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.
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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.
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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
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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.
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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
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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.
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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.
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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
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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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