CLEAN WATER AND THE AMERICAN ECONOMY:
                 AN OVERVIEW
             Background Document for:

The Clean Water and the American Economy Conference
                October 19-21, 1992
                  Sponsored by:

        U.S. Environmental Protection Agency
                       and
              Resources for the Future
                   Prepared by:

                The Office of Water
        U.S. Environmental Protection Agency
                   August 1992

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       This report was prepared by Industrial Economics, Incorporated for the U.S.
Environmental Protection Agency under Contract 68-W1-0009. Publication does not
signify that the contents necessarily reflect  the policies of  the Environmental
Protection Agency, Resources for the Future, or any other organization identified in
this report.

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                         ACKNOWLEDGEMENTS
       This report was prepared under the direction of Mark Luttner of the Office
of Water, U.S.  Environmental Protection Agency.  The  report was prepared by
Industrial Economics, Incorporated of Cambridge, Massachusetts (Work Assignment
81, EPA Contract 68-W1-0009).

       We gratefully acknowledge  the assistance of the many individuals  who
provided information that was helpful in preparing this report.  In particular, we
would like to recognize the invaluable assistance  of Mr.  William T. Lorenz,  who
provided extensive information on the water treatment and pollution control industry.

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                          TABLE OF CONTENTS



INTRODUCTION  	CHAPTER 1

PURPOSE OF THIS REPORT 	 1-1

SCOPE  	;.....	'.	 1-1

STRUCTURE OF THE REPORT	 ... 1-2


WATER USE AND SUPPLY IN THE UNITED STATES 	CHAPTER 2

INTRODUCTION  	2-1

INSTREAM VERSUS OFFSTREAM USES OF WATER	2-2

OFFSTREAM WATER USE	2-2

     Domestic/Commercial 	2-3

     Industrial/Mining 	2-4

     Agriculture  	2-5

     Thermoelectric Power	2-7

INSTREAM WATER USE 	2-8


NATIONAL WATER SUPPLY AND
WASTEWATER TREATMENT INFRASTRUCTURE  	CHAPTER 3

INTRODUCTION  	 3-1

IMPORTANCE TO SOCIETY  	 3-2

IMPORTANCE TO ECONOMIC ACTIVITY	3-6

SUMMARY  	 3-10

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                            TABLE OF CONTENTS
                                 (continued)
THE WATER TREATMENT AND
POLLUTION CONTROL INDUSTRY 	CHAPTER 4


INTRODUCTION	4-1
                                                                     *>

TREATMENT EQUIPMENT AND CHEMICAL PRODUCERS	4-4


      Treatment Systems and Equipment 	 4-7


      Chemical and Chemical Services  	4-9


INSTALLATION AND CONSTRUCTION SERVICES 	 4-12


      Engineering and Design   	 4-13


      Consulting Firms  	 4-14


      Combined Estimate of Sector Size	 4-15


      Construction and Installation 	 4-16


ANALYTICAL AND MONITORING SERVICES  	 4-17


      Laboratory Services  	 4-17


      Analytical, Sampling, and Monitoring Instruments 	 4-18


FUTURE GROWTH OPPORTUNITIES 	 4-21


      Domestic Markets  	 4-21


      Foreign Markets  	 4-22



THE U.S. COMMERCIAL FISHING INDUSTRY 	CHAPTER 5


INTRODUCTION 	 5-1


INDUSTRY OVERVIEW  	 5-2


CHALLENGES FACING THE FISHING INDUSTRY 	 5-4


EFFECTS OF POLLUTION	 5-10


CONCLUSION   	 5-14

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                             TABLE OF CONTENTS
                                  (continued)
WATERrBASED RECREATION
AND RELATED ECONOMIC IMPACTS 	CHAPTER 6

INTRODUCTION	6-1

RECREATIONAL FISHING	 6-2

      Economic Importance	6-5

      Water Quality's Impact on Recreational Fishing  	6-7

BOATING 	 6-8

      Economic Importance 	 6-9

      The Relationship Between Water
      Quality and Recreational Boating	 6-13

SWIMMING AND BEACH USE  	 6-13

      Economic Importance 	 6-14

      Water Quality's Impact
      on Swimming and Beach Use  	 6-16

PROPERTY VALUE  	 6-16

SUMMARY	 6-18

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INTRODUCTION                                                             CHAPTER 1
PURPOSE OF THIS REPORT

       This report serves as a background document for the Clean Water and the American Economy
Conference. The object of the conference is to address the importance of clean water resources to
the United States economy, and to explore how the Clean Water Act might be amended to promote
economic growth while protecting these vital resources. This report is intended to provide conference
participants with basic information on water usage in the U.S., and on the role clean water plays in
the American economy.
SCOPE

       The debate over environmental programs has often been cast in terms of business versus the
environment.  As with other environmental programs, criticism of clean water programs often focuses
on the cost to the economy of environmental protection. Clearly, protecting the environment carries
a cost.  Policy makers need to be aware of the economic implications of clean water programs,
including their impact on jobs  and the ability of American industry to compete in global markets.
These legitimate concerns must be considered in formulating water policy and considering  potential
amendments to the Clean Water Act

       While the economic impacts of clean water programs are an important consideration, policy
makers need to recognize that protecting our water resources is not a simple question of jobs versus
the environment.  Preservation of water  resources  is critical to many sectors of the economy, from
commercial fishing to agriculture, industry, and tourism.  In  some sectors,  clean water programs
directly or indirectly support employment and foster exports. One purpose of this report is to expand
the policy debate to include in the scope of analysis these benefits of clean water programs. It is our
hope that by raising these issues we can  avoid an unproductive debate on the economy versus the
environment, and instead focus attention  on ways that clean water programs can be improved so that
they achieve environmental goals without unnecessary adverse impacts on the productivity, growth,
and competitiveness of American industry.
                                           1-1

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STRUCTURE OF THE REPORT

       The remainder of this report consists of six chapters, each of which addresses a different
aspect of the importance of clean water to the American economy.  Chapter 2 presents and overview
of the use of water resources in the United States, describing the sources, categories of use, and
disposition of the 338 billion gallons of fresh water the nation uses each day.  Chapter 3 examines
the importance of America's extensive water and wastewater infrastructure in maintaining a high
standard of living and improving economic productivity. Chapter 4 discusses the development of the
waste treatment and pollution control industry, and the importance of those industries in our national
economy.  Chapter 5 describes  the importance of clean water to America's commercial fishing
industry.  Chapter 6 discusses the importance of clean water to water-based recreation industries,
including tourism, recreational fishing, and boating.
                                            1-2

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WATER USE AND SUPPLY IN THE UNITED STATES                           CHAPTER 2
INTRODUCTION

       Water is essential to America's economic health.  Our nation makes direct use of 338,000
million gallons per day (mgd) of fresh water, an average of 1,400 gallons per capita.1  In 1980, this
was the highest per capita use among OECD countries, and was greater than twice the per capita use
of all other OECD  member countries except Canada and Australia.2  This water is  used for
everything from brushing teeth to cooling nuclear power plants. We also enjoy additional "instream"
benefits from water, in  activities ranging from commercial fishing  and beach recreation  to the
transport of goods and people. Many of these activities depend on the high quality of our waters,
and all are enhanced by clean water.

       This chapter presents a brief overview of America's water use and supply.  It first  discusses
the distinction between offstream and instream uses of water.  It then discusses offstream uses,
including domestic, commercial, industrial, and agricultural uses. The discussion notes the sensitivity
of these  uses to water quality concerns, and notes how return flows from some offstream  uses
adversely affect water quality. This discussion is followed by a brief summary of instream uses, several
of which  are addressed more extensively in subsequent chapters.
    1 Solley, W.B., Merk, C.F., and Pierce, R.R., 1988, Estimated Water Use in the United States in
1985. U.S. Geological Survey Circular 1004 (hereafter USGS, 1985 Water Use), p. 57.

    2 Organization for Economic Cooperation and Development, Environmental Data Compendium
1987. as cited in van der Leeden, R, Troise, F.L., and Todd, D.K., The Water Encyclopedia. Second
Edition. 1990 (hereafter The Water Encyclopedia^, table 5-10.

                                           2-1

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INSTREAM VERSUS OFFSTREAM USES OF WATER

       Water use may be divided into two broad categories.  OfTstream uses require water to be
diverted or removed from its natural course.  Most direct uses of water fall into this category,
including uses by households, industry, agriculture, and thermoelectric power generation. The effect
on water quality of offstream uses depends to some extent upon the treatment such water receives
after use.

       Instream uses  do not  require water to  leave its natural course.  Such  uses  include
hydroelectric power generation, fishing, recreation, and navigation.  In general, such uses  have a
smaller impact on water quality than offstream uses.
OFFSTREAM WATER USE

       In 1985, the total offstream use of water in the United States was estimated to be 398,300
million gallons per day (mgd) — 338,000 mgd of fresh water and 60,300 mgd of saline water.3 Surface
water was the primary source for both fresh and saline water.  Almost 80 percent of fresh water used
was withdrawn from surface sources, while 99 percent of saline water used was taken from surface
sources.4  Ground water, which  is a particularly important source of water for  agricultural uses,
served  as the source of 20 percent of fresh water and one percent of saline water.

       The  United States Geological Survey (USGS) divides offstream  fresh water use into four
major  categories.  These are (with  percentage of total  1985 fresh  water use  in parentheses):
domestic/commercial (10.4%); industrial/mining (9.1%); agriculture (41.8%);  and thermoelectric
generation (38.7%).  In 1985, total fresh water use averaged 338,000 million gallons per day (mgd).
Of this amount,  36,500 mgd were publicly supplied, primarily to domestic and commercial users.5
The remainder of the fresh water used was withdrawn directly by the user (termed "self-supplied"
water).

       Saline  water, from either ground or surface  sources, is  used  in mining, industry, and
thermoelectric generation.  In 1985, total withdrawals of saline water averaged 60,300 mgd, of which
56,000  mgd were used as cooling water for thermoelectric power production, 3,500 mgd were used
for industrial applications, and 800 mgd were used in mining operations.  All saline water is self-
supplied.
    3 USGS, 1985 Water Use, p. 57.  Saline water is defined by the USGS as water that contains
more than 1,000 milligrams per liter of dissolved solids (1985 Water Use, p. vi).

    4 ibid.

    5 USGS, 1985 Water Use, p. vi, defines public supply as "water withdrawn by public and private
water suppliers and delivered to groups of users."

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       After water is used, a portion of it is returned to a ground or surface water source (after
treatment, in some cases). The portion of water disposed of in this manner is termed the return flow.
In 1985, return flows exceeded eighty percent for all use categories except agriculture, which had a
return flow of 46.1 percent  In aggregate, return flow was 72.7 percent of total fresh water use. The
rest of the water is lost to immediate local uses by incorporation into products or crops, evaporation,
transpiration, or consumption by humans or livestock. This consumptive use is particularly significant
in agriculture, which accounts for over eighty percent of all consumptive use nationwide.

       The following discussion briefly describes the four major categories  of water use,  and the
implications of clean water for each. To supplement this discussion, Exhibit 2-1 provides an overview
of the source, use, and disposition, of fresh water in the  United States in 1985.
Domestic/Commercial

       Domestic and commercial water use includes water used for all household purposes, such as
drinking, food preparation, and bathing, as well as water used by commercial establishments such as
hotels, restaurants, and office buildings. Domestic use accounts for over eighty percent of water use
in the domestic/commercial category.  In 1985, 35,300 mgd of water were used for domestic and
commercial purposes, accounting  for about 10.4 percent of total fresh water withdrawals.6  The
source, use, and disposition of this water is illustrated in Exhibit 2-2.

       Public sources supply 87.2  percent of the water used for domestic and commercial purposes.
The rest is self-supplied, from either ground or surface water sources. Public supply is the primary
source of water in urban areas.  Self-supplied water provides domestic water for about 42.5 million
people (18 percent of the nation's population), primarily in rural and non-urban areas.7

       Water for domestic and commercial use must meet the highest of standards.  The costs to
society of unsafe domestic and commercial water are severe: waterborne viral and bacterial illnesses
spread easily in unclean water. Keeping contaminants out of surface and ground water sources that
supply drinking water is one  of the primary  responsibilities of those charged with improving and
protecting water quality.  Although contamination of aquifers  and surface water sources has  been
well-documented by EPA and others, the U.S. has been extremely successful to date at ensuring that
such contamination is addressed or that alternative sources of drinking water are provided.  According
to the World Health Organization, 100 percent of the United States' population has access to safe
drinking water,  a level reached by only eighteen other countries.8
    6 ibid.

    7 U.S. Geological Survey, National Water Summary 1987 - Hydrologic Events and Water Supply
and Use. USGS Water-Supply Paper 2350, 1990, (hereafter 1987 National Water Summary) p. 130.

    8 World Health Organization, World Health Statistics Annual.  1986, as cited in The Water
Encyclopedia. Table 5-21.

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       Approximately 19.5 percent of water used for domestic and commercial purposes is consumed;
80.5 percent is discharged as return flow. Return flow from this category accounts for most of the
treated waste water released nationwide from public sewage treatment facilities.9 Unless properly
treated, this return flow may be polluted by a range of biotic, organic, and inorganic contaminants,
including bacteria, nutrients, and household chemicals.


Industrial/Mining10

       Industry  and  mining  make substantial  demands on  the  nation's  water  resources.
Manufacturers use water for cooling, cleaning,  dilution, transportation, and incorporation  into
products.  Water use in mining includes both the removal of drainage water from mines and the use
of intake water to extract and process ore.  In 1985, 30,800 mgd of fresh water were used in industry
and mining, accounting for  9.1 percent of the nation's total freshwater withdrawals.11  Exhibit 2-3
illustrates the source, use, and disposition of this water.

       Three-quarters of the water used in mining and industry is withdrawn from surface sources.
The remainder  comes from ground water.  An estimated 20.4  percent of the water  used for
manufacturing is publicly-supplied; the rest is self-supplied.

       Manufacturing use accounts for 91.3 percent of total water use for the mining and industry
category.  Two-thirds of the water used for manufacturing is self-supplied surface water, one-fifth is
publicly supplied, and the balance is self-supplied ground water.  The primary  industrial uses of water
(1983 data) include the manufacture of chemicals  and  allied products (9,311  mgd), paper  and allied
products (5,199 mgd), primary metal products (6,470  mgd), and the refining of petroleum (2,230
mgd).12 Other industrial uses include the processing and manufacture of food and beverages, and
the manufacture of automobiles, tires, plastic, glass, and cement.

       Mining accounts  for only 8.7 percent of water use  in the industrial/mining category.  The
major  uses of water in mining operations are for oil  and gas  extraction, and the mining of non-
metallic minerals other than fuels (e.g., phosphate rock, stone quarrying).  The water used in mining
is all self-supplied, originating about equally between ground and surface sources.
    9 1987 National Water Summary, pp. 130-133.

    10 This section draws from Elizabeth L. David,  "Manufacturing and Mining Water Use in the
United States, 1954-83," in 1987 National Water Summary, pp. 81-92.

    11 1987 National Water Summary, p. 133.

    12 Derived from annual figures from U.S. Department of Commerce, Statistical Abstract of the
United States. 1987. as cited in The Water Encyclopedia, p. 343.

                                             2-4

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       Many industrial uses of water require that water quality be within specified tolerances. Some
industrial processes are sensitive to pH, odor, the presence of minerals or bacteria, or other water
quality parameters.  For example, the manufacture of fine paper requires water with concentrations
of total solids below 200 mg/1, iron below 0.01 mg/1, and manganese below 0.05 mg/1.  Water used in
food processing, such as brewing beer or canning vegetables, must conform with Federal drinking
water standards.13  In comparison, mining uses are far less sensitive to water quality concerns.

       In 1985, 85.0 percent of the water used in manufacturing and 72.9 percent of the water used
in mining was discharged after use.  The pollutants contained in this return flow can have significant
detrimental effects  on water quality. Some industrial pollutants are similar to those in municipal
sewage, but are often more  highly concentrated.14  In addition, industrial discharges frequently
include a variety of heavy metals and synthetic  organic substances.  These pollutants may present
serious hazards to human health and aquatic organisms.


Agriculture15

       Water use in agriculture includes water applied in the irrigation of crops and water used for
livestock production. In 1985, this category accounted for the single largest offstream use of water:
141,000 mgd of fresh water were  used,  97 percent for irrigation and  3 percent for livestock
production.  This represents 41.8 percent of total fresh water withdrawals nationwide.  The source,
use, and disposition of this water is illustrated in Exhibit 2-4.

       Two-thirds of water used for irrigation is withdrawn from surface water, and one-third is from
ground water sources. These proportions are reversed for water used to water livestock. Virtually
all water use in this category is self-supplied.
Irrigation

       Irrigation is the largest use of agricultural water, constituting 97 percent of agricultural water
use. The intensity of water use for irrigation varies by region. Irrigation is especially important in
the arid West, where natural precipitation is insufficient to raise many crops on a commercial scale.
Over 95 percent of water withdrawals for irrigation are made in the 22 states west of the Mississippi
River.  California and Idaho alone account for 37 percent of the national total. Irrigation is also used
in the East to supplement natural precipitation.16
    13 American Water Works  Association,  Water Quality and Treatment,  second edition, 1950;
California State Water Quality Control Board, Water Quality Criteria, second edition,  1963.  Cited
in The Water Encyclopedia, pp. 458-459.

    14 U.S. EPA, Environmental Progress and Challenges:  EPA's Update. August 1988, p. 46.

    15 This section draws from Michael R. Moore, William M. Crosswhite, and John E. Hosteller,
"Agricultural Water Use in the United States, 1950-85," in 1987 National Water Summary, pp. 93-108.

    16 USGS, 1985 Water Use, p. 22; 1987 National Water Summary, p. 133.

                                            2-5

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       In 1982, 13.4 percent of total cropland was irrigated. The value of these irrigated crops was
over $24 billion, 31.8 percent of total crop value for that year.17

       In order for crops to remain healthy, irrigation water must not exceed threshold levels for a
number of measures of water quality, including salt, coliform organisms, total dissolved solids, acidity,
and the presence of certain trace elements.18   The USGS 1984 National Water Summary notes:
"For irrigators .. . greater dissolved-solids concentrations cause decreased crop yields, altered crop
patterns, increased  soil leaching and drainage requirements,  and increased management  costs."
Agricultural losses occur when  dissolved solids .concentrations of irrigation water reach 700-850
mg/1.19  Salinity problems affect  about one-fourth of all irrigated land in the  United States,
concentrated primarily in a band through Arizona, eastern  Utah, and western Colorado.20

       The use of water for irrigation can have a number of adverse water quality impacts.  Because
the return flow for irrigation water is only 46 percent of withdrawals, extensive reliance on irrigation
in arid regions reduces flows in natural waterways.  These decreased flows can have severe
implications for surface water ecology and for instream water uses such as recreation.  Similarly, over-
use of ground water for irrigation can deplete aquifers, threatening underground sources of drinking
water and forcing ground water users to rely on water of increasingly poorer quality.

       A second  serious problem  is the contamination that return flows from irrigation can carry.
Irrigation return flows can be contaminated with pesticides, herbicides, and fertilizers  applied to
agricultural land.  Return flows from irrigation also serve as a source of metals and sediment.  These
contaminants, along with other non-point pollutants, can cause significant ecological disturbances,
decrease recreational and commercial values, and increase  drinking water treatment costs.  Runoff
from precipitation also contributes to these problems.21
    17 J.C. Day and G.L. Horner, U.S. Irrigation: Extent and Economic Importance. U.S. Department
of Agriculture Information Bulletin 523, 1987, as cited in The Water Encyclopedia.

    18 California State Water Quality Control Board, 1963, as cited in The Water Encyclopedia, table
6-46.

    19 James E. Kirchner, "Dissolved Solids in the Colorado River Basin," in USGS, National Water
Summary 1984. USGS Water-Supply Paper 2275, p. 74.

    20 Moore, et al.. op. cit.. p. 101.

    21 U.S. EPA, Environmental Progress and Challenges: EPA's Update. August 1988, p. 71.

                                            2-6

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Livestock

       Livestock water use includes water for stock watering, feed lots, dairy operations, fish farming,
and other on-farm needs.  In 1985, an estimated average of 4,470 mgd were withdrawn for livestock
purposes. About two-thirds of this water was from ground water sources, with the remainder from
surface water.

       In order that the animals remain healthy, water for livestock must meet relatively stringent
water quality criteria. Limiting and threshold concentrations have been established for many standard
water quality factors.22  For example, total dissolved solids should be kept below 2,500 mg/1 to avoid
any adverse health problems.
Thermoelectric Power

       The second largest user of fresh water in the United States is the thermoelectric power
industry. This sector used an average of 131,000 mgd of fresh water in 1985, about 39 percent of
total fresh water use nationwide. In addition, thermoelectric power used 56,000 mgd of saline water.
Almost all of the water used by the thermoelectric power industry (more than 99.5 percent) is self-
supplied from surface water sources.  Because most of the water withdrawn is used for condenser and
reactor .cooling, relatively little is  consumed:  97 percent of the water used by the thermoelectric
power sector was discharged as return flow, primarily to surface water.23 Exhibit 2-5 illustrates the
source, use, and disposition of water for this sector.

       Water quality requirements for cooling water are not especially stringent, although minerals
and biota that cause scaling or slime to accumulate in condensers are undesirable.  "Once through"
cooling water, which is returned to a surface water body after one use, generally requires little or no
treatment prior to use.   Water  used in recirculating, closed  cycle systems  must meet tighter
requirements than  "once through"  water, primarily for suspended solids and salts which would cause
scaling.24  It is interesting to note that improvements in ambient water quality have had a positive
impact for some  power  plants.   According  to an  industry source, the  reduction  in phosphate
discharges stemming from  the Clean Water Act has virtually eliminated  the problem of calcium
phosphate scaling in non-agricultural areas.25
    22 California State Water Quality Control Board, 1963, as cited in The Water Encyclopedia, table
6-55.
    23
      1987 National Water Summary, p. 133.
    24 Canadian Council of Resource and Environment Ministers, Canadian Water Quality Guidelines.
March 1987; Krisher, A.S., 1978, "Raw Water Treatment in the CPI," Chemical Engineering (New
York), v.85 (August 28, 1978), pp.78-98, as cited in The Water Encyclopedia, table 6-43.

    25 Wayne Micheletti, consultant to thermoelectric power industry, personal communication, May
1992.

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       The major water quality problem caused by the thermoelectric power industry's use of water
is thermal pollution resulting from the increased temperature of the return flow of cooling water.
Warmer water favors different species of plants and fish than cooler water. In addition, the ability
of water to hold oxygen decreases as temperature increases. These changes can disturb the natural
ecosystem.26
INSTREAM WATER USE

       Instream water use is defined by the USGS as "water use taking place within the stream
channel for such purposes as hydroelectric power generation, navigation, water quality improvement,
fish propagation, and recreation."27  For example, the USGS reported that in 1985 3,050,000 mgd
of water were used in the generation of 296,000 gigawatt-hours of electricity, 12.0 percent of the
nation's  total  electricity  generation in that year.     This use  is not sensitive to water quality;
however, the dams necessary for developing hydroelectric power can change the character and quality
of rivers and streams in many complex ways.  For example, dams can create a barrier to the migration
of anadramous fish, and by impeding natural flow can affect a river's temperature and dissolved
oxygen content.

       Navigation is another significant instream use of water.  In 1984, United States commerce
transported 1.836 billion short tons of cargo by water.  Of this, 399.0 billion ton-miles of freight were
carried on the inland waterways of the United States.29  Like hydroelectric power  generation,
commercial navigation is largely unaffected by water quality concerns. Navigation can be indirectly
affected, however, if the contamination of sediments  prevents or impedes the dredging operations
necessary to keep waterways navigable. This has been the case recently in some heavily industrialized
ports. In turn, navigation itself can have adverse effects on water quality, largely due to the potential
for accidental  releases of petroleum and chemicals. These releases range from minor spills during
in-port transfer operations to catastrophic releases from crude oil tankers like the Exxon Valdez.
    26 Botkin, D.B. and Keller, E.A.  Environmental Studies:  Earth as a Living Planet, second
edition, 1987, p. 393.
    27
      1985 Water Use, p. v.
    28 USGS. 1985 Water Use: Total electricity generation for 1985 (2,470 billion kWh) from U.S.
Department of Commerce, Statistical Abstract of the United States 1991. table 972.

    29 U.S. Army Corps of Engineers, Waterborne Commerce of the United States. 1984, as cited in
The Water Encyclopedia, tables 5-88 and 5-89.

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       Commercial fishing and shellfishing are among the economically most important instream uses
of water.  As described in Chapter 5, the commercial fishing industry employed 364,000 people in
1988 and contributed an estimated $16.6 billion to our gross national product in 1990.  Fishing and
shellfishing are extremely sensitive to water quality.  Increases in toxins or decreases  in dissolved
oxygen can have severe effects on fish and shellfish propagation and/or edibility, and can result in the
closing of areas to fishing or shellfishing.

       Water also has many recreational uses, ranging from recreational fishing and the hunting of
waterfowl to swimming and boating.  As discussed in Chapter 6, recreational uses contribute billions
of dollars annually to the American economy. Like commercial fishing, these uses are extremely
dependent on the protection and preservation of the nation's clean water resources.
                                            2-9

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                                    BIBLIOGRAPHY
Carr, Jerry E., et al., National Water Summary 1987 - Hvdrologic Events and Water Supply and Use.
       U.S. Geological Survey, Water-Supply Paper 2350, 1990.

Day, John G., and Gerald L. Horner, U.S. Irrigation: Extent and Economic Importance. Resources
       and Technology Division, Economic Research Service, U.S. Department of Agriculture,
       Agriculture Information Bulletin No. 523, September 1987.

Solley, Wayne B., Charles F. Merk, and Robert R. Pierce, Estimated Use of Water in the United
       States in 1985. U.S. Geological Survey Circular 1004, 1990.

van der Leeden, Frits, Fred L. Troise, and David K. Todd, The Water Encyclopedia. Second Edition.
       Chelsea, Lewis Publishers, Inc.,  1990.
                                          2-10

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         SOURCE
      SURFACE WATER
                   Exhibit 2-1

    SOURCE, USE, AND DISPOSITION OF
FRESH WATER IN THE UNITED STATES, 1985

                 USE
                         DOMESTIC/COMMERCIAL
DISPOSITION

CONSUMPTIVE USE
                                                                    87.1%
                                 35,300
                                 Mgal/d
                                 10.4 %
                                                                                      80.5%
                                                                      INDUSTRIALIZING
fj
64.0%
Mg
800
al/d
84
0%
-1
'•• ' "^
                                                                    THERMOELECTRIC POWER

-»


99.4%

131.000
Mgal/d
38.7%

96.7%




                                                                        AGRICULTURAL
                                                                    65.6%
                                                                            141.000
                                                                            Mgal/d
                                                                             41.6%
                                                                                      53.9%
                                                                                      46.1%
    Figure 61. Source, use, and disposition of an estimated 338,000 Mgal/d (million gallons per day) of freshwater in the United States, 1985.  1 IK;
    lines and arrows indicate the distribution ol water from source to disposition for each category. For example, surface water was 78.3 percent
    of the freshwater withdrawals, and, going from (ho "Source" to "Use" columns, the line lioin the surface water block to the domestic  and
    commercial block indicates thai 0.2 percent of till surface waler withdrawn was the source for 1.6 percent of total waier use (sell supplied with
    drawals and public supply deliveries) for domestic and commercial purposes. In addition, going from the "Use" to the "Disposition" columns,
    the line (rom the domestic and commercial block to the consumptive use block indicates that 19.5 percent of the water for domestic and commer-
    cial purposes was consumptive use, which represented 7.5 percent of total consumptive use.  (Source: Data from U.S. Geological Survey National
    Water Data Storage and Retrieval System.)
Source: 1987 National Waler Summary, p. 125.

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       SOURCE
                                                         Exhibit 2-2

                                           SOURCE, USE, AND DISPOSITION OF
                           DOMESTIC AND COMMERCIAL FRESH WATER WITHDRAWALS, 1985
USE
      PUBLIC SUPPLY
                                                            DOMESTIC
DISPOSITION
                                                                                                           CONSUMPTIVE USE
    Figure 68. Source, use, and disposition of an estimated 35,300 Mgal/d (million gallons per day) of domestic and commercial withdrawals in
    the United States, 1985. Conveyance losses in public-supply systems and some public water uses, such as firefighting, are included in this category.
    All numbers have been rounded, and values might not add to totals. Percentages have been rounded to the nearest one-tenth of 1 percent (0.1 %>
    between 0.1 and 99 9 percent   ISomno: Data liom II S Geological Survey National Waifir Daia  Siorage and Removal System.)
|pe: 1987 National Water Summary, p. 132.

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                                                             Exhibit 2-3

                                               SOURCE, USE, AND DISPOSITION OF
                                 INDUSTRIAL AND MINING FRESH WATER WITHDRAWALS, 1985
          SOURCE
USE
        SURFACE WATER
                                                                       MANUFACTURING
                                                                             28,100
                                                                             Mgal/d

                                                                             91.3%
                                                                             MINING
                                                                              2.670
                                                                             Mgal/il
                                                                              8.7%
DISPOSITION
                                                 CONSUMPTIVE USE
        Figure 70.  Source, use, and disposition of an estimated 30,800 Mgal/d (million gallons per day) of industrial (manufacturing) and mining fresh-
        water withdrawals in the United States, 1985. All numbers have been rounded, and values might not add to totals. Percentages have been round
        ed to Ihe nearest one-tenlh of 1 percent (0.1 %l between 0 I and 99.9 percent   (Source: Data lml Retrieval System I
Source: 1987 National Water Summary, p. 134.

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           SOURCE
        SURFACE WATER
                                                             Exhibit 2-4

                                              SOURCE, USE, AND DISPOSITION OF
                                     AGRICULTURAL FRESH WATER WITHDRAWALS, 1985
        USE
LIVESTOCK   4.470 Mgal/d
                    ~~
DISPOSITION

CONSUMPTIVE USE
       Figure 74. Source, use, and disposition of an estimated 141,000 Mgal/d (million gallons per day) of agricultural (irrigation and livestock) fresh-
       water withdrawals in the United States, 1985. Losses in irrigation distribution systems are included in the total shown for irrigation retum How.
       All numbers have been rounded; and values might not add to totals. Percentages have been rounded to the nearest one-tenth of 1  percent (0.1 %)
       between 0.1  and 99.9 percent.  (Source Data from U S. Geological Survey National Water Daia Storage and Retrieval System.)
Prce: 1987 National Water Summary, p. 137.

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                                                                 ExhiB?T2-5

                                                  SOURCE, USE, AND DISPOSITION OF
                                  THERMOELECTRIC POWER FRESH WATER WITHDRAWALS, 1985
           SOURCE
   USE
         SURFACE WATER
FOSSIL FUEL
DISPOSITION
CONSUMPTIVE USE
       4,350Mqal/d
        608 Mgal/d
           0.5%

        Figure 72. Source, use, and disposition of an estimated 131,000 Mgal/d (million gallons per day) of thermoelectric power generation self-supplied
        freshwater withdrawals, by fuel type, in the United States, 1985. All numbers have been rounded, and values might not add to totals. Percentages have
        hour! munded to the nearest ono tenth of 1 percuni (0 1 %) between 0.1 and 99 9 percent. In addition to the lieshwater withdrawals, 56,000 Mgal/d ol saline surface
        w.ilur w;is withdrawn lor  thennoeli.'Ctiic power <|i>iu!iatiun.  ISouice: Data  from U.S. Geological Survey National Water Data Storage and Retrieval System.!
Source: 1987 National Water Summary, p.  135.

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NATIONAL WATER SUPPLY AND
WASTEWATER TREATMENT INFRASTRUCTURE                             CHAPTER 3
INTRODUCTION

       In thousands of towns  and cities across  the  United States,  extensive, complicated, and
sophisticated systems support water use — from water  intake,  treatment, and distribution  to
wastewater treatment and release.1  Eighty-five percent of all Americans are served by a community
water supply system — which may be publicly or privately owned — and 73 percent are served by a
public wastewater treatment facility.2

       This infrastructure is the product of a significant investment in water supply and wastewater
treatment. The value of this capital stock is now conservatively estimated at approximately $350
billion, including:

       o     $115 billion in state and local government-owned water supply facilities (raw
             water sources and transmission pipelines, drinking water treatment facilities,
             interim or  finished water storage  facilities, and finished water distribution
             systems);

       o     $191 billion in state and local government-owned sewer and water treatment
             systems; and
    1 Apogee Research, Inc., "America's Environmental Infrastructure:  A Water and Wastewater
Investment Study," prepared for the Clean Water Council, December 1990, p. 2.

    2 Apogee Research, Inc., "America's Environmental Infrastructure:  A Water and Wastewater
Investment Study," prepared for the Clean Water Council, December 1990.  Office of Wastewater
Enforcement and Compliance, US EPA, 1990 Needs Survey Report to Congress, draft, May 1991,
p. 2.           -

                                          3-1

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       o      $44 billion in privately-owned sanitary services capital, including water supply,
              sewerage, and irrigation capital.3


This figure excludes a great deal of irrigation-related infrastructure — the total value of which
probably exceeds $60 billion—and infrastructure for domestic or industrial self-supplied water, as well
as private investments in wastewater treatment4
IMPORTANCE TO SOCIETY

       Access to clean water and adequate treatment of sewage are fundamental indicators of the
quality of a nation's public health. By delivering clean water, community water systems limit exposure
to water-borne disease, improve hygiene, and facilitate the sanitary disposal of wastes. Similarly, the
treatment of wastewater protects human health by preventing the contamination of raw drinking
water supplies; it also preserves water quality for other uses, and protects aquatic ecosystems.

       In many respects, Americans take for granted the benefits of reliable provision of clean water
and sanitation services.  A brief look at countries that are not so fortunate reveals the importance
of clean water. The World Bank's World Development Report 1992 reports that "tremendous human
suffering is caused by diseases that are largely conquered when adequate water supply and sewerage
systems are installed."5 In Sub-Saharan Africa, over 62 percent of all deaths are due to diseases to
which contaminated drinking water and poor sanitation contribute. This is twelve times the level in
high-income countries where access to clean water is taken for granted.  Diarrheal diseases, for
example, kill more than 3 million people and cause about 900 million episodes worldwide each year,
primarily in developing countries where unsafe water is a significant problem. The relation between
disease and improvements in water quality and sanitation is complex — education and access to
medical care are also important factors.  However, a recent report by the United States Agency for
International Development (USAID) showed that water quality and sanitation improvements are
responsible for reductions in disease ranging from  22 to 76 percent.6
    3 Personal communication with John Musgrave, United States Department of Commerce, Bureau
of Economic Analysis, June 11, 1992. Sanitary services capital also includes fixed private capital for
refuse collection and disposal, steam and air-conditioning supply, and other sanitary services (such
as mosquito spraying and snowplowing operations). The only irrigation capital included in this figure
is that owned by private firms whose primary business is supplying irrigation water.

    4 Kyle Schilling, et al., The Nation's Public Works:  Report on Water Resources, prepared for
the National Council on Public Works Improvement Categories of Public Works Series, May 1987,
pp. 91-92 (1982 dollars).

    5 The World Bank, World Development Report 1992: Development and the Environment. 1992,
p. 45.  Except where noted, this section draws from pages 44-50 and 98-100.

    6 Steven A. Esrey, et al.. "Health Benefits from Improvements in  Water Supply and Sanitation:
Survey and Analysis of the Literature of Selected Diseases," United States Agency for International
Development, Water and Sanitation for Health (WASH) Technical Report 66, Washington DC, 1990,
as cited in World Development Report 1992. p. 49.

                                            3-2

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                                                      In addition to reducing  health  risks,
                                               access to a public water supply system  may
                                               prevent other problems. Lack of reliable piped
                                               water in cities such as Jakarta, Indonesia, and
                                               Bangkok, Thailand has led households to sink
                                               their own wells. The resulting overpumping has
                                               led to many problems, including depletion of
                                               ground water,  subsidence, and the intrusion of
                                               saline water, which raises the danger of making
                                               the water unfit for consumption.  Poor water
                                               quality can also lead to increased energy use, as
                                               people boil water in order to make it safe.  The
                                               World Bank estimates that in Jakarta over $50
                                               million per year is spent on fuel for this purpose
                                               alone.  Improvements in  water supply reduce
                                               consumption of fuel for this purpose, as well as
                                               the associated air pollution.

                                                      Even in the United States, public supply
                                               of  water and wastewater  are  essential for
                                               development in areas  where individual wells or
                                               septic   tanks   are  not  feasible,   and  for
                                               development at high population densities.  The
                                               extension of the  nation's highway system  is
                                               often cited  as a  factor  in  the expansion of
suburbia following World War II.  Similarly, the provision of public water and sewage service is a
precondition of development in many areas today.7  In general, availability of public water and
sewerage is considered an important amenity, increases the value of property, and is a cornerstone
of economic development.
         Health Versos Access to
        Water and Sewer Service:
        Mortality Trends in Chile

  In the thirty year period from 1955 to
1985, mortality rates  in  Chile for all age
groups dropped dramatically.  At the same
time, the percentage of the urban population
connected  to  the public  water  system
increased from under 60 percent  to over 90
percent, and the percentage  connected to
the public sewerage system increased from 25
percent to 70 percent Exhibit 3-1 displays
this trend graphically.

  While better health care and education are
partly  responsible  for  the  decline  in
mortality, access to safe water and sanitation
is widely recognized as an important factor.

Source: Emanuel Idelovitch, The World
Bank
    7 Wade Miller Associates, Inc., The Nation's Public Works: Report on Water Supply, prepared
for the National Council on Public Works Improvement Categories of Public Works Series, May
1987, p. 118.  In several important cases, communities have attempted to use access to public water
supply as a tool to limit growth. Courts have generally struck down such attempts. See, for example,
Construction Industry Association of Sonoma County v. City ofPetaluma [F. 2d 897 (9 Cir. 1975)], and
Robinson v. City of Boulder [547 P. 2d 228 (Colo.1976)].
                                            3-3

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                        EXHIBIT 3-1
   140
   120
•a
03
OT


I
<5
a.
CO
   100
    80-
    60-
g   40
a
    20-
        MORTALITY VERSUS WATER SERVICE
                 Chile - 1960 to 1985
     55    60   65    70    75    80    85    90
               Percent of Urban Population Connected
                                                   95
      MORTALITY VERSUS SEWERAGE SERVICE
                 Chile-1965 to 1985
   140
          30   35   40   45   50   55   60    65
               Percent of Urban Population Connected
                                                   70
       Neonatal
                  Infant
                           -»«- Post-Neonatal
Over 1 Year Old
                       Source: Emanuel Idelovitch, The World Bank

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               Lake Water to Nourish Lake County Growth
By Mary Beth Sammons

  By  the  end  of next  month,
residents  of  10  Lake  County
communities   will   have   Lake
Michigan water flowing from their
taps for the first time, culminating a
five-year project.
  Though the project - spearheaded
by the Central Lake  County Joint
Action Water Agency (JAWA) and
Libertyviite's late mayor, Paul Neal
- was undertaken to maintain and
improve  the quality  of life  for
people living and working in Lake
County,   local   business   and
municipal  leaders  expect   the
pipeline to unleash a  new surge of
development in Lake County.
  "There's  no  question that  the
availability of more water and  the
improved  quality  of  water in a
number of these communities  will
have a positive impact on growth
and  development,"  says  Robert
Chave, director of Lake County's
Department of  Planning,  Zoning
and Environmental Control.
  What's more, "it solves a lot of
the problems with  our water wells,
which could have been a hindrance
to that growth," adds Mr. Chave.
  Many Lake County experts agree
that the rapid pace of development
already under way in these Northern
Illinois communities is fast depleting
the  county's   well-water  supply.
Without  the availability of Lake
Michigan  water,  future  growth
would eventually dry up.
  Through the new 32-mile pipeline,
Lake  Michigan water will  flow to
Grayslake,  Gurnee,  Lake Bluff,
Libertyviile,   Mundelein,  Round
Lake, Round Lake Beach, Round
Lake  Park,  Round Lake  Heights
and Vernon Hills.
  The  only remaining Lake County
communities without Lake Michigan
water will be Lake Zurich, Old Milt
Creek and Wauconda, which voted
down  a  1989  referendum to  be
included in the SlOO-million-plus
project. (Other towns in the county
either pump water directly from the
lake or  purchase it  from  other
lakeshore communities.)
  Fast-growing   lawns  such   as
Gurnee, Grayslake and Mundelein -
areas with the most land available
for development - stand to reap the
largest benefits from the new water.
  Says Martin Blank, president of
the UbertyviUe/Mundelein/Vernon
Hills Area Chamber of Commerce,
"We already nave gotten some calls
from businesses that depend heavily
on water for their product in  other
parts of the country - California and
Colorado - where the supply is East
drying up."
  Mike  Ellis,  village  manager of
Grayslake,  is  one of the  most
enthusiastic cheerleaders  for  the
new pipeline,
  "We  don't  want  to  monkey
around  with  the wells anymore,"
says Mr. Ellis, who has supervised
Grayslake's rapid growth to today's
8,000 residents from 5300 just four
years  ago.  The town  expects its
population  to double  in  the next
seven years. "The best and the only
way for  us to grow is (with) Lake
Michigan water."
  According  to  Mr.  Ellis,  the
pipeline  was a major factor in the
decision to locate in Grayslake for
13 subdivisions totaling 3,800 houses
that are either under construction
or on the drawing board.
  They   include  the  837-home
Chesapeake  Farms  development
being built by Pulte Homes,  the
998-unit College Trail development
under construction by  Cambridge
Builders, and English Meadow, an
877-home development being-. built
by Lexington Homes.
  In addition, two major commercial
projects are on the drawing board in
Grayslake:  County Fair  Plaza, a
120,000-square-fobt shopping center
at the intersection of Routes 45 and
120, and Center Street Square, a
70-acre    retail,   business   and
industrial park nearby.
  Another  supporter of the Lake
Michigan pipeline is Charles Isely,
president   and   CEO   of   the
Waukegan/Lake  County Chamber
of Commerce, who says it will be
important  both in  luring  more
industrial   companies    and   in
retaining existing industries,  which
might expand their operations in
Lake; County.
  The water  will also be a definite
plus in both our jobs and population
growth," adds Mr: Isery;
  The Northeastern Illinois Planning
Commission  predicts  that..Lake
County's population will grow about
24%, to 640,000,  by 2010  from
516,418 in  1990.  The number of
households is expected to increase
to 240,000 from 173,966.   And
county businesses will employ an
estimated 306,700 workers by 2010,
compared with 222JBOQ in 1991.
  In addition  to the pipeline itself,
the project includes a $7.4-million
pumping  station  and  filtration
system, which is nearing completion
in Lake Bluff.
  According   to   Melanie   Van
Heirseele,   JAWA's  assistant
executive director, JAWA will sell
the water at wholesale prices directly
to its 10 member communities for
an  estimated S1.65  per   1,000
gallons.  The communities then will
add  their  own maintenance and
operational fees.
  Though  Ms. Van Heirseele and
other JAWA members (elected
officials and administrators from the
10 towns) are quick to  point out
that the intent of the new pipeline
"was not to promulgate growth and
development," they  acknowledge
that expansion is certain to occur.
  There's  no question that the
water will further  open up  some
areas of development,"  says Ms.
Van Heirseele.    "It allows the
county  to   accommodate   more
industrial  and commercial,  along
with  residential,   projects.     It
definitely   is  advantageous  to
growth."

Reprinted with permission from the
March  16, 1992 issue of Grain's
Chicago Business.  Copyright 1992
by Crain Communications, Inc.

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       Among the advantages of publicly supplied water for
domestic and commercial purposes are lower cost and more
easily assured  quality.   Except  in some rural  areas  with
abundant ground water supplies, economies of scale make it
less expensive for members of a community to share the cost of
supplying drinking water rather than for  each household to
supply itself.  In addition, testing  and treatment of drinking
water is easier and less expensive when done at the community
level.   A  further  benefit  of  public water  supply  is  fire
protection.  Fire insurance rates are dependent in part on the
presence of an adequate, reliable public water supply system.8

       Wastewater  treatment  is  integrally related  to  the
protection of public health by minimizing contamination of raw
water supplies.   It also reduces  the cost of treating  water
supplies to meet domestic and commercial standards, preserves
water quality for other uses,  and protects aquatic ecosystems.
 The Cost of Private Water
      in Urban Areas

  A study of water supplied
by private water vendors in
unpiped areas of twelve cites
in developing countries found
the cost to be from 4 to 100
times higher than that paid
by  residents of the same
cities fortunate  enough to
have access to piped water.

Source:  The World Bank,
World Development Report
1988. p. 145.
IMPORTANCE TO ECONOMIC ACTIVITY

       Although  public  health concerns often motivate the development of water supply and
wastewater treatment infrastructure, this infrastructure is also important to the economy.9 At the
most direct level, the livelihood of many Americans depends on employment provided in constructing
and maintaining water infrastructure.  Less obvious, although arguably  more important, is the
underlying, pervasive impact of infrastructure  on economic  productivity.   As noted in the 1990
Economic Report to the President, "inadequate government infrastructure can impede improvements
in productivity growth."10

       A study prepared recently for the National Utility  Contractors  Association by Apogee
Research, Incorporated,  analyzed a number of articles that investigated the relationship between
water and wastewater infrastructure investment and job creation.11 The report found that for every
$1  billion invested in water  and wastewater infrastructure,  between 6,400  and 15,600 jobs directly
related to project construction are created.  Additional jobs are  created due to construction project
purchases from other sectors ("indirect" employment) and by increased expenditure by households
    8 Wade Miller Associates, Inc., op. cit.

    9 David Alan Aschauer, "Why is Infrastructure Important?," in Is There a Shortfall in Public
Capital Investment?, ed. Alicia H. Munnell, proceedings of a conference held in June 1990, sponsored
by Federal Reserve Bank of Boston.

    10 Council of Economic Advisors, The Annual Report of the Council of Economic Advisors, in
The Economic Report of the President. February 1990,  p. 122.

    11 "A Report on Clean Water Investment and Job Creation," prepared for the National Utility
Contractors Association by Apogee Research, Incorporated, March 20, 1992.
                                            3-6

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benefitting from direct and indirect employment ("induced" employment).  Estimates of the total
number of jobs created nationwide by a $1 billion investment in water and wastewater infrastructure
range from 34,200 to 57,400.

       In addition, water and wastewater infrastructure serves as "social overhead capital," providing
broad-based returns to the economy as  a whole.12  The  National Council on Public Works
Improvement emphasized the  importance of infrastructure in the opening paragraph of its 1988
report:

       The quality of a  nation's infrastructure is a critical index of its economic vitality.
       Reliable transportation, clean water, and safe disposal of wastes are basic elements
       of civilized society and a productive economy.  Their absence or failure introduces an
       intolerable dimension of risk and hardship to  everyday life, and a major obstacle to
       growth and competitiveness.13
For some forms of infrastructure — such as roads, telephone systems, and the electricity network —
the importance to the economy is clear.  Most economic activity depends on this shared public capital
for the transport of goods, communication,  or for power.  Although  the link between economic
activity and water and wastewater infrastructure is often taken for granted, it is also important.

       Again, it is instructive to look at economies where water infrastructure is inadequate.14
Although Chile's principal justification  for investing in improving its sewage collection system was
enhancing public health, a secondary motivation was to assure continued access to world markets for
its important fruit  and vegetable exports, which had been irrigated with untreated wastewater and
were therefore rejected by some as unsanitary. A recent cholera epidemic in Peru, attributable in
part to unsanitary water supplies, caused economic losses in  agricultural exports and tourism that,
within  ten weeks of the epidemic's onset, totaled approximately $1 billion.

       Other benefits of adequate water supply are so basic  that they  are easily taken for granted
in the industrialized world. For example, many people without access to a water supply system spend
hours each day simply obtaining water.  Water infrastructure frees up this time for more productive
use.

       The primary advantage to business of public water supply is lower cost, due to economies of
scale.  If each individual business had to supply its own water,  business locations would be limited to
areas that could supply sufficient water — either adjacent to surface water, or over ground water able
to yield sufficient quantities. Industries that  are heavily dependent on water, such as chemical and
paper manufacturers, do locate almost exclusively in such areas.  Similarly, the cost to a business of
    12 Samuelson, Paul A., and Nordhaus, William D., Economics. 13th ed., p. 886.

    13 National Council on Public Works Improvement, Fragile Foundations: A Report on America's
Public Works. Final Report to the President and Congress, February 1988, p. 1.

    14 This section draws on the World Bank's World Development Report 1992. pp.99-100 except
where otherwise noted.

                                            3-7

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      Compensating for Poor Infrastructure:
             Nigerian Manufacturers

    Nigeria is one of many countries where the
  public sector  is unable to provide steady and
  reliable infrastructure services.  A  1989 World
  Bank  report   studied  the  response of  179
  manufacturers in Nigeria to this situation.  In
  many cases, manufacturers invested in equipment
  to  provide these services privately,  such as
  electricity  generators, boreholes  for .water,
  minibuses to  transport workers to  the factory,
  and radio  equipment to  allow communication
  within the city.   The authors found  that the
  value of equipment necessary to provide services
  generally considered infrastructure averaged just
  under 21 percent of the firms' total  value of
  machinery and equipment. For small firms, this
  total was  over  50 percent.    The average
  investment in  boreholes was close to 2 percent.

    Not only does this investment crowd out firms'
  investment in other productive capital, it also
  gives larger firms a  competitive advantage.  In
  countries with adequate infrastructure, users of
  different sizes generally face similar costs for
  infrastructure   services;  in  Nigeria,  due  to
  economies of scale,  the larger firms have lower
  unit costs.   In  addition,  many smaller  firms
  cannot  afford to provide infrastructure services
  privately, and  as a result suffer the inefficiencies
  of infrastructure service interruption.

  Source: Kyu Sik Lee and Alex Anas,
  "Manufacturers'  Responses  to  Infrastructure
  Deficiencies  in  Nieeria.  The World  Bank,
  December 1989.
meeting  effluent  requirements  can  be
lowered when it discharges to a community
wastewater treatment system.  For many
businesses, particularly small ones, the cost
of discharging into a sewage system will be
lower  than providing its own  treatment
system.

       The  net   effect  of  water   and
wastewater  infrastructure  on  economic
productivity is not easy to gauge.  In the
late  1980s,  a flurry of  academic  articles
explored the issue.   One  group,  led by
David Aschauer, contended that investments
in infrastructure "bring forth movements in
private-sector output which are as much as
four to seven times as large as the public-
sector  outlays."  This work indicates that as
much as sixty percent of the  "productivity
slowdown" experienced by the U.S. over the
last  fifteen  years  can be explained by  a
decrease   in   public   capital   stock
investment.15 Aschauer demonstrates  that
the decline in productivity is correlated with
a  decline  in our nation's  investment in
infrastructure.     He  argues  that   this
correlation is attributable to a decrease in
the efficiency of private capital utilization in
the face of deteriorating infrastructure.  The
conclusion  that   the   ratio  of  public
investment to gross  domestic  product  and
productivity  growth   are  correlated  is
supported by a cross-country comparison in
7  industrialized  countries,  presented in
Exhibit 3-2.
    15 Aschauer, David A., "Is Public Expenditure Productive?," Journal of Monetary Economics. 23
(1989) pp. 177-200.  Annual increases in labor productivity in the U.S. averaged 2.5 percent from
1948-69, 2.0 percent from 1969-73, and 0.5 percent from 1973-79. See also Alicia H. Munnell, "Why
Has Productivity Growth Declined? Productivity and Public Investment," New England Economic
Review. January/February 1990.
                                            3-8

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       When   applied  to   water   and   wastewater
infrastructure,   Aschauer's  research  indicates  public
investments  in  water and  wastewater facilities  lead  to
increases in private profitability and productivity.   A
simulation that increased the annual growth rate of water
and wastewater capital stock from 1.7 percent (the 1980-88
average) to 2.7  percent over a ten year period yielded a
private profit rate in the year 2015 of 7.33 percent, versus
7.24 percent under a baseline scenario in which the water
and  wastewater  infrastructure  growth  rate remained
unchanged.  The same simulation estimated that  annual
growth in labor productivity under the increased water and
wastewater investment scenario would be 1.74 percent in
2015, versus 1.66 under the baseline scenario. The resulting
economic growth would in turn lead to  increased tax
revenues. The increases in tax revenue are large enough
that investments in water  and wastewater  infrastructure
could be "paid back" by increased tax revenues in less than
a  decade.16     These  conclusions,   however,   remain
controversial.17  Although  few  dispute the importance of
water   and  wastewater   infrastructure   to  economic
productivity, the link may not be as direct or as strong as
Aschauer's work indicates.
          Limits to
    Government Investment

  A study by the World Bank on
productivity   in  projects  that
depend on public infrastructure
concluded that the economic rate
of  return  (ERR)   for   such
projects increases significantly as
the ratio of public investment to
GDP increases — up to a point
Once  public  investment  as  a
share of GDP goes above about
ten percent, EER tapers off and
declines.  The study concludes
that this decline occurs when
public investment  enters  areas
where private investment is more
effective.

Source:  D.  Kaufmann,   "The
Rationale for Policy Reform: The
Productivity   of   Investment
Projects," World Bank  Internal
Document,   April   11,  1991.
Results are partially summarized
hi  the   World  Development
Report 1991.
    16 Apogee Research, Inc., "America's Environmental Infrastructure: A Water and Wastewater
Investment Study," prepared for the Clean Water Council, December 1990, pp. 15-16.

    17 See Congressional Budget Office, How Federal Spending for Infrastructure and Other Public
Investments Affects the Economy. July 1991,  pp. 23-34;  W. David Montgomery, "Public  Capital
Investment:  Rx for Productivity?  Maybe; Benefit-cost Analysis  Will Tell," The Public's Capital.
Winter 1990, (Harvard University; University of Colorado at Denver), pp. 4-6; Alicia Munnell, Dale
Jorgenson, Charles Hulten, and Robert Schwab, "Infrastructure and Economic Growth: Round Two,"
The Public's Capital. Spring 1991, (Harvard University; University of Colorado at Denver), pp. 4-7;
Alicia Munnell, ed., Is There a Shortfall In Public Capital Investment?, proceedings of a conference
held June 1990, sponsored by Federal Reserve Bank of Boston.
                                           3-9

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PUBLIC INV
IN SEVEN!
Country
United States
Canada
United Kingdom
France
Italy
Germany (Federal Republic)
Japan
Exhibit 3-2
ESTMENT AND PRODUCTIVITY GROWTH
INDUSTRIALIZED COUNTRIES — 1973-85
Public Investment as a
Percentage of GDP
0.3
1.5
1.8
1.9
2.8
2.5
5.1
Average Growth in Labor
Productivity
0.6
1.5
1.8
2.3
1.8
2.4
3.1
Source: Derived from Aschauer 1989
SUMMARY

       America's extensive infrastructure for providing clean water and  for adequately treating
wastewater is crucial to our nation's well-being.  This infrastructure protects public health, and is
important to our economy.   It enhances returns to private capital, and serves to increase labor
productivity.
                                             3-10

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                                    BIBLIOGRAPHY
Apogee Research, Inc.,  America's  Environmental Infrastructure:  A  Water  and  Wastewater
       Investment Study, prepared for the Clean Water Council, December 1990.

Apogee Research, Inc., The Nation's Public Works: Report on Wastewater Management. Categories -
       of Public Works Series, National Council on Public Works Improvement, May 1987.

Apogee Research, Inc., A Report on Clean Water Investment and Job Creation, prepared for the
       National Utility Contractors Association, March 1992.

Aschauer, David Alan, and W. David Montgomery, "Public Capital Investment: RX for Productivity?,"
       The Public's Capital. Vol. 1, No. 3, pp.4-6, Winter 1990.

Aschauer, David Alan, "Is Public Expenditure Productive?," Journal of Monetary Economics 23. pp.
       177-200, 1989.

Bates, Marcia H., and Stephen P. Shelton, "Environmental Engineering Infrastructure: Problems and
       Needs," from the 41st Purdue University Industrial Waste Conference Proceedings held May
       1986, pp. 759-765,  1987

Congressional Budget Office, How Federal Spending for Infrastructure and Other Public Investments
       Affects the Economy. July 1991.

Congressional Budget Office, The Federal Budget for Public Works Infrastructure. July 1985.

Council of Economic Advisors, Economic Report of the President. February 1990.

Herwaldt, Barbara L.,  et ah, "Outbreaks of Waterborne Diseases in  the United States: 1989-90,"
       Journal of the American Water Works Association. April 1992.

Hope,  Barney, and Michael Sheehan, "The Political Economy of Centralized  Water Supply in
       California," The Social Science Journal. Vol. 20, No. 2, pp. 29-39, April 1983.

Kaufmann, D., The Forgotten Rationale for Policy Reform: The Productivity of Investment Projects.
       Preliminary Findings and Implications. Draft Report, April 1991.

The Labor  Management Group, Rebuilding America's Vital  Public Facilities: Highways. Bridges.
       Urban Water Supply. Wastewater Treatment. October 1983.

Lee, Kyu Sik, and Alex Anas, Manufacturers' Responses  to Infrastructure Deficiencies in Nigeria:
       Private Alternatives  and Policy Options. Working Paper Series 325, Urban Development
       Division, Infrastructure and Urban Development Department, The World Bank, December
       1989.
                                          3-11

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                                    BIBLIOGRAPHY
                                       (continued)


McGough Jr., Joseph T., "Aging Infrastructure: A Need for Federal Funding of Urban Water Supply
       Systems," from the proceedings of AWWA seminar on developing financial programs in the
       80's, Dallas, TX, June 10, 1984.

Munnell, Alicia H., "Why Has Productivity Growth Declined? Productivity and Public Investment,"
       New England Economic Review. Federal Reserve Bank of Boston, January/February 1990.

Munnell, Alicia H., et al., "Infrastructure and Economic Growth: Round Two," The Public's Capital.
       Spring 1991.

Munnell, Alicia H.,  ed., Is There  a Shortfall in  Public Capital Investment?. Proceedings from a
       Conference in Harwich Port, Massachusetts, June 1990.

National Council on Public Works Improvement, Fragile Foundations: A Report on America's Public
       Works. Final Report to the President and Congress, February 1988.

The Public's Capital. "Economic Growth:  Is Infrastructure Investment the Key to Productivity?,"
       editorial, Vol. 1, No. 3, pp.1-2, Winter 1990.

Schilling, Kyle, et al., The Nation's  Public Works: Report on Water Resources. Categories of Public
       Works Series, National Council on Public Works Improvement, May 1987.

Spangler, Robert, mod., et al..  "Roundtable: Infrastructure - Is Urban Water Supply Part of the
       Problem?," Journal of the American Water Works Association. November 1983.

Wade Miller Associates, Inc., The  Nation's Public Works: Report on Water Supply. Categories of
       Public Works Series, National Council on Public Works Improvement, May 1987.

The World Bank, Latin America and the Caribbean Region: Water Supply and Sewerage Sector -
       Proposed Strategy. Draft Report No. 7330-LAC, The World Bank, June 27, 1988.

The World Bank, World Development  Report 1988. New York, Oxford University Press, 1988.

The World Bank, World Development  Report 1991. New York, Oxford University Press, 1991.

The World Bank, World Development  Report 1992. New York, Oxford University Press, 1992.
                                          3-12

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THE WATER TREATMENT AND
POLLUTION CONTROL INDUSTRY                                          CHAPTER 4
INTRODUCTION

       The U.S. water treatment and pollution control industry is in many ways a direct outgrowth
of water pollution control legislation. The industry provides equipment, materials, and services to
industrial firms, electric utilities, municipal wastewater treatment plants (often referred to as publicly-
owned treatment works, or POTWs), and public water suppliers that enable them to comply with the
requirements of clean water programs. To a great extent, clean water regulations shape the demand
for these goods and services.

       In general, water treatment and pollution control goods and services include:

       •      Treatment equipment and chemicals;

       •      Installation and construction services; and

       •      Monitoring and analytical services.


Some firms that are required to comply with water and wastewater treatment standards produce these
goods and services internally.  Many, however, purchase these goods and services from outside
sources.  It  is these external sources that typically are  identified as  members of the U.S.  water
treatment and pollution control industry, and it is this sector of the economy upon which this chapter
concentrates.1

       Because of the diversity of goods and services it provides, the water treatment and pollution
control industry is rarely recognized as a separate industrial category. Instead, firms in  this industry
typically  are identified  as  members of more broadly defined industries,  such as  equipment
    1 Some of the data on the water treatment and pollution control industry presented in this
chapter are based on government estimates of expenditures made by firms to  comply with water
regulations. Because these estimates may include costs other than the purchase of commercial goods
and services, they may overstate the sales of the water treatment and pollution control industry.
                                           4-1

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manufacturing, construction, or engineering.  As a result, standard government data sources provide
little information on the industry's sales, employment, or other characteristics.   Data from non-
government sources are also limited, both because many of the firms involved in the industry are
small and privately-held, and because the information available for larger, more diversified, publicly-
held firms rarely separates water pollution control from the firms' other lines of business. Fortunately,
market researchers and trade publications have begun to focus attention on the water treatment and
pollution control industry.  The following discussion draws heavily upon these sources.

       The available data indicate that the water treatment and pollution control industry has grown
significantly, as water regulations have become stricter and more far-reaching. In 1991, expenditures
on equipment and services for water treatment and pollution control were approximately $ 11.7 billion,
up from $11.1 billion in 1987.2 As displayed in Exhibit 4-1, almost half of  expenditures today are
for treatment equipment and chemicals.  The construction and installation  services sector accounted
for a slightly smaller share of the total, while the monitoring  and analytical  services sector accounted
for less than one-tenth.3

       For reasons noted above, it is difficult to accurately estimate the total employment in the
water treatment and pollution control industry. A recent study estimates that between 8,800 and
15,600 jobs directly related to project construction are generated by an investment of $1 billion in
water and sewer facilities. Including indirect and induced employment effects, the same investment
generates between 34,200 to 54,700 jobs.4 Other recent studies estimate  that firms engaged in the
industry directly employ approximately 450,000 workers.  Exhibit 4-2 lists these estimates. As the
exhibit indicates, these figures are likely to overstate employment attributable to water treatment and
pollution control, since employment figures for many sectors of the  industry include employees
involved in other lines of business.
    2 This figure includes both public and private sector expenditures on: water and wastewater
equipment, chemicals, consulting services, and instruments; and installation and construction services
for wastewater capital projects. This estimate does not include spending on laboratory services.

    3 William T. Lorenz and Company, 1992 Update - The Water Pollution Control Industry Outlook.
1992 (hereafter  Lorenz, 1992).

    4 Direct employment effects result from initial outlays in the construction sector and include all
labor directly involved in planning and building the project.  See Apogee Research, Incorporated, A
Report on Clean Water Investment and Job Creation, prepared for National Utility Contractors
Association, March 20, 1992.

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                                             Exhibit 4-1

                           SEGMENTS OF THE WATER TREATMENT
                             AND POLLUTION CONTROL INDUSTRY
                    Monitoring/Analytical (6.3%)
Construction/Installation (44.8%)
                                                                       Equipment/Chemical (48.9%)
  Source: William T. Lorenz and Company, "1992 Update - The Water Pollution Control Industry Outlook," 1992.

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Exhibit 4-2
ESTIMATED EMPLOYMENT BY FIRMS IN
THE WATER TREATMENT AND POLLUTION CONTROL INDUSTRY
Industry Segment
Design, Engineering and Consulting
Water Treatment Equipment
Analytical Services
Instruments
Chemical Suppliers
Construction
TOTAL EMPLOYMENT
Employment
izaooo1
88,000
25.0001
13,000*
123252
198,000s
456325
1 Estimate includes employees involved in other lines of business.
2 Estimated employment of top three water chemical producers.
3 Estimated employment of firms involved in the construction of water, sewer, and utility
lines.
Sources: Environmental Business Journal. Value Line Investment Survey. Lorenz
1992. and 1991 Statistical Abstract of the United States.
       As clean.water regulations develop and change, the water pollution control industry continues
to grow.  Several changes in the scope of U.S. environmental regulations will affect the nature of this
industry in the years ahead.  The most significant change is EPA's increasing emphasis on pollution
prevention.  This trend has unique implications for several segments of the industry.  In addition,
global changes in environmental policy present growth opportunities to U.S. companies that have
developed expertise in water pollution control technologies and services. These domestic and global
growth opportunities are discussed in the final section of this chapter.
TREATMENT EQUIPMENT AND CHEMICAL PRODUCERS

       To reduce both natural and man-made contamination, water withdrawn from natural sources
frequently is treated prior to industrial and residential use. In addition, water that is used but is.not
consumed is often required to be treated before it is discharged. Industry, electric utilities, and public
water supply systems treat water prior to use primarily through disinfection and purification processes.
Municipal sewage treatment plants treat wastewater that is received from households, commercial
establishments, and industries.  In addition, many industrial water users are required to treat their
wastewater before it is discharged.
                                            4-4

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       Over 120 water purification and wastewater treatment processes have been developed to meet
these water and wastewater treatment needs.  Implementation of these treatment processes requires
firms and treatment plants to invest in equipment and chemicals. Companies producing equipment
and chemicals for these treatment processes benefit from this demand, and comprise the largest sector
of the water treatment and pollution control industry. In 1991 alone, $5.8 billion was spent for these
products and chemicals, an increase of approximately $500,000 since 1987.5 In addition, these firms
employ over 100,000 workers.

       Water  and  wastewater  treatment  processes  can be classified  as physical,  chemical, or
biological.  Physical processes are primarily  used  for liquid/solids separation  for both water and
wastewater treatment   Biological  processes utilize biochemical  processes to remove soluble or
colloidal organic impurities.  Chemical processes generally are used for disinfection  of water and
wastewater, as well as aids to both biological and physical treatment processes.  A summary of major
treatment processes under each category is presented in Exhibit 4-3.
Exhibit 4-3
CATEGORIES OF WATER AND WASTEWATER
TREATMENT PROCESSES
Physical
Screening
Clarification
Flotation
Filtration
Filter Underdrains
Distillation
Reverse osmosis
Electrodialysis
Ion exchange
Chemical
Coagulation
Flocculation
Chlorination
Activated Carbon Adsorption
Air Stripping Towers
Ozonation



Biological
Trickling Filters
Sequencing Batch Reactors
Activated Sludge
Aeration
Stabilization Ponds
Compressors and Blowers
Rotating Biological
Contractors
Aerobic Digestion
Anaerobic Treatment
Source: Lorenz, 1992, pp. 507-610.
     Lorenz, 1992, p. 510.
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       Most public water supply systems employ a standard set of treatment processes. A 1984
survey of major public water supply utilities in the United States revealed that 90 percent of the
respondents use coagulation/flocculation, and 87 percent employ sedimentation.6 Other commonly
used water treatment processes include: chlorine disinfection (86 percent), rapid sand/anthracite
filtration (83 percent), and fluoridation (68 percent).7 In addition to disinfection, some public water
suppliers and industries also purify water.  Purification removes contaminants, bacteria, and viruses
by using either chemical means or filtration.   Reverse osmosis is among the fastest growing
purification filter processes with applications in both laboratory and industrial markets.8

       The  technology employed to treat wastewater  depends upon the nature of the effluent.
Municipal wastewater  treatment typically  involves two or three process stages.  During primary
treatment, wastewater is screened to remove large objects and floatables, and is passed through a grit
chamber to remove sand and small stones.  During secondary treatment, which commonly involves
an activated sludge process, the wastewater enters an aeration tank where it is mixed with air and
bacteria-laden sludge  that breaks down  the pollutants.   The wastewater then  enters another
clarifier/sedimentation tank where the activated sludge settles out.  In most cases, the  wastewater is
then disinfected. In some instances, municipal sewage treatment plants are also required  to employ
advanced treatment, such as sand or carbon filters, to further reduce the concentrations of pollutants
in the effluent before it is discharged.

       Industrial water and wastewater treatment processes vary by industry and plant. Among the
many treatment technologies employed by industry, the more common are used for treatment of
organic wastes,  metals, and equalization  or pH  control.  Common treatment technologies for
treatment of organic wastes include biological treatment systems, such as trickling filters,  anaerobic
treatment, and rotating biological contractors.  In addition, industry  treats organic wastes through
activated carbon adsorption, air stripping, steam stripping, and chemical oxidation. To remove metals
from  water  and wastewater, industry commonly employs oxidation processes, precipitation, and
chromium reduction.  The most common treatment processes used for equalization and pH control
include sedimentation, clarification, coagulation/flocculation,  chemical  treatment and  filtration
processes.9
    6 The survey of 155 selected utilities serving populations of 100,000 or more was conducted by
the American Water Works Association.
    7 Van der Leeden, et al., The Water Encyclopedia. 1990, pp. 485-488.
    8 Phipps,  Elizabeth, The Water Industry:  Overview, Industry Trends,  and  Investment
 Opportunity," prepared for Winslow Management Company, 1991, p. 12.

    9 Lorenz, 1992, p. 76.

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Treatment Systems and Equipment

       In 1991, capital expenditures for water and wastewater treatment, septage treatment, and
sludge disposal equalled $2.8 billion.10  As displayed in Exhibit 4-4, over half of these expenditures
were  for industrial water and wastewater treatment applications.   Public  water supply systems
comprised the second largest market  (22 percent).  Municipal wastewater treatment  plants and
electric utility plants accounted for the smallest markets for treatment equipment, each responsible
for approximately 13 percent of total expenditures.
Exhibit 4-4
1991 WATER AND WASTEWATER EQUIPMENT
CAPITAL EXPENDITURES
(millions 1991$)
Market Segment
Industrial Facilities
Electric Utility Plants
Municipal Wastewater Treatment Plants
Public Water Supply
TOTAL
Expenditures
$1,555
338
348
576
$2,817
Source: Lorenz, 1992, p. 510.
       The treatment equipment industry includes over 70 major producers of at least one type of
water or wastewater treatment equipment. The majority of these firms are privately-held and own
a large share of the market for only one or two pieces of equipment.  For example, Jet Tech is the
world's leading supplier of sequencing batch reactors (SBR), with 35 SBR plants operating in the U.S.
and Canada. The firm specializes in this technology, and does not hold a major share of the market
of any other commonly used process equipment. Several firms, however, hold a major share of the
market  for more  than one type of process equipment.  Exhibit 4-5 lists  ten of these firms, and
identifies their major product lines.
    10 The estimate of capital expenditures may overstate commercial sales of treatment systems, as
some firms may supply treatment systems internally.
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Exhibit 4-5
MAJOR PRODUCERS OF SEVERAL LINES
OF TREATMENT EQUIPMENT
Company
• EIMCO Process Equipment Company
• Envirex, Incorporated
• Infilco Degremont, Incorporated
• CBI Walker, Incorporated
• Aqua-Aerobic Systems, Incorporated
• Ionics, Incorporated
• Leopold
• General Filter Company
• Zimpro-Passavant Environmental
Systems, Incorporated
• Parkson Corporation
Equipment Lines
Screens, Clarification, Flotation, Filtration,
Coagulation/Flocculation, Trickling Filters, and Aeration
Clarification, Flotation, Filtration,
Coagulation/Flocculation, Trickling Filters, Activated
Sludge, and Aeration
Screens, Flotation, Filtration, Coagulation/Flocculation,
and Aeration
Clarification, Coagulation/Flocculation, Trickling Filters,
and Aeration
Clarification, Filtration, SBR, and Aeration
Ion-exchange Membrane and Electrodialysis Reversal
Clarification, Filtration, and Filter Underdrains
Filtration, Filter Underdrains, and Air Stripping Towers
Clarification, Aeration, and Anaerobic Treatment
Screens, Clarification, Activated Sludge, and Aeration
Source: Lorenz, 1992, pp. 507-668.
       The treatment equipment industry segment is a major employer in the water treatment and
pollution control industry, accounting for almost one-third of the total industry employment.  Firms
in this industry segment employed approximately 88,000 workers in 1991. By 1995, the industry is
expected to increase its workforce by 40,000 employees.11
    11 "Employment in the Environmental Industry," Environmental Business Journal. 1992.

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                                    Ionics, Incorporated

                    looks, Incorporated is a leading water purification company
                    based in Watertown, Massachusetts. The company specializes
                    in ion-exchange membrane and electrodialysis processes. Sales
                    of membranes and related equipment account for 55 percent
                    of total revenues; water and chemical supplies account for
                    another 23 percent; and consumer water products 22 percent
                    Ionics employs approximately  1,000 workers, and in 1991
                    reported revenues  of S 138.1 million.   Foreign sales and
                    operations account for approximately half of total sales.

             Source:  Value Line Investment Survey. Edition 2, March 27,1992.
       Because the water and wastewater treatment equipment industry is relatively mature, the
emergence of revolutionary technologies is not expected in the future. There is room, however, for
improvements and new applications. For instance, advanced membrane technology is experiencing
rapid growth.12 In addition, the biological equipment segment is one of the fastest growing areas
of the water and wastewater treatment equipment market.  Two factors contribute to this growth.
The first is increasing pressure on public water systems to supply aesthetically pleasing and  safe
drinking water, which  has led to  a trend  away from chlorination and  toward biological water
treatment. The second is the need to replace existing biological treatment systems.  For instance, in
the 1990's many of the 4,000 existing anaerobic digesters will need to be upgraded.13 As a result,
the water and wastewater treatment equipment sector can generally expect to experience moderate
but stable growth in the near future.
Chemicals and Chemical Services

       The demand for water and wastewater treatment has in turn induced demand for chemical
products used in some treatment processes.  Approximately 1,000 organic and inorganic chemicals
are used to treat water and wastewater. Lime, alumina, and chlorine are the three most commonly
used chemicals for water and wastewater treatment.  Lime is commonly used as a stabilizer and pH
adjuster for both potable and industrial water and wastewater treatment.  Chlorine is most widely
used for disinfection of water and wastewater, although its use is on the  decline due to concerns
about its effects on both human health and the environment.  Alumina is used as a coagulant to
purify water  for human and industrial consumption.14  In  addition, filter media, such as sand,
charcoal, and sophisticated membranes have been used for years in water and wastewater treatment.
    12 Lorenz, 1992, p. 669.

    13 Lorenz, 1992, p. 527.

    14 Lorenz, 1992, pp. 607-610.
                                            4-9

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       Exhibit 4-6 displays total water and wastewater treatment chemical sales by market segment
As the exhibit shows, expenditures on water and wastewater treatment chemicals reached $3 billion
in 1991.  Industry, which uses chemicals for disinfection, filtration, pH adjustment, and to regulate
boiler and cooling water systems, accounted for approximately 44 percent of total expenditures. The
next largest markets include electric utilities, municipal wastewater treatment plants, and private
suppliers, each accounting for approximately 17 percent of total chemical expenditures. Public water
supply plants constitute the smallest market for water treatment chemicals, accounting for only six
percent of total chemical expenditures. Notably, however, the treatment of water supplies before use,
rather than wastewater treatment after use,  is the major source of chemical demand; across all
markets,  treatment prior to use accounts for almost 85 percent of total expenditures.
Exhibit 4-6
1991 WATER AND WASTEWATER TREATMENT
CHEMICAL EXPENDITURES
(millions 1991$)
Market Segment
Industrial Facilities
Electric Utility Plants
Municipal Wastewater Treatment Plants
Public Water Supply Plants
Private Market
TOTAL
Expenditures
$1,200
500
510
330
460
$3,000
Source: Lorenz, 1992, p. 608.
       The water chemical industry consists of more than 500 specialty and commodity chemical
producers. In general, the firms can be classified into one of the following six categories:

       •     Large, diversified chemical producers,

       •     Medium-sized specialty chemical companies,

       •     Other manufacturers with a few chemical lines,

       •     Small firms specializing in water and wastewater treatment chemicals,

       •     Chemical distributors, and

       •     Equipment manufacturers with  chemical-employing equipment.
                                            4-10

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       Very large companies, such as Dow and FMC, supply most of the commodity chemicals used
in water and wastewater treatment  Specialty chemical companies, such as Nalco Chemical or Betz
Laboratories, have also developed successful markets in the water and wastewater treatment industry.
These firms specialize in the industrial area, providing technical assistance and compounds for internal
water preparations, as well as boiler, cooling, and process water treatment processes.  The small water
treatment chemical companies typically are privately  owned and serve a specific geographic region.
Most often they supply boiler or cooling water chemicals, products for smaller chemical users, or
swimming pool treatment chemicals. Firms outside the traditional chemical industry generally produce
filter media.

       Six firms dominate the market, accounting for almost half of the total industry revenues in
1990.  Betz and Nalco are the two leading  firms.  Other industry leaders include: W.R. Grace's
Dearborn division; Ashland's Drew  Industrial division; the Dexter Water  Management division of
Dexter Corporation; and Calgon Carbon Corporation, a subsidiary of Merck.  The remainder of the
industry is highly fragmented. For example, the next  ten largest national and regional firms account
for less than one percent  of  the  total market, followed by a  multitude of small commodity
suppliers.15
                                Calgon Carbon Corporation

             Calgon Carbon Corporation produces and sells activated carbons, which are
             used to remove organic chemical compounds from liquids and gases. Its main
             customers include the industrial process market (49 percent of 1991 sales) and
             the environmental market (44 percent of sales). The environmental market
             includes both industrial and municipal customers. Purchased by management
             from Merck in 1985, the firm has 1,513 employees. Best Available Control
             Technology standards under the Safe Drinking Water Act Amendments of 1986
             are based on the use of granular activated carbon, one of Calgon's leading
             product lines.  New municipal water installations are expected to demand
             approximately 220 million tons of Calgon's GAC through 1997.

      Source:  Value Line Investment Survey. Edition 3, April 3, 1992, p. 502.
       The number of employees in the water chemicals and chemical services sector is difficult to
identify primarily because water treatment chemical revenues are only a portion of revenues for most
chemical firms.  In addition, most smaller, regional firms are privately held and employment data are
not publicly available.  Betz, Nalco, and Calgon, companies for which the majority of sales are water-
related, employ 12,325 workers.  Dexter  and  W.R. Grace have  5,500 and 52,000  employees,
respectively.16 Only a small portion of these employees, however, are involved in the production
of water  treatment chemicals.
    15  "Wastewater Segment  or Water Treatment Chemicals Market  Growing  the Fastest,"
Environmental Business Journal. February 1991.

    16 Value Line Investment Survey. Edition 12, March 6, 1992, pp. 1884,  1889.

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       In general, mild economic downturns tend to have little effect on demand for water and
wastewater treatment chemicals. Growth in the industry has slowed since the 1970's, but is expected
to continue at a rate of six percent over the next several years to $3.7 billion in 1995 and $4.5 billion
in 2000.17  The following developments should favorably affect the growth of the water chemical
treatment industry:

       •      As effluent standards become more stringent, discharge permits will require
              that firms become more efficient at controlling pollution. By adding more or
              different chemicals to wastewater, firms are often able to meet more stringent
              requirements without investing in new equipment.

       •      Municipalities are strengthening pretreatment requirements for light industries
              that discharge to the treatment system, creating a new chemical  treatment
              market.

       •      The rising cost of land disposal requires that the volume of wastewater sludge
              from treatment plants be reduced. This will  likely encourage increased sales
              of chemicals used to dewater residual solids.18
INSTALLATION AND CONSTRUCTION SERVICES

       Firms providing water and wastewater system construction and installation services represent
a major segment of the water pollution control industry. Companies in this segment provide a wide
range of services.  In addition to actual construction services,  this segment includes companies
providing conceptual planning, design, and engineering services. In 1991, estimated expenditures on
water and wastewater system construction and installation services totalled approximately $5.3 billion.
Direct installation and construction activities accounted for the majority of these expenditures.

       Historically, the installation and construction services industry has benefitted from demand
generated as a result of government construction programs for municipal wastewater treatment plants.
Since 1972, federal, state, and local governments have spent over $100 billion to build and upgrade
over  15,500  POTWs that are in operation today.19  The federal government supported the
construction of the majority of these facilities through the Construction Grants Program (CGP).
Since its inception, the program has  provided about $58 billion for the construction of POTWs.20
    17 Lorenz, 1992, p. 608.

    18 "Cutback on Expenditures for Wastewater Treatment Equipment Fuels Demand for Chemical
Producers," Environmental Business Journal. February 1991.

    19  U.S.  Environmental  Protection  Agency, Office of  Policy,  Planning and Evaluation,
Environmental Investments: The Cost of a Clean Environment. November 1990, p. 4-10.

    20 William T.  Lorenz and Company, 1989 Update  - The Water  Pollution Control Industry
Outlook. 1989, p: 170 (hereafter Lorenz, 1989).

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The Water Quality Act of 1987 replaced this program with the State Revolving Fund (SRF) program.
Under SRF, states receive grants from the federal government and provide low interest loans to
municipalities  for sewage treatment projects.  To date, EPA has  awarded  about  $5.6  billion in
capitalization grants through the SRF.21

       The scope of the Federally-Gnanced wastewater treatment plant construction program has
declined in the past decade.  For instance, 12,000 projects were active in 1981; in 1989, only 3,500
projects were active.22  This decline reflects two factors.  First, the goal of secondary treatment of
all municipal sewage is being met, as over 90 percent of all POTWs currently employ secondary
treatment processes. In addition, many municipalities are unable to generate enough funds  for the
construction of POTWs, as they experience fiscal crises and federal funding becomes less available.
As the domestic market for their services declines, the engineering and construction industries have
begun to take advantage of new markets, including markets abroad.  These trends and the current
status of the industry are discussed in detail below.
Engineering and Design

       Companies in the environmental engineering and design industry identify and characterize
environmental problems, evaluate alternative solutions, and select, design and develop the chosen
solution for clients.  Because this industry includes several lines of business, such as hazardous waste
disposal facility design, it is  difficult to quantify  revenues solely related to clean water programs.
Overall, the U.S. environmental engineering industry generated at least $8.2 billion in billings in 1991.
Wastewater treatment plant  and sanitary and storm sewage system projects accounted for less than
one-fourth of these billings.23

       The environmental engineering and design industry includes both large, national firms, and
numerous regionally-based firms.  The larger firms control a significant portion of the wastewater
treatment market.  For example, the top 20 firms accounted for almost 50 percent of total billings
for sewerage-related work in 1991. Regional firms, however, continue to hold a large share of the
market  due  to  the local  demands   of  the  wastewater management industry.   For instance,
municipalities typically require design and engineering firm representatives to attend public meetings.
To meet this  demand, firms maintain offices in close proximity to their clients.24
    21 EPA budget data.

    22 Lorenz, 1989, p. 172.

    23 This revenue  estimate includes  revenues from both  foreign and  domestic markets.   See
"Environmental Work Eases the Recession," Engineering News Record. April 6, 1992.

    24 "Wastewater Treatment Consultants Aim for Private Sector Clients as Municipal Work Slows,"
Environmental Business Journal. February 1991.

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       The wastewater management  engineering  and design  industry conducts  industrial  and
municipal feasibility studies and economic evaluations. In addition, these firms provide engineering,
design, and consulting services regarding the operation of wastewater treatment facilities.25 In 1989,
engineering and design billings (including foreign operations) for wastewater treatment and related
sewerage work were estimated to be approximately $2.1 billion.  At that time, industry billings were
projected to grow at  an annual  rate of 10 to 15 percent.26  This growth, however,  failed to
materialize, and by 1991 billings for sewerage engineering projects were less than $1.8 billion.27

       As discussed above, the decreased demand for design and engineering services results from
a reduction in the scope of municipal treatment  plant construction programs.  Because of  this
decreased demand, several design and engineering firms are de-emphasizing the wastewater treatment
business.  Some firms, however, are responding to  the change by diversifying into related markets,
such as the operation and maintenance of municipal sewage treatment plants.  CH2M Hill, for
example, now operates approximately 70 plants, while Metcalf and Eddy manages 52 plants.28 Other
firms have  responded  to the declining  municipal  market by focusing on industrial clients.   In
particular, this effort has targeted indirect dischargers, who have become subject to increasingly strict
pretreatment requirements for industrial  wastes discharged to municipal treatment plants.
Consulting Firms

       Environmental consulting services account for a small segment of the water pollution control
engineering and design sector. Environmental consulting firms typically are involved in construction
and installation of water-related projects during the diagnostic and conceptual stages.  These firms,
which are often small and privately-held, gather information, assist with strategic planning efforts,
design information systems, and provide other management services.
                       An Environmental Consulting Firm: ERM Group

                 Founded in 1977, the ERM Group has approximately 400 employees
                 in 27 offices  in  the U.S. and Canada.  The Qrm offers a range of
                 services, including  hazardous waste management, risk assessments,
                 ecological revaluations, design  and  construction  assistance,  and
                 regulatory compliance training:  To provide  these services, ERM
                 employs a multidisciplinary staff,  including engineers,  geologists,
                 biologists, hydrogeologists, economists, lexicologists, regulatory analysts,.
                 and planners  (Lorenz 1989).

         Source:  Lorenz, 1989, p. 496.
    25 Lorenz, 1992, p. 499.

    26 "Firms Look to Environment," Engineering News Record. April 5, 1990.

    27 "Environmental Work Eases the Recession," Engineering News Record. April 6, 1992.

    28 "Wastewater Treatment Consultants Aim for Private Sector Clients as Municipal Work Slows,"
Environmental Business Journal. February 1991.

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       Engineering firms like Camp, Dresser, and McKee (CDM), CH2M Hill, Roy F. Weston, and
Woodward-Clyde also  offer environmental  consulting services, in addition  to their traditional
engineering and design business.29
Combined Estimate of Sector Size

       Because of the overlap between consulting and engineering and design, estimates on the size
of the industry tend to combine the two types of services.  As indicated in Exhibit 4-7, water and
wastewater treatment projects accounted for an estimated $1.2 billion in spending on engineering,
design  and consulting services in 1991.30  Industrial faculties accounted for 54 percent of these
expenditures. POTWs and public water supply systems accounted for 20 and 18 percent, respectively.
Electric utility plants represent the smallest market for consulting, design and engineering services,
accounting for only eight percent of total expenditures.
Exhibit 4-7
1991 WASTEWATER EXPENDITURES FOR
CONSULTING, DESIGN AND ENGINEERING SERVICES
(millions 1991$)
Market Segment
Industrial Facilities
Electric Utility Plants
Public Water Supply Plants
Municipal Wastewater Treatment Plants
TOTAL
Expenditures
$630
90
208
232
$1,160
Source: Lorenz, 1992, pp. 503, 505.
    29
      Lorenz, 1992, p. 491.
    30 This estimate of expenditures is significantly smaller than 1991 estimated billings for engineering
and design firms because it does not include revenues from foreign operations, and is based solely
on  capital expenditures  (whereas some engineering and design revenues could be attributable to
operation and maintenance projects).
                                           4-15

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       Environmental consulting and engineering firms employed 120,000 workers in 1991. The size
of the work force is  projected  to almost double by  1995 to  238,000 employees.31  Because the
majority of these firms are involved in several lines of environmental business, the number of
employees directly related to the water and wastewater business can not be accurately determined.
Construction and Installation

       Firms directly involved in the construction and installation of water and wastewater treatment
systems, generate a large portion of revenues associated with the water pollution control industry.
Construction costs are estimated to account for 65 to 70 percent of industrial wastewater treatment
capital spending, and an even greater proportion  of POTW capital expenditures.  In addition,
installation costs are estimated to represent 300 percent of equipment costs, on average.32  This
distribution of expenditures represents a large market for firms specializing in water and wastewater
installation and construction.

       In 1991, total installation  and construction  expenditures were approximately $4.2 billion.
These expenditures  are  expected  to  grow to $4.6  billion in 1995.  As displayed in Exhibit 4-8,
industrial facilities have the largest demand for construction and installation services, accounting for
46 percent of the total  market.   Municipal wastewater treatment plants also constitute a major
portion of the market, accounting for 44 percent of total expenditures. Overall, expenditures are
divided evenly between water and  wastewater treatment system  installation and construction.33
Exhibit 4-8
1991 EXPENDITURES FOR INSTALLATION AND
CONSTRUCTION OF WASTEWATER CAPITAL PROJECTS
(millions 1991$)
Market Segment
Industrial Facilities
Electric Utility Plants
Municipal Wastewater Treatment Plants
TOTAL
Expenditures
S2,100
645
1,431
54,176
Source: Lorenz, 1992, p. 495.
    31 "Employment in the Environmental Industry," Environmental Business Journal. 1992.

    32 Lorenz, 1989, pp. 509-512.

    33
      Lorenz, 1992, p. 495.
                                            4-16

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       Finns in the construction and installation of wastewater treatment projects typically are
involved in other types of heavy construction.  As a result, it is difficult to separate water-related
business from other lines of business.  In general, construction firms are small,  local or regional
organizations. Based on the 1991 Statistical Abstract of the United States. 10,000 construction firms
are involved in the construction of water, sewer, and utility lines, which represents  approximately 25
percent of the firms in the heavy construction industry.  These firms employ approximately 198,000
workers. Statistics on the number of employees directly involved in water-related construction are
unavailable.

       Like the engineering and design industry, firms providing installation and construction services
also may be adversely affected by the decline in federal support for the construction of POTWs.
These firms also have significant growth opportunities overseas, as discussed in the last section of this
chapter.
ANALYTICAL AND MONITORING SERVICES

       Industry, electric utilities, POTWs, and public water supply systems must monitor and analyze
water and wastewater samples to ensure that they are in compliance with clean water regulations.
In addition, many industrial facilities monitor process water use for quality control.  The analytical
and  monitoring industry consists of firms that  provide  analytical laboratory services, including
monitoring and analysis. In addition, firms supplying the instrumentation for this analysis are included
in this industry segment.  The following discussion describes these segments of  the  water and
treatment and pollution control industry.
Laboratory Services

       Analytical labs analyze water samples to determine the existence, extent, and characteristics
of contamination.  Prior to 1970, the environmental laboratory business consisted of small, private
labs that received much of their business from local industry and government. The development of
stricter  environmental regulations in the 1970's and  1980's significantly increased demand for
laboratory services, resulting in the industry's rapid growth.  Many new firms entered the market, as
the industry experienced annual growth of approximately 20 to 30 percent. By 1991, the market for
commercial environmental testing laboratory services was approximately $1.4 billion. Growth has now
slowed, however, and in the 1990's, the monitoring and analytical services industry should experience
annual growth rates of less than 10 percent.

       Approximately 1,600 labs in the U.S. provide some form of environmental analysis. Because
many labs complete analysis for different media, it is difficult to determine sales and employment
directly related to water or wastewater analytical services.  Moreover, the environmental laboratory
industry is highly fragmented, with hundreds of small, regional and local firms  providing a full range
of services to customers in certain geographic areas.  Approximately 20 labs earn  more than $10
million in annual revenues each, accounting for 20 percent of the total market Fifty to 80 regional
labs earn between $3 and $10 million each,  accounting for 25 percent  of the industry's revenues.
Between 1,250 and 1,500 labs, however, earn under $3 million and account  for 45 percent of the
environmental testing market Combined, these environmental laboratories employ approximately
25,000 workers.34
    34 "Employment in the Environmental Industry," Environmental Business Journal. 1992.

                                            4-17

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       Several of the major national providers of laboratory services include firms that provide only
laboratory services (i.e., "pure labs"), such as Enseco, CompuChem Laboratories, National Testing
Laboratories, and U.S. Testing Company.  Other firms combine laboratory services with other water
and wastewater treatment services, such as Roy F. Weston, Infilco Degremont Incorporated, and
International Technology.

       The number of national firms with regional offices has grown in recent years.  For instance,
some national labs have acquired regional labs to increase their sampling volume. Presently, ten to
15 labs are capable of competing on a nationwide basis.  In addition, many engineering and design
firms are integrating into laboratory services, such as CH2M Hill, Brown and Caldwell, and Malcolm
Pirnie.  In 1981, water and wastewater sampling,  monitoring and analysis services generated $30
million in revenues  for these firms.  By  1991, these revenues had increased to $100  million.35
Although there is an increasing pattern of consolidation and acquisition of regional  firms,  they
continue to hold a major share  of the market  The practicality of using regional firms is  based on
their location, as samples usually need to  be transported or shipped quickly from the site to the
laboratory.
Analytical. Sampling, and Monitoring Instruments

      . Historically, water and wastewater monitoring was completed in the field and focused on the
physical features of water (i.e., color, smell, and taste).  As environmental regulations became more
stringent, the need for more exact measurement increased. As a result, demand for instrumentation
grew. Instrumentation is needed to determine the physical, chemical, and biological characteristics
of  water samples.   Although  environmental  regulations have  contributed  to  demand  for
instrumentation, the need for industrial process efficiency and public concern over drinking water
quality also have increased demand for more exact measurement.

       There are two general categories of environmental instruments: laboratory instruments and
field instruments. Laboratory instruments include gas chromatographs, mass spectrometers, atomic
spectroscopy products,  and other  instruments  used  to detect and analyze  pollutants.   Field
instruments, such as leak detectors and source analyzers, are used to monitor water flow and content
on-site.

       As displayed  in Exhibit 4-9, the water and wastewater instrument market was approximately
$497  million in 1991.   Industrial facilities  accounted for two-thirds of these expenditures, with
instrument expenditures divided evenly between water and wastewater analysis. POTW expenditures
were solely for wastewater analysis, while public water utility expenditures were for analysis of public
water supplies.  Electric utilities accounted for the smallest portion of the market, with expenditures
divided evenly between water and wastewater analysis.  The industry is expected to grow slightly, to
$570 million, by 1995.36
    35 Lorenz, 1992, p. 436.

    36 Lorenz, 1992,  pp. 468, 497.
                                           4-18

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Exhibit 4-9
1991 WATER AND WASTEWATER INSTRUMENT CAPITAL
SPENDING ( MILLIONS 1991$)
Market Segment
Industrial Facilities
Electric Utilities
Public Water Supply
Municipal Wastewater Treatment Plants
TOTAL
Expenditures
$334
39
57
67
$497
Source: Lorenz, 1992, pp. 468, 479.
       The environmental instruments industry employs 13,000 people.  By 1995, the size of this
workforce is expected to grow by 50 percent.37 Because water and wastewater instruments account
for only a portion of the environmental instruments industry, the number of employees directly
involved in the production of water and wastewater instruments can not be identified.

       The laboratory instrument segment  is dominated by large, well-established instrument
manufacturers that develop application-specific instrumentation.  Exhibit 4-10 lists the nine U.S.
instrument manufacturers with revenues over $200 million.
Exhibit 4-10
MAJOR ANALYTICAL INSTRUMENT MANUFACTURERS
• Baxter/Scientific Products Division
• Beckman Instruments
• Henley/Fisher Scientific
• Hewlett-Packard
• Perkin-Elmer
• VWR Scientific
• Millipore/Waters
• Thermo Instrument
• Varian

Source: Lorenz, 1992, pp. 476-477.
   37 "Employment in the Environmental Industry," Environmental Business Journal. 1992.

                                           4-19

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       Because of the wide variety of field monitoring and sampling needs, the field instrument
segment is comprised of a diverse group  of instrument manufacturers.   Firms  such as.Heath
Consultants, Fluid  Conservation Systems, and Joseph G. Pollard Company are among the major
suppliers of leak detection equipment  Some important water meter suppliers include Badger Meter,
Jerman Waterworks Supply, and Neptune  Measurement Company.  Exhibit 4-11 lists firms that
specialize in the production of wastewater monitoring instruments.
Exhibit 4-11
MAJOR MANUFACTURERS OF WASTEWATER INSTRUMENTS
• ABB Kent-Taylor, Incorporated
• Bailey Controls
• Beckman Instruments, Incorporated
• Capital Controls Company, Incorporated
• Fischer and Porter Company
• The Foxboro Company
• Ionics, Incorporated
• Isco, Incorporated
• Microbics Corporation
• Orion Research Incorporated
Source: Lorenz, 1992, p. 473.
       Other field sampling and monitoring equipment producers include firms that manufacture
equipment for surface and ground water monitoring.  American Sigma, Isco, QED Environmental
Systems,  and Norton Company are  major suppliers of ground and surface water monitoring
equipment. Other firms in the field instrument segment are manufacturers of pipe flow measuring
instrumentation.   Major  producers  of  flow  measurement  instruments include  Drexelbrook
Engineering, Fischer and Porter, Isco, and Marsh-McBifney.38

       The instrument manufacturing segment should expect to experience continued growth in the
future.  Treatment processes  and  products are becoming more complex.  In addition, industry is
becoming more concerned with human exposure to toxics and trace materials. As a result, demand
for better measurement  and analysis will continue.  Control equipment (e.g., valves, computerized
process equipment, gauges, sensors, actuators, and other components) constitutes the fastest growing
segment of the instrumentation industry. Producers of analytical equipment, however, are beginning
to experience competition from overseas suppliers.  Although the U.S. still has close to half of the
world market,  its position as the leader is eroding as firms from Europe and Japan increase their
market share.39
    38 Lorenz, 1992, pp. 470-480.  Due to the wide variety of in-field instrument manufacturers, this
list of major suppliers is not complete.

    39 Lorenz, 1989, pp. 384-385,

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FUTURE GROWTH OPPORTUNITIES

       As discussed above, the growth of the U.S. water treatment and pollution control industry is,
to a large extent, a direct result of the requirements of clean water regulations.  Future growth
opportunities are likely to stem from this relationship as well.  In addition, the firms in this industry,
particularly engineering and construction firms, have significant growth opportunities overseas. The
following two sections describe domestic and foreign growth opportunities for firms in the water
treatment and pollution control industry.
Domestic Markets

       A major force shaping the future of the water treatment and pollution control industry is the
trend toward pollution prevention, including waste minimization and recycling.  The effects of this
trend on the industry are likely to be mixed. Waste-minimization frequently calls for reduced use of
energy, water, and chemicals. As a  result, suppliers of water treatment chemicals may experience
reduced demand.  In addition, a long-term trend toward waste-minimization places less emphasis on
the use of end-of-pipe treatment  equipment, which could have long-run negative impacts on the
equipment manufacturing industry.  In contrast, the emphasis on recycling has spurred a growing
interest in wastewater as a reusable resource. As a result, new methods of land application are being
developed. Firms producing land application equipment, such as pumps, pipes, chlorinators, air and
flow compressors, and flow measuring devices should benefit from this trend.

       Federal and state emphasis on controlling toxic water pollutants should also increase demand
for some goods and services.  Requirements for  analysis of  an expanding list of pollutants will
heighten demand for analytical instruments and laboratory services. Firms supplying activated carbon
and chemicals for bioremediation  also  should experience growth from the emphasis on controlling
toxics, as these two methods are effective at removing organic priority pollutants from wastewater.40
The crackdown on toxics also has  led municipalities to set  stricter pretreatment standards for
industries discharging their wastewater to POTWs.  Lighter  industries are  likely to meet these
standards through chemical treatment rather than investment in capital-intensive processes, thereby
increasing demand for water treatment chemicals and chemical services.41

       The  reduced availability of  federal grants  for the construction of  municipal wastewater
treatment plants should have a significant effect on several segments of the water pollution control
industry.  As mentioned above,  this trend will  have a negative effect on  firms  that provide
construction and installation services, as municipalities will not construct wastewater plants at the
rates  experienced in the past. On the other hand, firms that  produce chemicals  that improve the
performance or increase the effective capacity of wastewater treatment plants should  benefit from
the decline in federal grants. Like indirect dischargers, municipal treatment plants are likely to rely
increasingly  on chemical treatment to  meet  limitation  requirements, while  minimizing capital
expenditures.
    40
      Lorenz, 1992, p. 608.
    41 The European Market: Why Americans Should Take the Plunge," Environmental Business
Journal. February, 1991.

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Foreign Markets

       Overseas markets, especially Europe, offer the U.S. water treatment and pollution control
industry the greatest potential for growth.  During the past two decades, American industry has been
subject to a wide range of environmental regulations. Many of its foreign competitors, on the other
hand, have not been required to make such investments.  This situation is beginning to change,
however,  as foreign governments adopt increasingly stringent environmental regulations.  These
regulations offer growth opportunities for some U.S. industries. In particular, the American pollution
control industry may have a significant competitive advantage — expertise gained through over twenty
years of practice — in these new markets.

       According to industry experts, the greatest export opportunities in the water and wastewater
treatment market exist for firms providing engineering and construction services, especially in Europe
and the former Soviet  Union.  A combination of the size of the potential market, Europe's trend
toward  more  stringent  environmental regulation,  and  the current  nature  of the  European
environmental industry provides significant opportunities for U.S. firms.43

       The size of the European water market is over twice that of the U.S. The current population
of Europe, excluding the former  Soviet Union, is 540 million.  Presently, only  54 percent of the
European Community  population is connected to sewage treatment plants.  In addition, while the
most advanced countries, such as Germany and the United Kingdom, have sewerage connections for
over 80 percent of their populations, not all sewage is treated.  The demand for development of
water and sewage infrastructure is clear in the European  countries' projections of future capital
expenditures. Official projections of future capital spending on water programs for Germany, Italy
and  the U.K. (countries  with the most advanced systems presently) total more than $250 billion.
Potential investments in other countries, such as Spain, could increase this estimate significantly.44

       The adoption of more  stringent environmental  regulations also  stimulates demand for U.S.
water pollution control services.  In 1980, the European Community established the Directive on
Drinking Water.  Member countries must incorporate the  directive's standards  into their national
regulations. As a result, national regulations have tightened.  For instance, Germany, Italy, France,
and the U.K. have passed stringent water regulations.  In addition, a draft Municipal Waste Water
Directive and cleanup programs for the Mediterranean and North Seas have recently been developed.
Combined, these regulations should increase the demand  for water treatment  infrastructure and
related expertise.45
    42 Porter, Michael, The Competitive Advantage of Nations. New York: The Free Press, 1990.

    43 Department of Commerce, International Trade Administration, U.S. Industrial Outlook '92:
Business Forecasts for 350 Industries. January 1992, p. 5-15.

    44 The European Market: Why Americans Should Take the Plunge," Environmental Business
Journal. February 1991.

    45 ibid.

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       Presently, the European environmental pollution control industry is fragmented. The top 10
firms involved in the contracting, consulting, and equipment industries account for only 25 percent
of total revenues. Thousands of small firms exist, each with their own niche.  In addition, European
sewage treatment operations are moving toward privatization. Presently, 28 percent of sewage plants
are operated by private firms.  By 2000, the private share of wastewater treatment is estimated to
increase to 44 percent The fragmented nature of the industry and the trend toward privatization
offer great  potential  for firms with competitive  advantages  in organization,  management, and'
technology development, as possessed by U.S. firms in the water pollution control industry.46

       Foreign opportunities for U.S. firms are not limited to Europe. Expanding populations and
increases in standards of living will stress environmental resources in all areas of the world.  This will
result in greater environmental challenges and growth opportunities, particularly for engineering and
construction services. American firms can take advantage of these trends by exporting their expertise
to foreign countries.
                          Clean-Flo Laboratories: Taking Advantage
                                     of Foreign Markets

              Clean-Flo Laboratories, a remediation firm based in Hopkins, Minnesota,
              has entered a joint agreement with Dicer Engineering of Taipei, Taiwan to
              restore the water quality of Taiwan's Feng-Shen drinking water reservoir.
              Agricultural runoff caused the  growth  of algae and led to ammonia
              contamination in  the reservoir, as well as to several other water quality
              problems. Clean-Flo and Dicer Engineering will receive S3 million from the
              Taiwanese government to restore water quality and lower the reservoir's
              ammonia content. The restoration project will employ an oxygenation and
              destratification process, and the use of biological filters.  The project is
              similar to projects Clean-Flo has completed for other foreign countries,
              including Japan, France, and Korea.

       Source: "Clean-Flo Labs Will Restore Drinking Water Reservoir in Taiwan," Business and
              the Environment.  March 1992, p. 132.
    46 ibid.

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                                    BIBLIOGRAPHY
Apogee Research, Incorporated, A Report on Clean Water Investment and Job Creation, prepared
       for National Utility Contractors Association, March 20, 1992.

"Clean-Flo Labs Will Restore Drinking Water Reservoir in Taiwan," Business and the Environment.
       March 1992.

"Cutbacks on Expenditures for Wastewater Treatment Equipment Fuels Demand," Environmental
       Business Journal. February 1991.

"Employment in the Environmental Industry," Environmental Business Journal. 1992.

"Environmental Work Eases the Recession," Engineering News Record. April 6,  1992.

"Firms Look to the Environment: The Top 500 Design Teams," Engineering News Record. April 5,
       1990, p. 42.

Phipps, Elizabeth, "The Water Industry: Overview, Industry Trends, and Investment Opportunity,"
       prepared for Winslow Management Company, 1991.

Porter, Michael, The Competitive Advantage of Nations. New  York: The Free Press, 1990.

"The European Market: Why Americans Should Take the Plunge," Environmental Business Journal.
       February 1991, Vol. 4, No.  2.

U.S. Department of Commerce, International Trade Administration, U.S. Industrial Outlook '92:
       Business Forecasts for 350 Industries. 1992.

U.S. Department of Commerce, Statistical Abstract of the United States. 1991.

Value Line Publishing Incorporated, The Value Line Investment Survey. Edition 2, March 27, 1992;
       Edition 3, April 3, 1992; and Edition 12, March 6, 1992.

van der Leeden, F., Troise, F.L., and Todd, D.K., The Water Encyclopedia. Second Edition. 1990.

"Wastewater Segment of Water Treatment Chemicals Market Growing the Fastest," Environmental
       Business Journal. February 1991, Vol. 4, No. 2.

"Wastewater Treatment Consultants Aim for Private Sector  Clients as Municipal Work Slows,"
       Environmental Business Journal. February 1991, Vol. 4, No. 2.

"Wastewater Treatment Market Benefits from  Regulation: Industrial  Market  Speeds Ahead of
       Municipal Market," Environmental Business Journal. February 1991, Vol. 4, No. 2.

William T.  Lorenz and Company, 1989 Update -- The Water  Pollution Control Industry  Outlook.
       1989.

William T.  Lorenz and Company,  1992 Update -- The Water  Pollution Control Industry Outlook.
       1992.
                                          4-24

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THE U.S. COMMERCIAL FISHING INDUSTRY                                CHAPTER 5
INTRODUCTION

       America's commercial fishing industry, once stagnant and dominated by foreign competition,
has enjoyed significant growth since the late 1960s. Today the U.S. fleet, which numbers an estimated
93,000 vessels, ranks sixth in the world in total catch, behind only Russia, China, Japan, Peru and
Chile.  The fleet ranges from the Grand Banks off the coast of Newfoundland to the Caribbean Sea,
and from the Bering Sea to the South Pacific. Most of the U.S. catch, however, is taken within 200
miles of the nation's coast.

       Although no longer as large a part of the American economy as it was in the 18th and 19th
centuries, commercial fishing remains an important industry, employing 274,000 fishermen and 90,000
workers in 4,600 U.S.-based processing  and wholesaling plants.  The value of U.S. commercial
landings  in  1990 reached $3.6 billion;  that same year, the  commercial fishing  industry's total
contribution to U.S. GNP exceeded $16.5 billion.1

       Despite its recent growth, the U.S.  fishing industry faces many challenges.  At the most
fundamental level, the  health of the U.S. industry depends on the health of the nation's marine
resources. Pollution has already taken a significant toll on shellfishing, which accounts for nearly half
the value of total domestic fish landings; the National Oceanic and Atmospheric Administration
reports that pollution has forced at least temporary closure of one-quarter of the nation's commercial
shellfish beds,  and prompted health authorities to place restrictions or conditions on another 12
percent.  Pollution of rivers, estuaries and near coastal waters, which serve as critical spawning and
nursery grounds, also threatens important commercial finfish species, such as salmon and menhaden.
While pollution is only one among many issues confronting managers of the nation's fisheries, it must
be successfully addressed if we are to preserve the living resources upon which the U.S. commercial
fishing industry depends.

       This chapter briefly describes the  recent history, current status, and economic importance of
the U.S. commercial fishing industry.   It then outlines  the  challenges that face that industry,
concentrating specifically  on the effects of pollution on America's commercial fisheries.
    1 NOAA, Fisheries of the United States. 1990.  May 1991.  Employment data are for 1988.

                                            5-1

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INDUSTRY OVERVIEW

        Fishing, one of America's oldest industries, played a significant role in the early exploration
and settlement of the country.  Attracted by the rich fishing grounds extending from the coast of
Newfoundland  to New England, fishermen were among the earliest explorers of North America.
Some of New England's first settlements were established for on-shore processing of fish, and ports
such as Boston and New York benefitted from a thriving fishing industry.

       Protection of America's fisheries has long been a national priority.  As a new nation, the
United States  negotiated treaties concerning international fishing rights off the Northeast coast.
More recently, to combat the domination of U.S. fishing grounds by foreign fleets of factory trawlers,
Congress in 1964 closed U.S. territorial waters (the three-mile zone) to all foreign fishing, and in 1966
created an additional nine-mile contiguous zone that was closed to any foreign nations whose vessels
did not already fish there.  When these actions proved insufficient to protect the nation's fisheries,
Congress  in 1976 passed the Fishery Conservation and Management Act (FCMA).2  The  FCMA,
better known as the Magnuson Act, set up  the U.S. Exclusive Economic Zone (EEZ), a contiguous
area extending seaward 200 nautical miles from the coast in which the U.S. has exclusive management
authority over all marine resources.3

       The Magnuson Act protected American fisheries from unbridled exploitation by foreign fleets
and spurred development of the domestic fishing industry in  some  of the world's richest fishing
grounds.  Today, American vessels account for the vast majority of the  catch within the U.S.  EEZ.
As Exhibit 5-1 shows,  U.S. landings from the EEZ have increased substantially since 1984, and now
represent 92 percent of the total. Foreign landings, which accounted for 25 percent of the total catch
in the U.S. EEZ as recently as eight years ago, now account for less than one percent of the catch.
As on-shore processing plants and a U.S. factory trawler fleet have developed, joint ventures in which
U.S. fishermen sell their catch to foreign processing boats have also declined, to the point where joint
ventures currently account for approximately eight percent of the total  catch.4

       Exhibit 5-2 further illustrates the recent growth in the U.S.  catch.   As the exhibit shows,
commercial landings by U.S. vessels have increased 143 percent  in less than 25 years, from 4.0 billion
in 1967 to 9.8 billion pounds in 1990. The  U.S. catch, which in 1967 represented only four percent
of the world total, today accounts for six percent of landings worldwide.  The increase in the U.S.
catch is due to a number of factors, including the effects of the Magnuson Act, an exceptionally good
catch in 1990, and heightened domestic demand for fish and fish products. Since 1970, for example,
per capita consumption of fish has risen from 11.8 to 15.5 pounds per year, a trend attributed to
increased consumer demand for fish as a low-fat source of protein.
    2 Chandler, A.D., "Management, Markets and Mother Nature - Three Decades on the Roller
Coaster." National Fisherman Yearbook. 1990. Vol. 70, No. 13.

    3 U.S. Department of Commerce, U.S. Industrial Outlook 1992. "Seafood Products," pp. 32-8,
32-9, January 1992.

    4 Data on the U.S. catch in this paragraph and throughout this section are taken from  NOAA,
Fisheries of the United States. 1990. May 1991.

                                            5-2

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2.000
                                   Exhibit 5-1


           DISTRIBUTION OF TOTAL CATCH IN U.S. EEZ
                                                                          Foreign each
                                                                         D Joint Venture Catch
                                                                         BUS. OomeetcCatch
   1964                    1966                    1966


      Source: NOAA, Fisheries of the United States. 1986-1990.
                                                                       1990
                                      Exhibit 5-2

                   U.S. DOMESTIC CATCH, 1960-1990
MMon Pound*

10.000
 9.000



 8.000



 7.000



 6.000



 8.000



 4.000



 8.000
    1960
              1964
                        1968
                                   1972
                                             1976
                                                       1960
                                                                 1964
                                                                           1966
      Source: NOAA, Fisheries of the United States. 1990. May 1991.

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       Historically, demand for fish products in the United States has exceeded the domestic catch.
The recent increase in per capita consumption of fish has increased domestic demand to such an
extent that annual imports in the mid-1980s exceeded exports by as much as $7 billion. As Exhibit
5-3 shows, however, the gap has narrowed in recent years as exports have increased, spurred by
dwindling sources of supply for foreign consumers.  Japan is the U.S. industry's largest foreign
customer, importing $2.2 billion worth of American fishery products in 1990.

       Exhibit 5-4 shows the distribution  of U.S. commercial fishing landings by weight As the
exhibit shows, Alaska pollock and menhaden together account for approximately 53 percent of total
landings.  Shellfish represent 13 percent of U.S. landings.  The remaining third of U.S. landings is
divided among cod, flounder, salmon, and other finfish.

       Exhibit 5-5 illustrates the distribution of U.S. landings by value. As this exhibit  indicates,
Alaska pollock and menhaden, which dominate the distribution of landings by weight, account for
only 11 percent  of the total value of the U.S.  catch.  In contrast, shellfish, which account for
approximately one-seventh of the catch by weight,  represent nearly half of the catch's total value.
Similarly, salmon account for a greater  than proportional share of the value of U.S. landings.

       Exhibit 5-6 shows the distribution of U.S. landings by region.  The Alaskan fishery, with its
abundance of salmon and record catch of pollock in 1990 (three times the average 1985-1989 catch),
accounts for 56 percent of all landings. The next most productive regions are  the Gulf of Mexico,
Pacific Coast, Chesapeake, and New England.  Alaska also accounts for the largest share of the total
value of the U.S. catch.  However, regions such as New England and the Gulf of Mexico, in which
shellfishing is of major importance, account for a disproportionately large share of value relative to
total catch.

       The U.S. catch has a variety of end uses.  In 1990 approximately three-fourths of the catch
by weight was sold as food. This marks a significant change from the early  1980's, when  edible
products comprised only 45  percent of the catch.  This change can be attributed in part to natural
variations in the abundance  of different species, but is also the result of increased concentration on
meeting domestic food demand, as well as the success of exports  such as salmon and surimi  (a fish
paste made from low value fish processed to resemble crab legs and other high value products).  As
shown in Exhibit 5-7, 68 percent of the U.S. catch in 1990 was sold as fresh or frozen food products.
About eight percent of the catch ~ primarily salmon, sardines, tuna, clams, and shrimp -- was sold as
canned  food. Three percent of the catch was sold as bait or animal feed.  The production of meal,
oil, and  other industrial products, primarily from menhaden,  accounted  for the  remaining 21
percent.
CHALLENGES FACING THE FISHING INDUSTRY

       Uncertainty of supply affects all fishermen.  Unlike other industries that manufacture or
cultivate products, the products of the fishing industry are "hunted."   Supply is affected by many
diverse, biological factors beyond the fishing industry's control, such as the migratory and breeding
patterns of numerous species. The negative effects of manmade problems such as overharvesting and
pollution are also substantial.  Natural and manmade factors often combine to produce variable and
limited catches, leading to fluctuations in the supply and price of fish. As a result, investment in the
fishing industry is perceived as risky, limiting the amount of capital available for modernization and
expansion.5
    5 Find/SVP, The U.S. Fish Industry. June 1982.

                                            5-4

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                       Exhibit 5-3
   FOREIGN TRADE, FISHERY PRODUCTS, 1977 - 1990
Billions $
12
                    „  i    i   i        i    i    i
                                                       Trade Deficit
                                                      Imports
                                                      Exports
     1978   1980    1982    1984    1986    1988   1990
   Source: NQAA. Fisheries of the United States. 1986-1990.

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                                     Exhibit 5-4
          DISTRIBUTION OF 1990 U.S. COMMERCIAL LANDINGS BY WEIGHT
                                                                Alaska Pollock  33%
Menhaden  20%
   Salmon  8%
                                                                       Shellfish  13%
              Cod  7%
                                                    Other Finfish   14%
                             Flounder  5%
       Source: NOAA. Fisheries of the United States. 1990. May 1991.

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                                         Exhibit 5-5
              DISTRIBUTION OF 1990 U.S. COMMERCIAL LANDINGS BY VALUE
                    Flounder   5%
                                          Cod   4%
                                                           Salmon  17%
Other Finfish  18%
        Shellfish  45%
Menhaden  3%





   Alaska Pollock   8%
          Source: NOAA. Fisheries of the United States. 1990. May 1991.

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                                                 Exhibit 5-6
                             U.S. COMMERCIAL CATCH  BY REGION
       Alaska
   5.4 billion Ib (56%)
  $1.5 billion (42%)
  Great Lakes
44.7 million Ib (<1%)
$19.7 million (<1%)
Pacific Coast & Hawaii
 650.2 million Ib (7%)
$380.5 million (11%)
                                                                Gulf
                                                          1.6 billion Ib (17%)
                                                         $640.4 million (18%)
                                                                                             New England
                                                                                           649.2 million Ib (7%)
                                                                                           $542.6 million (15%)
                                  Mid-Atlantic
                               206.6 million Ib (2%)
                               $149.9 million (4%)
                           Chesapeake
                         867.5 million Ib (9%)
                         $160.4 million (5%)
                        South Atlantic
                      261 .7 million Ib (3%)
                      $169.6 million (5%)
       Source: NOAA. Fisheries of the United States. 1990. May 1991.

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                           Exhibit 5-7





      END USE OF U.S. DOMESTIC LANDINGS, 1990



                     (Percent of Total Weight)
Fresh and Frozen  68.0%
                                                  Meal and Oil  21.0%
       Canned and Cured 8.0%     Bait and Animal Food  3.o%
     Source: NOAA, Fisheries of the United States. 1990. May 1991.

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       At the most fundamental level, the health of the U.S. fishing industry depends on the health
of the nation's marine resources.  By virtue of the Magnuson Act, the National Marine Fisheries
Service (NMFS) is responsible for the conservation and management of the fishery resources in the
200-mile EEZ.  To combat the threat of overfishing, the NMFS works with eight Regional Fishery
Management Councils to establish Fishery Management Plans. The management plans are based on
evaluations of the long term average yield (catch) that will maintain each fish population at a size that
will produce the highest average harvest. Fishery  Management Plans set guidelines for the length
of fishing seasons, recommend limits on total landings, and in extreme instances may recommend that
the harvest of species in short supply be temporarily prohibited.6

       Whereas the Magnuson Act provides for the development of guidelines to manage fisheries
resources, legislation such as the Clean Water Act, the Marine Protection, Research and Sanctuaries
Act, and the Ocean Dumping Act are vital to ensure  a healthy environment in which our marine
resources can flourish. In the past, the effects of pollution on the commercial fishing industry, relying
mainly on the oceans for its catch, have been perceived as minor. The world's oceans were not
considered susceptible to the pollution that was adversely affecting fish populations in America's lakes
and rivers.  However, the signs that  pollution has begun  to  affect commercial marine fishing are
increasing.
EFFECTS OF POLLUTION

       The appearance in the summer of 1988 of balls of sewage, plastic syringes, and other wastes
on the beaches of New York and New Jersey served as a shocking indicator to the nation that the
oceans could no longer  make  our wastes disappear. While the presence of such floatables is
disturbing,  it  is only one symptom of a  grave, underlying problem ~ the pollution of our coastal
waters. Human demands on coastal environments are great; more than 50 percent of our population
lives within 50  miles of the seashore.7   Communities rely  on the sea to dispose  of their sewage,
industrial wastes, and storm water runoff, yet expect fishing and recreational activities to remain
unaffected. These coastal waters are important to fishermen; approximately 40 percent of the total
U.S. catch and nearly 50 percent of the total value of fishery products are taken less than three miles
from shore.8

       Estuaries, where rivers meet the sea, are critical for most important fisheries. They provide
essential sources of nutrients for marine life and act as the cradles of the ocean's harvest.  The
spawning and nursery grounds of more than two-thirds of  our commercial fisheries are located in
estuaries.  Salmon, menhaden,  shrimp, clams, oysters, lobster, and haddock are just a few of the
species dependent on estuarine habitats for survival.  Unfortunately, estuaries naturally tend to retain
and  concentrate pollutants, exposing marine life to increasing levels of contamination.9
    6 NOAA, Our Living Oceans. November 1991.

    7 EPA Journal. September/October 1989.

    8 NOAA, Fisheries of the United States. 1990.  May 1991.

    9 EPA Journal. July/August 1987.

                                           5-10

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       The effects of pollution on fish, shellfish, and other marine life include bioaccumulation of
toxic chemicals, disease and abnormalities, reproductive failure, and mortality. Toxics that concentrate
in estuary sediments can accumulate in shellfish and bottom-dwelling finfish and become more
concentrated as they move up the food chain. All along the North Atlantic Coast, fishermen today
catch lobsters and crabs with unhealthy holes in their shells and finfish with rotted fins and ulcerous
lesions. New Bedford Harbor has been closed to fishing because of severe  PCB contamination.
Flounder in Boston Harbor have the highest rate of cancers and lesions of any area in the East
Coast.10 A ban on commercial fishing of striped bass in New York because of PCB contamination
causes an estimated $15 million in economic losses annually.  On the West Coast, English sole taken
from Puget Sound are frequently riddled with liver tumors, and the rapidly diminishing English sole
population in nearby Eagle Harbor can no longer reproduce. Warnings are posted in California's
Santa Monica Bay to prevent consumption of fish contaminated with DDT.11

       In addition to the problems caused by toxic pollutants, discharges of nitrogen and phosphorus
from agricultural sources  and untreated sewage overload the nutrient content of estuarine waters.
These excess nutrients stimulate explosive algae growth that reduces the amount of oxygen available
for other aquatic life.  This decrease in oxygen drastically reduces  the capability of estuaries to
support finfish and shellfish.  Suffocating algae blooms create patches of water,  known as dead zones,
that are almost totally depleted of oxygen, causing massive fish kills.12 Nutrient runoff is considered
to be a main cause of the growth of a 3,000 square mile dead zone near the mouth of the Mississippi
River in the Gulf of Mexico.  Stationary  bottom-dwelling  fish  are particularly at risk; in  1988
approximately one million fluke  and flounder were  killed in the oxygen-deprived water of New
Jersey's Raritan Bay.13 Many finfish are able to avoid these patches of water, but this only increases
the costs to the fishing industry as travel and detection efforts increase. In addition,  certain algae
blooms, commonly known as red  and brown tides, contaminate shellfish with  marine biotoxins that
cause human illness.  Shellfish  beds are closed for months at a time in the summer because of red
tides.  Although these tides occur naturally, increased incidences are attributed in part to human
factors such as nutrient runoff.
    10 EPA Journal. September/October 1989.

    11 EPA Journal. July/August 1987.

    12 EPA Journal. September/October 1989.

    13 The Dirty Seas," Time. August 1, 1988.

                                           5-11

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                  The Effects of Pollution on the Delaware River Shad Fishery

     The Delaware River  Basin once supported an important commercial fishery and was a  major
  spawning and nursery ground for anadromous fish. At the turn of the century,  the American shad
  represented two-thirds of the basin's commercial finfish catch. Between 1899 and  1984, the catch
  declined from 16.5 million pounds to only 184,000 pounds. Pollution is cited as the primary cause of
  the decline in the shad catch. Sewage discharges into the Delaware River and Basin from municipal
  wastewater treatment facilities in Philadelphia and other large cities have created a mass of oxygen-
  deprived water.  The negative effects of this "pollution block" on the  shad  fishery are immense:  it
  prohibits the use of former tidal-freshwater spawning and nursery areas;  it influences and in some years
  precludes upstream migration of adults; it hinders the successful downstream migration of adults; and it
  periodically causes heavy mortalities of young during their seaward migration.  Because dissolved oxygen
  concentrations in segments of the Delaware  are so low, most  of the shad that spawn in the river die
  there rather than emigrate to the ocean  and return to spawn again.  As a result, the shad population
  has little buffer against the failure of a single spawning class.  It is estimated that the benefits resulting
  from restoration of the commercial shad fishery through improved pollution control could range as high
  as $431 thousand per year.


  Source: Industrial Economics, Incorporated, "OCPSF Effluent Guidelines Benefit Study - Commercial
         Fishing Benefits for the Delaware River." 7 June 1985.
       The discharge of inadequately treated sewage is responsible for the most obvious impacts of
pollution on fisheries, the widespread closure of estuarine waters to shellfishing. As previously noted,
shellfishing is a key segment of the fishing industry; while shellfishing accounts for only 13 percent
of the U.S. catch by weight, total shellfish landings represent 45 percent of the catch's total value.

       Shellfish are extremely vulnerable to changes in environmental quality.  Molluscan shellfish,
such as oysters, clams, and mussels, are filter feeders, straining food and particulate matter in the
water. Pollutants and pathogens from direct discharges of untreated sewage or from nonpoint source
runoff concentrate in shellfish because  they filter large volumes of water relative to their  size.
Shellfish contaminated in this way pose serious threats to human health.14  In an effort to combat
this  health threat, shellfishing waters  are often closed, with  severe  impacts on the local  fishing
industry.
    14 NOAA, The Quality of Shellfish Growing Waters on the West Coast of the United States.
June 1990.

                                              5-12

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                             New Bedford Harbor - Massachusetts

                Sewage discharges keep vast areas of New Bedford Harbor in Buzzards
                Bay  closed  to  shellfishing.    New   Bedford  and  the  surrounding
                communities discharge 1.5 billion gallons per year of minimally treated
                sewage into Buzzards Bay. Affected shellfishing waters are estimated to
                contain over 500,000 bushels of quahogs at a potential annual economic
                value of over $13 million.
                Source: NOAA, The Quality of Shellfish Growing Waters on the East
                       Coast of the United States. March 1989.
                                    Morro Bay • California

                Morro Bay, once California's leading producer of Pacific oysters, has
                virtually ceased to be a viable commercial shellfishing area because of
                consistently high fecal coliform counts.  Production has decreased from
                149,000 pounds in 1979 to only 2,000 pounds in 1985.  The sources of
                pollution affecting the Bay include the City of Morro's wastewater
                treatment plant,  cattle feedlots located in  the Bay's  watershed, and
                discharges of sewage by recreational boaters.


                Source: NOAA. The Quality of Shellfish Growing Waters on the West
                       Coast of the United States. June 1990.
       The National Shellfish Sanitation Program was established to ensure the safety of shellfish
for human  consumption by  preventing harvest from  polluted waters.  The program classifies
shellfishing waters into four categories, which are defined as follows:

       o       Prohibited ~ Harvest for human consumption cannot occur at any time.

       o       Restricted ~ Shellfish may be harvested if subjected to a suitable purification
               process.

       o       Conditionally Approved -- Waters do not meet the criteria for  approved
               waters at all times, but may be harvested when criteria are met.

       o       Approved — Waters may be harvested for the direct marketing of shellfish at
               all times.15
    15 NOAA, The Quality of Shellfish Growing Waters on  the West Coast of the United States.
June 1990.

                                             5-13

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As Exhibit 5-8 shows, the program has determined that pollution adversely affects a large proportion
of the nation's shellfishing grounds. Of the approximately 17 million acres of estuarine waters along
the Atlantic, Pacific, and  Gulf Coasts monitored in  1990,  one-quarter  have been classified as
prohibited with another twelve percent restricted or conditionally approved.  Some  regions suffer
even greater rates of contamination; in Massachusetts, for example, 83 percent of commercially
productive shellfish acreage has been closed.16  While the economic impact of these closures has
not been  determined, the cumulative effect - both in increased costs to the fishing industry and
higher prices for shellfish consumers -- is likely to be substantial..   .
Exhibit 5-8
COMMERCIAL SHELLFISHING - EFFECTS OF POLLUTION IN 1990

Atlantic Coast
Gulf of Mexico
Pacific Coast
Total
Total Acre*
Monitored
(0000
9,416
7,095
428
16,939
Prohibited
1,650
2,405
186
4,241
%
18%
34%
44%
25%
Restricted
328
103
30
461
%
3%
2%
7%
3%
Conditional
345
1,153
73
1,571
%
4%
16%
17%
9%
Approved
7,093
3,434
139
10,666
%
75%
48%
32%
63%
Source: NOAA, The 1990 National Shellfish Register of Classified Estuarine Waters. July 1991.
CONCLUSION

       The U.S. fishing industry faces numerous problems. It must harvest variable and sensitive
resources in competition with increasingly sophisticated foreign fleets. In light of the pressure from
overfishing that has already depleted some commercial fisheries, the industry cannot afford to lose
access to viable fishing grounds. Yet, as the result of pollution, shellfishing in 37 percent of the
nation's shellfish producing waters has been prohibited or otherwise limited, and pollution threatens
the health of other commercial fisheries.  The fishing industry depends on legislation such as the
Clean Water Act and the Marine Protection, Research and Sanctuaries Act to reclaim closed fishing
grounds  and preserve the oceans for future use.  Without these efforts to protect and improve the
marine environment, the living resources on which the industry depends may  face an irreparable
decline.
    16 NOAA, Our Living Oceans.  November 1991.

                                            5-14

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                                    BIBLIOGRAPHY
Chandler, A.D., "Management, Markets and Mother Nature - Three Decades on the Roller Coaster,"
       National Fisherman Yearbook. 1990. Vol. 70, No. 13, pp. 32-35.

Find/SVP, The U.S. Fish Industry:   A Vital  Domestic Resource.  New York,  Information
       Clearinghouse, Inc., June 1982.

NOAA, Fisheries of the United States. 1990. Washington, D.C., U.S. Government Printing Office,
       May 1991.

NOAA, Fisheries of the United States. 1989. Washington, D.C., U.S. Government Printing Office,
       May 1990.

NOAA, Fisheries of the United States. 1988. Washington, D.C., U.S. Government Printing Office,
       May 1989.

NOAA, Fisheries of the United States. 1987. Washington, D.C., U.S. Government Printing Office,
       May 1988.

NOAA, Fisheries of the United States. 1986. Washington, D.C., U.S. Government Printing Office,
       April 1987.

NOAA, The 1990 National Shellfish Register of Classified Estuarine Waters. July 1991.

NOAA, Our Living Oceans. November 1991,  NOAA Technical Memo, NMFS-F/SPO-1, Second
       Printing, 3/92, 5M.

NOAA, The Quality of Shellfish Growing Waters on the East  Coast of the United States. March
       1989.

NOAA, The Quality of Shellfish Growing Waters on the  West Coast of the United States.  June
       1990.

"Fishing and Pollution Imperil Coastal Fish, Researchers Find,"  New York Times. July 16,  1991,
       pp. B5 and B7.

"The Dirty Seas," Time. August 1, 1988.

U.S. Department of Commerce, "Seafood Products," U.S. Industrial Outlook 1992. January  1992,
       pp. 32-8 - 32-9.

U.S. EPA, "Can Our Coasts Survive More Growth?"  EPA Journal. Washington, D.C., Office of
       Public Affairs (A-107), Vol. 15, Number 5, September/October 1989.

U.S. EPA, "Protecting Our Estuaries,"  EPA Journal.  Washington, D.C., Office of Public Affairs
       (A-107), Vol. 13, Number 6, July/August 1987.

U.S. EPA, The Oceans,"  EPA Journal. Washington, D.C.,  Office of Public Affairs (A-107), Vol. 10,
       Number 9, November  1984.


                                          5-15

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WATER-BASED RECREATION
AND RELATED ECONOMIC IMPACTS                                         CHAPTER 6
INTRODUCTION

       The nation's waters are among its most valuable recreational resources. Each year, millions
of Americans participate in some form of recreation in or around water. An estimated 80 million
Americans go swimming, 73 million go boating, and 59 million go fishing each year.1 Americans also
participate in scuba diving, water skiing, white water rafting, whale watching, and surfing, as well as
a variety  of  leisure  activities in  areas  adjacent to  water,  such as hiking,  bird  watching, and
photography.

       Water quality can have a major impact on both the supply of and demand for water-based
recreation. On the supply side, specific water quality standards must be met for a water body to be
fishable or swimmable. In cases where these standards  are not met, access to  the activity is restricted.
For  instance, state  and  local  health boards  close beaches or  post health  advisories when
concentrations of indicator microorganisms exceed acceptable limits. In addition, states impose fishing
advisories or bans that limit or prohibit consumption of certain types of sport fish taken from areas
with concentrations of  toxic pollutants  that  exceed  action  levels.  States also impose shellfish
harvesting restrictions in areas with levels of fecal coliform that indicate potential pathogenic bacterial
or viral contamination of estuarine waters.2   Each  of these restrictions in  some way limits public
access to recreational waters and water-based recreation.

       On the demand side, people may choose not to participate in recreation in or around waters
of poor quality, even in  the absence of restrictions. Unpleasant odors, excessive algal growth, and
unsightly surface pollution can reduce the aesthetic value of water bodies.  As a result, recreationists
enjoy participating in activities in or around these waters less, and choose to either reduce their level
    1 Swimming statistics found in Bell, Frederick and Leeworthy, Vernon, "Recreational Demand by
Tourists for Saltwater Beach Days," Journal of Environmental Economics and Management. Volume
18, pp. 189-205,1990; boating participation reported in National Marine Manufacturers Association,
"America Goes Boating," 1990;  and fishing statistics found in U.S. Department of Interior,  1985
National Survey of Fishing. Hunting, and Wildlife Associated  Recreation. November 1988.

    2 U.S. Environmental Protection Agency, Office of Water, Water Quality Inventory: 1990 Report
to Congress. Draft, March 1992.

                                            6-1

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of participation or go elsewhere to enjoy water-based recreation.  In addition, because the value of
many properties adjacent to water is based in part on the water's aesthetic value and easy access to
water-based recreation, poor water quality may reduce property values, reflecting decreased demand
for use and enjoyment of the water resource.

       The economic activity associated with water-based recreation affects a range of businesses.
Consumer spending on water-based recreation directly supports industries that sell recreational goods
and services, such as boats and fishing tackle. Expenditures on ancillary goods and services, such as
lodging,  food and drink, and gasoline, benefit retail and service businesses in  areas  adjacent to
recreational waters.

       The effects of poor water quality on water-based recreation and its related economic impact
depend upon participants' response to the problem.   Recreationists may reduce their level of
participation in waters of poor quality, traveling instead to waters of better quality.  As a result, the
economies of areas adjacent to water bodies of poor quality may decline, while the economies of
areas adjacent to waters of good quality may benefit. To the extent that this shift in participation
occurs, economic impacts are likely to be local or regional.  If, however, recreationists choose overall
to participate less in water-based recreation, the adverse impacts of poor water quality are likely to
be felt by recreational goods and service industries nationally.

       This chapter discusses the economic importance of water-based recreation and the effect of
water quality on these activities. The activities discussed include fishing, boating, and swimming or
beach use.  The discussion addresses both the direct and  indirect economic effects of water-based
recreation, and presents several examples of the positive and negative economic impacts associated
with changes in water quality.  The chapter also discusses the link between water quality and the
value of adjacent property.
RECREATIONAL FISHING

        Recreational fishing  is a popular American pastime,  providing a source of enjoyment and
satisfaction to millions  of Americans across the country.   In 1985, approximately 46.4 million
Americans ages 16 years and older participated in fishing.3  These fishermen spent over 976 million
days on the water.

        While Americans fish both fresh and salt waters, freshwater fishing is far more prevalent. In
1985, freshwater fishing accounted for 84 percent of fishing days, while saltwater fishing accounted
for 16 percent.  As displayed in Exhibit 6-1, anglers made use of a variety of fresh water, including
manmade ponds and reservoirs, natural lakes and ponds, and rivers and streams. Manmade ponds
and reservoirs attracted 71 percent of the 39.8 million freshwater anglers, natural lakes and ponds
(including the Great Lakes)  drew 46 percent of the total, and rivers and streams were fished by 44
percent of freshwater  fishermen.  Of the  13.7 million saltwater anglers, 61 percent fished offshore,
46 percent frequented tidal sounds, bays, rivers, and streams, and 40  percent attempted surf or shore
fishing (see Exhibit 6-2).4
    3 Most statistics concentrate on sportsmen 16 years and older because the majority of fishing-
 related expenditures can be attributed to these fishermen.  However, an additional  12.2 million
 Americans below the age of 16 participated in fishing in  1985, bringing the total to  58.6 million
 participants.

    4 U.S. Department  of Interior, Fish and Wildlife Service, 1985 National Survey of Fishing.
 Hunting, and Wildlife Associated Recreation. November, 1988.  Note that many anglers fish at more
 than one type of water body. As a result, the percentages  total more than 100 percent.

                                             6-2

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                                    Exhibit 6-1


DISTRIBUTION OF FRESHWATER FISHERMEN BY WATERS FISHED
    100i
     90-
c
0)
o

0>
QL
        Manmade Ponds and Reservoirs  Lakes and Ponds    Rivers and Streams
     Source:      U.S. Department of the Interior, Fish and Wildlife Service, 1985 National Survey of

                Fishing. Hunting, and Wildlife Associated Recreation. November, 1988.

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                                     Exhibit 6-2


  DISTRIBUTION OF SALTWATER FISHERMEN BY WATERS FISHED
c
0)
o

Q)
Q.
                   Offshore
Surf and Shore
Tidal Waters
      Source:     U.S. Department of the Interior, Fish and Wildlife Service, 1985 National Survey of

                Fishing. Hunting, and Wildlife Associated Recreation. November, 1988.

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Economic Importance

       Recreational fishermen spent approximately $32 billion (1990 $) in 1985.5 This total includes
direct expenditures on items such as fishing tackle and gear, as well as indirect expenditures related
to recreational fishing. As Exhibit 6-3 shows, direct expenditures, which totalled $3.4 billion in 1985,
account for only 10.6 percent of all recreational fishing expenditures.  In contrast, 50.1 percent of
recreational fishing expenditures - $16 billion in 1985 — are for trip-related items,  such as food,
lodging, and transportation.  Another $1.6 billion in  expenditures in 1985 (4.9 percent) went to
licenses, magazine subscriptions,  and the rental or purchase of land adjacent to water bodies.  Finally,
expenditures on boats and boating  equipment account for  34.4 percent of expenditures associated
with recreational fishing; in 1985 these expenditures totalled $11  billion.6

       Recreational fishing can  be of major importance to the local economy in areas adjacent to
prime fishing waters.  For example, sport fishing is critical  to local economies in many parts of the
Great Lakes region.  Residents  of  the states bordering the Great Lakes have the highest level of
participation in recreational fishing (approximately 67 percent). In addition, thousands of fishermen
journey to the Great Lakes from outside the region.7 Great Lakes sport fishing contributes more
than $4 billion to the regional economy. The rebirth of the Great Lakes sport fishery, threatened
by pollution,  over-exploitation,  and the invasion of alien species, has been  responsible  for the
economic revival of hundreds of coastal communities.8  As described below, a major  beneficiary of
this revival has been the charterboat industry.
                             Grand Haven's Charterboat Fishery

              Since the introduction of salmon to Lake Michigan, Michigan's charterboat
              fleet has expanded from 3 boats in the late 1960's to over 900 in 1985. Grand
              Haven,  Michigan  is a small community that  has  benefited  from  the
              charterboat boom.  Between 1977 and  1985, the number of charterboats
              operating out of Grand Haven increased from 10 to 62.  In the early 1980's,
              civic leaders developed a charterboat marina to accommodate the growing
              business.  The;• centralized dockage increased tourism  and prompted  the
              development of retail spaces and other waterfront property adjacent to the
              marina.  Direct  expenditures from the charterboat industry and increased
              tourism  are now estimated at $3.5 million annually.
       Source: :CharlesPistis, "Community Enhancement of a Great Lakes Charterboat Fishery in
              iGrand Havenji Michigan," Paper presented to the Great Lakes Sea Grant Network
              Charterboat Workshop, November 12-13; 1985.
    5 For consistency, all revenue and expenditure figures have been converted to 1990 dollars using
the implicit price deflator from The Economic Report of the President. February 1992.

    6 This estimate includes expenditures on other types of "special equipment," including vans and
boat trailers."

    7 U.S. Department of the Interior, Fish and Wildlife Service, 1985 National Survey of Fishing.
Hunting, and Wildlife Associated Recreation. November 1988.

    8 University of Wisconsin Sea Grant Institute, The Fisheries of the Great Lakes. February 1988.

                                             6-5

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                                Exhibit 6-3

           RECREATIONAL FISHING EXPENDITURES
           Other Indirect (4.9%)
Boating (34.4%)
Trip-Related (50.^
              Direct (10.6%)
 Source:     U.S. Department of the Interior, Fish and Wildlife Service, 1985 National Survey of
           Fishing. Hunting, and Wildlife Associated Recreation. November, 1988.

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Water Quality's Impact on Recreational Fishing

       Poor water quality can have a pronounced impact on recreational fishing.  Many sport fish,
such as trout, require cold, clean water to survive. As a result, they are among the first species to
suffer from the effects of pollution and act as a barometer of water quality.9 The habitats of these
game fish have limited natural capacity to dispose of manmade pollution.  Thus, pollution often has
significant adverse impacts on fishing resources. For instance, toxic substances such as PCBs, metals,
and pesticides  bioaccumulate in the fatty tissues of fish, posing a threat to wildlife and humans who
consume them. Sewage, agricultural fertilizers,  and runoff from livestock feedlots provide excess
nutrients that  spur the growth of algae, depleting dissolved  oxygen concentrations necessary to
support aquatic life.  In addition, the discharge of untreated sewage leads to pathogenic bacterial or
viral contamination  of water bodies.   In contaminated  estuarine waters, shellfish accumulate
waterborne bacteria and viruses in their digestive systems, and pose a serious human health threat
to those who consume them.10

       The number  of  restrictions or bans placed on the  consumption of fish from many of the
nation's waters illustrates the effect of pollution on our fishing  resources.  In 1990, over 1,000 water
bodies in the  47  states reporting were subject to some sort of consumption restriction.  State
advisories were posted for 998 water bodies, typically recommending limited consumption of certain
fish by more sensitive subpopulations, such as children and pregnant women.  Fishing bans, which
prohibit all consumption of one or more fish  species and apply to all consumers, were issued for 50
water bodies.11 As shown in Exhibit 6-4, advisories and bans affected  fishing in more than 2.4
million acres of lakes, along more than 7,000 miles of rivers, and along 4,800 miles of Great Lakes
shoreline.
Exhibit 6-4
FISHING RESTRICTIONS REPORTED BY STATES

Total - All 50 states
Affected by Fishing Advisories and Bans
Number of States Reporting Fishing Restrictions
River Miles
1,069,221
7,226
25
Lake Acres
23,290321
2,489,834
13
Great Lakes
Shore Miles
5,164
4,808
6
Source: U.S. Environmental Protection Agency. National Water Quality Inventory: 1990 Report to
Congress. March 1992.
    9 The Joy of Trout Fishing Resumes in Once-Polluted Arlington Stream," Washington Post. April
1, 1991, p. Bl.

    10 U.S.  Environmental Protection Agency, EPA Journal. Volume 16, Number 6, November/
December 1990. Note that the majority of shellfish are harvested for commercial markets, while a
much smaller portion is harvested recreationally. See the chapter on commercial fishing for a more
detailed discussion of pollution's effects on shellfishing.

    11 U.S. Environmental Protection Agency, National  Water Quality Inventory:  1990 Report to
Congress. March 1992.
                                            6-7

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       Another obvious and important indicator of water quality problems is the occurrence of fish
kills in our nation's waters.  In 1990, over 1,300 fish kill incidents  in 42  states were caused  by
pollution.  A total of almost 26 million Gsh were killed.  The two leading causes of Gsh kills were
pesticides and  low dissolved  oxygen.  Industrial dischargers and agriculture were  the  two most
commonly reported sources of pollution that caused Gsh kills.12

       Clean water is essential to the preservation of recreational fisheries and to local economies
that depend heavily upon them.  This fact was graphically illustrated in the summer of 1989 when a
report by the National Wildlife Federation warning of toxins  in Lake Michigan's sport fish created
a panic that nearly devastated the sport-fishing industry at the height of its season. The federation
reported that levels of PCBs and pesticides found in lake trout and other fish sharply increased the
risk of cancer to those who ate the fish. Many consumers and fishermen responded by avoiding Lake
Michigan fish, and area charter fishermen reported that sales plummeted as much as 40 percent after
publication of the report.13
                          California's Recreational Fishing Decline

         Nearly 500,000 Californians have quit fishing since 1985, and about 100,000 more
         abandon the sport every year. Although experts offer many theories on why anglers are
         packing up their rods and reels, drought, pollution and development get much of the
         blame. Who wants to cast a line in the west fork of the San Gabriel River, a wild trout
         stream that has withered to a trickle after four dry years in Southern California? Or eat
         fish from the Upper Sacramento river tainted by chemicals from a paper mill upstream?
         The deciding moment for one California fishermen came in the spring of 1989, when
         thousands of rotting fish mysteriously washed ashore at Lake Crowley.  In nearby
         Mammoth Lakes, sporting goods store owners say there is not as much business to go
  ;?;.:      around.: There was: a time when every little gas station or hardware store in town had
  i::       a little tackle; store inside. Now they don't anymore*" according to a co-owner of one of
  :       the;few stores: there that stocks a full line of fishing sgear.  There  is a problem of
         perception, too.  People hear about drought, pollution and  low fish counts,  so they
  :.       ignore those streams and lakes where fishing remains good.

  Source:  "Lure of Fishing is Fading," Los Angeles Times. November 19, 1990, p.  1.
BOATING

       Boating is among Americans' favorite pastimes, and  is growing  in  popularity.  In 1989,
approximately one out of every three Americans participated in boating. About 12 percent of these
participants were first-time boaters.14 From 1970 to 1990, the number of boats owned by Americans
    12 ibid.

    13 "For Charter Fishermen, Report Poisons Business; Wildlife Group Cited Lake Michigan Risks,"
The Washington Post.  August 22, 1989, p. A7.

    14 National Marine Manufacturers Association, Marinas: Success Stories. 1991.

                                              6-8

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increased from 8.8 million to 16.2 million; the boating industry projects that this number will increase
by at least  another  four  million by 2000.15   As  displayed in Exhibit 6-5, boating's increasing
popularity is further  indicated by the number of boats per 100 residents, which has increased by
almost 50 percent over the last two decades.

       Using the number of  registered recreational boats as an indicator, Exhibit 6-6 shows that
recreational boating  is particularly popular in the  Great Lakes region.   As the exhibit indicates,
residents in states bordering the Upper Great Lakes own 24 percent of registered boats in the U.S.
Almost as many boats are registered in the East Coast/Lower Great Lakes  (23 percent) and Gulf
States/Florida (20 percent) regions.  Fewer boats are registered in the Inland States (16.8 percent),
Pacific Coast (10.8 percent), and New England (5.1 percent).
Economic Importance

       Boating's contribution to the national economy has increased along with its popularity.  In
1970, American boaters spent approximately $11 billion (1990 $) on items directly related to boating,
including new and used boats, motors and engines, accessories, safety equipment, fuel, insurance,
docking, maintenance, launching, storage, repairs, and club memberships.  By 1990, these direct
expenditures reached $13.7 billion (1990 $), approximately a 25 percent increase, despite a marked
decline in expenditures between 1989 and 1990 (see Exhibit 6-7).16

       Spending on boating supports a  large  recreational  marine industry, including 4,106 boat
manufacturers, 2,150 manufacturers of trailers, motors and marine accessories, and approximately
8,320 marinas, boatyards, and  yacht clubs.17 Sales by the U.S. boat building and repair industry
totalled $4.9 billion in 1987.18  The  recreational marine industry directly employs approximately
600,000 workers, including 242,000 manufacturing workers, 184,000 workers employed by wholesale
and retail establishments that sell boats and boating equipment, and approximately  174,000 workers
employed  by marine service establishments, such  as marinas,  trade  associations, and insurance
agencies.19
    15 National Marine Manufacturers Association, "Boating 1990: A Statistical Report on America's
Top Family Sport," 1990.
    16
      ibid.
    17 National Marine Manufacturers Association, "The Importance of the Recreational Marine
Industry," 1990.

    18 U.S. Department of Commerce, Bureau of Census, 1987 Census of Manufacturers: Ship and
Boat Building. Railroad and Miscellaneous Transportation Equipment. April 1990.

    19 National Marine Manufacturers Association, The Importance of the Recreational Marine
Industry," 1990.

                                            6-9

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                                   Exhibit 6-5
7-\
6-
5-
4-
3-
2-
                NUMBER OF RECREATIONAL BOATS OWNED
                              PER 100 RESIDENTS
        4.3
                      4.8
                                     5.2
                                                  6.1
                                                                6.4
       1970
                   I  I   I
1975
I   I  I   I
     1980
                                              Till
1985
1990
                                   Year

 Source: National Marine Manufacturers Association, 'Boating 1990: A Statistical Report on America's Top Family Sport,' 1990.

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                                       Exhibit 6-6


                            1989 BOAT REGISTRATION
                                     BY REGION
                Inland States (16.8%)
Gulf States and Florida (19.9%)
     East Coast and Lower Great Lakes (23.3%)
                                                         Upper Great Lakes (24.2%)
                                                             Pacific Coast (10.8%)

                                                         New England (5.1%)
  Source: National Marine Manufacturers Association, The Importance of the Recreational Marine Industry," 1990.

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o
O)
O)
   20,000


   19,000


   18,000


   17,000


   16,000-
 o
 o 15,000
•*—
 o
 <2 14,000
 g

§ 13,000
   12,000
   11,000
  10,000—r
         1970
                                         Exhibit 6-7
                           Direct Expenditures on Boating
                                                               i    i   i    i    i   i
                            1975
1980
Sourd^Flational Marine Manufacturers Association, "Boating 1 990: A
                                                 Report on America's Top Family Sport," 1 990.

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       In addition to direct expenditures, American boaters spend money on services indirectly
related to boating, such as gasoline for ground transportation, food, and lodging.  Such expenditures
contribute significantly to the economies of communities adjacent to boating waters.  In California,
for example, indirect expenditures  account for approximately 30 percent of all economic activity
traceable to boating.20

       Beyond the immediate impacts of consumer expenditures on boating and ancillary goods and
services, the marinas developed to serve boaters often serve as a stimulus for broader-based economic
activity. Businesses such as restaurants, gift and clothing stores, and hotels benefit from the spending
of boaters using the marina.  In addition, marinas can become a focal point for housing and office
locations with harbor views. These waterfront projects can transform outdated industrial or neglected
shorelines into vibrant commercial and recreational centers.  For example, Racine, Wisconsin is
experiencing a rejuvenation of its waterfront and a revitalization of its central business district as the
result of the construction of a  921-slip marina. The marina itself produced $1.6 million in income
in 1990 and employed four full-time and 36 seasonal workers. In addition, the marina  has spurred
development of three condominium projects and a $100 million office project.21 Stories similar to
this exist in several areas around the nation.
The Relationship Between Water
Quality and Recreational Boating

       Unlike fishing and swimming, water bodies do not have to meet formal standards to be
considered safe for boating.  In some instances, however, poor water quality may restrict access to
boating opportunities.  For  example, the excessive growth of vegetation in  waters experiencing
advanced  eutrophication may impair navigation.  In addition, the presence of toxic pollutants in
sediments may prevent the dredging of harbors and waterways to make  them passable for boats,
limiting access to boating opportunities.   More importantly, people may choose not to boat in
polluted water because of the waters' poor aesthetic qualities. In addition, because about half of all
boating trips involve fishing, fishing restrictions due to poor water quality may reduce boating activity.
Even where pollution does not deter boaters, there is little  doubt that odor, unsightly deposits, and
other visible pollution detract from enjoyment of the boating experience.
SWIMMING AND BEACH USE

       Our nation's beaches comprise an  enormous  recreational  asset.  Each year, millions of
Americans flock to the beach to swim, sunbathe, and walk along the shore.  The Department of
Interior reported that 32 percent of all Americans — approximately 80 million people ~ participated
    20 National data on expenditures indirectly related to boating are unavailable.

    21 National Marine Manufacturers Association, Marinas: Success Stories. 1991.

                                           6-13

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in outdoor (non-pool) swimming in 1982.22   Indicative of this extensive demand, beaches have
become major tourist attractions.  Often, tourists travel from significant distances and stay for long
periods of time in areas near the shore. The economies of beach communities and seaside vacation
areas often depend critically on the tourists they attract.
Economic Importance

       Although people visiting coastal areas rarely spend all of their time on the beach, beachgoing
is among the most popular activities that they enjoy. For example, a 1989 National Oceanic and
Atmospheric Administration survey found that swimming, sunbathing, and walking were among the
top five activities of recreationists at coastal areas in five regions.23 In the Southeast region, beach
visitors had an average stay of approximately 2.5 days, average trip expenditures of $234 per person,
and made approximately 39 percent of these expenditures  while at the beach.24

       While national data on the economic importance of outdoor swimming and beach use are
generally unavailable, there is ample information at the state level on the importance of beach-related
tourism.  The economy of Florida, for example, is clearly tied to its beach resources.  Approximately
13.2 million people visit Florida beaches each year, of which 60 percent are from out-of-state. Beach
users support Florida's economy through expenditures on services and retail items. In 1984, resident
and tourist  beach users made beach-related expenditures of approximately $1.8 billion.   This
amounted to approximately 1.4 percent of total gross sales in Florida. As displayed in Exhibit 6-8,
food and drink expenditures accounted  for over one-half of total expenditures, while lodging
expenditures comprised  the  next largest  category (30 percent).  Other categories of expenditures
include travel related services, beach access fees, and other miscellaneous items. The beach related
expenditures of residents and tourists supported  an estimated 84,000 jobs with an annual payroll of
$407.3 million.  In addition, tax revenues  collected as  a  result of beach-related  sales totaled
approximately $94.6 million.  As a result, the total economic impact generated by Florida beach users
in 1984 was  $2.3 billion.25
    22 Bell, Frederick and Leeworthy, Vernon, "Recreational Demand by Tourists for Saltwater Beach
Days," Journal of Environmental Economics and Management. Volume 18, pp. 189-205, 1990.

    23  Leeworthy, V.,  Meade,  N., Drazek,  K., and  Schruefer, D,  A Socioeconomic Profile of
Recreationists at Public Outdoor Recreation Sites in Coastal Areas: Volumes 1-5. U.S. Department
of Commerce, National Oceanic and Atmospheric Administration, 1989, 1990.  The regions include:
Southeast - North Carolina, South Carolina, Georgia, and the east  coast of Florida; Northeast  -
Maine, New Hampshire, Massachusetts, New York, New Jersey, and  Maryland; Inner Gulf States -
Alabama, Mississippi, Louisiana, and the Panhandle of Florida; Outer Gulf States - Texas and the
southwest coast of Florida; and Pacific - Washington, Oregon, and California.

    24 Leeworthy, et al., Volume 1, 1989, p.

    25 Bell, Frederick and Leeworthy, Vernon, An Economic Analysis of the Importance of Saltwater
Beaches in Florida. Florida Sea Grant College, February 1986.

                                            6-14

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                                  Exhibit 6-8

                     DISTRIBUTION OF EXPENDITURES
               FOR PEOPLE ATTENDING FLORIDA BEACHES
               Beach Access Fees (1.1 %)
         Lodging
            Other (4.9%)

                 Travel (12.1%)
                                                     Food and Drink (51.9%)
Source: Bell, Frederick and Leeworthy. Vernon, "An Economic Analysis of the Importance of Saltwater Beaches in Florida.* February.
1986, p. 31.

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Water Quality's Impact
on Swimming and Beach Use

       EPA's 1990 report to Congress on the state of the nation's waters indicates that swimming
and  other forms  of contact recreation  were restricted  at 301  sites in  20 states.   Most of the
restrictions involved beach closures  of short duration and were  attributed to fecal  coliform
bacteria.26 While the impact of these closures is unknown, there is little doubt that beach closures
due to poor water quality severely undercut the economies of beach communities.

       The events on the New Jersey and New York shoreline in 1987 and 1988 clearly demonstrate
that  clean water and beaches are essential to communities that depend upon beach tourism. The
washing ashore of noxious debris,  particularly  hazardous  medical waste, caused the closure of
hundreds of beaches and diverted future  visits by potential beach users. Beach attendance on Long
Island dropped  50 percent when the debris first washed ashore. A New Jersey community reported
that  beach attendance  dropped from the previous year's 1,200 daily visitors to an average of 120
visitors a day. Lodgings and reservations dropped sharply and retail sales fell. According to testimony
presented to Congress:

       Nobody knows  exactly  the scope of  the economic consequences of the 'Summer of
       88.' But we do know that they have been enormous.   Beach attendance and related
       activities plummeted. Consumption of fish and shellfish dropped off precipitously as
       a panicked public reacted to the grizzly events unfolding before them. The $6-billion-
       dollar-a-year tourism industry on  Long Island is still reeling.  It is estimated that the
       loss of visitors to Long Island alone has cost the regional economy a minimum of $50
       million.27
PROPERTY VALUE

       All other things equal, the proximity of property to a body of water generally increases its
value.  Several studies  have documented this effect.28 Residential property owners are believed to
value three key aspects of a property's proximity to a water body enough to pay a higher price for
that property. These aspects include recreational potential, aesthetics, and wildlife support.
    26 U.S. Environmental Protection Agency, National Water Quality Inventory: 1990 Report to
Congress, Draft, March 1992, pp. 101-103.  Restrictions were reported in 20 of the 23 states that
responded. Note that this estimate may understate the total number of user restrictions, as each site
was counted only once, while access to  some sites may have been restricted more than once.

    27 Patrick Halpin, Suffolk County Executive, September 6, 1988, reported in Oversight Report
of the Committee on Merchant Marine and Fisheries, "Coastal Waters in Jeopardy: Reversing the
Decline and Protecting America's Coastal Resources," December 1988.

    28 See Blomquist and Worley, "Hedonic Prices, Demands for  Urban Housing Amenities, and
Benefit Estimates," Journal of Urban Economics.  Volume  9, pp. 212-221, 1981; and Gardner and
Pollakowski, "Economic Valuation of Shoreline," The Review of Economics and Statistics. 1976.

                                           6-16

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       The availability of the valued aspects of a property adjacent to water depend in pan upon
water quality.  For instance, the color, clarity, odor, and amount of debris floating on the surface or
visible from the shore affect the aesthetic value of the water body.  In addition, water quality is an
important factor in the ability of a water body to support numerous species of fish, birds, and other
forms of wildlife. Finally, the ability of a water body to support recreational activities,  particularly
swimming, depends upon its ability to meet water quality criteria.

       St. Alban's Bay on Lake Champlain, Vermont provides an example of the importance of water
quality to property vajues. During the 1970's, St. Alban's Bay experienced accelerated eutrophication,
resulting in increased algal growth.  This produced odor,  unsightly deposits, and other visible
pollutants. As a result, use of the bay as a recreational resource eroded; attendance at St. Alban's
Bay Park, for example, declined from over 25,000 per day in  1960 to less than 5,000 in  1980. As a
result of the decline in recreational opportunities and the bay's aesthetic value, residential property
values surrounding the bay  also declined.  A study completed in  1983 estimated that properties
surrounding the bay were selling for $4,500 less  than similar properties elsewhere on the lake.  For
the 430 single family homes on the bay, the total decline in property values resulting from pollution
was estimated at $2 million.29

       Just as a decline in water quality can erode the value of nearby properties, improvements in
water quality have positive effects on property values.  For example, property on the banks of the
Lower Willamette River near  Portland,  Oregon  increased in value as a result of water quality
improvements. In the 1940's, portions of the river were commonly referred to as an "open sewer."
Due to inadequate treatment of municipal and industrial wastes, sludge had accumulated on the river
bottom  and debris from  logging operations  and treatment  plant overflows  cluttered the surface.
Major improvements in the treatment of municipal and industrial discharges during the 1960's led to
the river meeting all water quality standards by 1970.  As a result,  the market value of residential
property along the river increased by 16 to 25 percent.30

       Another example of increases in property value resulting from water quality improvements
occurred in the San Diego Bay  area. In the late 1950's the bay experienced frequent algal blooms
and high concentrations of bacteria associated with sewage treatment plant discharges.  As a result,
the bay was unsightly  and unfit  for swimming or habitat support.  The discharge of large quantities
of insufficiently  treated municipal and industrial wastes was the primary cause of water quality
problems.  In the early 1960's, however, water quality rapidly increased due to improvements in
wastewater treatment and diversion of waste discharges. The values of adjacent residential properties
increased approximately eight percent as a result of the pollution abatement measures.31
    29 U.S. Department of Agriculture, Economic Research Service, Natural Resource Damage
Division," The Influence of Water Quality on the Value of Recreational Properties Adjacent to St.
Alban's Bay Vermont," January 1984.

    30 U.S. Environmental Protection Agency, Office of Research and Development, Benefit of Water
Pollution  Control on Property Values. 1973.

    31 ibid.

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SUMMARY

       Millions of Americans fish, boat, and swim each year. Consumer spending on these activities
directly supports industries that supply recreational goods and services, and contributes billions of
dollars to local and regional economies in areas adjacent to recreational waters.  As indicated by
consumer expenditures and by the premium often paid for waterfront property, Americans place a
high value on the beauty of the nation's waters and on the recreational opportunities these waters
support.  The aesthetic and recreational value of our water resources, however, is closely  linked to
the preservation and enhancement of water quality.   When we fail to  protect these resources
adequately, the consequences to local and regional economies can be severe.  In contrast,  when we
protect these waters, we preserve a key natural, recreational, and economic resource, not only for
ourselves but for the use and enjoyment of future generations.
                                            6-18

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                                    BIBLIOGRAPHY
Bell, Frederick and Leeworthy, Vernon, An Economic Analysis of the Importance of Saltwater
       Beaches in Florida. Florida Sea Grant College, February 1986.

Bell, Frederick and Leeworthy, Vernon, "Recreational  Demand by Tourists for Saltwater Beach
       Days," Journal of Environmental Economics and Management. Volume 18, pp. 190-205,1990.

Blomquist, Glenn and Worley, Lawrence, "Hedonic Prices, Demands for Urban Housing Amenities,
       and Benefit Estimates, Journal of Urban Economics. Volume 9, pp. 212-221, 1981.

Brown, Gardner and Pollakowski, Henry, "Economic Valuation of Shoreline," Review of Economics
       and Statistics, pp. 272-278, 1976.

Committee on Merchant Marine and Fisheries, U.S.  Congress, "Coastal Waters in Jeopardy:
       Reversing the Decline and Protecting America's Coastal Resources," Oversight Report of the
       Committee on Merchant Marine and Fisheries. December 1988.

Cone, Maria,  "Lure of Fishing is Fading," Los Angeles  Times. November 19, 1990: 1A.

Ina, Lauren, "For Charter Fishermen, Report Poisons Business; Wildlife Group Cited Lake Michigan
       Risks,"  The Washington Post. August 22, 1989: 7 A.

Leeworthy, et ah, A Socioeconomic Profile of Recreationists at Public Outdoor Recreation Sites in
       Coastal Areas. Volumes 1-5,  U.S.  Department  of  Commerce, National Oceanic and
       Atmospheric Administration, 1989, 1990.

National Marine Manufacturers Association, American Goes Boating. 1990.

National Marine  Manufacturers Association, Boating 1990: Statistical  Report on America's Top
       Family Sport. 1990.

National Marine Manufacturers Association, The Importance of the Recreational Marine Industry.
       1990.

National Marine Manufacturers Association, Marinas: Success Stories.  1991.

O'Harrow, Robert, Jr.  "The Joy of Trout Fishing Resumes in  Once-Polluted Arlington Stream,"
       Washington Post. April 1, 1991: IB.

U.S. Department of Agriculture, Economic Research Service,  Natural Resource Damage Division,
       "The Influence of Water Quality on  the Value of Recreational Properties Adjacent to St.
       Alban's Bay Vermont," January 1984.

U.S. Department of Commerce, Bureau of Census, 1987 Census of Manufacturers: Ship and Boat
       Building. Railroad and Miscellaneous Transportation Equipment. April 1990.
                                          6-19

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                                    BIBLIOGRAPHY
                                      (continued)
U.S. Department of Interior, 1985 National Survey of Fishing. Hunting, and Wildlife Associated
       Recreation. November 1988.

U.S. Environmental Protection Agency, Office of Water,  Water Quality Inventory: 1990 Report to
       Congress.  Draft, March 1992.

U.S. Environmental Protection Agency, Office of Research and Development, Benefit of Water
       Pollution Control on Property Values. 1973.

U.S. Environmental Protection Agency, EPA Journal. Volume 16, Number 6, November/December
       1990.

University of Wisconsin Sea Grant Institute, The Fisheries of the Great Lakes.  February 1988.
                                         6-20

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