AN /JSALYSIS OF FEES FOR
SERVICES IK THE PESTICIDE PROGRAM
  OFFICE OF PESTICIDE PROGRAMS
 ENVIRONMENTAL PROTECTION AGENCY
        WASHINGTON, D.C.
            MAY 1982

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                                     CONTENTS
  I.  INTRODUCTION	1
      A.  Purpose of Analysis 	1
      B.  Background	•	1
      C.  Summary of Findings 	3

 II.  PRINCIPLES UNDERLYING THE
      ASSESSMENT OF FEES FOR SERVICES 	4

III.  COSTS OF OPP SERVICES POTENTIALLY
      RECOVERABLE THROUGH FEES 	5
      A.  Registration 	5
          1.  Program Activity Level 	•	5
         .2.  Total Costs	7
          3.  Average Unit Costs  	10
      B.  Applicator Certification and Training	13
          1.  Program Activity Level 	13
          2.  Total Costs	13
          3.  Unit Costs 	18

 IV.  FEE SCHEDULE CONSTRUCTION OPTIONS	21
      A. * Optional Approaches	•	21
          1. Fixed-Fee Schedules  	21
          2. Resources-Expended Schedule	21
          3. Fixed-Fee Plus Variable Charge  	21
      B.  Preferred Option	22
                                  «•
  V.  PROGRAM IMPACTS	23
      A.  Fee Collection Administration	23
          1.  Fixed-Fee Approach  • •	•	•	23
          2.  Resource-Expended Approach  	•	23
          3.  Fixed-Fee Plus Variable Charge 	..".	24
      B.  Program Efficiency 	•	24
    .,  C.  Disposition of Receipts 	26

 VI.  ECONOMIC  IMPACT ANALYSIS 	28
      A.  Direct Impacts 	•	•	•	»28
          1.  Basic Producer Level	28
          2.  Formula tors 	••	29
      B.  Indirect Impacts 	30
          1.  Pesticide User	30
          2•  Consumer Prices •••	••••	•	30

      REFERENCES	31

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                           I.   INTRODUCTION

                          Purpose of  Analysis

     On September 30, 1978,  the Federal  Pesticide Act  of 1978
(PL 95-396) became lav.  This law amended  the Federal  Insecticide,
Fungicide, and Rodenticide Act  (FIFRA) in  several respects and called
for several studies in connection with regulation of pesticides*   One
study required the Administrator of  the  Environmental  Protection  Agency
(hereafter EPA or Agency) to perform  a study  on:

     "the feasibility of assessing and collecting fees from persons
     applying to register, or amend  the  registration of, pesticides
     to cover the costs incurred by  the  Environmental  Protection
     Agency in processing such  applications under the  provisions  of
     the Federal Insecticide, Fungicide, and  Rodenticide Act."

     Additionally, the Agency also incurs  costs  for certification and
training programs for pesticide applicators through cooperative
agreements with states and Indian tribes as veil  as Federal programs.

     This analysis is Intended  to update prior analyses, prepared by
the Office of Pesticide Programs (OPP) on  the issue of charging fees
for services in connection with the  regulation of pesticides by the
Agency.  This analysis reviews  options available  in constructing  and
administering fee schedules  for services.   The approximate level  of
fees for various services is presented.  The  economic  impact of such
fees on affected parties, consumers,  and the  economy in general is also
discussed.

                              Background

     The fee feasibility study  mandated  by PL 95-396 was prepared and a
report delivered to Congress.   The essential  findings  were that the
establishment of a fee schedule for  registration  actions would be
technically and administratively feasible; however, OPP recommended
that given the large number  of  complex activities taking place in
implementing the new amendments in PL 95-396, it  was not prudent  to
Institute a fee system at that  time.  Once the bulk of the 1978
amendments was integrated into  OPP operations, OPP was instructed by
Office of Management and Budget (OMB) to again review  the issue of  fees
for registration.  Subsequently, 0KB  has posed the issue of whether
fees should be established to recover the  costs  incurred by the Agency
for pesticide applicator certification and training?   The remainder of
this paper presents an analysis of fees  for both  registration and
applicator certification and training.

     Under Section 3 of the  Federal  Insecticide,  Fungicide and
Rodenticide Act (FIFRA), with certain exceptions, "no  person in any
State may distribute, sell,  offer for aale, hold  for sale, ahlp,
deliver for shipment, or receive and  (having  so  received) deliver or
offer to deliver, to any person any  pesticide which is not registered
with the Administrator."  In order to obtain  registration for their
products, applicants are required to  submit certain information and
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data in support of the registration  application•   The Administrator
must make a determination, among other  things,  that  the  use of the
pesticide will not cause unreasonable adverse effects on the
environment*

     The acceptance, processing, and review of data  submitted by
applicants requires the EPA  to  provide  administrative and scientific
resources to accomplish these tasks  so  that sound regulatory decisions
can be reached.  Presently,  the resources  are funded by  public funds at
the Federal level.

     Section 23 of F3TRA authorizes  the appropriation annually of such
funds as may be necessary for the  Administrator of EPA to provide
through cooperative agreement an amount up to SO  percent of the
anticipated costs for States and Indian tribes  to conduct training and
certification programs for persons desiring to  purchase  and apply
restricted use pesticide products.   Restricted  uae products are those
classified as such upon determination by the Administrator that one or
•ore uses of the products, when used in accordance with  widespread and
commonly recognized practice, may  generally cause unreasonable adverse
effects on the environment unless  additional regulatory  restrictions
are applied.  In effect, restricted  products require an  exceptional
level of care in their handling and  use.  Training and certification of
that training are the mechanisms under  FIFRA which allow for the use of
pesticide products with inherently high potential risk of adverse
effects to man and the environment.

     The Agency presently administers a fee schedule for submissions of
tolerance petitions (petitions  to  establish legal maximum pesticide
residue levels) under authority of Section 408(0) of the Federal Food,
Drug, and Cosmetic Act (FFDCA).  The fees  charged vary according to the
type of petition submitted,  e.g.,  a  substantive amendment requires a
deposit of $4,000, while the fee for an initial tolerance petition'for
chemical is set at $10,000.  The fee schedule is  established by
regulation contained In ^Section 180.33  In  the Code of Federal
Regulations.  The schedule was  last  revised in 1972.

     Fees for tolerances are collected  by  the Registration Division of
OPP and transferred to the Financial Management Division of EPA.  Funds
are placed into a revolving  fund which  is  charged against as the fees
are "earned", i.e., the petition reviews are completed.   The EPA
Inspector General's audit of the revolving fund found that fees earned
were less than one-half of incurred  salary costs  alone in FY80.  The
audit report recommended that OPP  coordinate with Financial Management
Division of the EPA to develop  necessary accounting  procedures and
controls to ensure accuracy  of  records  and reports.   Also, OPP should
adjust the fee structure to  make the revolving  fund  self sufficient.
OPP is In the process of developing  procedures  to correct the problems
identified in the audit.
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                           Summary of Findings

1.  Fees would most  feasibly  be  charged on new chemical registrations,
    old chemical  registrations,  new bloratlonals, amended registrations
    and experimental use  permit  processing.  Registration actions
    Including emergency exemptions, special local needs and
    supplemental  reglsTraflbns would be less desirable areas for fees
    and they could be  excluded.   Exclusions can be considered when
    cervices are  performed  for state or local governments such as
    emergency exemptions  and  special local needs registrations, or
    where the cost of  collecting fees would be a significant portion of
    the fees collected as would  be the case for supplemental
    registrations.

2*  Fees could be collected to cover both direct and Indirect costs of
    registration.  Costs  that accrue for registration Include costs of
    two decision  units, Registration, and Special Registration.  Also
    costs of Agency management and supervision, and proportionate
    shares of research and  enforcement budgets can be added where
    appropriate.

3*  Fee schedule  development  should take a fixed fee approach.
    Individual fees  should  be established for like registration
    activities.   Fees  should  be  adjusted annually to reflect actual
    costs.
       •
4.  The costs of  registration and hence potential revenues from
    charging fees total from  $10 million to $18 million depending on
    treatment of  overhead costs.

5.  Charging fees for  registration would add up to 5Z to the
    expenditures  of  basic pesticide producers for product development.
    The total fees collected  under various options would amount to
    0.2Z to 0.3Z  of  basic pesticide producer annual sales.

6*  Major volume  active ingredients and formulated products would be
    little affected  by-fees.  The more minor volume pesticides and
    products could be  burdened by fees.  This would be a disincentive
    to add or modify registration for products.

7.  Administration of  a fee system would require about 2-10 additional
  * FTE's in OPP.

8.  Vaivers on a  case-by-case basis or as general policy could be
    utilized to encourage products useful to IPM programs, to prevent
    additional economic burdens  in obtaining minor use registrations,
    to lessen regulatory  burdens on small business, and to encourage
    development of environmentally more acceptable pesticides.

9.  Fees can be considered  to recover the costs Incurred In pesticide
    applicator certification  and training programs.  Charges to
    participants  would need to range $2-$5 per year on average.  As an
    option, fees  could be charged to pesticide product registrants (up
    to $25,000) as either a separable Item or as an overhead cost in
    connection with  fees  for  registration.


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10.  The charging of user  fees  to  recover  costs  of registration and
     applicator certification and  training programs have  the  effect  of
     shifting the costs  of these programs  from the taxpayer to industry
     and/or user groups  which benefit most directly from  them.

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    IX.  PRINCIPLES UNDERLYING THE  ASSESSMENT  OF  FEES FOR SERVICES

     The basic guidance to Federal  agencies  on assessing  fees  for
services Is contained in a provision  of  the  Independent Offices
Appropriations Act of 1952 (U.S.C.  §483a).   The provision states  in
part:

     It is the sense of the  Congress  that  any  work,  service,  ...,
     benefit, privilege, use, license, permit, certificate,
     registration,  ... furnished, provided,  ...,  or  issued by any
     Federal agency  ... to any person ...  shall be selfsustaining  to
     the full extent possible, and  the head  of each  Federal  agency is
     authorized by regulation  ... to  prescribe therefore  such  fee,
     charge or price,... to  be fair and  equitable taking  into
     consideration direct and indirect cost  to the Government, value  to
     the recipient, public policy or  interest  served, and other
     pertinent facts...

     Additional guidance is  also available in  OMB Circular No. A-25
which provides information on policy  relating  to  "User Charges" for
certain Government services  and property.  The general policy  stated  in
OMB Circular A-25 is that "A reasonable  charge... should  be made  to
each identifiable recipient  for a measurable unit or amount  of
Government service or property from which  he derives a special
benefit."  The application of this  policy  is not  clear-cut for
pesticides registration given several clarifying  provisions.   The OMB
guidance is primarily intended to serve  in the case  where clear
statutory directives from Congress  are not available. Congress retains
the option to provide clear  direction if it  should decide that a  "user
pays" philosophy is desirable to further and Improve upon the
regulation of pesticides under FIFSA.
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   III.  COSTS OF OPP  SERVICES  POTENTIALLY RECOVERABLE THROUGH FEES

                              Registration

Program Activity Level

     Pesticide regulatory  programs  in the United States are,  in general
under the aegis of Federal Insecticide,  Fungicide,  and Rodenticide Act
(FIFRA) which became lav June 25, 19A7,  and was amended on the
subsequent occasions:  October  21,  1972,  November 28,  1975, and
September 30, 1978 and December 17,  1980.  Authority to regulate
pesticides under FIFRA is  primarily the  duty of the Environmental
Protection Agency.  In some areas,  States have the primary authority;
while in other instances both EPA and the States share authority.  The
division of authority  also occurs in the registration of pesticides.

     Registration activities  which  affect pesticides to be used
regionally or nationally must receive review and approval of
registration by the Administrator of EPA, or his delegee, which in most
instances is a member  of the  Office of Pesticide Programs (OPP).
Pesticide products which are  only to be  used within a State's
boundaries can be registered  by that State for local needs within
certain restrictions imposed  by EPA regulations.  The Federal EPA has
responsibility to ensure that State registrations meet the purposes of
FIFRA.  This Federal/State dualism  is an Integral part of the current
pesticide registration program. This analysis focuses on the Federal
program, largely administered by OPP.

     Applicants desiring a registration  for a product or changes to a
registration for a product are  required  to submit an application and
any supportive data which  may be required by the Agency to evluate the
risk of the product or from proposed changes in the use of the product.
EPA processes and reviews  the application, including scientific review
of the supporting data where  needed.  The Agency then approves or '-
denies the application.  When a decision can be made that a pesticide
product when used with commonly accepted practices will not cause
unreasonable adverse effects on the environment, then the product is
registered and allowed to  be  sold in commerce.

     Registration activities for which fees might be charged  fall into
eight categories.  These eight  categories vary as to the parties to
which services are rendered by  OPP  and also vary in the average
resources required to  provide the necessary review and processing.
Registration activities  are defined to include New Chemicals, New
Biorationals, Old Chemicals,  Amendments,  Supplemental Amendments,
State/Local Needs (Section 24(c) of FIFRA), Emergency Exemptions
(Section 18 of FIFRA), and Experimental  Use Permits.  As services for
which fees might be  considered, it  is useful to further aote  that New
Chemicals, New Biorationals,  some Amended Registrations, some
Experimental Use Permits,  and some  Emergency Exemptions are supported
by data requiring scientific review and  thus require additional
resources  to process.
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     Table 1 summarizes the  level  of registration activities projected
for Fiscal Year 1982.  All registration  activities are not appropriate
candidates for charging fees.   Both Section 483a of the Independent
Offices Appropriations Act of  1952 and the OMB  Circular A-25 make it
clear that conditions nay exist where it would  be prudent and
acceptable to valve fees for cervices.   In particular services for
foreign, state, or local governments and non-profit organizations may
be waived as a matter of policy.   Additionally,  If the cost of
providing a service is mall and the resources  required to collect fees
•re a significant proportion of those small costs, then waivers can be
granted.  The registration activity Supplement  Amendment would be an
example of the latter type of  waiver candidate  while State/Local Needs
and Emergency exemptions are activities  for States and hence would be
waived.

Total Costs

     OMB Circular A-25 instructs that costs should be determined based
on the direct and indirect costs of providing services.  In addition to
costs such as salaries, fringe benefits, rent,  maintenance, etc., such
Items as a proprotlonate share of  Agency's management and supervisory
costs and costs of enforcement, research, establishing standards, and
regulations to the extent they are determined to be chargeable to the
activity may be Included in  the cost calculations.

     Registration activities are covered within the budget under two
decision units within OFF.   These  decision units are Registration and
Special Registration.  As shown In Table 2, in  Fiscal Year 1982 these
two units represent $7,782 thousand and  $1,993  thousand respectively or
a total of $9,775 thousand out of  the OFF Abatement and Control budget
of $32,623 thousand.  These  two decision units  are assigned a combined
count of 306 full time equivalent  (FTE)  personnel.

     Another decision unit,  Registration Standards, is charged with
developing the standards by  which  pesticides are to be registered in
the future.  The standards development includes data evaluation that is
historically part of the' registration processes.  Thus, the costs may
be considered as an option as  part of the costs of registration.  The
decision unit involved is budgeted for FY 82 with $8,021 thousand and
has assigned 108 FTE in personnel.  OFF  has committed itself to
eventually reregister all products on a  generic basis using the
registration standard approach. The process to develop standards for
all currently registered products  is expected to require 15 years or
more.  The costs of registration standards cannot be directly linked to
individual applications for  registration or amendments to registration.
As such the costs are not appropriate as recoverable through fees.
Costs would be recovered when  amendments to registrations are applied for
under the standards developed=

     To complete the estimation of total costs  of registration, the
Indirect cost of related enforcement activities, research, and
management and supervision costs can be  considered as optionably
recoverable through fees.  Budget  data for FY 82 provide the totals for
enforcement and research identifiable for OFF.   These amounts can be
apportioned on a percentage  basis  corresponding to the share that
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 Table 1.  Type and Number of Completions for Registration Activities
 Projected to be Processed Annually Using Fiscal Year 1982 as a Basis
      Registration                                    Number of
       Activities                                    Completions
Fee Chargeable Activities

New chemical                                             30

New biorationals                                          6

Amended registration
-Science review required                                250
-No science review required                           4,750

Old chemical                                          2,520

Experimental use permit
-Science review required                                115
-No science review required                             350

Waiver Candidates

Supplement Amendments                                15,000
State/Local Needs                 •   ,                1,040
Emergency Exemptions                                    370
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                           Table 2.   77 1982 Abatement and Control Budget Susnery
                                     Jbr Begistration-Belated Decision Ihlts
      Ihit
                                     Full Time Equivalents
                                           Costa In $ Thousands
CPP Ibtal
Ioc> Overhead
                                                   (Z CPP Ibtal)
                  
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registration activities are  of  the  OFF budget.   7Y 82 budget
information indicates that enforcement and  research are 47.6Z and 17.12
respectively of the OFF Abatement and  Control Budget.  The Agency
management and supervision costs distinct from  OFF would total about
102 of the Abatement and Control costs of OFF based on available budget
information.

     Table 3 summarizes the  total costs that provide the basis for
several options on identifying  those costs  that could logically be
recouped by charging fees.   The options show several nays to combine
the direct and overhead costs attributable  to registration activities.

Average Unit Costs

     One approach to establish  fees for individual registration actions
is to calculate an hourly rate  per  person hour  available to perform
registration related activities and then multiply by an average number
of person-hours needed to accomplish that registration action.  With
the two decision units, Registration and Special Registrations, there
are 306 FTE's available for  work on registration applications.

     The registration actions identified for charging fees in Table 1
do not, when totaled, account for all  of the 306 FTE's available in the
Registration and Special Registration  decision  units.  Two categories
account for the difference.  First, those actions discussed in Section
III as not suitable for fees, i.e., waiver  candidates, account for part
of the difference.  The cost incurred  in processing waived types of
registration actions cannot  expectedly be recovered through fees on
other actions since only the costs  of. providing services to recipients
are recoverable.  The second category  is due to activities not
specifically related to individual  registration actions.  The issue
raised here is whether time  spent in this category should be recovered
through fees on chargeable registration actions.  Since this study's
primary purpose is to establish the framework and bounds of a fee
system where identifiable recipients of services are charged fees to
recover both direct and"indirect costs, the second category is
logically included since these  additional activities (e.g. Farm Worker
Safety) support decisionmaking  on all  types of  registrations.  The
effect of indirect registration related activities has been calculated
to add about 16Z to the average calculated  using FTE's expended as a
basis.  In effect, all time  spent and  costs incurred for indirect
registration activities are  assumed to be proportionally spread across
the fee chargeable activities.

     Previously in Table 3,  eight options were  presented as some of the
combinations of costs that could be recouped through fees.  In Table 4,
four options (1, 2, 4 and 8) are selected for conversion to costs per
hour.  Option 1 covers the OFF  budget  for Registration and Special
Registration;  Option 2 combined Option 1 with  10Z add-on for Agency
supervision and management;  Option  4 is Option  1 plus a proportionate
share of the Agency research budget and the 10Z add-on for Agency
management and supervision;  and Option 8 is Option 1 plus proportionate


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           Table 3.  Development  of  Registration Costs  That Would
                     Serve as the Basis  for Establishing Fees
Cost Source
Registration Decision Unit
Special Registration Decision Unit
•
Add 10Z Management and Supervision
(1) plus proportionate
•hare of Research Add-on (17.1Z)
(3) plus 10Z Management and
Supervision Add-on
(1) plus proportionate share of
Enforcement Add-on (47. 6Z)
(5) plus 10Z Management and
Supervision Add-on
(1) plus Combined Research
and Enforcement Add-ons
(7) plus 10Z Management and
Supervision Add-on
Option
Number

(1)
(2)
(3)
(4)
(5)
(6)
- (7)
(8)
Thousand
Dollars
7.782
1,993
Subtotal 9,775
10,753
11,447
12,592
14,428
15,871
16,100
17,710
Note:  Bracketed numbers "indicate options on  combinations  of  costs  as
explained In text*
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   Table 4.   Costs Per FIE by Options on Inclusion of Budget Items, 1982
Option (1) I/
Option (2)
Option (4)
Option (8)

$ 9,775^000
306 FTE
$10,753,000
306 FIE
$11,59^000
306 FTE
$17,710^00
306 FTE
z 1.16
z 1.16
z 1.16
z 1.16

• $37, 056 /FTE
- $40,763/FTE
• $47,745/FTE
- $67,136/FTE
i/  Options from Table 3.
                                      -  12 -

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•shares of both research and  enforcement  budgets and the 10Z add-on for
Agency supervision and management.   These  options  represented the low,
middle and high range of  total  costs*  They furthermore represent the
range of treatments of costs other  than  direct  program costs.  The
average calculated cost of resources per FTE applied to processing a
registration application  thus ranges from  about $37,056/FTE to about
§67,136/FTE depending on  the option.

     The OPP FY 82 Integrated Work  Plan  provides data to make estimates
of the resources necessary to,  on average,  process the various types of
registration actions.  Resources are estimated  using Full Time
Equivalent personnel as base units.  Table 5 makes use of these
estimates in calculating  the costs  for the four options above using the
equivalent dollars per FTE in Table 4.   Fees can then be assigned based
on these average costs.   The significance  and impacts of these costs
•re explained in the Impact  analysis later in this report.

                 Applicator  Certification  and Training

Program Activity Level

     .Section 3(d)(l)(c) of FURA requires  that  for any pesticide or use
of a pesticide vhlch as been classified  by the  Administrator as
restricted, application nay  only be made by or  under the direct
supervision of a certified applicator.   As stated  in the Introduction,
Section 23 of FIFRA authorizes  cooperative agreements between EPA and
States and Indian tribes  for purposes of conducting training and
certification programs.   All states, including  the District of Columbia
and territories except for Nebraska  and  Colorado,  have established
certification and training programs in cooperation with EPA.  In
Nebraska and Colorado, Federal  training  and certlfiation programs have
been established in lieu  of  State programs.  Currently there are over
1.1 million private certified applicators  and over 100 thousand
commercial (for hire) certified applicators in  the United States. ~
Tables 6 and 7 provide more details  on the number  of certified
applicators.

     Although there are data on the current number of certified private
and commercial pesticide  applicators, firm estimates are not available
on the number of applicators expected to be certified annually in the
future.  Most State certification programs require the recertification
of applicators every 3 to 5 years.   There  would also be an additional
number of new applicants  for certification.  In all there might be as
many as 400,000 persons applying for certification or recertification
annually.

Total Costs

     The EPA incurs costs in connection  with certification and training
programs to cover the costs of  the  Federal  programs in Nebraska and
Colorado and through funds shared with States to cover the State
programs.  Table 8 provides  actual  and proposed budget levels for
certification and training for  Fiscal Tears 1981 through 1983.  The
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                Table 5.  Average Unit  Costs/Fee Possibilities for
                          Registration  Action by Option,  FY 82 Basis
Registration
  Action
Assumed FTE's
  Per Action
Average Range!.'
   of Costs
New chemical
New biorational •
Amended registration
- Science review required
- No science review required
1.6
.8
.154
.013
-i _^ » —
$59,290 - $107,357
$29,645 - $ 53,678
N
$ 5,707 - $ 10,333
$ 482 - $ 872
Old chemical

Experimental use permit

- Science review required
- No science review required
     .025
     .054
     .013
$   926 - $  1,677
$ 2,001 - $  3,623
$   482 - $    872
I/  Ranges are based on low  and  high  cost  per FTE from Table 4.
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Table 6.  Number of Certified Private Applicators, by EPA Region, 1981
REGION
I
II
III
IV
V
VI
VII
VIII
IX
z

APPROXIMATE TOTALS REMARKS
5,736 No data from Massachusetts & Vermont
32,964 Includes Puerto Rico & Virgin Islands
76,224
320,723
141,496 No data from Minnesota
191,775
156,940
83,135
54,662
33,110
1,096,765
Source:  Collection of State Data on Certified Applicators and Structural
         Retired Teachers Association and American Association of Retired
         Persons.  July 1981.
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            Table 7.  Number of Certified Commercial Applicators,
                      by EPA Region, 1981
REGION
I
XI
III
IV
V
VI
VII
VIII
IX
X
APPROXIMATE TOTALS 	 " 	 REMARKS
2,121 No data from: Conn., Mass., Vermont
14,336 No data from New Jersey; Includes
Puerto Rico and the Virgin Islands
6,861 No data from Va.; includes D.C.
17,818 No data from Alabama
21,799
13,984
12,334
9,651
11,203
4,165
114,272
Source: .Collection of State Data on Certified Applicators and Structural
         Retired Teachers Association and American Association of Retired
         Persons.  July 1981.
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        Table 8.   Certification and Training Funds Breakout 7Y 81  thru FY 83

State Certification
Federal Certification
(Colorado and Nebraska)
Indian Certification
Training
Total
FY 81
(Actual) .

1,383.8
224.3
36.9
1,355.0
3,000.0
FY 82
(Proposed)

1,137.5
200.0
25.0
1,137.5
2,500.0
FY 83
(Proposed)

887.5
200.0
25.0
887.5
2,000.0
Sources:  Various budget materials.
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states' share of costs  is  not  precisely known.   However estimates  are
available which indicate that  for  training,  States  incur about 60Z of
the costs and EPA 40Z,  and for certification the ratio is 57Z for
States and 43Z for EPA.  Table  9  summarizes the best  available
estimates for the total costs  incurred  by both  States  and EPA for
applicator certification and Training in FY  82.

Unit Costs

     Within the broad options  of either charging (I) participants  in
certification and training programs  or  (II)  registrants of pesticide
products, there are  several •uboptions.  This analysis shall consider
the major variations on the basic  option as  follows:

Suboptions on Option I  (charging participants)  Include:

     la.  Charge fees only to  participants in States with Federal
certification and training programs  to  recover  costs incurred in those
States.

     Ib.  Authorize  states to  collect fees to recover  both the Federal
and State share of expenses incurred.
        *
     Ic.  Charge fees to participants in all States to recover Federal
•hare of costs.

Suboptions on Option II (charging  registrants)  include:

     Ila.  Charge only  registrants with restricted  use product
registrations.

     lib.  Charge all registrants  regardless of type (restricted or
general use) registrations held.

     lie.  Include enforcement budget as an  overhead item in
constructing fee schedule  for  registration action (This option is  a
variation of lib).

     Table 10 summarizes these Suboptions in terms  of  groups impacted,
approximate fees or  costs  involved,  and total annual revenue possible.
Charges to participants would  only be $4 to  $5  while administrative
oosts to collect these  fees would  be significantly  higher relative to
the fees Intended  for collection.
                                   -  18 -

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Table 9.  Estimated Total Costs of  Certification and Training Programs, FY82
                                 EPA             States  I/        Total
                                 -'------- .....  - ' - $  in  thousands— —— —

Certification                 1,162.5           1,541.00       2,703.5

Training                      1,137.5           1,706.3         2,843.8

Federal Certification 27         200.0              -             200.0

          ' Total              2.500.0           3,247.3         5,747,3
i/  All States, Territories,  and District  of  Columbia  except  Colorado and
    Nebraska •

%J  Federal programs  in  Colorado end  Nebraska
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      10.  Inscription of Suboptions by Groups Affected and Fees or Costs Becoverable
Option
                                        OOT
                              groups affected
                            Approximate fee or
                             cost recoverable I/
    Revenues
      ted 2/
la.  Charge participants
     in federal programs
     only

Ib.  Charge all partici-
     pants to cover state
Ic.  Charge all partici-
     pants tx> cover all
     federal costs

Ila. Charge registrants
     with restricted use
     products
                               47,000 applicators In
                              Colorado and Nebraska
                               1.2 trillion private and
                                   rlcal applicators
                            $4-5 per participant
                            $4—5
                              100-200 registrants
lib. Charge all registrants   3,500 registrants

             costs as         3,500 registrants
     registration fee
1.2 million private and     $2-3 per partlclpai
                            $12,500-$25,000 per
                            registrant
                                                           $700 per registrant

                                                           Add 47Z to abatement and
                                                           control costs for OFF
                                                           (see Table 3)
$200,000
$5,700,000
                                                                                             $2,500,000
$2,500,000
                                                              $2,500,000
                                                                               •

                                                              $15,000,000 for all
                                                              enforcement activity
                                                              Including
                                                              .certification and
                                                              training
I/  f>i«-"iat-«d by dividing estimated
                                            cost by umber of ••*••< t-iac affected by option*
2J  Ihe potential revenues generated annually would depend on the scope of the fee progran and on the decisions as
    to what costs are appropriately recoverable.  A tlmftpd fee program applied to the federal programs In
    Colorado and Nebraska would generate relatively 11«rlf«ri revenues as compared ID charging fees In all states or
    recovering all costs of enforcanent activity.
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                IV.  FEE  SCHEDULE CONSTRUCTION OPTIONS

                          Optional Approaches

     A fee system can be  based  on typical  average costs or an actual
cost of resources used to process applications.  A combination approach
might also be used by establishing a fixed fee based on average costs
for administrative processing and a variable charge covering the
average cost of scientific  review.

Fixed-Fee Schedules

     A fee schedule based on  the  fixed  fee approach can be derived from
the unit cost estimates contained, in program budget documentation.  The
assumption is made that a fee achedule  should generate revenues
sufficient.to cover the costs Incurred.  The fee  schedule  needs to
reflect the full resource costs of both lead and  support offices,  as
veil as indirect costs associated with  the operation of the pesticide
registration activity.

Resources-Expended Schedule

     The approach used in establishing  a fee system based  on the
resources-expended to process and review applications would be to
maintain a log with each  application.  This log or set of  process
tickets would be attached to  the  application package and,  as each  stage
of processing or review was completed,  the time expended at that stage
would be recorded.  (In actuality, several processing steps or data
reviews may occur simultaneously, necessitating the maintenance of
duplicate logs or the collection  or process tickets from several
sources.)  After completion of  the processing, the hours expended  would
be totaled and the applicant would be charged for the hours expended at
an appropriate charge per hour.

     The key factor needed  in a resource-charge fee aystern is the
appropriate hourly rate.  The simplest method is  to convert the
personnel resources available into hours and divide those  hours into
the total costs to get the  hourly charge.   The approach used in setting
an hourly rate makes use  of a few simplifying assumptions.  First, all
hours expended have the same value.  Second,, funds used for contracts
in support of registration  can  be proportionately divided  among the
several registration actions  for  which  fees might be established.
Third, the cost of performing miscellaneous activities, such aa record
keeping, for which fees are not feasible,  can be  proportioned across
those activities for which  fees might be established.  Fourth, resource
hours available but not specifically applied to the registration
actions identified here can also  be proportioned  across these actions.

Fixed-Fee Plus Variable Charge

     There can be wide variations in the resources expended in
processing and reviewing  applications,  even of the aame type.  The
major source of variation occurs  in the  amount of scientific review of
data needed, if any.  Therefore,  one approach, which strikes a balance


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between complexity and  fairness,  would  be  to  have a fixed-fee to  cover
the administrative costs of registration and  a variable  charge  for
scientific review, where needed.

                           Preferred  Option

     For ease of administration,  user charges typically  follow  the
fixed-fee schedule approach.  This  approach nay  lead to  aome  Inequities
since the processing of individual  applications  can be expected to
require varying levels  of resources.  However, the potential  for
inequities can be greatly reduced by  judiciously subdividing  fee
schedules into subgroups of types of  applications likely to have
similar levels of resources needed  to process them.  The remaining
variation in costs of processing  applications of the same type  within a
fixed-fee schedule should not be  significant  given the value  of
obtaining the desired registration.  Also,  fees  could be realigned on
an annual basis to keep pace with the actual  average costs being
Incurred to process applications  In the program.
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                           V.   PROGRAM IMPACTS

                     Fee  Collection Administration

     The establishment  of a fee  schedule implies than an administrative
mechanism would have to be in  place in order to collect and record the
submission of the  proposed fees*  The fee collection and record keeping
activities are In  themselves resource consuming.  The complexity of the
fee administrative procedures  likely to evolve is dependent upon the
characteristics of the  fee schedule Itself:    fixed-fee, a charge for
resources used, and a combination of fixed-fee plus a variable charge.

Fixed-Fee Approach

     A fixed fee assigned to the various registration actions would
likely require the simplest administration procedures.  Applicants
would be required  to submit payment as outlined in a fee schedule with
application for registration.

     The administrative processing of fees collected would require
additional personnel.   Band processing steps are estimated to require
about 30 minutes per application.  It is assumed that the receipt of a
certified check in payment of  the fee would  require a visual review of
the check for accuracy  and completeness, and recording of the receipt
of the check.  Registrants would also be sent acknowledgment of receipt
of the application and  check.  The number of actions processed on an
annual basis equal 8,000.  At  30 minutes per action, the additional
processing associated with collecting fees using a fixed-fee approach
would equal to 4,000 personnel resource hours.   The additional
resources needed are equivalent  to about 2 additional personnel or
about $80,000/year in direct labor'costs. These additional costs would
be added to the recoverable costs developed  in Table 3 giving a total
recoverable cost range  of $9.8 to $17.8 millions.  Should fees be
charged on the 15,000 supplemental registrations received annually'then
the equivalent of  an additional  3-4 personnel would be required to
process the receipt of  those fees.

Resources-Expended Approach

     A fee schedule based on charging for resources actually expended
requires the maintenance  of a  detailed log containing a record of time
•pent in processing and reviewing the application and accompanying
data.  The simplest approach under this system would be to attach a log
aheet to the submission on which each person handling the package would
record the time spent by  that  person in processing  or otherwise
reviewing the application.

     After processing is  completed,  i.e., approval  or denial of the
application is decided, the resource time is totaled and the applicant
would be billed on that basis.

     If 8,000 applications require two additional hours to process,
then an additional 16,000 person-hours or about 8 person-years of
resources would need to be added.  Additionally, a  billing and
receiving capability would be  needed.   As in the fixed-fee approach it


                                  - 23 -

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is assumed that two personnel  would  be needed to handle these tasks.
Thus the administrative  cost of  a  resources-expended system would be
about 5 times the cost for  a fixed-fee system or the equivalent of
about $400,000/year in additional  direct  labor cost.  The total
recoverable costs would  be  based on  Table 3 would be in the range
$10.2-18.1 Billion.

Fixed-Fee Plus Variable  Charge

     Administration of a flat-fee  plus variable charge approach would
be only slightly more costly than  the  straight fixed-fee system.  About
470 actions in FY 79 would  require scientific review and hence would be
subject to a variable charge.  As  assumed under the resources-expended
approach, if two additional person-hours  were needed to process the
variable charges, then an additional 940  person-hours of resources
woulti be needed in addition to the cost of administering the fixed-fee
approach.  Thus about one-half of  a  person-year of resources would need
to be added to the 2 person-years  using the fixed-fee approach.

                          Program  Efficiency

     One desired outcoae from  charging fees to applicants for
registration actions is  to  improve the efficiency of Interaction
between the Agency and applicants.  Of particular interest is the
encouragement for applicants to  submit, complete information in an
structure'is to establish additional fees for resubmlssions required
resulting from Incomplete or otherwise Inadequate submissions from
applicants.  The level of fees to  cover the extra resources needed to
process incomplete applications  would  generally be linked to the fee
charged to process a complete  application, for example, the fee for a
resubmission of a new chemical application would be significantly
higher than the fee for  resubmission of an amended registration review.
Another result of charging  fees  for  resubmission is that the fees
charged for complete and correctly submitted applications could be
reduced in line with the average cost  of  resources needed to process
complete applications.   Submitters of complete applications would thus
not be subsidizing submitters  of Incomplete applications.
     if
     The general groundrules for establishing fees for resubmissions
are that applicants would be charged when submissions were necessitated
by errors on the part of applicants.  Additional fees above the base
charge for an application would  probably  not be appropriate when, for
example, an additional study was found to be needed upon review of a
properly conducted and reported  study that was part of a tiered
approach to evaluating the  potential hazards of products.  Similarly a
properly conducted and updated study In an application may upon review
lead to inconclusive outcomes.  Additional studies might be required
and submitted without Involving  additional fees.

     Table 11 depicts three situations where fees for resubmisslons
would be appropriate.  The  Incremental fees are intended to be
illustrative only.  As with other  costs/fees in this analysis actual fee
schedules could require  amendments to F1FRA.  In that event, current
cost estimates would need to be  analyzed  in detail before establishing
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        Table 11.  Incremental Fee  to  Accompany Resubnissions Subsequent
                        to  Incomplete  First  Applications


                                                  Increment to Basic
Cause of Resubmission                                 Fee Charged \J


Resubmission to include new                              + 102
material previously totally
lacking

Resubmission to include new                              + 25Z
material to replace inadequate
prior submission

Resubmission to correct                                   +  SZ
Inaccurate material


I/  These percentage add-ons  are  exemplary only.  Actual add-ons would vary
    depending'on  the actual fee  system proposed should Congress and the
    Administration approve  the passage of  enabling legislation.
                                        - 25 -

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 fee  schedules.  The differences In the add-ons for the three situations
 represent  the roughly estimated difference in resources needed by EPA to
 process  the resubnissions.  A resubmlsslon, Including a report on a
 field  or laboratory study to replace an Inadequate prior submission,
 implies  that Agency resources were used to process, revlev and evaluate
 the  Inadequate study.  Additional resources would also be expended on
 the  replacement study, thus leading to total duplication of review
 efforts.  On the other hand, a resubmlssion to complete an application
 with a previously missing study Implies that the review resources still
 need only  be expended one time by the Agency.  The additional costs are
 incurred because of the efficiencies in reviewing an incomplete package
 when the conclusions on any one part may be expected to depend to some
 degree on  the Information gained from all parts taken together.  Hence,
 the  Incremental fee charged for resubmisslons would be expected to vary
 depending  on additional effort required within the Agency to reach a
 registration decision.

                         Disposition of Receipts

     Should Congress and the President agree that pesticide registrants
 should be  charged fees (with appropriate waivers), the revenues
 collected might be as much as $18 Billion per year.  The disposition of
 those  potential revenues affects the relative costs and benefits to
 society  from charging fees  for registration.  Leaving aside the options
 on a fee system structure and options on fee waivers, there are also
 optional uses  for funds generated by charging fees.

     Without instruction from Congress to the contrary, OMB Circular
A-25 Instructs that monies  generated from user charges should go into
 the general fund of the Treasury as miscellaneous receipts.  This
option would provide no significant'benefit to any group given the
 relative minor contribution to Treasury receipts.  In the unlikely
 •vent  that  personal or corporate tax rates were cut in response to the
 anticipated revenues from fees for registering pesticides, the per
 capita reduction (up to $0.10) would obviously be insignificant.
 Pesticide registrants would be net losers under this option in
 comparison  to  current practice.

     A second  use of revenues would be to directly fund the costs of
 registration activity in OPP.  The fees charged for reviewing tolerance
 petitions are  presently intended to cover the costs of those
activities.  This option would coincide with a comparable  reduction  in
appropriations now intended for pesticide registration.  This approach
has one major  disadvantage  in that a revolving fund would  tend  to be
 underfunded at times when registration activity declines.   Registration
 processing  and reviewing capability must  be built based on anticipated
work loads.  Should these work loads be lighter than  anticipated,  then
revenues would fall short of costs.  Again pesticide  registrants  would
be set losers  M  compared to current practice.

     One method  to  reduce disruption In the program from variations in
workload would be to rely on contractor and temporary staff personnel.
 This method  would  allow some flexibility  in establishing in-house
                                  - 26 -

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resources requirements  to  Beet  the workload over time.  Difficulties
vlth this approach center  on  the  need  to maintain quality and
consistency of a  resource  base  (contractor or temporary personnel) that
•Ight nave significant  turnover.

A more interesting option  available to Congress, should a fee system be
Instituted, would be  to authorize use  of revenues generated by fees to
further the goals of  Baking environmentally aore acceptable pesticides
available for both major and  minor uses.   Goals  such as encouraging
IPM, development of biological  controls, and increasing the .
availability of pesticides for  minor uses  could  be advanced by using
revenues generated through fees for registration to support them.   The
potential for generating benefits In these areas is positive although
it is likely that additional  aonies would  be necessary to adequately
fund research and Innovation  in all of the areas mentioned.  For
example, $20 million  would be slightly less than the average
expenditure by the private sector for  bringing a new pestlcldal
chemical to market.

     With an even broader  focus,  funds generated through charging  fees
for registration could  be Bade  available to improve OFF'a ability  to
regulate pesticides beyond registration.   Monies could be used to
perform detailed use  and usage  surveys needed to support both benefits
and exposure analyses in connection with OFF regulatory activity.   OFF
currently Bust rely on  limited  data in these areas.  Site coverage,
geographic detail and scope of  data generated need to be improved  in
future surveys.  Of special concern is the very  limited data, available
on household and garden usage of  pesticides.
                                  - 27 -

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                      VI.   ECONOMIC IMPACT ANALYSIS

                             Direct Impacts

Basic Producer Level

     Pesticide product  production usually involves manufacturing an
active ingredient,  normally in its manufacturing-use form, and then
preparing  formulated products containing the active ingredient.  The
firms which  produce manufacturing-use products (i.e., basic producers
of  pesticides) are  a •mall number of the firms.  The firms which
produce manufacturing-use  products are generally referred to as basic
producers  of pesticides.   There are about 30 major producers (which are
generally  part of national or international petroleum or chemical
firms) and about  100 smaller producers which vary greatly in size down
to  very mall levels of pesticide production.  Basic producers,
especially the larger ones, also are generally involved in formulating
products.  However, for purposes of analysis, the Impacts on the firms
which produce active ingredients in the form of manufacturing-use
products are separated  from the Impacts on formulators due to lack of
data on the  degree  to which these two functions overlap among companies
in  the industry.

     The basic producers would be affected when applying for new
chemical Registration,  experimental use permits and, in some cases,
amendments to registration.  The impacts of charging fees for
registration vary from  chemical to chemical.  There are many factors
which determine  the charges which may be incurred by products
containing any particular  chemical.  In general, the chemicals most
affected are new chemicals and recently registered chemicals on which
the number of new use sites would likely expand at a rapid rate.

     Some  comparisons are  useful to place the likely impact in
'perspective. For example, the fee systems proposed are intended to
generate a total  of up to  $18 million annually from both basic
producers  and formulators.  Based on data from HACA which stated that
its members  spent $395  million on research and development for
pesticides in 1980, the additional $18 million paid in fees would add
about 5.0Z to the expected research and development costs.  Although
these additional  costs  would be shared by several firms, some marginal
lines of research might be curtailed where the increased costs swing
the projected cash  flows into an unfavorable balance.

     The cost estimated by this study for a review of an application
for a new  chemical  registration would be about $60,000 - $110,000 under
the fixed  fee approach. A fee of this level would add 0.3 to 0.6Z to
the cost of  the  initial registration of a new chemical, causing little
significant  impact  on chemicals currently being developed.  However,
the impact on the development of a smaller, specialty chemical
developed  by perhaps a small firm would be to discourage such
development  unless  waivers of fees could be obtained.
                                  - 28 -

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Fonnulators

     Pesticide formulators  comprise  the  other major component of
pesticide products manufacturing.  Firms that formulate  pesticide
products generally purchase the manufacturing-use products (containing
* high concentration of active ingredient),  and—then^-by—adding a
variety of diluents, solvents, surfactants,  etc., produce pesticide
products ready for sale to  final users.

     Formulating firms cover a vide  range of sizes.  One study
completed for EPA (U.S. EPA, 1976) estimated that 3,348  firms were
formulating pesticides.   Of that number, 500 were classified as large,
1,000 as medium-size,' and 1,848 as small-size.  Hot included in this
count were basic producers  which also  formulate pesticides.

     A review of 1,343 out  of about  35,000 registered  formulated
pesticide products In 1977  led to a  finding  that about one-third of all
products produced have sales-at-retail level of over $20,000 per year
(U.S. EPA, 1978).  The remaining two-thirds  of the products have less
than $20,000 In annual retail sales.   The significance of this finding
is that, for many formulated products, fees  incurred in  order to expand
or otherwise change a registration (i.e., an Amendment,  with potential
fees ranging from $500 to $10,500) could be  financially  burdensome.
For these products, there would be a great incentive to  maintain the
registrations as status quo and not  attempt  to add uses  or otherwise
change the products.

     Higher volume formulated products would not be impacted as
severely as the low sales volume products.  There would  still be a
tendency to avoid changes in a registration  unless the changes have
highly favorable prospects  for improving the sales and hence the
profits of the product.

     Companies", on their own, would  have even less incentive than
currently exists to add the minor use  crops  to the registrations for
their products when faced with fees  for  old  chemical registration costs
of about $1,000 to $1,700.   Minor use  problems would become further
dependent on government- sponsored research  and special  consideration
during registration from OPP. As has  been previously discussed, minor
use registrations would be  obvious areas where waivers would be
considered.  In fact the need to apply for a waiver would Impose some
burden which could be eliminated with  a  blanket waiver for minor use  If
workable criteria for qualification  could be established

     The impacts on formulators from any fee system could be reduced
once generic registration of pesticides  becomes a reality.  Under
generic registration, formulated products will in general no longer be
required to undergo a comprehensive  data review which in many cases is
a repetitious review of data submitted in support of other identical  or
substantially similar products.  Formulators would be  able to simply
cite the appropriate sections of the registration standard and make an
offer to pay fair compensation to the  originator(s) of the cited date.
This procedure, along with  submission  of data Indicating that the
composition of the formulated product  falls  within the standard will  be
                                 - 29 -

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sufficient to obtain  registration  for  many site/pest combinations  for
vhich pesticides are  DOW registered.   These "me-too" registrations
would Involve lower levels  of  resources  for processing and review,
hence could have lower fees assigned to  them.

                            Indirect Impacts

Pesticide Users

     Domestic sales of pesticides  from both domestic and foreign
production were estimated to reach $5.8  billion in 1980 (U.S.  EPA,
1980)»  Given this level of sales, the $20 million in revenue
potentially generated by a  fee  system  would represent only about 0.3%
of the sales at the user level. If part or even all of these  costs
were passed on to the final users  the  price change would be very
nominal on the average.  However,  there  would  probably be effects  on
the availability of some pesticide products, especially minor  use
chemicals.

     The severity of  product availability impacts would be directly
related to the aarket sice  of  the  individual pesticides.  In general,
major sales volume pesticides  used on  major use sites would not be
expected to be adversely impacted  by the charging of fees.  On the
negative side, for many pesticide  chemicals and hence many pesticide
use sites, the market size  would not support the additional
axpenditures for obtaining  or  modifying  registrations.  Especially
impacted would be many of the  so called  "minor use" chemicals  or minor
use sites.  This result would  be at variance with the intent of both
Congress and EPA to ease the registration for  minor use chemicals.

Consumer Prices

     Consumer prices  of goods  and  services in  the U.S. economy would *
not be perceptibly affected.   An impact  of $20 million is not
•ignificant to U.S. consumers  and  would  not add measurably to
inflation.
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                              REFERENCES

United States Environmental Protection Agency* 1976. Incremental Cost
  Impacts of the 1972 Federal Insecticide, Fungicide, and Rodenticlde
  Act, as Amended.  EPA-540/9-76-002.

United States Environmental Protection Agency. 1980. Pesticide Industry
  Sales and Usage. 1980. Market Estimates. September.

United States Environmental Protection Agency. 1976. Incremental Cost
  Impacts of the 1972 Federal Insecticide, Fungicide, and Rodenticide
  Act, as Amended. EPA-540/9-76-002.
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