost in
    each year).

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5.2    Financial Analysis to Determine if Lower Water
       Quality is "Necessary"

   The purpose of the financial impact analysis is to assess
the extent to which planned development will be reduced as
a result of maintaining water quality.  There are two sets
of tests presented in this section:  one set for publicly
owned developments, such as POTWs, and  another  for
privately owned developments, such as new manufacturing
facilities. The tests are not designed to determine the exact
impact of pollution control costs on an entity.  They merely
provide indicators of whether pollution control costs would
result in a substantial impact.

5.2.a  Public-Sector   Developments:  Calculate  and
       Evaluate the  Municipal Preliminary  Screener
       Value

   Whether or not maintaining high-quality water is likely
to interfere  with a development  due to additional public-
sector costs is determined by jointly considering the results
of two tests.   The first test is a "screener"  to establish
whether the  community can clearly pay for  the project.
The Municipal Preliminary Screener estimates the total  per
household annual pollution control  costs to be borne by
households  (existing costs plus  those  attributable  to  the
proposed  project)  as  a percentage  of median  household
income. The screener is written as follows:


           Municipal Preliminary Screener =

    Average Total Pollution Control Cost per Household
               Median Household Income
    Median household  income  information  for  many
 municipalities  is  available from the  1990  Census  of
 Population. To estimate median household income for the
 current year,  use the CPI inflation rate for the period
 between the year that median household income is available
 and the current year.
 Economic Guidance for Water Quality Standards
5-14

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                                     Worksheet S

                          Municipal Preliminary Screener
The Municipal Preliminary Screener indicates  quickly whether  a  public entity  will not incur any
substantial economic impacts as a result of the proposed pollution control project.  The formula is as
follows:


                Total Annual Pollution Control Cost per Household
                           Median Household Income *
A. Calculation of The Municipal Preliminary Screener

 Total Annual Pollution Control Cost Per Household [Worksheet C, (11) or    $              (1)
 Worksheet C, Option A (10) ]                                        	^^
 Median Household Income*                                           $              (2)
 Municipal Preliminary Screener (Calculate: [(l)/(2)] x 100)                       %(3)1
                                                                  It.                    ''
B. Evaluation of The Municipal Preliminary Screener
If the Municipal Preliminary Screener is clearly less than 1.0%, then it is assumed that the cost will not
impose an undue financial burden. In this case, it is not necessary to continue with the Secondary Test.
Otherwise, it is necessary to continue.
Benchmark Comparison:
                   Little Impact

                  Less than 1.0%
                Indication of no
                substantial
                economic impacts
 Mid-Range Impact

    1.0% - 2.0%
  Large Impact

Greater than 2.0%
Proceed to Secondary Test
* 1990 Census adjusted by CPI inflation rate if necessary.

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   Depending  on  the results  of  the  screener,   the
community is expected to incur small, mid-range, or large
economic impacts (see Worksheet S).  If the total annual
cost per household (existing annual cost per household plus
the incremental cost related to the proposed project) is less
than 1.0 percent  of median  household income, then the
requirements  are  not expected to impose  a substantial
economic hardship on households and would not interfere
with the development.

   Communities are expected to incur mid-range impacts
when the ratio of  total annual compliance costs to median
household income is between 1.0 and 2.0 percent.  If the
average annual cost per household exceeds 2.0 percent of
median household income, then the project may place a
large financial burden on many of the households within
the community and the requirements may interfere with the
development.  In either case, communities move on to the
Secondary Test to demonstrate substantial impacts.

5.2.b  Public-Sector Developments: Secondary Test

   The Secondary  Test is  designed to build upon  the
characterization of community identified in the Municipal
Preliminary Screener.  The  Secondary Test indicates the
community's  ability to  obtain financing and describes the
socioeconomic  health  of  the community.    Indicators
describe precompliance debt, socioeconomic, and financial
management  conditions in the community.   Using these
indicators and the scoring system described  below,  the
impact  of  the cost of pollution  control   is  estimated.
Specifically,  applicants are required  to  present  the
following six indicators for the community:

   Debt Indicators

   •   Bond  Rating (if available) - a measure of credit
       worthiness of the community;

   •   Overall Net Debt as a Percent of Full Market Value
       of Taxable Property - a measure of debt burden on
       residents within the community;
Economic Guidance for Water Quality Standards
5-16

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   Socioeconomic Indicators

   •  Unemployment Rate  - a  measure of the general
      economic health of the community;

   •  Median  Household Income -  a  measure  of the
      wealth of the community;

   Financial Management Indicators

   •  Property Tax Revenue as a Percent of Full Market
      Value of Taxable Property  - a measure of the
      funding capacity available to support debt based on
      the wealth of the community; and

   •  Property Tax Collection Rate - a measure of how
      well the local government is administered.

   A more  detailed  description  of the  six indicators is
presented  in  Section  2.4,  including a  discussion  of
alternative measures to use in States with property tax caps
and limitations on assessed values. Worksheet T can be
used  to  estimate  each of  the  indicators.   Table  5-1
summarizes  the indicators and what is considered to be a
strong, mid-range, or weak rating.

   The  Secondary Score is calculated for the community
by weighting each indicator equally and assigning a value
of 1 to each indicator judged to be weak,  a 2 to each
indicator judged to be mid-range, and a 3 to each strong
indicator.  A cumulative assessment score is arrived at by
summing the individual scores and dividing by the number
of factors used.  Worksheet U guides the reader through
this  calculation.   The  cumulative assessment score is
evaluated as follows:

   •  less than 1.5 is considered weak
   •  between 1.5 and 2.5 is considered mid-range
   •  greater than 2.5 is considered strong
Economic Guidance for Water Quality Standards
5-17

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                                      Worksheet T
                           Data Used in the Secondary Test
Please list the following values used in determining the Secondary Score. Potential sources of the data
are indicated.
A. Data Collection

          Data                       Potential Source                      Value


Direct Net Debt             Community Financial Statements
                           Town, County or State Assessor's Office
                                                               $	0)
Overlapping Debt            Community Financial Statements
                           Town, County or State Assesor's Office  $                       (2)

Market Value of Property     Community Financial Statements
                           Town, County or State Assessor's Office
                                                               $	(3)
Bond Rating                Standard and Poors or Moody's
                                                                                       (4)
Community Unemployment   1990 Census of Population
Rate                       Regional Data Centers                                        %(5)

National Unemployment      Bureau of Labor Statistics
Rate                       (202) 606-6392                       	%(6)

Community Median          1990 Census of Population
Household Income                                               $                       (7)

State Median Household      1990 Census of Population
Income                                                         $                       (8)

Property Tax Collection      Community Financial Statements
Rate                       Town, County or State Assessor's Office                        %(9)

Property Tax Revenues       Community Financial Statements
                           Town, County or State Assessor's Office $                      (10)

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                                Worksheet T, Continued
B. Calculation of Indicators
       1. Overall Net Debt as a Percent of Full Market Value of Taxable Property

Overall Net Debt (Calculate: (1) + (2))                           $                      (11)
Overall Net Debt as a Percent of Full Market Value of Taxable
Property (Calculate: [(ll)/(3)] x 100)
       2. Property Tax Revenues as a Percent of Full Market Value of Taxable Property
Property Tax Revenues as a Percent of Full Market Value of Taxable
Property (Calculate: [(10)/(3)] x 100)

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                                                          Worksheet U
                                                Calculating The Secondary Score

Please check the appropriate box in each row, and record the corresponding score in the final column. Then, sum the scores and compute the average.
Remember, if one of the debt or socioeconomic indicators is not available, average the two financial management indicators and use this averaged value as
a single indicator with the remaining indicators.

Indicator
Bond Rating
Worksheet T, (4)
Overall Net Debt as Percent
of Full Market Value of
Taxable Property
Worksheet T, (12)
Unemployment
Worksheet T, (5)& (6)
Median Household Income
Worksheet T, (7) & (8)
Property Tax Revenues as a
Percent of Full Market
Value of Taxable Property
Worksheet T, (13)
Property Tax Collection
Rate
Worksheet T, (9)
Secondary Indicators
Weak*
Below BBB (S&P)
Below Baa (Moody's)
D
Above 5%
D
Above National Average
D
Below State Median
D
Above 4%
D
< 94%
D
Mid-Range**
BBB (S&P)
Baa (Moody's)
D
296-5%
D •
National Average
D
State Median
D
2%-4%
D
94% - 98%
D
a* **»
Strong
Above BBB (S&P) or
Baa (Moody's)
D
Below 2%
D
Below National Average
D
Above State Median
D
Below 2%
D
> 98%
D
                                                                                                              Score
                                    * Weak is a score of 1 point

                                   ** Mid-Range is a score of 2 points
   SUM
                                       Strong is a score of 3 points
AVERAGE

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                              TABLE 5-1
                      SECONDARY INDICATORS

Indicator
Bond Rating
Overall Net Debt as
Percent of Full
Market Value of
Taxable Property
Unemployment
Median Household
Income
Property Tax
Revenues as a Percent
of Full Market Value
of Taxable Property
Property Tax
Collection Rate
Secondary Indicators
Weak
Below BBB (S&P)
Below Baa (Moody's)
Above 5%
More than 1 % above
National Average
More than 10% below
State Median
Above 4%
< 94%
Mid-Range
BBB (S&P)
Baa (Moody's)
2%-5%
National Average
State Median
2%-4%
94% - 98%
Strong
Above BBB (S&P)
or Baa (Moody's)
Below 2%
More than 1 %
below National
Average
More than 10%
above State Median
Below 2%
> 98%
Economic Guidance for Water Quality Standards
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   If the applicant is not able to develop one or more of
the six indicators, they must provide an explanation as to
why the indicator is not appropriate or not available. Since
the point of the analysis is to measure the overall burden to
the community, the debt and socioeconomic indicators are
assumed to be better  measures of burden than the financial
management indicators.  Consequently, if one of the debt
or socioeconomic indicators is not available, the applicant
should average the two financial management indicators
and use this averaged value as a single indicator with the
remaining indicators. This averaging is necessary so that
undue  weight is not given to the financial management
indicators.

5.2.d  Public-Sector Developments: Assess Whether the
       Requirements   Would   Interfere   With   the
       Development

    The results of the two tests are  considered jointly in
determining whether the community is expected to incur
substantial   impacts   that  would   interfere  with   the
development.   As shown  in  Table  5-2, the cumulative
assessment score for the community  is combined with the
estimated household  burden.  The combination of factors
establishes   whether  impacts can  be  expected  to be
substantial.

    In the matrix, "X" indicates that the impact is likely to
interfere with the development. The  closer the community
is to the upper right  hand corner of the matrix, the greater
the likelihood. Similarly, V" indicates that the impact is
not likely to interfere with development. The closer to the
lower  left hand corner of the matrix,  the  smaller the
likelihood.  Finally, the "?" indicates that the impact is
unclear.
 Economic Guidance for Water Quality Standards
5-22

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                                 TABLE 5-2

            ASSESSMENT OF SUBSTANTIAL IMPACTS MATRIX
Secondary Score
Less than 1.5
Between 1.5 and 2.5
Greater than 2.5
Municipal Preliminary Screener
Less than 1.0
Percent
?
/
/
Between 1.0 and 2.0
Percent
X
?
^
Greater than 2.0
Percent
X
X
7
5.2.e  Private-Sector Developments: Financial Measures

   Four general categories of financial.tests are used to
determine if maintaining high-quality water will interfere
with privately owned development. The four categories are
divided into a primary measure of financial impacts and
three secondary measures of financial impacts:

   Primary Measure

   •   Profit ~ how  much would profits decline due to
       pollution control expenditures?

   Secondary Measures

   •   Liquidity — how easily can an entity pay its short-
       term bills?
   •   Solvency — how easily can an entity pay its fixed
       and long-term bills?
   •   Leverage —  how  much  money can  the  entity
       borrow?

Profit  and solvency  ratios are calculated both with and
without the  additional  compliance  costs  (taking  into
consideration the entity's  ability, if any, to increase its
prices  to cover part or all of the costs).  Comparing these
ratios to each other and to industry benchmarks provides a
measure of the impact on the entity. Since antidegradation
reviews involve new or expanded operations,  the ratios
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often will be calculated using estimated values from pro-
forma income statements and balance sheets prepared for
the development.

    For all of the tests, it is important to look beyond the
individual test results and evaluate the total situation of the
entity.   While  each test  addresses  a single aspect  of
financial health, the results of the four  tests should  be
considered jointly to obtain an overall picture.  The results
should be compared with the ratios for other entities in the
same industry or activity.

    The  primary and secondary measures are described
below, along with an example of specific tests to be used.
While there are  several ratios that could be used for each
test, to simplify the presentation only one ratio per test is
described.  In most cases, interpreting the results requires
comparisons with typical values for the industry.  Among
the  sources  that provide  comparative information are:
Robert  Morris  Associates'  Annual  Statement Studies,
Moody's Industrial Manual, Dun and Bradstreet's Dun's
Industry Norms, and Standard & Poor's Industry Surveys.
The Annual Statement Studies, Dun's Industry Norms , and
Standard  &  Poor's Industry Surveys provide composite
statistics for firms grouped  into various manufacturing and
service  industries.    The Moody's  Industrial Manual
provides detailed financial information on individual firms
that can  be used for comparison purposes.   Each of the
tests is discussed in more detail in Chapter 3.

5.2.f  Private-Sector Developments: Primary Measure

    Primary measure is the Profit Test, which measures the
development's earnings if it is required to provide pollution
control necessary to maintain the high-quality waters and if
it  is not required  to do so.   If maintaining high-quality
water would result in considerably lower profits, then the
development might not take place.

    Two  pieces  of information are needed for the Profit
Test. The first piece is the  total annual cost of the required
pollution control from Worksheet R.  The second piece is
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the earnings information from the entity's income statement
(Worksheet V).

         Profit Test = *""***  Befare Taxes
                             Revenues
   The Profit Test should be calculated with and without
the cost of the pollution control.  In the former case, the
annualized cost of pollution control (including O&M)  is
subtracted from the discharger's estimated earnings before
taxes (revenues minus costs excluding income taxes). The
Profit Test can be calculated using Worksheets V, and W.
These profit rates should be compared to those for facilities
in  similar lines  of  business, using  data  in  Moody's
Industrial Manual, Dun & Bradstreet's Industry Norms and
Key Business Ratios, Standard & Poor's Industry Surveys,
or Robert Morris's Annual Statement Studies.

   The degree to which  the discharger is able to raise
prices is difficult to predict, and depends on many factors.
Considerations should include the level of competition  in
the industry, the likelihood of competitors' facilities facing
similar project costs, and the willingness of consumers  to
pay more for the product.
5.2.g  Private-Sector
       Measures
Developments:   Secondary
   The following secondary measures provide additional
important information about the financial health of the
development.  All primary and secondary measures should
be included in the analysis.

   Liquidity

   Liquidity is a measure of how easily a discharger can
pay  its short-term bills.  One  measure of liquidity is the
Current Ratio, which compares current assets with current
liabilities.  Current assets include cash and other assets that
are or could reasonably be converted into cash during the
current year.  Likewise, current liabilities are items that
must be paid within the current year.
Economic Guidance for Water Quality Standards
                                                   5-25

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                                   Worksheet V
                        Calculation of Earnings Before Taxes
A. Earnings Without Pollution Control Project Costs
                           EBT =  R - CGS - CO
B. Earnings With Pollution Control Project Costs
                          EWPR  =  EBT - ACPR
Where:       EBT =       Earnings Before Taxes
             EWPR =   •   Earnings with Pollution Project Costs
             R =         Revenues
             CGS =       Cost of Goods Sold (including the cost of materials, direct labor, indirect
                          labor, rent and heat)
             CO =        Portion of Corporate Overhead Assigned to the Discharger (selling,
                          general, administrative, interest, R&D expenses, and depreciation on
                          common property)
             ACPR =      Total Annual Costs of Pollution Control Project [Worksheet R (5)]
R

CGS

CO


EBT [ (1) - (2) -(3) ]

ACPR [ Worksheet R (5) ]
(1)
(2)

(3)


(4)

(5)
EWPR [ (4) - (5) ]
(6)

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                                  Worksheet W

                           Calculation of Profit Rates


A. Profit Rate Without Project Costs

                                PRT = EBT * R


B. Profit Rate With Pollution Control Costs
                              PRPR = EWPR -^ R

Where:       PRT =       Profit Rate Before Taxes
             PRPR =      Profit Rate with Pollution Control Costs
             EBT =       Earnings Before Taxes
             EWPR =     Before-Tax Earnings with Pollution Control Costs
             R =         Revenues
EBT [Worksheet V, (4)]

R [Worksheet V, (1)]



PRT - Calculate: [(1)1(2)]



EWPR [Worksheet V, (6)]

R [Worksheet V, (1)]


PRPR [Calculate: (4)/(5)]
CD
(2)


(3)


(4)
(5)


(6)

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   The Current Ratio  is calculated by dividing current
assets by current liabilities.
          Current Ratio  =
  Current Assets
Current Liabilities
The Current Ratio can be calculated using Worksheet X.
The general rule is that if the Current Ratio is greater than
2,  the  entity  should be  able to  cover its short-term
obligations.   Frequently,  lenders require this  level  of
liquidity as a prerequisite for lending. This rule (Current
Ratio > 2) may not, however,  be  appropriate for all types
of private entities. The Current Ratio of the discharger in
question  should be  compared  with  ratios for  other
dischargers in the same line of business.

    Solvency

    Solvency is a measure of an entity's  ability to meet its
fixed and long-term obligations. These obligations are bills
and debts  that are owed on a regular  basis for periods
longer than one year.  Solvency tests are commonly used
to predict financial problems that could lead to bankruptcy
within the  next few years.

    As with liquidity,  there are several  possible tests for
solvency.  One solvency test, the Beaver's Ratio, compares
cash flow to total debt.  This test  has been shown to be a
good indicator of the likelihood of bankruptcy.
             Beaver's Ratio =
     Cash Flow
     Total Debt
    The Beaver's Ratio can be calculated using Worksheet
Y.  Cash Flow  is a measure of the cash the entity has
available to it in a given year.  Since depreciation is an
accounting cost - a cost that  does not use any currently
available revenues — it is  added  back to reported net
Economic Guidance for Water Quality Standards
                                                   5-28

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                                     Worksheet X

                          Calculation of The Current Ratio


                                   CR  = CA H- CL
Where:        CR = Current Ratio
              CA = Current Assets (the  sum  of inventories, prepaid  expenses,  and  accounts
                    receivable)
              CL = Current Liabilities (the sum of accounts payable, accrued expenses, taxes, and
                    the current portion of long-term debt)
CA                                         _$	  (1)

CL                                          $                                    (2)
CR [Calculate: (l)/(2)]                                                              (3)

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income after taxes to get cash flow.  Total debt is equal to
the current debt for the current year plus  the long term
debt, since current debt includes that part of long-term debt
that is  due in the current year.

   If  the Beaver's  Ratio  is  greater  than  0.20  the
development is considered to be solvent (i.e., can pay its
long-term debts).   If  the  ratio is less than  0.15  the
development may be insolvent (i.e., go bankrupt).  If the
ratio is between 0.15 and  0.20, then future solvency is
uncertain.

   Leverage

   Leverage tests measure the extent to which a firm  has
fixed financial obligations and  thus indicates how much
more money a firm is capable of borrowing.  Firms that
rely heavily on debt may find it difficult and expensive to
borrow additional funds. One commonly used measure of
leverage is the Debt to Equity Ratio.
      Debt/Equity Ratio =
                                -Term Liabilities
                             Owners / Equity
The Debt  to  Equity  Ratio can  be  calculated  using
Worksheet Z.   Since there  are no generally  accepted
Debt/Equity  Ratio values  that apply  to all types  of
economic activity, the ratio should be compared with the
ratio of firms in similar businesses.  If the entity's ratio
compares favorably with the median or upper quartile ratio
for similar businesses,  it should  be  able  to  borrow
additional funds.  These ratios can be calculated using data
in Robert  Morris Associates' Annual Statement Studies,
Moody 's Industrial Manual, and Dun & Bradstreet' s Dun 's
Industry  Norms.

    For entities with special sources of funding, leverage is
not an appropriate measure of their ability to raise capital.
Examples  are agriculture and affordable  housing, where
special loan programs may be available.  In these cases, an
Economic Guidance for Water Quality Standards
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                                   Worksheet Y
                           Calculation of Beaver's Ratio

                                  BR =  CF * TD
Where:             BR = Beaver's Ratio
                   CF = Cash Flow
                   TD = Total Debt

Cash Flow:
  Net Income After Taxes                     $                              (1)
  Depreciation                               $                              (2)
  CF [Calculate: (1) + (2)]                    $                              (3)

Total Debt:
  Current Debt                               $                              (4)
  Long-Term Debt                            $                              (5)
  Total Debt                                 $                              (6)
Beaver's Ratio:
 BR [(3) /(6)]                                                              (7)

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                                     Worksheet Z

                                 Debt to Equity Ratio


                                 DER = LTL + OE
Where:        DER =   Debt/Equity Ratio
              LTL =   Long-Term Liabilities (long-tenn debt such as bonds, debentures, and bank
                       debt, and all other noncurrent liabilities such as deferred income taxes)
              OE  =    Owner Equity (the  difference  between  total  assets and total liabilities,
                       including contributed or paid in capital and retained earnings)
LTL                            _$	       (1)

OE                              $                                     (2)
 DER
(3)

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analysis of the probability that the project would receive
this money is appropriate.

5.2.g  Private-Sector Developments: Assess Whether the
       Requirements   Will   Interfere   With   the
       Development: Interpreting the Results

   The financial analysis should be used to determine if
there will  be a substantial adverse impact such  as  to
interfere with the  development.   If the four tests  taken
together indicate that the requirements would interfere with
the development, then proceed to Section 5.3 to determine
if the development would be considered important in  social
and economic terms.

5.3    Determine If Economic and Social Development
       Would Be Important

   There are no  economic ratios  per  se that determine
whether a  development would be  considered important.
Instead,  the  relative magnitudes of indicators such  as
increases in unemployment, losses to the local economy,
changes in household income, decreases in tax revenues,
indirect effects on other businesses, and increases in  sewer
fees  should be taken into account.  The term important is
intended to convey a general concept regarding the level of
social and economic development used to justify a change
in high-quality waters.

5.3.a  Define Relevant Geographical Area

   One important factor is defining the geographical area
hi which the impacts will occur.  In the case of municipal
pollution control projects, the affected community is most
often the immediate municipality. The relevant geographic
area for evaluating the importance of a private-sector
development  varies with each situation.  The area will
typically be determined by the area in which the majority
of its workers live and where most of the businesses that
depend on it are located.  In either case, the geographical
area considered must  include  "...the area in which the
waters are located." (40 CFR 131.12 (a)(2)) There are no
Economic Guidance for Water Quality Standards
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simple rules for defining the relevant area or community;
the decision is based on the judgement of the applicant and
state, subject to EPA review.

5.3.b Public-Sector Developments: Determine Whether
      Important

   While there are no explicit criteria, it is recommended
that changes in the socioeconomic indicators listed below
be considered.   For each indicator listed, the applicant
should estimate the potential change that would result from
the development.

   •  Median Household Income;
   •  Community Unemployment Rate;
   •  Overall Net Debt as a Percent of Full Market Value
      of Taxable Property;
   •  Percent of Households Below Poverty Line;
   •  Impact on Community Development Potential;  and
   •  Impact on Property Values.

Estimated   changes should  be  provided,  along  with
supporting  discussions, on Worksheet AA.

5.3.c Private-Sector Developments: Determine Whether
      Important

   Determination of  whether or not  a private-sector
development will be important to a community  requires
exploring more factors than is the case with public-sector
developments.  Worksheet AB has been provided to assist
applicants in their evaluation of socioeconomic impacts.  It
is designed as  a  list of the factors  applicants should
consider in determining  whether the  development  is
important.   Applicants should feel free, however, to add
anecdotal information to describe any current community
characteristics  or anticipated impacts that are not listed  in
the worksheet.

   Potentially, one of the most important impacts on the
affected community's economy is the employment to be
gained.   The size  of this impact is  dependent on the


Economic Guidance for Water Quality Standards
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number of new jobs relative to the total number of jobs in
the community, and to the other job opportunities available
in the community. Typically,  an increase in employment
leads to an increase in personal income in the affected
community.  The total amount of income gained by the
affected community will depend, in part, on the other job
prospects of those hired.  To assess the  net impact on
employment in the affected community, the existing rate of
unemployment should  be considered as an indicator of
worker  mobility between jobs.

   The analysis should also consider whether the increase
in employment opportunities may lead to a decreased need
for social services in the affected community. If the cost
of savings for decreased  social services will be  borne by
the affected community, they  should be included in the
assessment.

   The effects of increased  employment  and personal
income  will be compounded as the money moves through
the economy.  This multiplier effect means that each dollar
gained to an employee results  in the  gain of more than a
dollar  to the local  economy.   Multiplier effects are
discussed in more detail in Section 4.4.

   Socioeconomic impacts may also include effects on the
local govemment(s) such as property tax revenues and the
demand for other public services.   For example, if the
development would  be paying a  share  of the cost to
upgrade a municipal  treatment plant,  then the analysis of
community  impacts  is  more  complicated.    If  the
development  is eliminated,  the   system  may  become
excessively expensive for the remaining users.

5.4    Summary

   Using the  guidance described in this document, the
applicant  must demonstrate  that  the  pollution control
measures  needed to maintain the high-quality waters will
interfere with  the development. In addition, the applicant
will  have to show that the development is important to the
community.
Economic Guidance for Water Quality Standards
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   The  tests  used  to  demonstrate  interference  and
importance are the same  as  those used to demonstrate
substantial and widespread. The difference is, however,
that  an  antidegradation  review  considers situations  that
would improve the economic condition.
 Economic Guidance for Water Quality Standards
5-36

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                             \\ orksheet AA

                       Public-Sector Development
             Qualitative Description of Estimated  Change
                      in Socioeconomic Indicators
                     due to Pollution Control Costs
Estimated change
in Median
Household
Income (MHI)
Estimated change
in the
unemployment
rate
Estimated change
in overall net debt
as a percent of
full market value
of taxable
property
Estimated change
in % of
households below
the poverty line
Impact on
commercial
development
potential
Impact on
Property Values

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                                                     Worksheet AB
                                              Private-Sector Development
           Factors to Consider in Making a Determination of Widespread Social and Economic Impacts

Define the affected community in this case; what areas are included.         	•	   (1)
Current unemployment rate in affected community (if available).            	   (2)
Current national unemployment rate.                                    	   (3)
Additional number of persons expected to collect unemployment in affected                                                     (4)
       community due to compliance with water quality standards.	
Expected unemployment rate in the affected community after compliance with                                                   (5)
       water quality standards (Current # of persons collecting unemployment
      • in affected community + (4)/labor force in affected community.	
Median household income in affected community.                         	    (6)
Total number of households in affected community.                       	.	   (7)
Percent of population below the poverty line in affected community.         	   (8)
Current expenditures on  social services in affected  community.	   (9)
Expected expenditures on social services due to job losses in the affected                                                      (10)
       community.	
Current total tax revenues in the affected community.	  00
Tax revenues paid by the private entity to the affected community.           	  (12)

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                                                     Worksheet AB, continued

Tax revenues paid by the private entity as a percentage of the affected                                                              (13)
       community's total tax revenues.*                                   	
Current statewide unemployment rates.                                     	  (14)
Additional number of persons expected to collect unemployment in the State                                                        (15)
due to compliance with water quality standards.                             	
Expected statewide unemployment rate, after compliance with water  quality                                                        (16)
       standards (Current # of persons collecting unemployment in State +
       (15)/labor force in State.                                           	
Current expenditures on social services in State.                             	  (17)
Expected statewide expenditures on social services due to job losses.          	  (18)
* In some cases, the affected community will include more than just the municipality in which the private entity is located. If so, the analysis
should consider the private entity's tax revenues as a percentage of the tax revenues for only the municipality in which the entity is located.

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         APPENDIX A

DATA RESOURCES AND REFERENCE
         MATERIALS

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                                   APPENDIX A

Cost Estimation Resources:

U.S.  EPA,  Construction  Costs for Municipal  Wastewater Treatment Plants:  1973-1978,
      EPA/430/9-80-003, April, 1980.

U.S. EPA, Technical Report: Operation and Maintenance  Costs for Municipal Wastewater
      Facilities, EPA/430/9-81-004, September, 1981.

U.S. EPA, Construction  Costs for Municipal  Wastewater Conveyance Systems: 1973-1979,
      EPA/430/9-81-003, January, 1981.

U.S. EPA, Quarterly Indices of Direct Costs for Operation, Maintenance and Repair: (a) Waste
      Pumping Stations, (b) Gravity Sewers, Office of Municipal Pollution Control, Municipal
      Facilities Division, Current.

Municipal Statistics Resources:

Bureau of the Census, U.S. Department of Commerce, County and City Data Book, published
      annually.

Financial and Ratio Analysis Resources:

Leopold A. Bernstein, The Analysis of Financial Statements, Dow  Jones-Irwin, 1978.

Dun & Bradstreet, Dun's Industry Norms, annual.

J.  Fred  Weston  and Eugene F. Brigham, Managerial Finance, The Dryden Press,  several
      editions.

Robert Morris Associates, Annual Statement Studies, annual.

Moody's Financial Services, Moody's Industrial Manual,  annual.

U.S. Department of Labor, Bureau of Labor Statistics, CPI Detailed Report.

U.S. EPA, EPA Financial Capability Guidebook, Office of Water Programs Operations, 1984.

U.S.  EPA,  The  Municipal Sector Study:  Impacts   of Environmental Regulations  on
      Municipalities, EPA 230-09-038, Office of Policy, Planning and Evaluation, September
      1988.

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          APPENDIX B
TABLE OF ANNUALIZATION FACTORS

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Jix B.Table of Annualization Factors
Year

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

0.005
1.0050
0.5038
0.3367
0.2531
0.2030
0.1696
0.1457
0.1278
0.1139
0.1028
0.0937
0.0861
0.0796
0.0741
0.0694
0.0652
0.0615
0.0582
0.0553
0.0527

0.01
1.0100
0.5075
0.3400
0.2563
0.2060
0.1725
0.1486
0.1307
0.1167
0.1056
0.0965
0.0888
0.0824
0.0769
0.0721
0.0679
0.0643
0.0610
0.0581
0.0554

0.015
1.0150
0.5113
0.3434
0.2594
0.2091
0.1755
0.1516
0.1336
0.1196
0.1084
0.0993
0.0917
0.0852
0.0797
0.0749
0.0708
0.0671
0.0638
0.0609
0.0582

0.02
1.0200
0.5150
0.3468
0.2626
0.2122
0.1785
0.1545
0.1365
0.1225
0.1113
0.1022
0.0946
0.0881
0.0826
0.0778
0.0737
0.0700
0.0667
0.0638
0.0612

0.025
1.0250
0.5188
0.3501
0.2658
0.2152
0.1815
0.1575
0.1395
0.1255
0.1143
0.1051
0.0975
0.0910
0.0855
0.0808
0.0766
0.0729
0.0697
0.0668
0.0641
Interest Rate
0.03
1.0300
0.5226
0.3535
0.2690
0.2184
0.1846
0.1605
0.1425
0.1284
0.1172
0.1081
0.1005
0.0940
0.0885
0.0838
0.0796
0.0760
0.0727
0.0698
0.0672
0.035
1.0350
0.5264
0.3569
0.2723
0.2215
0.1877
0.1635
0.1455
0.1314
0.1202
0.1111
0.1035
0.0971
0.0916
0.0868
0.0827
0.0790
0.0758
0.0729
0.0704

0.04
1.0400
0.5302
0.3603
0.2755
0.2246
0.1908
0.1666
0.1485
0.1345
0.1233
0.1141
0.1066
0.1001
0.0947
0.0899
0.0858
0.0822
0.0790
0.0761
0.0736

0.045
1.0450
0.5340
0.3638
0.2787
0.2278
0.1939
0.1697
0.1516
0.1376
0.1264
0.1172
0.1097
0.1033
0.0978
0.0931
0.0890
0.0854
0.0822
0.0794
0.0769

0.05
1.0500
0.5378
0.3672
0.2820
0.2310
0.1970
0.1728
0.1547
0.1407
0.1295
0.1204
0.1128
0.1065
0.1010
0.0963
0.0923
0.0887
0.0855
0.0827
0.0802

0.055
1.0550
0.5416
0.3707
0.2853
0.2342
0.2002
0.1760
0.1579
0.1438
0.1327
0.1236
0.1160
0.1097
0.1043
0.0996
0.0956
0.0920
0.0889
0.0862
0.0837

0.06
1.0600
0.5454
0.3741
0.2886
0.2374
0.2034
0.1791
0.1610
0.1470
0.1359
0.1268
0.1193
0.1130
0.1076
0.1030
0.0990
0.0954
0.0924
0.0896
0.0872

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Appendix B.Table of Annualization Factors
Year

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

0.065
1.0650
0.5493
0.3776
0.2919
0.2406
0.2066
0.1823
0.1642
0.1502
0.1391
0.1301
0.1226
0.1163
0.1109
0.1064
0.1024
0.0989
0.0959
0.0932
0.0908

0.07
1.0700
0.5531
0.3811
0.2952
0.2439
0.2098
0.1856
0.1675
0.1535
0.1424
0.1334
0.1259
0.1197
0.1143
0.1098
0.1059
0.1024
0.0994
0.0968
0.0944

0.075
1.0750
0.5569
0.3845
0.2986
0.2472
0.2130
0.1888
0.1707
0.1568
0.1457
0.1367
0.1293
0.1231
0.1178
0.1133
0.1094
0.1060
0.1030
0.1004
0.0981

0.08
1.0800
0.5608
0.3880
0.3019
0.2505
0.2163
0.1921
0.1740
0.1601
0.1490
0.1401
0.1327
0.1265
0.1213
0.1168
0.1130
0.1096
0.1067
0.1041
0.1019

0.085
1.0850
0.5646
0.3915
0.3053
0.2538
0.2196
0.1954
0.1773
0.1634
0.1524
0.1435
0.1362
0.1300
0.1248
0.1204
0.1166
0.1133
0.1104
0.1079
0.1057
Interest Rate
0.09
1.0900
0.5685
0.3951
0.3087
0.2571
0.2229
0.1987
0.1807
0.1668
0.1558
0.1469
0.1397
0.1336
0.1284
0.1241
0.1203
0.1170
0.1142
0.1117
0.1095
0.095
1.0950
0.5723
0.3986
0.3121
0.2604
0.2263
0.2020
0.1840
0.1702
0.1593
0.1504
0.1432
0.1372
0.1321
0.1277
0.1240
0.1208
0.1180
0.1156
0.1135

0.1
1.1000
0.5762
0.4021
0.3155
0.2638
0.2296
0.2054
0.1874
0.1736
0.1627
0.1540
0.1468
0.1408
0.1357
0.1315
0.1278
0.1247
0.1219
0.1195
0.1175

0.105
1.1050
0.5801
0.4057
0.3189
0.2672
0.2330
0.2088
0.1909
0.1771
0.1663
0.1575
0.1504
0.1444
0.1395
0.1352
0.1316
0.1285
0.1259
0.1235
0.1215

0.11
1.1100
0.5839
0.4092
0.3223
0.2706
0.2364
0.2122
0.1943
0.1806
0.1698
0.1611
0.1540
0.1482
0.1432
0.1391
0.1355
0.1325
0.1298
0.1276
0.1256

0.115
1.1150
0.5878
0.4128
0.3258
0.2740
0.2398
0.2157
0.1978
0.1841
0.1734
0.1648
0.1577
0.1519
0.1470
0.1429
0.1394
0.1364
0.1339
0.1316
0.1297

0.12
1.1200
0.5917
0.4163
0.3292
0.2774
0.2432
0.2191
0.2013
0.1877
0.1770
0.1684
0.1614
0.1557
0.1509
0.1468
0.1434
0.1405
0.1379
0.1358
0.1339

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     APPENDIX C

CONCEPTUAL MEASURES
OF ECONOMIC BENEFITS

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       APPENDIX C

       CONCEPTUAL MEASURES
       OF ECONOMIC BENEFITS
         In  valuing  benefits associated  with  an  ecological
       resource such as clean water, a basic distinction is made
       between the intrinsic value of the existence of the resource
       and its value in use by the human population.  Use values
       are  further subdivided into direct or indirect uses.  Other
       valuation concepts arise from the uncertainty surrounding
       future  uses  and  availability  of  the  resource.    A
       classification  of these valuation  concepts, along  with
       examples,  is presented in Table C-l.
       C.I   Use Benefits

          Estimating the benefits of clean water will depend upon
       several variables that describe the attributes of the resource
       and its uses.  A waterbody might be used for recreational
       activities (such as  fishing,  boating, swimming, hunting,
       bird watching), for commercial purposes (such as industrial
       water supply, irrigation, municipal drinking water, and fish
       harvesting), or for both. Where recreational activities are
       created or enhanced due to water quality improvements, the
       public will benefit in the form of increased recreational
       opportunities.  Similarly, the cost of treating irrigation and
       drinking water to down stream users could be reduced if
       pollutant discharges  were  reduced or  eliminated in a
       particular stretch of river.

          Direct  use  includes  both   consumptive   and non-
       consumptive uses.  Consumptive uses can be distinguished
       from  non-consumptive uses in that the former excludes
       other uses of the same resource while  the latter does not.
       For example, water is consumed when it is  diverted from
       a  waterbody  for  irrigation  purposes.    With non-
       consumptive uses, however, the resource base remains in
       the same  state before and after use  (e.g., swimming).
       Human health benefits associated with cleaner water could
Economic Guidance for Water Quality Standards

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                                   TABLE C-l

                           CATEGORIES OF BENEFITS


                                   Use Benefits

                                      Direct

                            Consumptive:AfarJte/ Benefits

                              Industrial Water Supply
                             Agricultural Water Supply
                              Municipal Water Supply
                                Commercial Fishing

                                Non-Market Benefits

                                Recreational Fishing
                                     Hunting
                              Industrial Water Supply
                             Agricultural Water Supply
                              Municipal Water Supply

                            Non-Consumptive: Swimming
                                     Boating
                                   Human Health


                                     Indirect

                           Fishing Equipment Manufacturer
                                  Property Values
                  Aesthetics (scenic views, water enhanced recreation)


                                 Intrinsic Benefits

                      Option Value (access to resource in future)

               Existence Value (knowledge that services of resource exist)
Economic Guidance for Water Quality Standards

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       be consumptive (reduced illness from eating  finfish or
       shellfish)  or  non-consumptive  (reduced  exposure  to
       infectious diseases while recreating).

          When estimating benefits, it is important to determine
       whether or not the resource and its uses (in this case clean
       water) can be considered market or non-market resources
       and uses (i.e., does a market exist for the resource or its
       use).   For example, commercial  fisheries have a  market
       value reflected by the  financial  value of landings  of a
       particular species.   By contrast,  no  market exists to
       describe  the value individuals receive from  swimming.
       Where market values are available, they should be used to
       estimate benefits.  In the case of water supply, there may
       or may not be a market for clean water.  Some water users
       may be required to pay for that  use as  in the case of a
       farmer paying a regional water board  to divert water for
       irrigation  purposes.  This will be particularly true in the
       arid  west.  By  contrast,  a manufacturing facility using
       water for  cooling or process  water may not pay anything
       for the right to pump and use water from an adjacent river.
       For  resources  with  no  market  value, a  number  of
       estimation techniques including the travel cost,  estimation
       from  similar markets,  and contingent valuation methods
       have been developed.

          While  they   are   conceptually   distinct   attributes,
       consumptive use is frequently associated with markets and
       non-consumptive  use  is frequently associated  with  non-
       market situations.   Some resources that are considered
       market   resources,   however,   may  be   used   non-
       consumptively.  The converse is also true. As an example
       of the first,  a fee may be charged (other than parking) to
       gain entrance to a state park, however, while a swimmer's
       use of a lake in the park is not consuming any part of the
       lake.

          Commercial activities that are dependent on clean water
       which is  not  directly  owned are  said  to  benefit from
       indirect use.  Examples would be  a  fishing  equipment
       manufacturer's dependence on healthy fish stocks to induce
       demand for its products or the dependence of property
Economic Guidance for Water Quality Standards
C-3

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      values on the pristine condition of an adjacent water body.
      Indirect use is also characterized by the scenic views and
      water  enhanced  recreational  opportunities  (camping,
      picnicking, birdwatching) associated  with the quality of
      water in a  water body.   Indirect use benefits such as
      enhanced  property  values can  be  estimated using the
      hedonic price technique.  Care should be taken, however,
      to not double-count benefits.  If property values reflect the
      proximity to and  thus use of water, then the value of the
      use should not be included separately.
       C.2   Intrinsic Benefits

         Intrinsic benefits include all benefits associated with a
       resource that are not directly related to the current use of
       the resource. Intrinsic benefits are represented by the sum
       of existence and option values.  Existence value indicates
       an individual's  (and society's) willingness  to pay to
       maintain an ecological resource such as clean water for its
       own  sake,  regardless  of  any  perceived or  potential
       opportunity for that individual to use the water body now
       or in  the  future.    Contributions of  money  to   save
       endangered species such as the snail darter demonstrate a
       willingness to pay for the existence of an environmental
       amenity despite the fact that the contributors may never use
       it or even experience  it directly.

         Option value is  the  willingness  to pay for  having a
       future opportunity to use resources such as clean water in
       known or as yet unknown ways.   In a  sense it  is a
       combination   of  insurance   and   speculative  value.
       Individuals routinely  pay  to store or transport something
       they  are not sure they will use in the future because they
       recognize it would be more costly to recreate the item than
       to preserve it. In an ecological sense, pristine habitats and
       wildlife refuges  are often preserved under the assumption
       that   plant   or  animal  species  which  may   yield
       pharmaceutical, genetic, or ecosystem benefits are yet to be
       discovered.   Option value takes on particular importance
       when proposed development or environmental perturbations
       are   largely  irreversible   or  pollutants  are  persistent.
Economic Guidance for Water Quality Standards
C-4

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       Intrinsic benefits are difficult to measure due to the level of
       uncertainty  associated with  these  benefits.   The  most
       common approach to estimating intrinsic benefits, however,
       is  the contingent valuation method, which  cannot  be
       described in detail within this short  overview.

       C.3    Summary

          Total valuation of clean water benefits includes all use
       and existence values as well as option value.  The proper
       framework for estimating the economic benefits associated
       with clean  water consists of 1) determining when damage
       first occurs or would occur; 2) identifying and quantifying
       the potential physical/biological  damages relative  to  an
       appropriate baseline; 3) identifying all affected individuals
       both due to potential loss of direct or indirect services or
       uses, and to potential losses attributable to existence values
       (may include projections for growth in participation rates);
       4) estimating the value affected individuals place on  clean
       water prior to potential degradation;  and 5) determining the
       time horizon over which the waterbody would be degraded
       or restored to some maximum reduced state of service (if
       ever), and appropriately discounting the stream of potential
       lost services.   If evaluating  an improvement in  water
       quality, the procedures are  the same except that benefits
       gained are  measured.
Economic Guidance for Water Quality Standards
C-5

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WORKSHEETS

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                                                \
                                       Worksheet A
                   Pollution Control Project Summary Information
  Current Capacity of the Pollution Control System
  Design Capacity of the Pollution Control System
  Current Excess Capacity
 Expected Excess Capacity after Completion of Project                                        %
 Projected Groundbreaking Date
 Projected Date of Completion
Please describe the pollution control project being proposed below. (Attach additional page if necessary).
Please describe the other pollution control options considered, explaining why each option was rejected.
(Attach additional page if necessary).

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                                       Worksheet B
                    Calculation of Total Annualized Project Costs
A. Capital Costs
 Capital Cost of Project
 Other One-Time Costs of Project (Please List, if any):
 Total Capital Costs (Sum column)
 Portion of Capital Costs to be Paid for with Grant Monies                      $	(2)
 Capital Costs to be Financed [Calculate: (1) - (2) ]                             $	(3)
 Type of financing (e.g., G.O. bond, revenue bond, bank loan)
 Interest Rate for Financing (expressed as decimal)                                            (i)
 Time Period of Financing (in years)
                                                                          	(n)
 Annual ization Factor = 	i	  + i (or see Appendix B)
 Annualized Capital Cost [Calculate: (3) x (4) ]
                                                                                         (5)
B. Operating and Maintenance Costs
 Annual Costs of Operation and Maintenance (including but not limited to: monitoring, inspection,
 permitting fees, waste disposal charges, repair, administration and replacement.) (Please list below)
 Total Annual O & M Costs (Sum column)                                  $              (6)
C. Total Annual Cost of Pollution Control Project
 Total Annual Cost of Pollution Control Project [ (5) + (6) ]
                                                                          11

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                                     Worksheet C

                Calculation of Total Annual Pollution Control Costs
                                     Per Household
A. Current Pollution Control Costs:
 Total Annual Cost of Existing Pollution Control                $                        (1)
 Amount of Existing Costs Paid By Households                 $                        (2)
 Percent of Existing Costs Paid By Households                                        %(3)
 Number of Households*                                                             (4)
 Annual Cost Per Household [Calculate: (2)/(4) ]                $                        (5)

* Do not use number of hook-ups.



B. New Pollution Control Costs

Are households expected to provide revenues for the new pollution control project in the same proportion
that they support existing pollution control? (Check a, b or c and continue as directed.)
D a) Yes [fill in percent from (3) ]

D b) No, they are expected to pay
percent. (6a)

percent. (6b)
D c) No, they are expected to pay based on flow. (Continue on Worksheet C, Option A)


 Total Annual Cost of Pollution Control Project [Line (7), Worksheet B]    $                  (7)
 Proportion of Costs Households Are Expected to Pay [ (6a) or (6b) ]                         (8)
 Amount to Be Paid By Households [Calculate: (7) x (8) ]                $                  (9)
 Annual Cost per Household [Calculate: (9)/(4) ]                        $                 (10)


C. Total Annual Pollution Control Cost Per Household

 Total Annual Cost of Pollution Control Per Household (5) + (10)  |$(11)1

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                              Worksheet C: Option A

       Calculation of Total Annual Pollution Control Costs Per Household
                                   Based on Flow
A. Calculating Project Costs Incurred By Households Based on Flow


 Expected Total Usage of Project (eg. MOD for Wastewater Treatment)                     (1)
 Usage due to Household Use (MGD of Household Wastewater)                           (2)
 Percent of Usage due to Household Use [Calculate: (2)/(l) ]                             %(3)
 Total Annual Cost of Pollution Control Project                          $              (4)
 Industrial Surcharges, if any                                         $              (5)
 Costs to be Allocated [Calculate: (4) - (5) ]                            $              (6)
 Amount to Be Paid By Households [Calculate: (3) x (6) ]                 $              (7)
 Annual Project Cost per Household [Calculate: (7)/Worksheet C, (4) ]       $              (8)


C. Total Annual Pollution Control Cost Per Household


 Annual Existing Costs Per Household [Worksheet C, (5) ]                  $           (9)


 Total Annual Cost of Pollution Control Per Household [ (8) + (9) ]

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                                     Worksheet D
                           Municipal Preliminary Screener
The  Municipal Preliminary Screener  indicates quickly whether a public entity will not incur any
substantial economic impacts as a result of the proposed pollution control project.  The formula is as
follows:
                Total Annual Pollution Control Cost per Household    , nn
                	£	  x 100
                           Median Household Income *
                                                                                   (D
                                                                                   (2)
A. Calculation of The Municipal Preliminary Screener

 Total Annual Pollution Control Cost Per Household [Worksheet C, (11) or
 Worksheet C, Option A (10) ]

 Median Household Income*


 Municipal Preliminary Screener (Calculate: [(l)/(2)] x 100)
B. Evaluation of The Municipal Preliminary Screener
If the Municipal Preliminary Screener is clearly less than 1.0%, then it is assumed that the cost will not
impose an undue financial burden. In this case, it is not necessary to continue with the Secondary Test.
Otherwise, it is necessary to continue.
Benchmark Comparison:
                   Little Impact

                  Less than 1.0%
                                    Mid-Range Impact

                                       1.0%-2.0%
  Large Impact

Greater than 2.0%
                Indication of no
                substantial
                economic impacts
                                   Proceed to Secondary Test
* 1990 Census adjusted by CPI inflation rate if necessary.

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                                      Worksheet E
                           Data Used in the Secondary Test
Please list the following values used in determining the Secondary Score.  Potential sources of the data
are indicated.
A. Data Collection

          Data                       Potential Source                      Value


Direct Net Debt             Community Financial Statements
                           Town, County or State Assessor's Office
                                                               $	0)
Overlapping Debt            Community Financial Statements
                           Town, County or State Assesor's Office  $                       (2)

Market Value of Property     Community Financial Statements
                           Town, County or State Assessor's Office
                                                               $	(3)
Bond Rating                Standard and Poors or Moody's
                                                                                      W
Community Unemployment   1990 Census of Population
Rate                       Regional Data Centers                    -                   %(5)

National Unemployment      Bureau of Labor Statistics
Rate                       (202)606-6392                                             %(6)

Community Median          1990 Census of Population
Household Income                                               $                       (7)

State Median Household      1990 Census of Population
Income                                                         $                       (g)

Property Tax Collection      Community Financial Statements
Rate                       Town, County or State Assessor's Office                       %(9)

Property Tax Revenues       Community Financial Statements
                           Town, County or State Assessor's Office $                      (10)

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                                Worksheet E, Continued
B. Calculation of Indicators
       1. Overall Net Debt as a Percent of Full Market Value of Taxable Property


Overall Net Debt (Calculate: (1) + (2))                          $                      (11)
Overall Net Debt as a Percent of Full Market Value of Taxable
Property (Calculate: [(11)/(3)] x 100)
       2. Property Tax Revenues as a Percent of Full Market Value of Taxable Property
Property Tax Revenues as a Percent of Full Market Value of Taxable
Property (Calculate: [(10)/(3)] x 100)

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                                                           Wr    heet F
                                                Calculating The Secondary Score

Please check the appropriate box in each row, and record the corresponding score in the final column. Then, sum the scores and compute the average.
Remember,  if one of the debt or socioeconomic indicators is not available, average the two financial management indicators and use this averaged value as
a single indicator with the remaining indicators.

Indicator
Bond Rating
Worsksheet E, (4)
Overall Net Debt as Percent
of Full Market Value of
Taxable Property
Worksheet E, (12)
Unemployment
Worksheet E, (5)& (6)
Median Household Income
Worksheet E, (7) & (8)
Property Tax Revenues as a
Percent of Full Market
Value of Taxable Property
Worksheet E, (13)
Property Tax Collection
Rate
Worksheet E, (9)
Secondary Indicators
Weak*
Below BBB (S&P)
Below Baa (Moody 's)
D
Above 5%
D
Above National Average
D
Below State Median
D
Above 4%
D
< 94%
D
Mid-Range*
BBB (S&P)
Baa (Moody 's)
D
2%-5%
D
National Average
D
State Median
D
2%-4%
D
94% - 98%
D
Strong
Above BBB (S&P) or
Baa (Moody 's)
D
Below 2%
D
Below National Average
D
Above State Median
D
Below 2%
D
> 98%
D
                                                                                                                Score
                                     * Weak is a score of 1 point

                                     '* Mid-Range is a score of 2 points
                                     ***
                                         Strong is a score of 3 points
   SUM
AVERAGE

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                                       Worksheet G

                     Calculation of Total Annualized Project Costs
Capital Costs to be financed (Supplied by applicant)                          _$	(1)


Interest Rate for Financing  (Expressed as a decimal)                                         (i)
Time Period of Financing (Assume 10 years*)                                     10 years   (n)
Annual ization Factor** =   	  + i                                                 (2)
                          (1+i)10 -  1
Annualized Capital Cost [Calculate: (1) x (2) ]                               $               (3)
Annual Cost of Operation and Maintenance
(including but not limited to monitoring, inspection, permitting fees, waste
disposal charges, repair, administration and replacement)*                     $               (4)
Total Annual Cost of Pollution Control Project [ (3) + (4) ]
(5)
    While actual payback schedules may differ across projects and companies, assume equal annual
    payments over a 10-year period for consistency in comparing projects.

    Or see Appendix B for calculated annualization factors

    For recurring costs that occur less frequently than once a year, pro rate the cost over the relevant
    number of years (e.g., for pumps replaced once every three years, include one-third of the cost in
    each year).

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                                     Worksheet H

                        Calculation of Earnings Before Taxes
                     With and Without Pollution Control Project Costs
A. Earnings Without Pollution Control Project Costs


                            EBT = R - CGS - CO
Where:        EBT =       Earnings Before Taxes
              R =          Revenues
              CGS =       Cost of Goods Sold (including the cost of materials, direct labor, indirect
                           labor, rent and heat)
              CO =         Portion of Corporate Overhead Assigned to the Discharger (selling,
                           general,  administrative, interest, R&D expenses, and depreciation on
                           common property)
                                 Three Most Recently Completed Fiscal Years

                              19	             19	            19	
EBT [ (1) - (2)-(3) ]
R                        $	   _$	    3	   (1)

CGS                     $                   $	   _$	   (2)

CO                      $                   $                   $	   (3)


                                                                             II   (4)
Considerations: Have earnings before taxes changed over the three year period? If so, what would a
"typical" year's EBT be?  Please explain below.

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                             Worksheet H, Continued


B. Earnings With Pollution Control Project Costs


                           EWPR  = EBT - ACPR
Where:       EWPR =     Earnings with Pollution Control Project Costs
             EBT =       Earnings Before Taxes (4)
             ACPR =      Total Annual Costs of Pollution Control Project [Worksheet G, (5) ]
                                                 19	*

                     EBT (4)                      $          (5)
                     ACPR [Worksheet G, (5)]       $          (6)



                     EWPR [ (5) - (6) ]
$          (7)
* The most recently completed fiscal year
Considerations: Is the discharger expected to have positive earnings after paying the annual cost of
pollution control?    D Yes     D  No
Additional Comments:

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                                     Worksheet I

                             Calculation of Profit Rates
                With and Without Pollution Control Project Costs
A. Profit Rate Without Project Costs

                                  PRT  = EBT H- R
Where:
PRT
EBT
R =
Profit Rate Before Taxes
Earnings Before Taxes
Reveneus
EBT [Worksheet H, (4)]

R [Worksheet H, (1)]


PRT = Calculate: [(l)/(2)]
                                 Three Most Recently Completed Fiscal Years
                                  19
                                       19
                                           19
                                                                      (1)

                                                                      (2)


                                                                      (3)
Considerations: How have profit rates changed over the three years?
Is the most recent year typical of the three years?  D Yes  D No
(If not, you might want to use an earlier year or years for the analysis)

How do these profit rates compare with the profit rates for this line of business"? Please discuss
below.

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                                Worksheet I. Continued


B. Profit Rate With Pollution Control Costs


                                 PRPR = EWPR  -i- R
Where:        PRPR =   Profit Rate With Pollution Control Costs
              EWPR =  Before-Tax Earnings With Pollution Control Costs
              R =     Reveneus
                                                       The Most Recently
                                                           Completed
                                                           Fiscal Year

                                                             19
            EWPR [Worksheet H, (7)]                $                     (4)
            R [Worksheet H, (1)]                    $                     (5)
            PRPR [Calculate: (4)1(5)]                                      (6)
Considerations:

What is the percentage change in the profit rate due to pollution control costs ? Calculate as follows:
(PRPR - PR)/PR x 100
How does the profit rate with pollution control compare to the profit rate of this line of business?

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                                      Worksheet J

                           Calculation of The Current Ratio


                                    CR  = CA + CL
Where:        CR =  Current Ratio
              CA =  Current Assets (the  sum  of inventories,  prepaid  expenses,  and  accounts
                     receivable)
              CL =  Current Liabilities (the sum of accounts payable, accrued expenses, taxes, and
                     the current portion of long-term debt)
                                    Three Most Recently Completed Fiscal Years

                               19	                 19	                19	

CA                     _$	   _$	    _$	(1)

CL                     $                      $                     $                 (2)
CR [Calculate: (l)/(2)]                                                                   (3)
Considerations:

Is the most recent year typical of the three years?   D Yes   D No
(If not, you might want to use an earlier year or years for the analysis)

Is the Current Ratio (3) greater than 2.0?  D Yes   D No

How does the Current Ratio (3) compare with the Current Ratios for other firms in this line of business?

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                                      Worksheet K

                             Calculation of Beaver's Ratio

                                    BR =  CF -H TD

Where:               BR = Beaver's Ratio
                     CF = Cash Flow
                     TD = Total Debt

                                Three Most Recently Completed Fiscal Years
                                19	              19	              19	
 Cash Flow:
   Net Income After Taxes   $                  $                  $                  (1)
   Depreciation             $                  $                  $                  (2)
   CF [Calculate: (1) + (2)]  $                  $	    _$	    (3)

Total Debt:
  Current Debt             $                  $                  $                  (4)
  Long-Term Debt          $                  $                  $                  (5)
  Total Debt                $                  $	    $	    (6)

Beaver's Ratio:
  BR [(3) /(6)]

Considerations:
Is the most recent year typical of the three years?   D Yes   D  No
(If not, you might want to use an earlier year or years for the analysis)
Is the Beaver's Ratio for this discharger greater than 0.2? D  Yes   D No
Is the Beaver's Ratio for this discharger less than 0.15?  D  Yes   D No
Is the Beaver's Ratio for this discharger between 0.2 and 0.15? D Yes   D No
How does  this ratio compare with the Beaver's Ratio for other firms in the same business?
(7)

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                                      Worksheet L
                                  Debt to Equity Ratio
                                  DER = LTL -s- OE
Where:        DER =   Debt/Equity Ratio
              LTL =   Long-Term Liabilities Qong-term debt such as bonds, debentures, and bank
                        debt, and all other noncurrent liabilities such as deferred income taxes)
              OE =     Owner Equity (the  difference  between total assets  and total liabilities,
                        including contributed or paid in capital and retained earnings)
                          Three Most Recently Completed Fiscal Years
LTL

OE
                        19
19
19
                                    (1)

                                    (2)
DER
                                    (3)
Considerations:

Is the most recent year typical of the three years?   D Yes   D No
(If not, you might want to use an earlier year or years for the analysis)
How does the Debt to Equity Ratio compare with the ratio for firms in the same business?

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                              Worksheet M

              Qualitative Description of Estimated change
                      hi Socioeconomic Indicators
                     due to Pollution Control Costs
Estimated change
in Median
Household
Income (MHI)
Estimated change
in the
unemployment
rate
Estimated change
in overall net debt
as a percent of
full market value
of taxable
property
Estimated change
in % of
households below
the poverty line
Impact on
commercial
development
potential
Impact on
Property Values

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                                                       Worksheet N
           Factors to Consider in Making a Determination of Widespread Social and Economic Impacts

Define the affected community in this case; what areas are included.          	     (1)
Current unemployment rate in affected community  (if available).             	   (2)
Current national unemployment rate.	   (3)
Additional number of persons expected to collect unemployment in affected                                                      (4)
       community due to compliance with water quality standards.	^^^
Expected unemployment rate in the affected community after compliance with                                                    (5)
       water quality standards (Current # of persons collecting unemployment
       in affected community  +  (4)/labor force in affected community.	
Median household income in affected community.                          	   (6)
Total number of households in affected community.                        	    (7)
Percent of population below the poverty line in affected community.	   (8)
Current expenditures on social  services in affected community.	   (9)
Expected expenditures on social services due to job losses in the affected                                                        (10)
       community.	
Current total tax revenues in the affected community.                       	  _       (11)
Tax revenues paid by the private entity to the affected community.            	   (12)

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                                                      Worksheet N, continued

Tax revenues paid by the private entity as a percentage of the affected                                                              (13)
       community's total tax revenues.*                                    	

Current statewide unemployment rates.                                      	  (14)

Additional number of persons expected to collect unemployment in the State                                                        (15)
       due to compliance with water quality standards.                       	

Expected statewide unemployment rate, after compliance with water quality                                                         (16)
       standards (Current # of persons collecting unemployment in State +
       (15)/labor force in State.                                            	

Current expenditures on social services in State.                              	  (17)

Expected statewide expenditures on social services due to job losses.          	  (18)
* In some cases, the affected community will include more than just the municipality in which the private entity is located.  If so, the analysis
should consider the private entity's tax revenues as a percentage of the tax revenues for only the municipality in which the entity is located.

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                                       Worksheet O

                                Pollution Control Project
                                  Summary Information
 Design Capacity of the Pollution Control System

 Expected Excess Capacity after Completion of Project

 Projected Groundbreaking Date

 Projected Date of Completion
Please describe  the pollution  control project being  proposed.   Include description  of  all pollution
prevention activities included in the project.  (Attach additional page if necessary).
Please describe the other pollution control options considered, including pollution prevention activities.
Explain why each option was rejected. (Attach additional page if necessary).

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                                       Worksheet P
                             Public-Sector Pollution Control
                     Calculation of Total Annualized Project Costs
A. Capital Costs
  Capital Cost of Project
  Other One-Time Costs of Project (Please List, if any):
  Total Capital Costs (Sum column)                                          $              (1)
  Portion of Capital Costs to be Paid for with Grant Monies                      $              (2)
  Capital Costs to be Financed [Calculate: (1) - (2) ]                             $              (3)
  Type of financing (e.g., G.O. bond, revenue bond, bank loan)
  Interest Rate for Financing (expressed as decimal)                                           (i)
  Time Period of Financing (in years)                                                        (n)
  Annual ization Factor = - 1 -  + i (or see                                             ...
                        (l+i)n - 1                                                        W
  Appendix B)
 Annualized Capital Cost [Calculate: (3) x (4) ]                                             (5)
B. Operating and Maintenance Costs
 Annual Costs of Operation and Maintenance (including but not limited to: monitoring, inspection,
 permitting fees, waste disposal charges, repair, administration and replacement.) (Please list below)
                                                                          $
 Total Annual O & M Costs (Sum column)                                 $             (6)
C. Total Annual Cost of Pollution Control Project
 Total Annual Cost of Pollution Control Project [ (5) + (6) ]

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                                     Worksheet Q

                Calculation of Total Annual Pollution Control Costs
                                    Per Household
A. Current Pollution Control Costs:

 Total Annual Cost of Existing Pollution Control                $                        (1)
 Amount of Existing Costs Paid By Households                 $                        (2)
 Percent of Existing Costs Paid By Households                                        %(3)
 Number of Households*                                                             (4)
 Annual Cost Per Household [Calculate: (2)/(4) ]                $                        (5)

* Do not use number of hook-ups.



B. New Pollution Control Costs

Are households expected to provide revenues for the new pollution control project in the same proportion
that they support existing pollution control? (Check a, b or c and continue as directed.)
D a) Yes [fill in percent from (3) ]

D b) No, they are expected to pay
percent. (6a)

percent. (6b)
D c) No, they are expected to pay based on flow. (Continue on Worksheet Q, Option A)


 Total Annual Cost of Pollution Control Project [Line (7), Worksheet P]    $                  (7)
 Proportion of Costs Households Are Expected to Pay [ (6a) or (6b) ]                         (8)
 Amount to Be Paid By Households [Calculate: (9) x (10) ]             •  $                  (9)
 Annual Cost per Household [Calculate: (ll)/(4) ]                       $                 (10)


C. Total Annual Pollution Control Cost Per Household	

 Total Annual Cost of Pollution Control Per Household (5) + (10) 1$

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                              Worksheet Q:  Option A

       Calculation of Total Annual Pollution Control Costs Per Household
                                   Based on Flow
A. Calculating Project Costs Incurred By Households Based on Flow

 Expected Total Usage of Project (eg. MGD for Wastewater Treatment)                     (1)
 Usage due to Household Use (MGD of Household Wastewater)                           (2)
 Percent of Usage due to Household Use [Calculate: (2)/(l) ]                             %(3)
 Total Annual Cost of Pollution Control Project                          $              (4)
 Industrial Surcharges, if any                                         $              (5)
 Costs to be Allocated [Calculate: (4) - (5) ]                             $              (6)
 Amount to Be Paid By Households [Calculate: (3) x (6) ]                  $              (7)
 Annual Project Cost per Household [Calculate: (7)/Worksheet Q, (4) ]       $              (8)


C. Total Annual Pollution Control Cost Per Household


 Annual Existing Costs Per Household [Worksheet Q, (5) ]                  $           (9)
 Total Annual Cost of Pollution Control Per Household [ (8) + (9) ]          $          (JQ)

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                                       Worksheet R

                              Private-Sector Development
                    Calculation of Total Annualized Project Costs
 Capital Costs to be financed (Supplied by applicant)                          $               (1)
 Interest Rate for Financing  (Expressed as a decimal)                                         (i)
Time Period of Financing (Assume 10 years*)                                     10 years   (n)
 Annualization Factor   =  	  +  i                                                (2)
                          (1+i)10 - 1
Annualized Capital Cost [Calculate: (1) x (2) ]                              $               (3)
Annual Cost of Operation and Maintenance
(including but not limited to monitoring, inspection, permitting fees, waste
disposal charges, repair, administration and replacement)***                   $               (4)
Total Annual Cost of Pollution Control Project  [ (3) + (4) ]
(5)
    While actual payback schedules may differ across projects and companies, assume equal annual
    payments over a 10-year period for consistency in comparing projects.

    Or see Appendix B for calculated annualization factors
*«*
    For recurring costs that occur less frequently than once a year, pro rate the cost over the relevant
    number of years (e.g., for pumps replaced once every three years, include one-third of the cost in
   each year).

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                                     Worksheet S
                          Municipal Preliminary Screener
The Municipal Preliminary Screener indicates  quickly whether  a  public entity  will not incur any
substantial economic impacts as a result of the proposed pollution control project.  The formula is as
follows:
                Total Annual Pollution Control Cost per Household    inft
                ^——^————————————— x  1UU
                           Median Household Income*
A. Calculation of The Municipal Preliminary Screener

 Total Annual Pollution Control Cost Per Household [Worksheet C, (11) or
 Worksheet C, Option A (10) ]
 Median Household Income*
 Municipal Preliminary Screener (Calculate: [(l)/(2)] x 100)
                                                (i)
                                                (2)
B. Evaluation of The Municipal Preliminary Screener
If the Municipal Preliminary Screener is clearly less than 1.0%, then it is assumed that the cost will not
impose an undue financial burden. In this case, it is not necessary to continue with the Secondary Test.
Otherwise, it is necessary to continue.
Benchmark Comparison:
                   Little Impact

                  Less than 1.0%
 Mid-Range Impact

    1.0% -2.0%
  Large Impact

Greater than 2.0%
                Indication of no
                substantial
                economic impacts
Proceed to Secondary Test
  1990 Census adjusted by CPI inflation rate if necessary.

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                                      Worksheet T
                           Data Used in the Secondary Test
Please list the following values used in determining the Secondary Score.  Potential sources of the data
are indicated.
A. Data Collection

          Data                       Potential Source                      Value


Direct Net Debt             Community Financial Statements
                           Town, County or State Assessor's Office
                                                               $	0)

Overlapping Debt            Community Financial Statements
                           Town, County or State Assesor's Office  $                       (2)

Market Value of Property     Community Financial Statements
                           Town, County or State Assessor's Office
                                                               $      	(3)

Bond Rating                Standard and Poors or Moody's
                                                                                       (4)
Community Unemployment   1990 Census of Population
Rate                       Regional Data Centers                                       %(5)

National Unemployment      Bureau of Labor Statistics
Rate                       (202) 606-6392                       	%(6)

Community Median          1990 Census of Population
Household Income                                               $                       (7)

State Median Household      1990 Census of Population
Income                                                         $•                      (8)

Property Tax Collection      Community Financial Statements
Rate                       Town, County or State Assessor's Office                       %(9)

Property Tax Revenues       Community Financial Statements
                           Town, County or State Assessor's Office $                      (10)

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                               Worksheet T,  Continued
B. Calculation of Indicators
       1. Overall Net Debt as a Percent of Full Market Value of Taxable Property


Overall Net Debt (Calculate: (1) + (2))                           $                      (11)
Overall Net Debt as a Percent of Full Market Value of Taxable
Property (Calculate: [(ll)/(3)] x 100)
       2. Property Tax Revenues as a Percent of Full Market Value of Taxable Property
Property Tax Revenues as a Percent of Full Market Value of Taxable
Property (Calculate: [(10)/(3)] x 100)
%03)

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                                                           Worksheet U
                                                Calculating The Secondary Score

Please check the appropriate box in each row, and record the corresponding score in the final column. Then, sum the scores and compute the average.
Remember, if one of the debt or socioeconomic indicators is not available, average the two financial management indicators and use this averaged value as
a single indicator with the remaining indicators.

Indicator
Bond Rating
Worsksheet T, (4)
Overall Net Debt as Percent
of Full Market Value of
Taxable Property
Worksheet T, (12)
Unemployment
Worksheet T, (5)& (6)
Median Household Income
Worksheet T, (7) & (8)
Property Tax Revenues as a
Percent of Full Market
Value of Taxable Property
Worksheet T, (13)
Property Tax Collection
Rate
Worksheet T, (9)
Secondary Indicators
Weak*
Below BBB (S&P)
Below Baa (Moody's)
D
Above 5%
D
Above National Average
D
Below State Median
D
Above 4%
D
< 94%
D
Mid-Range
BBB (S&P)
Baa (Moody's)
D
2%-5%
D
National Average
n
State Median
n
2%-4%
D
94% - 98%
D
r,, ***
Strong
Above BBB (S&P) or
Baa (Moody's)
D
Below 2%
D
Below National Average
D
Above State Median
D
Below 2%
D
> 98%
D
                                                                                                               Score
                                     * Weak is a score of 1 point

                                    '* Mid-Range is a score of 2 points

                                    *** Strong is a score of 3  points
   SUM
AVERAGE

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                                    Worksheet V
                        Calculation of Earnings Before Taxes
A. Earnings Without Pollution Control Project Costs
                           EBT  =  R - CGS - CO
B. Earnings With Pollution Control Project Costs
                          EWPR  =  EBT - ACPR
Where:       EBT =       Earnings Before Taxes
             EWPR =   •   Earnings with Pollution Project Costs
             R =          Revenues
             CGS =       Cost of Goods Sold (including the cost of materials, direct labor, indirect
                          labor, rent and heat)
             CO =         Portion of Corporate Overhead Assigned to the Discharger (selling,
                          general, administrative, interest, R&D expenses, and depreciation on
                          common property)
             ACPR =      Total Annual Costs of Pollution Control Project [Worksheet R (5)]
R

CGS

CO


EBT [ (1) - (2) -(3) 1

ACPR [ Worksheet R (5) ]
(1)

(2)

(3)


(4)

(5)
EWPR [ (4) - (5) ]
(6)

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                                   Worksheet W

                            Calculation of Profit Rates



A. Profit Rate Without Project Costs

                                PRT = EBT -s- R


B. Profit Rate With Pollution Control  Costs


                               PRPR = EWPR + R

Where:       PRT =        Profit Rate Before Taxes
             PRPR =      Profit Rate with Pollution Control Costs
             EBT =        Earnings Before  Taxes
             EWPR =      Before-Tax Earnings with Pollution Control Costs
             R =          Revenues
EBT [Worksheet V, (4)]                  	        (1)

R [Worksheet V, (1)]                                                          (2)
PRT = Calculate: [(l)/(2)]                                                    (3)
EWPR [Worksheet V, (6)]                 $	        (4)

R [Worksheet V, (1)]                     $                                   (5)
PRPR [Calculate: (4)/(5)]                                                     (6)

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                                     Worksheet X

                          Calculation of The Current Ratio


                                   CR  = CA -H  CL
Where:        CR = Current Ratio
              CA = Current Assets  (the  sum  of  inventories,  prepaid  expenses, and  accounts
                    receivable)
              CL = Current Liabilities (the sum of accounts payable, accrued expenses, taxes, and
                    the current portion of long-term debt)
CA                                         j>	  (1)

CL                                         $                                     (2)
CR [Calculate: (l)/(2)]
(3)

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                                   Worksheet Y
                           Calculation of Beaver's Ratio

                                  BR =  CF •*- TD
Where:              BR = Beaver's Ratio
                    CF = Cash Flow
                    TD = Total Debt

Cash Flow:
  Net Income After Taxes                     $                              (1)
  Depreciation                               $                              (2)
  CF [Calculate: (1) + (2)]                    _$	       (3)

Total Debt:
  Current Debt                               $	       (4)
  Long-Term Debt                            $	       (5)
  Total Debt                                 $                              (6)
Beaver's Ratio:
  BR[(3)/(6)]                                                              (7)

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                                      Worksheet Z

                                 Debt to Equity Ratio


                                  DER = LTL -r OE
Where:        DER =   Debt/Equity Ratio
              LTL =   Long-Term Liabilities Oong-term debt such as bonds, debentures, and bank
                       debt, and all other noncurrent liabilities such as deferred income taxes)
              QE =    Owner  Equity  (the difference between total assets  and total  liabilities,
                       including contributed or paid in capital and retained earnings)
LTL                            _$	      (1)

OE                              $                                     (2)


                                                                1      0)

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                             Worksheet AA

                       Public-Sector Development
             Qualitative Description of Estimated Change
                      hi Socioeconomic Indicators
                     due to Pollution Control Costs
Estimated change
in Median
Household
Income (MHI)
Estimated change
in the
unemployment
rate
Estimated change
in overall net debt
as a percent of
full market value
of taxable
property
Estimated change
in % of
households below
the poverty line
Impact on
commercial
development
potential
Impact on
Property Values

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                                                      Worksheet AB
                                              Private-Sector Development
           Factors to Consider in Making a Determination of Widespread Social and Economic Impacts

Define the affected community in this case; what areas are included.         	   (I)
Current unemployment rate in affected community (if available).             	   (2)
Current national unemployment rate.                                     	   (3)
Additional number of persons expected to collect unemployment in affected                                                      (4)
       community due to compliance with water quality standards.          	
Expected unemployment rate in the affected community after compliance with                                                    (5)
       water quality standards (Current ft of persons collecting unemployment
       in affected community +  (4)/labor force in affected community.      	
Median household income in affected community.                         	   (6)
Total number of households in affected community.                        	   (7)
Percent of population below the poverty line in affected community.         	   (8)
Current expenditures on social services in affected community.              	   (9)
Expected expenditures on social services due to job losses in the affected                                                       (10)
       community.
Current total tax revenues in  the affected community.	  (II)
Tax revenues paid by the private entity to the affected community.           	  (12)

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                                                     Worksheet AB, continued

Tax revenues paid by the private entity as a percentage of the affected                                                              (13)
       community's total tax revenues.*                                    	

Current statewide unemployment rates.                                      	  (14)

Additional number of persons expected to collect unemployment in the State           ,                                             (15)
due to compliance with water quality standards.                              	

Expected statewide unemployment rate,  after compliance with water quality                                                         (16)
       standards (Current # of persons  collecting unemployment in State +
       (15)/Iabor force in State.                                            	

Current expenditures on social services in State.                              	  (17)

Expected statewide expenditures on social services due to job losses.          	  (18)
* In some cases, the affected community will include more than just the municipality in which the private entity is located. If so, the analysis
should consider the private entity's tax revenues as a percentage of the tax revenues for only the municipality in which the entity is located.

-------